-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Jx8LLRCh0DfZAwCOBi+oytua4qza3pGeEvdYIFJBNBR+75SxSsfA/3Esxf/hOXbA zlxs5V8ACfpU55QcFjWwMA== 0000706270-94-000007.txt : 19940404 0000706270-94-000007.hdr.sgml : 19940404 ACCESSION NUMBER: 0000706270-94-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA WEST AIRLINES INC CENTRAL INDEX KEY: 0000706270 STANDARD INDUSTRIAL CLASSIFICATION: 4512 IRS NUMBER: 860418245 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10140 FILM NUMBER: 94519584 BUSINESS ADDRESS: STREET 1: 100 WEST WASHINGTON STREET STREET 2: SUITE 2100 CITY: PHOENIX STATE: AZ ZIP: 85003 BUSINESS PHONE: 6026930800 MAIL ADDRESS: STREET 1: 400 EAST SKY HARBOR BOULEVARD CITY: PHOENIX STATE: AZ ZIP: 85034 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________ Commission File Number 1-10140 ------- AMERICA WEST AIRLINES, INC. ------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 86-0418245 ------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (602) 693-0800 --------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title or class registered -------------- ------------------------------ Common Stock, $.25 par value Pacific Stock Exchange ---------------------------- ------------------------------ Securities registered pursuant to Section 12(g) of the Act: 7-3/4% Convertible Subordinated Debentures due 2010 7-1/2% Convertible Subordinated Debentures due 2011 11-1/2% Convertible Subordinated Debentures due 2009 ------------------------------------------------------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At March 15, 1994, the aggregate market value of common stock held by non-affiliates of the Registrant was approximately $60.7 million, and the aggregate preference value of preferred stock held by non-affiliates of the Registrant was $1 million. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE LAST FIVE YEARS Indicate by check mark whether the Registrant has filed all documentation and reports required to be filed by Sections 12, 13, or 15(b) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] NOT APPLICABLE (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. 25,292,102 shares of Common Stock outstanding on March 15, 1994 - --------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Materials have been incorporated by reference into this Report from the following documents: information and documents from the Registrant's Form S-1 Registration Statements (Nos. 2-89212, 2-99206 and 33-3800); Form S-3 Registration Statement (No. 33-27416); Quarterly Reports on Form 10-Q (for the quarters ended September 30, 1986, March 31, 1990 and September 30, 1990); Form 8-A Registration Statement No. 0-12337; Annual Reports on Form 10-K for the years ended December 31, 1992, December 31, 1991, December 31, 1990, December 31, 1989 and December 31, 1987; Schedule 13E-4 No. 5-34444; and Form T-3 Application for Qualification No. 22-19024 have been incorporated by reference into Part II, Item 5 and Part IV, Item 14. 2 TABLE OF CONTENTS ----------------- Page ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 22 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 25 Item 4. Submission of Matters to a Vote of Security Holders . . 26 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . 27 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 30 Item 8. Financial Statements and Supplementary Data . . . . . . 45 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 46 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . 47 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 51 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 54 Item 13. Certain Relationships and Related Transactions . . . . . 57 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . 59 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3 PART I Item 1. Business. ------ -------- Overview. -------- America West Airlines, Inc. ("America West" or the "Company"), a Delaware corporation, began operations in 1983. The Company is a full- service passenger airline which serves 43 destinations in the continental United States and Mexico City, including its hubs in Phoenix, Arizona and Las Vegas, Nevada and a mini-hub in Columbus, Ohio. In 1992, the Company established a code sharing relationship with Mesa Airlines, Inc. for commuter service, operating under the name "America West Express", permitting the Company to serve an additional 23 destinations as of December 31, 1993. On June 27, 1991, America West filed a voluntary petition in the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") to reorganize under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Company is currently operating as a debtor- in-possession ("D.I.P.") under the supervision of the Bankruptcy Court. The Company is authorized to operate its business but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. Bankruptcy And Reorganization Events. ------------------------------------ Since June 27, 1991, the date America West filed the voluntary petition with the Bankruptcy Court to reorganize, the Company has obtained D.I.P. financing, reduced expenses and overhead and restructured its routes and aircraft fleet. On February 24, 1994, America West selected an investment proposal pursuant to which it intends to develop a plan of reorganization. Bankruptcy Events. As a result of the Chapter 11 filing, the ----------------- prosecution of all actions and claims against America West was automatically stayed pursuant to Section 362 of the Bankruptcy Code. America West promptly obtained from the Bankruptcy Court a series of Orders ("First Day Orders") authorizing America West to pay certain critical vendors and suppliers, and also authorizing the payment of employee wages and benefits, as necessary to ensure that America West's passenger flight operations were not disrupted and that the Company's ongoing enterprise value would be preserved. Approximately $55 million of what otherwise would have been pre-petition unsecured debt was authorized by the Bankruptcy Court to be paid pursuant to the First Day Orders. In addition, certain stipulations between the Company and providers of aircraft and aircraft-related equipment were negotiated and approved by the Bankruptcy Court pursuant to Section 1110 and Section 365 of the Bankruptcy Code. These stipulations resulted in America West receiving certain deferrals, concessions and other payment term modifications in return for the assumption and/or conversion of the debts arising from the agreements to post-petition administrative expense priority status under Section 503 and Section 507 of the Bankruptcy Code. For further information on the effect of the stipulations, and subsequent events relating thereto, see Bankruptcy And Reorganization Events -- Route Structure and Aircraft Fleet Reductions, below. 4 Subsequent to the case being filed, the United States Trustee for the District of Arizona appointed an Official Committee of Unsecured Creditors (the "Creditors' Committee") and an Official Committee of Equity Security Holders (the "Equity Committee") as provided by Section 1102 of the Bankruptcy Code. Each of these committees has certain rights and obligations provided for by the Bankruptcy Code and other applicable law, and have continued as active participants in the bankruptcy case since their appointment. Each of the committees has retained professional advisors to assist them in the bankruptcy proceedings, including attorneys and accountants, as well as financial and industry advisors. The expenses associated with the committees and their advisors, as allowed by the Bankruptcy Court, must be paid by the Company as administrative expenses pursuant to certain orders of the Bankruptcy Court providing for the payment of professional fees and expenses. The Company anticipates that each of the committees will continue to be actively involved in the bankruptcy proceedings on behalf of their respective constituents, particularly with respect to the development, negotiation and confirmation of a plan of reorganization for the Company. The Company anticipates that the reorganization process will result in the restructuring, cancellation and/or replacement of the interests of its existing common and preferred stockholders. Because of the "absolute priority rule" of Section 1129 of the Bankruptcy Code, which requires that the Company's creditors be paid in full (or otherwise consent) before equity holders can receive any value under a plan of reorganization, the Company previously disclosed that it anticipated that the reorganization process would result in the elimination of the Company's existing equity interests. However, due to recent events, including sustained improvement in the Company's operating results as a result of the general improvement in the condition of the United States' economy and airline industry, some form of distribution to the equity interests pursuant to Section 1129 may occur. However, there can be no assurances in this regard. On February 24, 1994, the Company selected an investment proposal as the basis for developing the Company's plan of reorganization, which proposal might result in a potential distribution to the Company's current equity holders as part of a plan of reorganization, however, there can be no assurances in this regard. See also Bankruptcy and Reorganization Events -- Plan of Reorganization, below. The Company has incurred and will continue to incur significant costs associated with the reorganization. The amount of these costs, which are being expensed as incurred, has affected and is expected to continue to affect the results of operations. Debtor-in-Possession Financing. In 1991, affiliates of Guinness Peat ------------------------------ Aviation ("GPA"), Northwest Airlines, Inc. ("Northwest") and Kawasaki Leasing International Inc. ("Kawasaki") provided $78 million of D.I.P. financing to the Company. In September 1992, America West received an additional $53 million in D.I.P. financing, bringing the total outstanding D.I.P. financing at December 31, 1992, to $110.8 million which consisted of $69.8 million from GPA, $23 million from Kawasaki, $10 million from Ansett Worldwide Aviation Services ("Ansett") and $8 million from several Arizona- based entities. The D.I.P. financing is collateralized by substantially all of the Company's assets. The financing provided by Northwest was repaid in full at the time of the September 1992 D.I.P. financing. America West also reconstituted its board of directors concurrent with 5 the September 1992 D.I.P. financing. In September 1993, the D.I.P. lenders extended the maturity date of the D.I.P. financing from September 30, 1993 to June 30, 1994. At the time of the September 1993 extension, the financing provided by Ansett was repaid in full. Interest on all funds advanced under the D.I.P. facility accrues at 3.5 percent over the 90-day London Interbank Offered Rate ("LIBOR") and is payable quarterly. Principal repayments in the amount of $5.54 million were made on March 1993 and June 1993. As a result of the September 1993 extension of the D.I.P. financing maturity date, the Company is required to repay $5 million of principal on March 31, 1994. The remaining outstanding balance will be due upon the earlier of June 30, 1994, or upon the effective date of a confirmed Chapter 11 plan of reorganization (the "Reorganization Date"). The amended terms of the D.I.P. financing require the Company to notify the D.I.P. lenders if the unrestricted cash balance of the Company exceeds $125 million. Upon receipt of such notice, the D.I.P. lenders may require the Company to prepay the D.I.P. financing by the amount of such excess. During the first quarter of 1994, the Company notified the D.I.P. lenders that the Company's unrestricted cash exceeded $125 million; however, to date, the D.I.P. lenders have not exercised their prepayment rights. As a condition to extending the maturity date of the D.I.P. financing in September 1993, the Company also agreed to pay a facility fee of $627,000 to the D.I.P. lenders on September 30, 1993 and to pay an additional facility fee equal to 1/4 percent of the then outstanding balance of the D.I.P. financing on March 31, 1994. As of December 31, 1993, the outstanding amount due under the D.I.P. financing was approximately $83.6 million. Presently, the Company does not possess sufficient liquidity to satisfy the D.I.P. financing nor does it appear that new equity capital will be obtained and a plan of reorganization confirmed prior to June 30, 1994. Consequently, the Company will be required to obtain alternative repayment terms from its current D.I.P. lenders. Although there can be no assurance that alternative repayment terms will be obtained, the Company believes that any required extension of the D.I.P. financing would be for a short period of time and would be concurrent with the implementation of a plan of reorganization. In connection with the D.I.P. financing provided by Kawasaki, the Company agreed to convert advanced cash credits for 24 Airbus A320 aircraft (the "Kawasaki Aircraft") previously advanced by Kawasaki into an unsecured priority term loan (the "Kawasaki Term Loan"). At December 31, 1993, the amount of the Kawasaki Term Loan was $68.4 million, including accrued interest of $21.9 million. Until the Reorganization Date, the Kawasaki Term Loan will accrue interest at 12 percent per annum and such interest will be added to principal. On the Reorganization Date, 85 percent of the Kawasaki Term Loan will be converted into an eight-year term loan which will accrue interest at 2 percent over 90-day LIBOR and will be secured by substantially all the assets of the Company if the D.I.P. financing is fully repaid. Principal on such loan will be due and payable in equal quarterly installments, plus interest, commencing after the Reorganization Date. The Company has the right to prepay the Kawasaki Term Loan if the D.I.P. financing is fully repaid. The remaining 15 percent of the Kawasaki Term Loan will be treated as a general unsecured claim without priority status under the Company's plan of reorganization. In the first quarter of 1994, the Company received information that the Kawasaki Term Loan was purchased by a third party. 6 Route Structure and Aircraft Fleet Reductions. Since its bankruptcy --------------------------------------------- filing, the Company has reviewed its route structure and flight schedules and the resulting requirements for aircraft. In September 1991, America West reduced the size of its fleet from 123 to 101 aircraft. The Company further reduced its fleet in September 1992 and, as of December 1993, the Company operated 85 aircraft. In connection with such fleet reductions, the Company renegotiated many of its aircraft lease and loan agreements. The Company returned aircraft to those providers whose aircraft were not consistent with the Company's revised business strategy and to those providers who were unwilling or unable to accept the revised terms proposed by the Company. Aircraft providers whose aircraft were returned to them in connection with the Company's fleet reduction and restructuring efforts may be entitled to unsecured pre-petition claims and/or administrative claims in the bankruptcy case for damages arising from the return of the aircraft. See Bankruptcy And Reorganization Events -- Claims, below. In general, the Company received rent deferrals in 1991 and further rent deferrals and rent reductions in 1992 from many of its aircraft providers. The rent reductions in 1992 reduced the rents on the affected aircraft to better reflect what the Company believed to be the fair market rent of the affected aircraft at the time of the reduction. In order to induce the lessors to accept rent reductions, the Company agreed that the rent on certain Boeing 737-300 and 757-200 aircraft would be readjusted to the current market rent effective August 1, 1994 and, if elected by the lessor, would be readjusted at two other times during the remaining term of the lease; however, such readjustments may not occur within two years of one another. The Company also agreed in certain cases that lessors could call the aircraft upon 180 days notice if the lessor had a better lease proposal from another party which the Company was unwilling to match. During the period August 1, 1994 through July 31, 1995, certain of these lessors may call their aircraft without first giving the Company the right to match any competing offer. Call rights with a right of first refusal affect 16 aircraft and call rights without a right of first refusal affect 10 aircraft. In addition, in order to induce several lessors to extend the lease terms of their aircraft, the Company agreed that the aircraft could be called by the lessors at the end of the original lease term. One lessor of 11 aircraft has the right to terminate each lease at the end of the original lease term of each aircraft. Such lessor also has the right to call its aircraft on 90 days notice at any time prior to the end of the amended lease term. America West has no right of first refusal with respect to such aircraft. To date, no lessor has exercised its call rights. Principal payments on certain loans secured by aircraft were deferred for the period August 1, 1992 through January 31, 1993 and will be repaid over the remaining terms of five to nine years. Interest payments due in July and August 1992, on such loans were deferred until the first quarter of 1993 and were repaid in three equal monthly installments without interest. A more comprehensive description of the rent deferrals and reductions as well as the loan deferrals is set forth herein in Item 7. ------ Management's Discussion and Analysis of Financial Condition and Results of Operations and in Item 8. Financial Statements and Supplementary Data - ------ Note 1 of Notes to Financial Statements. Claims. The reorganization process is expected to result in the ------ cancellation and/or restructuring of substantial debt obligations of the Company. Under the Bankruptcy Code, the Company's pre-petition liabilities are subject to settlement under a plan of reorganization. The Bankruptcy Code also requires that all administrative claims be paid on the effective date of a plan of reorganization unless the respective claimants agree to different treatment. There are differences between the amounts at which claims liabilities are recorded in the financial 7 statements and the amounts claimed by the Company's creditors and such differences are material. Significant litigation may be required to resolve any disputes. The Bankruptcy Court set February 28, 1992, as the last date for the filing of proofs of claim under the Bankruptcy Code and the Company's creditors have submitted claims for liabilities not paid and for damages incurred. Claims for administrative expenses (administrative claims) were not required to be filed by that date. Due to the uncertain nature of many of the potential claims, America West is unable to project the magnitude of such claims with any degree of certainty. However, the claims (pre-petition claims and administrative claims) that have been filed against the Company are in excess of $2 billion. Such aggregate amount, includes claims of all character, including, but not limited to, unsecured claims, secured claims, claims that have been scheduled but not filed, duplicative claims, tax claims, claims for leases that were assumed, and claims which the Company believes to be without merit; however, claims filed for which an amount was not stated, are not reflected in such amount. The Company is unable to estimate the potential amount of such unstated claims; however, the amount of such claims could be material. The Company is in the process of reviewing the general unsecured claims asserted against the Company. In many instances, such review process will include the commencement of Bankruptcy Court proceedings in order to determine the amount at which such claims should be allowed. The Company has accrued its estimate of claims that will be allowed or the minimum amount at which it believes the asserted general unsecured claims will be allowed if there is no better estimate within the range of possible outcomes. However, the ultimate amount of allowed claims will be different and such differences could be material. The Company is unable to estimate the amount of such difference with any reasonable degree of certainty at this time. The Bankruptcy Code requires that all administrative claims be paid on the effective date of a plan of reorganization unless the respective claimants agree to different treatment. Consequently, depending on the ultimate amount of administrative claims allowed by the Bankruptcy Court, the Company may be unable to obtain confirmation of a plan of reorganization. The Company is actively negotiating with claimants to achieve mutually acceptable dispositions of these claims. Since the commencement of the bankruptcy proceeding, claims alleging administrative expense priority totaling more than $153 million have been filed and an additional claim of $14 million has been alleged. As of February 28, 1994, $115 million of the filed claims have been allowed and settled for $50.2 million in the aggregate. The Company is currently negotiating the resolution of the remaining $38 million filed administrative expense claim (which relates to a rejected lease of a Boeing 737-300 aircraft) and the $14 million alleged administrative expense claim (which relates to a rejected lease of a Boeing 757-200 aircraft). Claims have been or may be asserted against the Company for alleged administrative rent and/or breach of return conditions (i.e. maintenance standards), guarantees and tax indemnity agreements related to aircraft or engines abandoned or rejected during the bankruptcy proceedings. Additional claims may be asserted against the Company and allowed by the Bankruptcy Court. The amount of such unidentified administrative claims may be material. As part of its claims administration procedure, the Company is reviewing potential claims that could arise as a result of the Company's rejection of executory contracts. The Company's 8 plan of reorganization will provide for the status of any executory contract not theretofore assumed by either affirming or rejecting such contracts. The assumption or rejection of certain executory contracts could result in additional claims against the Company. Plan of Reorganization. Under the Bankruptcy Code, the Company's pre- ---------------------- petition liabilities are subject to settlement under a plan of reorganization. Pursuant to an extension granted by the Bankruptcy Court on February 2, 1994, the Company has the partially exclusive right, until June 10, 1994 (unless extended by the Bankruptcy Court), to file a plan of reorganization. Each of the official committees has also been approved to submit a plan of reorganization. The exclusivity period may be extended by the Bankruptcy Court upon a showing of cause after notice has been given and a hearing has been held, although no assurance can be given that any additional extensions will be granted if requested by the Company. The Company has agreed not to seek additional extensions of the exclusivity period without the advance consent of the Creditors' Committee and the Equity Committee. On December 8, 1993 and February 16, 1994, the Bankruptcy Court entered certain orders which provided for a procedure pursuant to which interested parties could submit proposals to participate in a plan of reorganization for America West. The Bankruptcy Court also set February 24, 1994 as the date for America West to select a "Lead Plan Proposal" from the proposals submitted. On February 24, 1994, America West selected as its Lead Plan Proposal an investment proposal submitted by AmWest Partners, L.P., a limited partnership ("AmWest"), which includes Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc. and Fidelity Management Trust Company. On March 11, 1994, the Company and AmWest entered into a revised investment agreement which substantially incorporates the terms of the AmWest investment proposal (the "Investment Agreement"). The Investment Agreement provides that AmWest will purchase from America West equity securities representing a 37.5 percent ownership interest in the Company for $120 million and $100 million in new senior unsecured debt securities. The Investment Agreement also provides that, in addition to the 37.5 percent ownership interest in the Company, AmWest would also obtain 72.9 percent of the total voting interest in America West after the Company is reorganized. The terms of the Investment Agreement will be incorporated into a plan of reorganization to be filed with the Bankruptcy Court; however, modifications to the Investment Agreement may occur prior to the submission of a plan of reorganization and such modifications may be material. There can be no assurance that a plan of reorganization based upon the Investment Agreement will be accepted by the parties entitled to vote thereon or confirmed by the Bankruptcy Court. In addition to the interest in the reorganized America West that would be acquired by AmWest pursuant to the Investment Agreement, the Investment Agreement also provides for the following: 1. The D.I.P. financing would be repaid in full with cash on the Reorganization Date. 2. On the Reorganization Date, unsecured creditors would receive 45 percent of the new common equity in the reorganized Company, with the potential to receive up to 55 percent of such equity if within one year after the Reorganization Date, the 9 value of the securities distributed to them has not provided them with a full recovery under the Bankruptcy Code. In addition, unsecured creditors would have the right to elect to receive cash at $8.889 per share up to an aggregate maximum amount of $100 million, through a repurchase by AmWest of a portion of the shares to be issued to unsecured creditors under a plan of reorganization. 3. Holders of equity interests would have the right to receive up to 10 percent of the new common equity of the Company, depending on certain conditions principally involving a determination as to whether the unsecured creditors had received a full recovery on account of their claims. In addition, holders of equity interests would have the right to purchase up to $15 million of the new common equity in the Company for $8.296 per share from AmWest, and would also receive warrants entitling them to purchase, together with AmWest, up to five percent of the reorganized Company's common stock, at a price to be set so that the warrants would have value only after the unsecured creditors receive full recovery on their claims. 4. In exchange for certain concessions principally arising from cancellation of the right of GPA affiliates to put to America West 10 Airbus A320 aircraft at fixed rates, GPA, or certain affiliates thereof, would receive (i) 7.5 percent of the new common equity in the reorganized Company, (ii) warrants to purchase up to 2.5 percent of the reorganized Company's common stock on the same terms as the AmWest warrant, (iii) $3 million in new senior unsecured debt securities, and (iv) the right to require the Company to lease up to eight aircraft of types operated by the Company from GPA prior to June 30, 1999 on terms which the Company believes to be more favorable those currently applicable to the put aircraft. For an additional discussion of the put rights, see Item 2. Properties -- Aircraft, below. ------ 5. Continental Airlines, Inc., Mesa Airlines, Inc. and America West would enter into certain alliance agreements which would include code-sharing, schedule coordination and certain other relationships and agreements. A condition to proceeding with a plan of reorganization based upon the Investment Agreement would be that these agreements be in form and substance satisfactory to America West, including the Company's reasonable satisfaction that such alliance agreements, when fully implemented, will result in an increase in pre-tax income to the Company of not less than $40 million per year. 6. The expansion of the Company's board of directors to 15 members. Nine members would be designated by AmWest and other members reasonably acceptable to AmWest would include four members designated by representatives of the Company, the Equity Committee and the Creditors' Committee and two members designated by GPA. 7. The Investment Agreement also provides for many other matters, including the disposition of the various types of claims asserted against the Company, the adherence to the Company's aircraft lease agreements, the amendment of the Company's aircraft purchase agreements and release of the Company's employees 10 from all currently existing obligations arising under the Company's stock purchase plan in consideration for the cancellation of the shares of Company stock securing such obligations. The Company has also entered into a Revised Interim Procedures Agreement (the "Procedures Agreement") with AmWest. The Procedures Agreement is subject to the approval of the Bankruptcy Court and sets forth terms and conditions upon which the Company must operate prior to the effective date of a confirmed plan of reorganization based upon the terms of the Investment Agreement. The Procedures Agreement provides for the reimbursement of AmWest's expenses (up to a maximum of $3.55 million) as well as a termination fee of up to $8 million under certain conditions. As of March 29, 1994, the Procedures Agreement had not received Bankruptcy Court approval, but a hearing in this regard is scheduled for April 12, 1994. The Company is currently developing with AmWest a plan of reorganization based upon the foregoing terms. The Equity Committee has agreed to support the plan. The Creditors' Committee has indicated that it does not support the current terms of the Investment Agreement. Another group interested in developing a plan of reorganization with the Company has proposed to invest $155 million in equity securities and $65 million in new senior unsecured debt securities. The proponent of this proposal would receive a 33.5 percent ownership interest in the reorganized Company, current equity holders would receive a 4.0 percent ownership interest in the reorganized Company and the unsecured creditors would receive a 62.5 percent ownership interest in the reorganized Company. Any plan of reorganization must be approved by the Bankruptcy Court and by specified majorities of each class of creditors and equity holders whose claims are impaired by the plan. Alternatively, absent the requisite approvals, the Company may seek Bankruptcy Court approval of its reorganization plan under Section 1129(b) of the Bankruptcy Code, assuming certain tests are met. The Company cannot predict whether any plan submitted by it will be approved. The Company is currently unable to predict when it may file a plan of reorganization based upon the Investment Agreement, but intends to do so as soon as practicable. Once a plan with a disclosure statement is filed by any party, the Bankruptcy Court will hold a hearing to determine the adequacy of the information contained in such disclosure statement. Only upon receiving an order from the Bankruptcy Court providing that the disclosure statement accompanying any such plan contains adequate information as required by Section 1125 of the Bankruptcy Code, may a party solicit acceptances or rejections of any such plan of reorganization. Following entry of an order approving the disclosure statement, the plan will be sent to creditors and equity holders for voting pursuant to both the Bankruptcy Code and orders that will be entered by the Bankruptcy Court. Following submission of the plan to holders of claims and equity interests, the Bankruptcy Court will hold a hearing to consider confirmation of the plan pursuant to Section 1129 of the Bankruptcy Code. Although the Bankruptcy Code provides for certain minimum time periods for these events, the Company is unable to reasonably estimate when a plan based on the Investment Agreement might be submitted for voting and confirmation. If at any time the Creditors' Committee, the Equity Committee or any creditor of the Company or equity holder of the Company believes that the Company is or will not be in a 11 position to sustain operations, such party can move in the Bankruptcy Court to compel a liquidation of the Company's estate by conversion to Chapter 7 bankruptcy proceedings or otherwise. In the event that the Company is forced to sell its assets and liquidate, it is unlikely that unsecured creditors or equity holders will receive any value for their claims or interests. See Item 3. Legal Proceedings, Item 7. Management's Discussion and ------ ------ Analysis of Financial Condition and Results of Operations and Item 8. ------ Financial Statements and Supplementary Data - Note 1 of Notes to Financial Statements, for additional information concerning the bankruptcy process and its impact on the Company. Competition. ----------- The airline industry is highly competitive and susceptible to price discounting. Many of America West's competitors are carriers with substantially greater financial resources. Overall industry profit margins have traditionally been low and in the last three years, have been substantially negative. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and the automation of travel agents' reservation systems. Price competition results primarily from the offering of discount or promotional fares to passengers and, in the case of freight services, from the offering of special commodity rates to shippers. Any such fares or rates offered by one airline are normally matched by competing airlines. Profit levels are highly sensitive to, and during the last three years have been adversely impacted by, changes in fuel prices, average yield (fare levels) and passenger demands. Passenger demand and yield have been affected by, among other things, the general state of the economy and actions taken by America West and its competitors. United States air carriers are free to set their own domestic fares without government regulation. In the spring of 1992, American Airlines introduced a new fare structure followed by a deeply discounted summer sale, steps that were generally matched by other U.S. airlines (including America West), resulting in substantially depressed industry yields and significant 1992 losses at most of the major U.S. airlines. American Airlines and the rest of the domestic airline industry subsequently abandoned that pricing structure and fare levels have since increased in 1993 from 1992 levels. Nonetheless, significant industry-wide discounts could be re-implemented at any time, and the introduction of broadly- available, deeply discounted fares by a major U.S. airline would likely result in lower yields for the entire industry and could have a material adverse effect on the Company's operating results. Several of the Company's major markets, including those in New York City, Texas and Southern California, as well as Washington D.C., Chicago and Las Vegas, are served by other larger and more established carriers and are highly competitive. On many routes, and in particular those routes between Phoenix and California, fare competition has made it difficult for the Company to raise fares except on a selective basis. Intense fare competition with respect to certain markets has adversely affected passenger yield and as a result profitability. In recent years several new carriers have entered the industry, typically with low cost structures. Aircraft, skilled labor and gates at most airports continue to be available to start-up carriers. Currently, any air carrier deemed fit by the Department of Transportation ("DOT") 12 is free to operate scheduled passenger service between any two points in the United States and its possessions. The result, since deregulation, has been the creation of a series of new entrant airlines. New entrant air carriers have, other than low operating costs, relatively few competitive advantages. To capitalize on the low cost advantage, new entrant airlines seek to attract market share through price competition. In doing so, they keep downward pressure on industry-wide fares. America West is subject to these pricing actions. The Company has developed competitive strategies in an effort to insulate itself from the impact of new entrant carriers; but, these strategies cannot be completely effective. Operating Strategy. ------------------ America West's operating strategy as a full service carrier consists of (i) operating with low costs; (ii) offering its passengers competitive fares; (iii) delivering quality air travel service; and (iv) providing these services to cities which have the greatest demand for America West's product mix and on routes which take advantage of the Company's hub-and- spoke system. The Company has determined that it will not develop an overseas international route network but may form strategic alliances with foreign or other U.S. carriers who desire traffic from, and access to, America West's travel markets. The Company endeavors to establish and maintain routes and fares which will build passenger volume sufficient to permit the Company to operate profitably. The Company has selected routes which, in management's opinion, had not been receiving the frequency and quality of air service which such routes are capable of supporting. During the first quarter of 1993, the Company entered into discussions with American Airlines regarding possible joint marketing arrangements and management service agreements; however, during the second quarter of 1993 these discussions were terminated when it was determined that proceeding with such arrangements would not be in the best interest of either company. During the bankruptcy, the Company has been able to eliminate or renegotiate certain pre-petition debt. Steps taken by the Company since filing for bankruptcy protection in June 1991, have included: (i) various cost reduction programs, which included a wage freeze preceded by a 10 percent wage reduction for all employees and the consolidation of the Company's leased facilities; (ii) rejecting leases of certain aircraft and aircraft types which were deemed surplus to the Company's strategy of focusing on domestic markets; (iii) adjustments to certain aircraft lease rates and interest costs to reflect current market values; (iv) realigning its routes to improve load factors and yields and enhancing its revenue management system; and (v) the introduction of several code sharing agreements which has enabled the Company to expand its scope of service and attract a broader passenger base. In addition, if a plan of reorganization based upon the current terms of the Investment Agreement is confirmed, the Company anticipates the formation of an alliance among itself, Continental Airlines, Inc. and Mesa Airlines, Inc. which could include code-sharing, schedule coordination and certain other relationships and agreements. See Bankruptcy And Reorganization Events -- Plan of Reorganization, above. 13 Operations. ---------- Hub Operations. The Company has established major hub systems in -------------- Phoenix and Las Vegas and a mini-hub in Columbus. The success of the Company's hub systems depends on its ability to attract passengers traveling to and from its hubs, as well as passengers traveling through the hubs to the Company's other destinations. The Company schedules banks of flights timed to arrive at the hub from one direction at approximately the same time and to depart toward the opposite direction a short time later. During 1993, the Company enplaned approximately 40 percent of all Phoenix enplanements and had an average of 149 daily departures. Southwest Airlines enplaned approximately 30 percent, and no other carrier accounted for more than six percent of enplanements. During 1993, the Company enplaned approximately 26 percent of the Las Vegas traffic and had an average of 74 daily departures. Southwest enplaned approximately 29 percent, and no other carrier accounted for more than 10 percent of enplanements. The Company began service at Columbus, Ohio in December 1991 with nine round-trip flights per day with nonstop service to Phoenix, Las Vegas, Boston and Washington D.C. As of February 28, 1994, the Company provided non-stop jet service to 11 destinations from Columbus, Ohio. During 1993, the Company enplaned approximately 18 percent of the Columbus traffic and had an average of 33 daily departures. USAir and Delta enplaned 21 percent and 12 percent, respectively, and no other carrier accounted for more than 10 percent of enplanements. Regional/Commuter Service. On October 1, 1992, America West entered ------------------------- into a code-sharing agreement with Mesa Airlines to provide the Company with service to 13 cities from its Phoenix hub. Under the terms of this agreement, Mesa Airlines began operating in Phoenix under the name "America West Express". The code-sharing agreement establishes Mesa Airlines as a feeder carrier for the Company and provides for coordinated flight schedules, passenger handling and computer reservations under the America West flight designator code, allowing passengers to purchase one air fare for their entire trip. Mesa Airlines has begun to incorporate the color scheme and commercial logo of America West on aircraft utilized on America West Express routes. America West Express services 13 destinations from the Company's Phoenix hub operations with an average of 49 daily departures. Pursuant to a second code-sharing agreement entered into in December 1993, Mesa Airlines serves nine destinations from the Company's Columbus hub operations with an average of 33 daily departures. The code sharing agreements with Mesa Airlines are long term, but may be cancelled by either party for cause upon 60 days notice. In certain instances, such as the cessation of operations, the agreement may be immediately terminated. Marketing. --------- America West's marketing efforts focus on both the frequent business as well as discretionary travellers. The Company markets its services in large part through travel agencies. The Company has also established an international sales network to market its product to the growing number of international passengers passing through such international gateways served by America West as New York City, Boston, Baltimore, Washington D.C., Los Angeles, San Francisco and Chicago. Marketing programs such as "FlightFund", the Company's frequent 14 flyer program, and those initiated by America West Vacations, the Company's tour packaging division, have increased America West's visibility and improved its competitive position. Travel Agents. A large percentage of the Company's services are ------------- marketed through travel agencies. For the twelve months ended December 31, 1993, approximately 72 percent of the Company's passenger revenues were generated through tickets written by travel agencies. Travel agents and other airlines are able to book passenger flights and generate tickets on America West through computer reservation systems which have been developed and are controlled by other airlines. At present, approximately 98 percent of all travel agencies in the United States utilize these systems. Federal regulations have been promulgated that are intended to diminish preferential schedule displays and other practices with respect to these systems which place the Company and other similarly situated system users at a competitive disadvantage to the airlines controlling the systems. Frequent Flyer Program. The Company established its frequent flyer ---------------------- program, FlightFund, in 1987. FlightFund members earn mileage credits for flights on America West and certain other participating airlines, or by utilizing services of other program participants such as bank credit cards, hotels and car rental firms. In addition, the Company periodically offers special short-term promotions which allow members to earn additional free travel awards or mileage credits. The FlightFund member accumulates mileage credits up to 20,000 miles at which time four mileage award certificates of 5,000 miles each are issued. Mileage award certificates automatically expire after two years if issued prior to April 1, 1993 and three years for issues after that date. The mileage award certificates can be redeemed for various travel awards including first class upgrades and tickets on America West or other airlines participating in America West's frequent flyer program. Travel is valid up to one year from the date of ticketing. Most travel awards are subject to blackout dates and capacity controlled seating. FlightFund awards may also be redeemed for flights to certain international destinations and Hawaii. America West is required to purchase space on other airlines to accommodate such award redemption. In addition, America West has entered into barter agreements with certain hotel and rental car agencies which permit the Company to award FlightFund members with discounts at such hotels and rental agencies in exchange for providing air travel to such hotels and travel agencies. The Company accounts for the FlightFund program under the incremental cost method whereby travel awards are valued at the incremental cost of carrying one additional passenger. Costs including passenger food, beverages, supplies, fuel, liability insurance, purchased space on other airlines and denied boarding compensation are accrued as frequent flyer program participants accumulate mileage to their accounts. Such unit costs are based upon expenses expected to be incurred on a per passenger basis. No profit or overhead margin is included in the accrual for these incremental costs. FlightFund's current membership is approximately 1.6 million participants. At December 31, 1993, 1992 and 1991, the Company estimated that approximately 238,000, 238,000 and 235,000 travel awards were expected to be redeemed. Correspondingly, the Company has an accrued liability of $7.4 million, $7.3 million and $6.2 million for 1993, 1992 and 1991, respectively. The accrual is based upon the Company's estimates of mileage earned that will eventually be redeemed for a travel award. 15 The number of FlightFund travel awards redeemed for round-trip travel for the years ended December 31, 1993, 1992 and 1991, was approximately 99,000, 106,000 and 160,000 respectively, representing 2.8 percent, 3.0 percent and 3.0 percent of total revenue passenger miles for each respective period. The Company does not believe that the usage of free travel awards results in any significant displacement of revenue passengers due to the Company's ability to manage frequent flyer travel by use of blackout dates and limited seat availability. Travel Services. America West provides services designed to appeal to --------------- frequent business and discretionary travellers. These services include: assigned seating; participation in travel agent automated reservation systems; interline ticketing and baggage transfer; large overhead bins for carry-on luggage; complimentary copies of The Wall Street Journal; ----------------------- sandwiches and snacks on most flights of over one hour and twenty minutes; meal service on long distance flights; and first-class seating on certain flights. At the Phoenix hub, the Company has two airport lounges which provide members with a number of convenient services, such as a library, private meeting rooms, personal computers, teleconferencing, reservations, check-in and flight information. America West Vacations. America West Vacations, the Company's tour ---------------------- packaging division, began operations in December 1987 and generated approximately $100 million in gross revenues during the year ended December 31, 1993. America West Vacations arranges vacation packages which include hotel accommodations, air fare and ground transportation in certain markets. The marketing focus of America West Vacations is currently on Nevada, with additional programs for Arizona, Florida and California being developed. During the year ended December 31, 1993, America West Vacations sold approximately 500,000 room nights and over 315,000 round-trip tickets. Advertising and Promotions. America West concentrates its advertising -------------------------- efforts on reaching a multi-targeted audience focusing on the business and leisure traveler as well as the travel agent community. The message is consistent in promoting the following concepts: America West's competitive fares; quality customer service; one of the most modern aircraft fleets in the sky; and superior on-time performance. Media are chosen for their effectiveness in reaching the targeted audience. The primary medium consists of newspaper advertisements focusing on fares as a primary message, with supplementary advertising through radio in markets where "drive-time" opportunities are present. Travel agent publications, and communications with individual agents transmitted via facsimile, are used to provide the critical frequency necessary in reaching the travel agent community with late breaking news and fare information as well as editorial pieces focusing on preserving competition in the airline industry. In promoting America West Vacations, a consistent use of local market newspapers along with selected print publications is used to advertise products. FlightFund is promoted through the use of direct mail and America West's inflight publications. The arena that serves as the home of the Phoenix Suns professional basketball team is named the "America West Arena". The Company pays an annual fee as part of its advertising budget to maintain its association with the arena and to have its name and logo appear throughout the facility, including on the basketball court. Because of this association, the Company receives media exposure at no additional expense during national and local telecasts of the Phoenix Suns basketball games, as well as during other events. 16 In 1993, America West became the preferred commercial air carrier of the MGM Grand Hotel Casino and Theme Park ("MGM") in Las Vegas, Nevada. Pursuant to an agreement with the MGM, America West will develop joint marketing programs with the MGM focused on travel agents and consumers. The association with MGM will provide America West with benefits not available to other air carriers which management believes will enhance America West's presence in the Las Vegas. Employees. --------- At December 31, 1993, the Company employed 8,102 full-time and 3,117 part-time employees, the equivalent of 10,544 full-time employees. During 1993, the Company had 1,630,400 available seat miles per full-time equivalent employee and 1,064,200 revenue passenger miles per full-time equivalent employee, based on the number of full-time equivalents at year end. The Company's payroll and related costs, which amounted to 1.78 cents per ASM for the year ended December 31, 1993, is below the industry average. Prior to the bankruptcy filing, employees of the Company participated in stock option and stock purchase programs. Grants under the stock option programs were suspended after the Company's Bankruptcy filing. Participation in the Company stock purchase program was mandatory for most of the Company's employees. Employees were also entitled to make voluntary purchases under the program. In general, the stock purchase program permitted employees to purchase Common Stock of the Company at 85 percent of the fair market value of the Common Stock. Such purchases could be financed by the employees through the Company and such financed amounts were repaid through payroll deductions. Since the bankruptcy filing, the Company has suspended the stock purchase program as well as all payroll deductions for the financed purchases. As of December 31, 1993, the aggregate principal balance of the full recourse promissory notes issued by employees to the Company in accordance with the Company's stock purchase plan was $17.6 million. The Investment Agreement provides for the release of the Company's employees from all currently existing obligations arising under the Company's stock purchase plan in consideration for the cancellation of the shares of Company stock securing such obligations. Such release may result in adverse tax implications for the affected employees. See Item 8. Financial Statements and Supplementary Data -- Notes ------ 6 and 9 of Notes to Financial Statements. In February 1991, the Company reduced the wages of its officers and other management personnel by as much as 25 percent. In August 1991, a Company-wide 10 percent pay reduction was implemented and the wages of all the Company's employees have been frozen since that time. In the second quarter of 1993, the Company instituted a transition pay program which is intended to restore a portion of the wage reduction to employees who continue to be employed by the Company. The transition pay program is scheduled to terminate after four quarters, unless terminated earlier as a result of a confirmed plan of reorganization. On March 24, 1994, the Company announced pay increases for all employees effective April 1, 1994. See also Item 7. Management's Discussion and Analysis of Financial ------ Condition and Results of Operations for additional information concerning the transition pay program. The Association of Flight Attendants (AFA) is seeking certification as the bargaining representative of America West's Inflight Customer Service Representatives. On January 12, 1990, the National Mediation Board (NMB) ordered a re-run election of an election originally 17 held in February 1989. The re-run election was delayed several years pending resolution of a legal dispute. On July 7, 1993, the NMB informed America West of its intent to resume its efforts to conduct a re-run election. A date for the election has not yet been scheduled. On October 26, 1993, the Air Line Pilots Association (ALPA) was certified by the NMB as the bargaining representative of America West's pilots. Negotiations with ALPA have not yet commenced, and no opening proposals have been exchanged. Currently, none of the Company's other employees are represented by a union or covered by a collective bargaining agreement. The Company believes its relations with its employees are satisfactory. The Company provides benefits to all employees, such as vacations and life, health and accident insurance. Employees may also participate in the Company's 401(k) plan. In addition, the Company provides child care services to its employees in Phoenix, Las Vegas and other locations. America West has no post-employment or post-retirement benefit plans. Airport Fees. ------------ In recent years, many airports have increased or sought to increase the rates charged to airlines. The extent to which such charges are limited by statute and the ability of airlines to contest such charges has been and may continue to be subject to litigation. To the extent the limitations on such charges are relaxed or the ability of airlines is restricted, the rates charged by airports to airlines may increase substantially. Management cannot predict the magnitude of any such increase. Fuel. ---- One of America West's largest expenses is jet fuel, representing 13.8 percent of total operating expense during 1993. Since the resolution of the Middle East crisis at the end the first quarter of 1991, fuel prices have stabilized. However, substantial increases in fuel prices or the lack of adequate supplies in the future will have a material adverse effect on the operations of the Company. A one cent per gallon change in fuel price would affect the Company's annual operating results by approximately $3 million at present consumption levels. The Company purchases fuel on standard trade terms under master agreements and has been able to obtain fuel sufficient to meet its requirements at competitive prices. The Company does not hedge its fuel costs. In August 1993, the United States government increased taxes on fuel, including aircraft fuel, by 4.3 cents per gallon. Airlines are exempt from this tax increase until October 1, 1995. When implemented, this new tax will increase the Company's annual operating expenses by approximately $13 million based upon its 1993 fuel consumption levels. Aircraft Maintenance and Repairs. -------------------------------- Technical Support Facility. The Company has a 660,000 square foot -------------------------- Technical Support Facility at Phoenix Sky Harbor International Airport. The facility includes four hangar bays, engine support service shops, an aircraft paint bay, an upholstery shop, sheet metal shop and two flight simulator bays. The facility provides the Company with increased flexibility in its scheduling of aircraft maintenance and reduces the Company's vulnerability to work stoppages and labor problems encountered at the outside facilities. Substantially all required airframe 18 overhauls are performed at this facility based on the Company's Federal Aviation Administration (the "FAA") approved phased maintenance programs. Periodic overhauls of aircraft engines are performed by outside contractors, and it is anticipated that such will continue to be the case. The Company provides airframe maintenance and ground services to other air carriers on a contract basis. The Company's aircraft are maintained in accordance with FAA-approved maintenance programs designed for each specific aircraft type. The maintenance programs also require that each aircraft undergo a complete inspection using non-destructive diagnostic equipment following the completion of specified time periods and periodically go through complete overhauls. The purpose of this detailed inspection is to detect and repair any structural irregularities. Maintenance efforts are monitored by the FAA, with FAA representatives operating on-site. The Company may amend its maintenance programs in order to comply with future directives of the government or the manufacturer. The Company employs approximately 1,000 maintenance and support personnel for the maintenance and repair of the Company's aircraft. Pilot Training Facilities. ------------------------- FAA regulations require initial and recurrent training for pilots. The Company currently owns one Airbus A320 simulator, one Boeing 737-300/400 simulator and one Boeing 737-200 simulator. In addition, the Company leases one Boeing 757-200 simulator and one Boeing 737-200 simulator. The Boeing 757-200 simulator can also be used to train pilots for Boeing 767 aircraft. The Airbus A320 simulator and the Boeing 737-300/400 simulator were certified by the FAA in 1993. All the simulators support the Company's pilot training programs. America West also provides similar training on a contract basis to FAA inspectors and several other air carriers. The Company fully utilizes these flight simulators, operating each one approximately twenty hours a day. Government Regulation. --------------------- General. The Company is subject to the Federal Aviation Act of 1958 ------- (the "Aviation Act"), as amended, under which the DOT and the FAA exercise regulatory authority. This regulatory authority includes: the determination and periodic review of the fitness (including financial fitness) of air carriers; the certification and regulation of the flight equipment; the approval of personnel who may engage in flight, maintenance and operations activities; the approval of flight training activities; and the enforcement of minimum air safety standards set forth in FAA regulations. In accordance with the Airline Deregulation Act of 1978, domestic airline fares and routes are no longer subject to significant regulation. The DOT maintains authority over international aviation, subject to the review of the President of the United States, and has jurisdiction over consumer protection policies, computer reservation system issues and unfair trade practices. Noise Abatement. The Airport Noise and Capacity Act of 1990 provides, --------------- with certain exceptions, that after December 31, 1999, no person may operate certain large civilian turbo-jet aircraft in the United States that do not comply with Stage 3 noise levels (Stage 3 is the FAA designation for the quietest commercial jets). As of December 31, 1993, 73 percent of America 19 West's fleet was in compliance with these FAA noise abatement regulations that will require carriers to gradually phase out their noisier jets (such as the Boeing 737-200), either replacing them with quieter Stage 3 jets or equipping them with hush kits to comply with noise abatement regulations. The implementation of the regulations are on the following schedule: by December 31, 1994, each carrier must either reduce the number of Stage 2 aircraft it operates by 25 percent or operate a fleet composed of not less than 55 percent Stage 3 aircraft; by December 31, 1996, each carrier must either reduce its Stage 2 aircraft by 50 percent or operate a fleet composed of not less than 65 percent Stage 3 aircraft; by December 31, 1998 at least 75 percent of a carrier's Stage 2 aircraft must be eliminated, or its overall fleet must be composed of 75 percent Stage 3 aircraft; and by December 31, 1999, 100 percent of the fleet must be composed of Stage 3 aircraft, unless certain waivers are received. Numerous airports, including those serving Boston, Denver, Los Angeles, Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange County, New York, Washington D.C, Burbank and Long Beach have imposed restrictions such as curfew, aircraft noise levels, mandatory flight paths and runway restrictions, which limit the ability of air carriers to increase service at such airports. The Port Authority of New York and New Jersey is considering a phaseout of Stage 2 aircraft on a more accelerated basis than that of the FAA requirement. The Company's Boeing 757-200s, 737-300s and Airbus A320s all comply with current FAA Stage 3 noise regulations, as well as the more stringent noise abatement requirements of the airports listed above. PFC Charges. During 1990, Congress enacted legislation to permit ----------- airport authorities, with prior approval from the DOT, to impose passenger facility charges ("PFCs") as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers, are limited to $3.00 per enplanement, and to no more than $12.00 per round trip. The legislation provides that the airlines will be reimbursed for the cost of collecting these charges and remitting the funds to the airport authorities. America West currently retains 12 cents (reduced to eight cents in June 1994) from every PFC that it collects, which in 1993, resulted in $630,000 in collection reimbursements. PFCs are currently authorized at approximately 170 airports, with a total annual estimated industry collection of about $1 billion. The airports serving Phoenix, Boston, Baltimore, Washington, Newark, New York City, Las Vegas, Columbus, Orlando and Tampa (which are markets served by the Company), have imposed or announced their intention to impose PFCs. By the end of 1994, the Company expects that most major airports will have imposed, or announced their intent to impose PFCs. As a result of competitive pressure, the Company and other airlines have been limited in their abilities to pass on the cost of the PFCs to passengers through fare increases. Environmental Matters. The Company is subject to regulation under major --------------------- environmental laws administered by state and federal agencies, including the Clean Air Act, Clean Water Act and Comprehensive Environmental Response Compensation and Liability Act of 1980. In some locations there are also county and sanitary sewer district agencies which regulate the Company. The Company has not been named as a potentially responsible party by the Environmental Protection Agency. Aging Aircraft Maintenance. The FAA issued several Airworthiness -------------------------- Directives ("AD") in 1990 mandating changes to the older aircraft maintenance programs. These ADs were issued to ensure that the oldest portion of the nation's fleet remains airworthy. The FAA is requiring 20 that these aircraft undergo extensive structural modifications. These modifications are required upon the accumulation of 20 years time in service, prior to the accumulation of a designated number of flight cycles or prior to 1994 deadlines established by the various ADs, whichever occurs later. Six of the Company's 85 aircraft are currently affected by these aging aircraft ADs. The Company constantly monitors it fleet of aircraft to ensure safety levels which meet or exceed those mandated by the FAA or the DOT. Safety. America West is subject to the jurisdiction of the FAA with ------ respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations. To ensure compliance with its regulations, the FAA requires the Company to obtain operating, airworthiness and other certificates which are subject to suspension or revocation for cause. In addition, a combination of FAA and Occupational and Health Administration regulations on both federal and state levels apply to all of America West's ground- based operations. Slot Restrictions. At New York City's JFK and LaGuardia Airports, ----------------- Chicago's O'Hare International Airport and Washington's National Airport, which have been designated "High Density Airports" by the FAA, there are restrictions on the number of aircraft that may land and take-off during peak hours. In the future, these take-off and landing time slot restrictions and other restrictions on the use of various airports and their facilities may result in further curtailment of services by, and increased operating costs for, individual airlines, including America West, particularly in light of the increase in the number of airlines operating at such airports. In general, the FAA rules relating to allocated slots at the High Density Airports contain provisions requiring the relinquishment of slots for nonuse and permits carriers, under certain circumstances, to sell, lease or trade their slots to other carriers. On January 1, 1993, the FAA implemented new slot use standards that require that all slots must be used on 80 percent of the dates during each two-month reporting period. Previously, slots were required to be used at a 65 percent use rate. Failure to satisfy the 80 percent use rate will result in loss of the slot. The slot would revert to the FAA and be reassigned through a lottery arrangement. The Company currently utilizes two slots at New York City's JFK airport, four slots at New York City's LaGuardia airport, four slots Chicago's O'Hare airport and six slots at Washington's National airport. Four of the slots at Washington's National airport are temporary and the Company's right to utilize such slots expires in September 1994; however, the Company currently expects that its ability to utilize such slots will be renewed. The average utilization rate by the Company of all the foregoing slots range from 86 percent to 100 percent. CRAF Program. In time of war or during a national emergency or civil ------------ defense emergency declared by the President or the Congress of the United States, or in a situation short of this declared by the Director of the Office of Emergency Preparedness, the Commander in Chief, Military Airlift Command, or any official designated by the President to coordinate all civil and defense mobilization activities, United States air carriers may be required to provide airlift services to the Military Air Command under the Civil Reserve Air Fleet Program (the "CRAF Program"). During the Middle East conflict, two of America West's aircraft participated in the CRAF Program. 21 Insurance. --------- The Company has arranged a program of insurance of the types and in the amounts it believes customary in the airline industry, including coverage for public liability, passenger liability, property damage, aircraft loss or damage, cargo liability and workers' compensation. The Company believes such insurance is adequate as to both risks covered and coverage amounts. Item 2. Properties. ------ ---------- Facilities. ---------- In February 1988, the Company opened its maintenance and technical support facility at Phoenix Sky Harbor International Airport. The 660,000 square foot facility is comprised of four hangar bays, hangar shops, a flight simulator building as well as warehouse and commissary facilities. The Company owns the 68,000 square foot America West Corporate Center at 222 South Mill Avenue in Tempe, Arizona. At December 31, 1993, the Company leased approximately 650,000 square feet of general office and other space in Phoenix and Tempe, Arizona. As a result of the reduction in aircraft fleet size in 1991 and 1992, a portion of the leased space became surplus to the Company's operational requirements. Negotiations with lessors occurred during 1993 with the assistance of a consulting firm in an effort to develop a consolidation plan. Such plan was completed at the end of 1993 and its implementation commenced in the first quarter of 1994. The consolidation plan generally provides for a reduction in leased space by approximately 150,000 square feet. In 1990, the Company's Phoenix passenger service facilities were relocated to Terminal 4 of Phoenix Sky Harbor International Airport, where the Company leases approximately 258,200 square feet at December 31, 1993. The Company presently has 28 gates with 27 of such gates having enclosed passenger loading bridges at its two concourse facilities located in Terminal 4. The Company also leases approximately 25,000 square feet of other space at the airport for administrative offices and pilot training. At December 31, 1993, the Company leased approximately 106,000 square feet of space at McCarran International Airport in Las Vegas, Nevada. Included in this property at Terminal B are 13 gates (all equipped with enclosed passenger boarding bridges) and adjoining holding room areas. In February 1993, the Company vacated approximately 26,000 square feet at Terminal B, including six gates. At the Company's Columbus, Ohio mini-hub, the Company leased approximately 30,000 square feet of space at December 31, 1993. The Company also leased two gates from the Columbus airport authority and has the ability to sublease additional gates from other airlines as the need arises. Space for ticket counters, gates and back offices has also been obtained at each of the other airports served by the Company, either by lease from the airport operator or by sublease 22 from another airline. Some of the Company's airport sublease agreements include requirements that the Company purchase various ground services at the airport from the lessor airline at rates in excess of what it would cost the Company to provide those services itself. Aircraft. -------- At December 31, 1993, the Company's 85 aircraft fleet consisted of three types of aircraft (56 Boeing 737s, 18 Airbus A320s and 11 Boeing 757s). America West's fleet has an average aircraft age of 8.1 years. The table below sets forth certain information regarding the Company's aircraft fleet at December 31, 1993:
Average Aircraft Number of Average Remaining Lease Type Status Aircraft Age (Yrs.) Term (Yrs.) -------- ------ -------- ---------- ----------------- A320 Leased 18 3.9 16.6 737-100 Owned 1 24.3 -- 737-200 Owned 5 14.8 -- 737-200 Leased 17 14.0 5.9 737-300 Owned 11 5.2 -- 737-300 Leased 22 6.6 8.8 757-200 Owned 2 4.3 -- 757-200 Leased 9 7.8 11.0 -- Total 85 8.1 ==
Each of the aircraft that is designated as owned serves as collateral for a loan pursuant to which the aircraft was acquired by the Company or serves as collateral for a non-purchase money loan. At December 31, 1993, the Company had on order a total of 93 aircraft of the types currently comprising the Company's fleet, of which 51 are firm and 42 are options. The table below details such deliveries. 23
Firm Orders ------------------------------------------ Option 1994 1995 1996 1997 Thereafter Total Orders Total ---- ---- ---- ---- ---------- ----- ------ ----- Boeing: 737-300 - - 4 2 - 6 10 16 757-200 - 4 3 - - 7 10 17 Airbus: A320-200 9 5 2 8 14 38 22 60 -- -- -- -- -- -- -- -- Total: 9 9 9 10 14 51 42 93 == == == == == == == ==
The current estimated aggregate cost for these firm commitments and options is approximately $5.2 billion. Future aircraft deliveries are planned in some instances for incremental additions to the Company's existing aircraft fleet and in other instances as replacements for aircraft with lease terminations occurring during this period. The purchase agreement to acquire 24 Boeing 737-300 aircraft had been affirmed in the Company's bankruptcy proceeding. With timely notice to the manufacturer, all or some of these deliveries may be converted to Boeing 737-400 aircraft. As of December 31, 1993, eight Boeing 737 delivery positions had been eliminated due to the lack of a required reconfirmation notice by the Company to Boeing resulting in the 16 Boeing 737-300 aircraft total reflected in the table above. The failure to reconfirm these delivery positions exposes the Company to loss of pre-delivery deposits and other claims which may be asserted by Boeing in the Bankruptcy proceeding. The purchase agreements for the remaining aircraft types have not been assumed and, the Company has not yet determined which of the other aircraft purchase agreements, if any, will be affirmed or rejected. As part of the Kawasaki Term Loan, the Company terminated an agreement to lease 24 Airbus A320 aircraft from Kawasaki, and ultimately replaced it with a put agreement to lease up to four such aircraft. Kawasaki is under no obligation to lease such aircraft to the Company and has the right to remarket these aircraft to other parties. Prior to its bankruptcy filing, the Company also entered into a similar arrangement with GPA, whereby the Company terminated its agreement to lease 10 Airbus A320 aircraft from GPA and replaced it with a put agreement to lease up to 10 Airbus A320 aircraft from GPA. The put agreement with Kawasaki requires Kawasaki to notify the Company prior to July 1, 1994 if it intends to require the Company to lease any of its put aircraft. GPA's put agreement requires 180 days prior notice of the delivery of a put aircraft. The agreement also provides that GPA may not put more than five aircraft to the Company in any one calendar year. No more than nine put aircraft (GPA and Kawasaki combined) may be put to the Company in one calendar year. GPA's put right expires on December 31, 1996. The Kawasaki and the GPA put aircraft are reflected in the "Firm Order" section of the table above. The Investment Agreement provides that as partial consideration for the cancellation of the GPA put rights, GPA will receive the right to require the Company to lease up to eight aircraft of types operated by the Company from GPA prior to June 30, 1999. See Item 1. Business -- Bankruptcy And ------ Reorganization Events -- Plan of Reorganization. 24 The Company does not have firm lease or debt financing commitments with respect to the future scheduled aircraft deliveries (other than for the Kawasaki put aircraft and the GPA put aircraft referred to above). In addition to the aircraft set forth in the chart above, the Company also has a pre-petition executory contract under which the Company holds delivery positions for four Boeing 747-400 aircraft under firm orders and another four under options. The contract allows the Company, with the giving of adequate notice, to substitute other Boeing aircraft types for the Boeing 747-400 in these delivery positions. As a result, the Company is still evaluating its future fleet needs and is currently unable to determine if it will substitute other aircraft types or reject this agreement. Over the next four years, leases are scheduled to terminate on eight aircraft (six Boeing 737-200s and two Boeing 757-200s). In addition, leases for two Airbus A320-200s are scheduled to terminate during 1994; however, the Company has extended one lease for an additional twelve months. The other Airbus A320 aircraft will be returned to the lessor at the end of the lease term during 1994 and will be replaced by a Boeing 757 aircraft which has been leased for a term of three years. In addition, certain of the aircraft lessors have the right to call their respective aircraft upon (in most cases) 180 days prior notice to the Company. The Company, in turn (with some exceptions), may retain such aircraft via a right of first refusal by agreeing to the bona fide terms offered by a third party interested in leasing or purchasing the aircraft. See also Item 1. Business -- Bankruptcy And Reorganization Events -- Route Structure ------ and Fleet Reductions. Item 3. Legal Proceedings. ------ ----------------- On June 27, 1991, the Company filed a voluntary petition in the United States Bankruptcy Court for the District of Arizona to reorganize under Chapter 11 of Title 11 of the United States Bankruptcy Code. Since the Bankruptcy filing, several entities have filed administrative claims requesting that the Bankruptcy Court order the Company to reimburse or compensate such entities for goods, taxes and services they allege that the Company has received or collected, but for which they claim the Company has not paid. Entities which have or may file administrative claims, include aircraft maintenance organizations, municipal airports and certain financial or governmental institutions. In addition, aircraft providers whose aircraft were returned to them in connection with the Company's fleet reduction and restructuring efforts in September 1991 and September 1992 may be entitled to general unsecured pre-petition claims and/or administrative claims in the Bankruptcy case for damages arising from the return of the aircraft. See also Item 1. Business -- Bankruptcy And ------ Reorganization Events. In August 1991, the Securities and Exchange Commission ("SEC") informally requested that the Company provide the SEC with certain information and documentation underlying disclosures made by the Company in annual and quarterly reports filed with the SEC by the Company in 1991. The Company has cooperated with the SEC's informal inquiry. On March 29, 1994, the Company's Board of Directors approved the submission of an offer of settlement for the purpose of resolving the inquiry through the entry of a consent decree pursuant to which the Company would, while neither admitting nor denying any violation of the securities laws, agree to comply with its future reporting obligations under Section 13 of the Securities Exchange Act of 1934. The SEC has not yet acted on the Company's offer of settlement and 25 there can be no assurance that such offer of settlement will be accepted by the SEC. If the settlement is not accepted by the SEC, the offer will be of no force and effect. Item 4. Submission of Matters to a Vote of Security Holders. ------ --------------------------------------------------- No matter was submitted to a vote of the stockholders during the fourth quarter of the fiscal year ended December 31, 1993, through the solicitation of proxies or otherwise. 26 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder ------ ------------------------------------------------------------- Matters. ------- The Company's Common Stock has been publicly traded since February 25, 1983 and is currently listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol AWAQC. The Common Stock has also been listed on the Pacific Stock Exchange since December 20, 1988 under the symbol AWA. From February 14, 1984 to January 17, 1992, the Common Stock was listed on NASDAQ/National Market System ("NASDAQ/NMS"). Due to the bankruptcy filing and the Company's inability to satisfy certain NASDAQ/NMS listing requirements, the Common Stock listing was moved from NASDAQ/NMS to NASDAQ on January 20, 1992. The following table sets forth the high and low bid quotations for the years 1992 and 1993 as reported by NASDAQ.
Common Stock ------------ High Low ---- --- 1992 First Quarter 2-5/8 1/8 Second Quarter 17/32 1/4 Third Quarter 15/16 5/16 Fourth Quarter 15/32 3/16 1993 First Quarter 17/32 3/16 Second Quarter 7/8 7/16 Third Quarter 31/32 13/32 Fourth Quarter 1-25/32 25/32
The number of record holders of the Company's Common Stock at December 31, 1993 was approximately 18,728. Cash dividends have never been paid on the Company's Common Stock. Various credit agreements between the Company and its lenders restrict the ability of the Company to pay cash dividends. In April 1986, the Company redeemed all outstanding shares of its Series A Preferred Stock. In September 1993, the holder of all the Company's Series B Preferred Stock converted such stock into 1,164,596 shares of Common Stock. The Company's Series C Preferred Stock is the only remaining outstanding class of preferred stock of the Company. A discussion of the Company's Preferred Stock is contained on pages 14 through 16 of the Company's Form S-3 Registration Statement No. 33-27416, incorporated herein by this reference. There is no public trading market for the Preferred Stock. 27 The Company filed a motion with the Bankruptcy Court on February 10, 1994 to prohibit the sale or other transfers of any general unsecured claims, the convertible subordinated debentures or shares of any class of stock. The motion attempted to preserve the Company's tax assets as such sales and transfers in sufficient numbers and amounts could, under current tax law, jeopardize the preservation of the Company's net operating loss and general business tax credit carryforwards. At the request of the official committees, the Company withdrew its motion without prejudice on February 16, 1994. On March 11, 1994, the Company again filed a motion with the Bankruptcy Court to prohibit the sale or other transfer of shares of any class of the Company's stock to or from five percent or more shareholders. This motion is more limited in scope than the motion filed on February 10, 1994 in that it seeks only to restrict transfers of stock which could have an adverse effect on the Company's ability to fully utilize its NOL carryforwards. On March 15, 1994, the Bankruptcy Court ordered that this motion be converted to an adversary proceeding under the Bankruptcy rules. As of March 29, 1994, no hearing on such proceeding has been held. There can be no assurance that the Company will continue to pursue this matter and, if the Company continues to pursue this matter, that it will be successful. See Item 7. Management's Discussion and ------ Analysis of Financial Condition and Results of Operations -- Overview and Item 8. Financial Statements and Supplementary Data -- Note 5 of Notes to ------ Financial Statements. 28 Item 6. Selected Financial Data. ------ ----------------------- SELECTED FINANCIAL DATA (In thousands except per share amounts and ratio of earnings to fixed charges) The information set forth below should be read in conjunction with the Financial Statements and related Notes to Financial Statements included elsewhere herein.
Years Ended December 31, ---------------------------------------------------------------- Statements of Operations Date: 1993 1992 1991 1990 1989 ---------- ---------- ---------- --------- --------- Operating Revenues $1,325,364 $1,294,140 $1,413,925 $1,315,804 $993,409 Operating Expenses 1,204,310 1,368,952 1,518,582 1,347,435 945,293 Operating Income (Loss) 121,054 (74,812) (104,657) (31,631) 48,116 Income (Loss) Before Income Taxes and Extraordinary Items 37,924 (131,761) (222,016) (76,695) 20,040 Income Taxes 759 -- -- -- 7,237 Income (Loss) Before Extraordinary Items 37,165 (131,761) (222,016) (76,695) 12,803 Extraordinary Items (a) -- -- -- 2,024 7,215 Net Income (Loss) 37,165 (131,761) (222,016) (74,671) 20,018 Income (Loss) Per Common Share: Before Extraordinary Items 1.50 (5.58) (10.39) (4.26) 0.61 Extraordinary Items (a) -- -- -- 0.11 0.39 Net Income (Loss) 1.50 (5.58) (10.39) (4.15) 1.00 Ratio of Earnings to Fixed Charges (b) 1.28 -- -- -- 1.12 Weighted Average Number of Common Shares Outstanding 27,525 23,914 21,534 18,396 20,626 Years Ended December 31, ----------------------------------------------------------------- Balance Sheet Data: 1993 1992 1991 1990 1989 ---------- ---------- ---------- --------- -------- Working Capital Deficiency $ (124,375) $ (201,567) $ (51,158) $ (94,671) $(18,884) Total Assets 1,016,743 1,036,441 1,111,144 1,165,256 835,885 Long-Term Debt and Capital Lease Obligations, Less Current Maturities 620,992 647,015 726,514 620,701 474,908 Total Stockholders' Equity (Deficiency) (254,262) (294,613) (166,510) 21,141 87,203 ----------------------- (a) Includes extraordinary items of $2,024,000 in 1990 resulting from the purchase and retirement of convertible subordinated debentures and, in 1989, income tax benefits resulting from the utilization of net operating loss carryforwards amounting to $7,215,000. (b) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes and extraordinary items plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt expense, capitalized interest and one-third of rent expense which is deemed to be representative of an interest factor. For the years ended December 31, 1992, 1991, and 1990, earnings were insufficient to cover fixed charges by $131,761,000, $228,680,000 and $83,070,000, respectively.
29 Item 7. Management's Discussion and Analysis of Financial Condition and ------ --------------------------------------------------------------- Results of Operations. --------------------- Overview -------- On June 27, 1991 the Company filed a voluntary petition in the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") to reorganize under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Company is currently operating as a debtor- in-possession ("D.I.P.") under the supervision of the Bankruptcy Court. As a debtor-in-possession, the Company is authorized to operate its business but may not engage in transactions outside its ordinary course of business without approval of the Bankruptcy Court. The accompanying financial statements have been prepared on a going concern basis which assumes continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. As a result of the reorganization proceedings, there are uncertainties relating to the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might be necessary as a result of the outcome of the uncertainties discussed herein including the effects of any plan of reorganization. Due to the bankruptcy proceedings, current economic conditions and the competitive nature of the airline industry, no measure of comparability can be drawn from past results in order to measure those that may occur in the future. Among the uncertainties which might adversely impact the Company's future operations are: economic recession; changes in the cost of fuel, labor, capital and other operating items; increased level of competition resulting in significant discounting of fares; changes in capacity, load factors and yields; or reduced levels of passenger traffic due to war or terrorist activities. In addition, the following significant bankruptcy related events occurred during 1993. D.I.P. Loan. The Bankruptcy Court approved an amendment to the D.I.P. ----------- loan agreement extending the maturity date of the loan from September 30, 1993 to June 30, 1994. Concurrent with the extension of the maturity date, $8.3 million of the principal balance was repaid to one of the participants who did not agree to the amendment. The amended D.I.P. loan agreement requires the payment of a facility fee of $627,000 and defers all principal payments to June 30, 1994 with the exception of $5 million that will be due on March 31, 1994. An additional facility fee equal to 1/4 percent of the then outstanding D.I.P. loan is required to be paid on March 31, 1994. The amended terms of the D.I.P. financing require the Company to notify the D.I.P. lenders if the unrestricted cash balance of the Company exceeds $125 million. Upon receipt of such notice, the D.I.P. lenders may require the Company to prepay the D.I.P. financing by the amount of such excess. During the first quarter of 1994, the Company notified the D.I.P. lenders that the Company's unrestricted cash exceeded $125 million; however, to date, the D.I.P. lenders have not exercised their prepayment rights. See Item 8. Financial Statements and Supplementary ------ Data -- Note 4 of Notes to Financial Statements. 30 Plan Proposals. On December 8, 1993 and February 16, 1994, the -------------- Bankruptcy Court entered certain orders which provided for a procedure pursuant to which interested parties could submit proposals to participate in a plan of reorganization for America West. The Bankruptcy Court also set February 24, 1994 as the date for America West to select a "Lead Plan Proposal" from among the proposals submitted. On February 24, 1994, America West selected as its Lead Plan Proposal an investment proposal submitted by AmWest Partners, L.P., a limited partnership ("AmWest"), which includes Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc. and Fidelity Management Trust Company. On March 11, 1994, the Company and AmWest entered into a revised investment agreement which substantially incorporates the terms of the AmWest investment proposal (the "Investment Agreement"). The Investment Agreement provides that AmWest will purchase from America West equity securities representing a 37.5 percent ownership interest in the Company for $120 million and $100 million in new senior unsecured debt securities. The Investment Agreement also provides that, in addition to the 37.5 percent ownership interest in the Company, AmWest would also obtain 72.9 percent of the total voting interest in America West after the Company is reorganized. The terms of the Investment Agreement will be incorporated into a plan of reorganization to be filed with the Bankruptcy Court; however, modifications to the Investment Agreement may occur prior to the submission of a plan of reorganization and such modifications may be material. There can be no assurance that a plan of reorganization based upon the Investment Agreement will be accepted by the parties entitled to vote thereon or confirmed by the Bankruptcy Court. In addition to the interest in the reorganized America West that would be acquired by AmWest pursuant to the Investment Agreement, the Investment Agreement also provides for the following: 1. The D.I.P. financing would be repaid in full with cash on the date a plan of reorganization is confirmed ("Reorganization Date"). 2. On the Reorganization Date, unsecured creditors would receive 45 percent of the new common equity in the reorganized Company, with the potential to receive up to 55 percent of such equity if within one year after the Reorganization Date, the value of the securities distributed to them has not provided them with a full recovery under the Bankruptcy Code. In addition, unsecured creditors would have the right to elect to receive cash at $8.889 per share up to an aggregate maximum amount of $100 million, through a repurchase by AmWest of a portion of the shares to be issued to unsecured creditors under a plan of reorganization. 3. Holders of equity interests would have the right to receive up to 10 percent of the new common equity of the Company, depending on certain conditions principally involving a determination as to whether the unsecured creditors had received a full recovery on account of their claims. In addition, holders of equity interests would have the right to purchase up to $15 million of the new common equity in the Company for $8.296 per share from AmWest, and would also receive warrants entitling them to purchase, together with AmWest, up to five percent of the reorganized Company's common stock, at a price to be set so that the 31 warrants would have value only after the unsecured creditors receive full recovery on their claims. 4. In exchange for certain concessions principally arising from cancellation of the right of GPA affiliates to "put" to America West 10 Airbus A320 aircraft at fixed rates, GPA, or certain affiliates thereof, would receive (i) 7.5 percent of the new common equity in the reorganized Company, (ii) warrants to purchase up to 2.5 percent of the reorganized Company's common stock on the same terms as the AmWest warrant, (iii) $3 million in new senior unsecured debt securities, and (iv) the right to require the Company to lease up to eight aircraft of types operated by the Company from GPA prior to June 30, 1999 on terms which the Company believes to be more favorable those currently applicable to the "put" aircraft. For an additional discussion of the put rights, see Item 2. Properties -- Aircraft, below. ------ 5. Continental Airlines, Inc., Mesa Airlines, Inc. and America West would enter into certain alliance agreements which would include code-sharing, schedule coordination and certain other relationships and agreements. A condition to proceeding with a plan of reorganization based upon the Investment Agreement would be that these agreements be in form and substance satisfactory to America West, including the Company's reasonable satisfaction that such alliance agreements, when fully implemented, will result in an increase in pre-tax income to the Company of not less than $40 million per year. 6. The expansion of the Company's board of directors to 15 members. Nine members would be designated by AmWest and other members reasonably acceptable to AmWest would include four members designated by representatives of the Company, the Equity Committee and the Creditors' Committee and two members designated by GPA. 7. The Investment Agreement also provides for many other matters, including the disposition of the various types of claims asserted against the Company, the adherence to the Company's aircraft lease agreements, the amendment of the Company's aircraft purchase agreements and release of the Company's employees from all currently existing obligations arising under the Company's stock purchase plan in consideration for the cancellation of the shares of Company stock securing such obligations. The Company has also entered into a Revised Interim Procedures Agreement (the "Procedures Agreement") with AmWest. The Procedures Agreement is subject to the approval of the Bankruptcy Court and sets forth terms and conditions upon which the Company must operate prior to the effective date of a confirmed plan of reorganization based upon the terms of the Investment Agreement. The Procedures Agreement provides for the reimbursement of expenses (up to a maximum of $3.55 million) as well as a termination fee of up to $8 million under certain conditions. As of March 29, 1994, the Procedures Agreement had not received Bankruptcy Court approval, but a hearing in this regard is scheduled for April 12, 1994. 32 The Company is currently developing with AmWest a plan of reorganization based upon the foregoing terms. The Equity Committee has agreed to support the plan. The Creditors' Committee has indicated that it does not support the current terms of the Investment Agreement. Another group interested in developing a plan of reorganization with the Company has also proposed to invest $155 million in equity securities and $65 million in new senior unsecured debt securities. The proponent of this proposal would receive a 33.5 percent ownership interest in the reorganized Company, current equity holders would receive a 4.0 percent ownership interest in the reorganized Company and the unsecured creditors would receive a 62.5 percent ownership interest in the reorganized Company. Exclusivity Period. On February 2, 1994, the Bankruptcy Court approved ------------------ the Company's request to extend its exclusivity period to file a plan of reorganization through June 10, 1994. In its motion, the Bankruptcy Court confirmed the official committees' (Creditors' and Equity Committees) right to also file a plan of reorganization during this period of exclusivity. Possible Limitation on NOL and Business Tax Credit Carryforwards. As of ---------------------------------------------------------------- December 31, 1993, the Company has a net operating loss ("NOL") and general business tax credit carryforwards of approximately $530 million and $12.7 million, respectively. Under Section 382 of the Internal Revenue Code of 1986, if a loss corporation has an "ownership change" within a designated testing period, its ability to use its NOL and credit carryforwards are subject to certain limitations. The Company is a loss corporation within the meaning of Section 382. To the best of the Company's knowledge, the Company has not undergone an "ownership change" that would result in any material limitation of the Company's ability to use its NOL and business credit carryforwards in future tax years, as of December 31, 1993. However, should an "ownership change" occur prior to confirmation of a plan of reorganization, the Company's ability to utilize such carryforwards would be significantly restricted. Further, any "ownership change" as a result of the Company's reorganization under the Bankruptcy Code may result in carryforward usage limitations. In this regard, the Company filed a motion with the Bankruptcy Court on February 10, 1994 to prohibit the sale or other transfers of any general unsecured claims, the convertible subordinated debentures or shares of any class of stock. The motion attempted to preserve the Company's tax assets as such sales and transfers in sufficient numbers and amounts could, under current tax law, jeopardize the preservation of the Company's net operating loss and general business tax credit carryforwards. At the request of the official committees, the Company withdrew its motion without prejudice on February 16, 1994. On March 11, 1994, the Company again filed a motion with the Bankruptcy Court to prohibit the sale or other transfer of shares of any class of the Company's stock to or from five percent or more shareholders. This motion is more limited in scope than the motion filed on February 10, 1994 in that it seeks only to restrict transfers of stock which could have an adverse effect on the Company's ability to fully utilize its NOL carryforwards. On March 15, 1994, the Bankruptcy Court ordered that this motion be converted to an adversary proceeding under the Bankruptcy rules. As of March 29, 1994, no hearing on such proceeding has been held. There can be no assurance that the Company will continue to pursue this matter and, if the 33 Company continues to pursue this matter, that it will be successful. See Item 8. Financial Statements and Supplementary Data -- Note 5 of Notes to ------ Financial Statements. Results of Operations --------------------- The Company realized net income of $37.2 million ($1.50 per common share) for 1993 compared to net losses of $131.8 million ($5.58 per common share) and $222 million ($10.39 per common share) for 1992 and 1991, respectively. The results for 1993 include reorganization expenses of $25 million and losses aggregating $4.6 million primarily resulting from the disposition of surplus spare aircraft parts and equipment. During 1992, the Company recorded restructuring charges of $31.3 million, reorganization expenses of $16.2 million and a gain of $15 million from the sale of its Honolulu to Nagoya, Japan route, while the 1991 results were affected by reorganization expenses of $58.4 million. The Company was only one of two major U.S. airlines to report a profit in each quarter of 1993. The Company began to realize significant improvement in its operating results commencing the fourth quarter of 1992. During 1993, the level of operating income improved each quarter as shown in the table below.
1993 Quarterly Results (unaudited) (in millions) ------------------------------------------- 1st 2nd 3rd 4th Year ----- ----- ----- ----- ------ Total Operating Revenues $316.6 $324.9 $335.1 $348.8 $1,325.4 Total Operating Expenses 299.4 299.7 302.1 303.1 1,204.3 ----- ----- ----- ----- ------- Operating Income $ 17.2 $ 25.2 $ 33.0 $ 45.7 $ 121.1 ===== ===== ===== ===== =======
The improvement in operating results for 1993 compared to 1992 and 1991 is attributable to several factors, the most significant of which are noted below. * A gradually improving economic climate, and a more stable environment relative to fare competition within the airline industry. * The reduction in fleet size from 123 aircraft in July 1991 to the current fleet of 85 aircraft has facilitated a better matching of capacity to demand. In addition, the consolidation of the fleet from five to three aircraft types has enabled the Company to further reduce its level of costs including those related to maintenance, training and inventories of parts. * In addition to reducing or eliminating certain routes as part of the aircraft fleet downsizing, the Company implemented certain enhancements to its revenue management system in an effort to optimize the level of passenger revenues generated on each flight. Such enhancements enable the Company to more effectively allocate seats within various fare categories. * The implementation of numerous cost reduction programs since 1991 including a Company-wide pay reduction in August of 1991 and reductions of aircraft lease rentals to fair market rates in the fall of 1992. 34 * The elimination of the Company's commuter operation and the introduction of three code sharing agreements have enabled the Company to expand its scope of service and attract a broader passenger base. The effect of these programs and the other factors described above resulted in operating income of $121.1 million for 1993 compared to operating losses of $74.8 million and $104.7 million for 1992 and 1991, respectively. Total operating revenues were $1.3 billion in 1993, an increase of 2.4 percent compared to the prior year and 6.3 percent less than 1991 primarily due to the significant reduction in capacity. On April 1, 1993, the Company ceased service to Hawaii. Passenger revenues for 1993, 1992 and 1991 were $1.2 billion, $1.2 billion and $1.3 billion, respectively. Summarized below are certain capacity and traffic statistics for the years ended December 31, 1993, 1992 and 1991.
Percent Change To ----------------- 1993 1992 1991 1992 1991 ---------- ---------- ---------- -------- ------- Aircraft (End of Period) 85 87 101 (2.3) (15.8) Available Seat Miles (000) 17,190,489 19,271,353 20,627,472 (10.8) (16.7) Revenue Passenger Miles (000) 11,220,753 11,780,568 13,030,279 (4.8) (13.9) Load Factor (%) 65.3 61.1 63.2 6.9 3.3 Passenger Enplanements (000) 14,740 15,173 16,907 (2.9) (12.8) Average Journey Miles 970 990 962 (2.0) .8 Average Stage Length 645 631 598 2.2 7.9 Yield Per Revenue Pax Mile (cents) 11.11 10.31 10.22 7.8 8.7 Revenue Per Available Seat Mile: Passenger (cents) 7.25 6.30 6.46 15.1 12.2 Total (cents) 7.71 6.72 6.85 14.7 12.6
In spite of the significant decline in capacity in 1993 compared to the two previous years, passenger revenues per available seat mile improved by 15.1 percent and 12.2 percent compared to 1992 and 1991, respectively. This improvement was primarily attributable to the combination of the following factors. * An improved climate relative to the economy and industry fare competition. * The reduction in aircraft fleet size in conjunction with the implementation of enhancements to the Company's revenue management systems. * The elimination of "fare simplification" in 1993 and 50 percent-off sales that occurred on an industry-wide basis in the second and third quarters of 1992. * The 50 percent-off sale conducted by the Company on a system-wide basis in February 1991. 35 Revenues from sources other than passenger fares decreased during 1993 to $78.8 million compared to $79.3 million and $81.7 million for 1992 and 1991, respectively. Freight and mail revenues comprised 51.0 percent, or $40.2 million, of other revenues for 1993. This represents a decrease of 4.6 percent compared to 1992 and 8.0 percent compared to 1991. For the years 1993, 1992 and 1991, the Company carried 110.7 million, 116.4 million and 119.8 million pounds of freight and mail, respectively. The decline in freight and mail revenues during the last three years is a direct result of capacity reductions, the most significant of which relate to the cessation of service to Hawaii and Nagoya, Japan. The balance of other revenues includes revenues generated from: pilot training; contract services provided to other airlines for maintenance and ground handling; reduced rate fares; alcoholic beverage and headset sales; and service charges assessed for refunds, reissues and prepaid ticket advices. In spite of the significant reductions in capacity which have occurred since the filing of protection under Chapter 11, operating expense per available seat mile has declined to 7.01 cents for 1993 from 7.10 cents for 1992 and 7.36 cents for 1991. The table below sets forth the major categories of operating expense per available seat mile for 1993, 1992 an 1991:
(in cents) Percent Change To ----------------- 1993 1992 1991 1992 1991 ---- ---- ---- ---- ---- Salaries and Related Costs 1.78 1.68 1.86 6.0 (4.3) Rentals and Landing Fees 1.60 1.76 1.70 (9.1) (5.9) Aircraft Fuel .97 .97 1.08 -- (10.2) Agency Commissions .62 .55 .62 12.7 -- Aircraft Maintenance Materials and Repairs .18 .20 .20 (10.0) (10.0) Depreciation & Amortization .48 .45 .47 6.7 2.1 Restructuring Charges -- .16 -- -- -- Other 1.38 1.33 1.43 3.8 (3.5) ---- ---- ---- ---- ----- 7.01 7.10 7.36 1.3 4.8 ==== ==== ==== ==== ====
The changes in the components of operating expense per available seat mile should be considered in relation to the decline in available seat miles of 10.8 percent and 16.7 percent from 1992 and 1991, respectively, and are explained as follows: * The 6.0 percent increase in salaries and related costs compared to 1992 is a result of the decline in capacity as well as the implementation of a transition pay program in the second quarter of 1993. The transition pay program was designed to restore a portion of the 10 percent wage reduction that was effected company-wide on August 1, 1991 (officers and other management personnel received wage reductions of 10 percent to 25 percent commencing in February 1991). All wages have been frozen at such levels since 1991. The program, which is to be in effect for the earlier of four fiscal quarters or until the confirmation of a plan of reorganization, provides for the following payments on a quarterly basis to all active employees during the quarter. 36 a. Commencing the second quarter of 1993, performance award distributions have been made based upon the Company meeting or exceeding its operating income target for a given quarter as incorporated in its business plan. The aggregate award for 1993 amounted to approximately $6.5 million including applicable payroll taxes. b. Commencing the third quarter of 1993, employment award distributions have been made based on the greater of .5 percent of an employee's annual base wage, or $125, which ever is higher, on a quarterly basis. The aggregate award for 1993 amounted to approximately $2.6 million including applicable payroll taxes. The favorable variance compared to the 1991 level was primarily attributable to the reduction in payroll costs related to the decline in capacity as well as overhead and the Company-wide wage reduction instituted in August 1991. * Rentals and landing fees decreased due to the reduction in fleet size to 85 aircraft as well as the reduction in rental rates to fair market for certain aircraft commencing in August 1992 for a period of two years. * Aircraft fuel decreased due to the decline in the average price per gallon to 61.05 cents from 62.70 cents for 1992 and 67.10 cents for 1991. * The increase in the level of agency commission expense is primarily due to the significant increase in passenger revenue per available seat mile from 6.30 cents and 6.46 cents for 1992 and 1991, respectively, to 7.25 cents for 1993. * The decrease in aircraft maintenance materials and repairs is primarily due to the change in the composition of the aircraft fleet. * Restructuring charges incurred in 1992 consisted of the following:
(in millions of dollars) Write-off for certain assets related to station closures or route restructuring $ 9.5 Provision for spare parts for aircraft types 12.7 no longer in service Provision for employee severance 2.3 Loss on return of aircraft 6.8 ---- $31.3 ====
The restructuring charges were necessitated by aircraft fleet reductions and other operational changes. The Company reduced its fleet to 87 aircraft at the end of 1992 as well as eliminated two of five aircraft types it operated. Additionally, employee headcount was reduced by approximately 1,500 employees and service was terminated to ten cities through the end of 1992. 37 * The increase in depreciation and amortization is primarily attributable to increased heavy engine overhauls. * Other operating expenses increased 3.8 percent compared to 1992 but was lower by 3.5 percent compared to 1991. The increase compared to the prior year is primarily attributable to the 10.8 percent decline in capacity. Non-operating expenses (net of non-operating income) for 1993, 1992 and 1991 were $83.1 million, $56.9 million and $117.4 million, respectively. Interest expense decreased to $54.2 million in 1993 from $55.8 million in 1992 and $61.9 million in 1991. In conformity with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code", issued by the American Institute of Certified Public Accountants, the Company has ceased accruing and paying interest on unsecured pre-petition long-term debt. Had the Company continued to accrue interest on such debt, interest expense for 1993, 1992 and 1991 would have been $73.0 million, $73.9 million and $79.3 million, respectively. See Item 8. Financial Statements and Supplementary Data -- Notes 3a and 4 of ------ Notes to Financial Statements. The Company incurred expenses of $25 million in 1993, $16.2 million in 1992 and $58.4 million in 1991 in connection with its efforts to reorganize under Chapter 11. Such expenses for 1993 include net charges aggregating $18.2 million in accruals for unsecured claims and settlements of administrative claims primarily relating to leased aircraft which were returned to the lessors. Reorganization related expenses are expected to significantly affect future results and to continue until such time as the Company has obtained approval for its plan of reorganization. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes, (SFAS 109). --------------------------- Since there was no cumulative effect of this change in accounting, prior year financial statements have not been restated. Additionally, Statements of Financial Accounting Standards No. 106 Post ---- Retirement Benefits Other Than Pensions, (SFAS 106) became effective --------------------------------------- January 1, 1993. The Company does not provide any post retirement benefits, thus, the standard has no impact. Statement of Financial Accounting Standard No. 112, Employer's Accounting for Post Employment ----------------------------------------- Benefits, (SFAS 112) becomes effective January 1, 1994. This statement -------- requires that post employment benefits be treated as part of compensation provided to an employee in exchange for service. Previously, most employers expensed the cost of these benefits as the benefits were provided. The Company is still reviewing the impact of SFAS 112, but does not believe it will have a material effect. Liquidity And Capital Resources ------------------------------- At December 31, 1993, the Company had a working capital deficiency of $124.4 million and net shareholders' deficiency of $254.3 million. The 1993 working capital deficiency decreased from the 1992 deficiency of $201.6 million primarily as result of principal repayments on obligations and significantly improved operating results. 38 Cash and cash equivalents amounted to $99.6 million at December 31, 1993 compared to $74.4 million at December 31, 1992. Net cash provided by operating activities increased to $153.4 million for 1993 compared to $76.7 million for 1992 and $19.9 million for 1991. During 1993, the Company incurred capital expenditures of $54.3 million compared to $69.2 million in 1992. The capital expenditures for 1993 consisted largely of aircraft modifications and heavy airframe and engine overhauls. The Company's transition pay program which was implemented in the second quarter of 1993 is scheduled to terminate in the second quarter of 1994. The Company announced certain amendments to its compensation program on March 24, 1994. Effective April 1, 1994, employee base wages will be increased between two percent to eight percent depending on the employee's length of service with the Company. Generally, each employee whose anniversary date occurs between April and December 1994 will also receive an additional increase on such date approximating 4% with certain exceptions. The Chairman of the Board and the President will not participate in the salary increase program. Due to the current collective bargaining process with the representatives of the pilots, increases in pilots' salaries will not be paid but will be accrued. The distribution of such amounts will be determined through the collective bargaining discussions. The Company is currently in the process of revising its entire compensation program and anticipates implementing such program effective January 1, 1995. The Company has also announced that, effective April 1, 1994, matching contributions by the Company under the America West 401(k) plan will be increased from 25 percent to 50 percent of the first six percent contributed by the employees, subject to certain limitations. This change restores the Company's matching contribution to the level that existed prior to the Chapter 11 filing. The Company estimates that the implementation of the increases in pay and the 401(k) matching contributions will result in increased costs of approximately $18 million during the last nine months of 1994. Under Delaware law, as well as the Company's D.I.P. loan agreement and the bankruptcy process, the Company is precluded from paying dividends on its outstanding preferred stock until such time as the total shareholders' deficiency is eliminated. During 1993 the Series B 10.5 percent convertible preferred stock (291,149 shares) with a liquidation preference of $15 million was converted into 1,164,596 shares of common stock of the Company. In 1991, affiliates of Guinness Peat Aviation ("GPA"), Northwest Airlines, Inc. ("Northwest") and Kawasaki Leasing International Inc. ("Kawasaki") provided $78 million in D.I.P. financing to the Company. In September 1992, America West received an additional $53 million in D.I.P. financing, bringing the total outstanding D.I.P. financing at December 31, 1992, to $110.8 million which consisted of $69.8 million from GPA, $23 million from Kawasaki, $10 million from Ansett Worldwide Aviation Services ("Ansett") and $8 million from several Arizona-based entities. The D.I.P. financing is collateralized by substantially all of the Company's assets. 39 The financing provided by Northwest was repaid in full at the time of the September 1992 D.I.P. financing. America West also reconstituted its board of directors concurrent with the September 1992 D.I.P. financing. In September 1993, the D.I.P. lenders extended the maturity date of the D.I.P. financing from September 30, 1993 to June 30, 1994. At the time of the September 1993 extension, the financing provided by Ansett was repaid in full. The principal terms of the September 1993 extension are discussed below. Interest on all funds advanced under the D.I.P. financing accrues at 3.5 percent over the 90-day London Interbank Offered Rate ("LIBOR") and is payable quarterly. Principal repayments in the amount of $5.54 million were made on March 1993 and June 1993. As a result of the September 1993 extension of the D.I.P. financing maturity date, the Company is required to repay $5 million of the D.I.P. financing on March 31, 1994. The remaining outstanding balance will be due upon the earlier of June 30, 1994 or upon the effective date of a confirmed Chapter 11 plan of reorganization (the "Reorganization Date"). As a condition to extending the maturity date of the D.I.P. financing in September 1993, the Company also agreed to pay a facility fee of $627,000 to the D.I.P. lenders on September 30, 1993 and to pay an additional facility fee equal to 1/4 percent of the then outstanding balance of the D.I.P. financing on March 31, 1994. As of December 31, 1993, the outstanding amount due under the D.I.P. financing was approximately $83.6 million. Presently, the Company does not possess sufficient liquidity to satisfy the D.I.P. financing nor does it appear that new equity capital will be obtained and a plan of reorganization confirmed prior to June 30, 1994. Consequently, the Company will be required to obtain alternative repayment terms from its current D.I.P. lenders. Although there can be no assurance that alternative repayment terms will be obtained, the Company believes that any required extension of the D.I.P. financing would be for a short period of time and would be concurrent with the implementation of a plan of reorganization. During the first quarter of 1994, the Company notified the D.I.P. lenders that the Company's unrestricted cash exceeded $125 million; however, to date, the D.I.P. lenders have not exercised their prepayment rights. As a condition to the closing of the September 1992 D.I.P. financing, the Company was required to reduce its aircraft fleet to 86 aircraft and the number of aircraft types from five to three. Consequently, the Company reached certain agreements with third parties, which included the following: 1. With the exception of four lessors (two of which participated in the September 1992 D.I.P. financing), aircraft lessors whose aircraft were retained in the fleet and whose payments were deferred during July and August 1992, were required to waive any default which occurred as a result of such non-payments and to defer these payments without interest until the first calendar quarter of 1993. In addition, effective August 1, 1992, the rental rates on these retained aircraft were reduced to fair market rental rates for a period of two years or longer. The August 1992 payments were deferred at the reduced interest rates. Of the remaining two lessors, one accepted rental payment reductions and the other agreed to a deferral of the rents from July through October 1992. Repayment of this deferral is monthly over seven years beginning November 1992 at level principal and interest at 90 day LIBOR plus 3.5 percent. 40 2. The aircraft lessors who accepted rent reductions and agreed to waive any administrative claims arising from the reductions stipulated that, if prior to July 31, 1994, the Company defaults on any of these leases and the aircraft are repossessed, the lessors are entitled to fixed damages ranging from $500,000 to $2,000,000 (depending on the type of aircraft) as well as any other damages that can be claimed for breach of their leases, all of which will be afforded priority as administrative claims. Lessors of 12 aircraft have the option, beginning August 1, 1994, to reset the rents to the then current fair market rental rates (additionally, certain of these leases call for multiple resets subsequent to the August 1, 1994 reset date). In February 1994, the Company commenced negotiations with certain lessors with respect to determining the requisite reset rates. Lessors of 16 aircraft have call rights which generally provide for the acceleration of the lease termination to the 180th day after receipt by the Company of notice from the lessor that the lessor has a bona fide written offer to lease the aircraft to an unrelated third party. The Company in turn has a ten day right of first refusal after receipt of such notice to match the written offer. Lessors of 10 of aircraft also have the right to call their aircraft during specified periods without having received a bona fide offer to lease their aircraft and without offering the Company a right of first refusal. The lessor of 11 aircraft has the right to call its aircraft on 90 days notice after to the end of the original lease term of the aircraft. If a lessor exercises its call option, and 1991 deferred rents are still outstanding under the terminated lease, repayment of this deferral is not accelerated. Such deferral will continue to amortize over its original term; however, at a reduced interest rate of 90 day LIBOR plus 3.5 percent. See also Item 1. Business -- Bankruptcy And ------ Reorganization Events -- Route Structure and Aircraft Fleet Reductions. 3. Certain principal and interest payments on owned aircraft due in July 1992 were deferred without interest and were repaid by March 31, 1993. Additionally, certain other principal and interest payments due from August 1992 through January 1993 were deferred and are being repaid beginning February 1993 over terms of five to nine years with interest at approximately 10.25 percent. In lieu of payment deferrals, two aircraft lenders agreed to interest rate reductions of approximately three percent on their outstanding aircraft loans to the Company, resulting in interest rates of approximately 7.25 percent. 4. Two of the current D.I.P. lenders, amended their existing rights to put up to ten aircraft each to the Company such that a total of fourteen aircraft may be put to the Company beginning in 1994 through 1996. Such aircraft would be put to the Company under prearranged lease agreements. As of February 28, 1994, the Company has not received any notification from the parties exercising any of their put rights. 41 In September 1993, the D.I.P. loan agreement was amended and the maturity date was extended from September 30, 1993 to June 30, 1994. The principal financial terms of the amended D.I.P. loan agreement include the following: 1. The repayment of $8.3 million to the loan participant who did not agree to the maturity date extension. 2. The outstanding principal balance at September 30, 1993 becomes due on June 30, 1994 or the confirmation of a plan of reorganization, whichever occurs earlier, with the exception of a principal repayment of $5 million on March 31, 1994. 3. The amended terms of the D.I.P. financing require the Company to notify the D.I.P. lenders if the unrestricted cash balance of the Company exceeds $125 million. Upon receipt of such notice, the D.I.P. lenders may require the Company to prepay the D.I.P. financing by the amount of such excess. During the first quarter of 1994, the Company notified the D.I.P. lenders that the Company's unrestricted cash exceeded $125 million; however, to date, the D.I.P. lenders have not exercised their prepayment rights. 4. Certain of the financial covenants were revised which the Company believes provide it with increased flexibility. In general, such covenants relate to operating results, liquidity, capital expenditures, collateral values and lease payments. 5. A facility fee of 3/4 percent of the outstanding balance, or $627,000, was paid to the participants on September 30, 1993. In addition, an additional 1/4 percent of the then outstanding balance must be paid on March 31, 1994. Presently, the Company does not possess sufficient liquidity to satisfy its D.I.P. loan obligation nor does it appear that a plan of reorganization could be confirmed prior to June 30, 1994. Consequently, the Company will be required to obtain alternative repayment terms from its current D.I.P. lenders, but there can be no assurances that such alternative repayment terms will be agreed to by the D.I.P. lenders. During 1993, the Company repaid approximately $18.4 million of scheduled aircraft lease payments which were deferred in 1991 and 1992 as well as $27.2 million of principal repayment related to the D.I.P. loan. As a condition of the D.I.P. financing, the Company obtained from most of its aircraft providers rent or principal and interest deferrals in excess of $100 million for the six-month period of June through November 1991. In general, the deferred amounts accrue interest at 10.5 percent. In December 1991, the Company began repaying such deferred amounts. See Item 8. Financial Statements and Supplementary Data -- Note 11 of Notes to ------ Financial Statements. 42 Under the terms of the D.I.P. financing, Northwest acquired the Company's Honolulu to Nagoya, Japan route for $15 million in 1992. Upon the completion of the sale of the Nagoya route, $10 million of the proceeds from the sale were paid to Northwest to reduce the Company's obligation to Northwest under the D.I.P. financing. The balance of the proceeds from the sale of the Nagoya route were added to the Company's working capital. In connection with the D.I.P. financing provided by Kawasaki, the Company agreed to convert advanced cash credits for 24 Airbus A320 aircraft (the "Kawasaki Aircraft") previously advanced by Kawasaki into an unsecured priority term loan (the "Kawasaki Term Loan"). At December 31, 1993, the amount of the Kawasaki Term Loan was $68.4 million, including accrued interest of $21.9 million. Until the Reorganization Date, the Kawasaki Term Loan will accrue interest at 12 percent per annum and such interest will be added to principal. On the Reorganization Date, 85 percent of the Kawasaki Term Loan will be converted into an eight-year term loan which will accrue interest at 2 percent over 90-day LIBOR and will be secured by substantially all the assets of the Company if the D.I.P. financing is fully repaid. Principal on such loan will be due and payable in equal quarterly installments, plus interest commencing after the Reorganization Date. The Company has the right to prepay the Kawasaki Term Loan if the D.I.P. financing is fully repaid. The remaining 15 percent of the Kawasaki Term Loan will be treated as a general unsecured claim without priority status under the Company's plan of reorganization. In the first quarter of 1994, the Company received information that the Kawasaki Term Loan was purchased by a third party. As part of the Kawasaki Term Loan, the Company terminated an agreement to lease 24 Airbus A320 aircraft from Kawasaki, and ultimately replaced it with a put agreement to lease up to four such aircraft. Kawasaki is under no obligation to lease such aircraft to the Company and has the right to remarket these aircraft to other parties. Prior to its bankruptcy filing, the Company also entered into a similar arrangement with GPA, whereby the Company terminated its agreement to lease 10 Airbus A320 aircraft from GPA and replaced it with a put agreement to lease up to 10 Airbus A320 aircraft from GPA. The put agreement with Kawasaki requires Kawasaki to notify the Company prior to July 1, 1994 if it intends to require the Company to lease any of its put aircraft. GPA's put agreement requires 180 days prior notice of the delivery of a put aircraft. The agreement also provides that GPA may not put more than five aircraft to the Company in any one calendar year. No more than nine put aircraft (GPA and Kawasaki combined) may be put to the Company in one calendar year. GPA's put right expires on December 31, 1996. The Investment Agreement provides that as partial consideration for the cancellation of the GPA put rights, GPA will receive the right to require the Company to lease up to eight aircraft of types operated by the Company from GPA prior to June 30, 1999. The reorganization process is expected to result in the cancellation and/or restructuring of substantial debt obligations of the Company. Under the Bankruptcy Code, the Company's pre-petition liabilities are subject to settlement under a plan of reorganization. The Bankruptcy Code also requires that all administrative claims be paid on the effective date of a plan of reorganization unless the respective claimants agree to different treatment. There are differences between the amounts at which claims liabilities are recorded in the financial statements and the 43 amounts claimed by the Company's creditors and such differences are material. Significant litigation may be required to resolve any disputes. Due to the uncertain nature of many of the potential claims, America West is unable to project the magnitude of such claims with any degree of certainty. However, the claims (pre-petition claims and administrative claims) that have been filed against the Company are in excess of $2 billion. Such aggregate amount, includes claims of all character, including, but not limited to, unsecured claims, secured claims, claims that have been scheduled but not filed, duplicative claims, tax claims, claims for leases that were assumed, and claims which the Company believes to be without merit; however, claims filed for which an amount was not stated, are not reflected in such amount. The Company is unable to estimate the potential amount of such unstated claims; however, the amount of such claims could be material. The Company is in the process of reviewing the general unsecured claims asserted against the Company. In many instances, such review process will include the commencement of Bankruptcy Court proceedings in order to determine the amount at which such claims should be allowed. The Company has accrued its estimate of claims that will be allowed or the minimum amount at which it believes the asserted general unsecured claims will be allowed if there is no better estimate within the range of possible outcome. However, the ultimate amount of allowed claims will be different and such differences could be material. The Company is unable to estimate the amount of such difference with any reasonable degree of certainty at this time. The Bankruptcy Code requires that all administrative claims be paid on the effective date of a plan of reorganization unless the respective claimants agree to different treatment. Consequently, depending on the ultimate amount of administrative claims allowed by the Bankruptcy Court, the Company may be unable to obtain confirmation of a plan of reorganization. The Company is actively negotiating with claimants to achieve mutually acceptable dispositions of these claims. Since the commencement of the bankruptcy proceeding, claims alleging administrative expense priority totaling more than $153 million have been filed and an additional claim of $14 million has been alleged. As of February 28, 1994, $115 million of the filed claims have been allowed and settled for $50.2 million in the aggregate. The Company is currently negotiating the resolution of the remaining $38 million filed administrative expense claim (which relates to a rejected lease of a Boeing 737-300 aircraft) and the $14 million alleged administrative expense claim (which relates to a rejected lease of a Boeing 757-200 aircraft). Claims have been or may be asserted against the Company for alleged administrative rent and/or breach of return conditions (i.e. maintenance standards), guarantees and tax indemnity agreements related to aircraft or engines abandoned or rejected during the bankruptcy proceedings. Additional claims may be asserted against the Company and allowed by the Bankruptcy Court. The amount of such unidentified administrative claims may be material. As part of its claims administration procedure, the Company is reviewing potential claims that could arise as a result of the Company's rejection of executory contracts. The Company's plan of reorganization will provide for the status of any executory contract not theretofore assumed by either affirming or rejecting such contracts. The assumption or rejection of certain executory contracts could result in additional claims against the Company. 44 At December 31, 1993, the Company had a total of 93 aircraft on order, of which 51 are firm and 42 are options. The current estimated aggregate cost for these firm commitments and options is approximately $5.2 billion. Future aircraft deliveries are planned in some instances for incremental additions to the Company's existing aircraft fleet and in other instances as replacements for aircraft with lease terminations occurring during this period. The purchase agreement to acquire 24 Boeing 737-300 aircraft had been affirmed in the Company's bankruptcy proceeding. With timely notice to the manufacturer, all or some of these deliveries may be converted to Boeing 737-400 aircraft. As of December 31, 1993, eight Boeing 737 delivery positions had been eliminated due to the lack of a required reconfirmation notice by the Company to Boeing. The failure to reconfirm these delivery positions exposes the Company to loss of pre-delivery deposits and other claims which may be asserted by Boeing in the Bankruptcy proceeding. The purchase agreements for the remaining aircraft types have not been assumed and, the Company has not yet determined which of the other aircraft purchase agreements, if any, will be affirmed or rejected. The Company also has a pre-petition executory contract under which the Company holds delivery positions for four Boeing 747-400 aircraft under firm orders and another four under options. The contract allows the Company, with the giving of adequate notice, to substitute other Boeing aircraft types for the Boeing 747-400 in these delivery positions. As a result, the Company is still evaluating its future fleet needs and is currently unable to determine if it will substitute other aircraft types or reject this agreement. The Company believes it will be successful in negotiating new aircraft purchase agreements that will meet its needs. However, there can be no assurances that the Company will enter into such agreements. As of December 31, 1993, the Company had deposits on aircraft orders of approximately $52 million of which approximately $21 million were financed. During 1994, leases relating to four Boeing 737-200 aircraft, two Airbus A320 aircraft and two Boeing 757 aircraft are scheduled to expire. The Company has negotiated extensions of the leases for all but one of the Airbus A320 aircraft for terms ranging from one to three years. The Airbus A320 aircraft to be returned to the lessor will be replaced by a Boeing 757 aircraft which has been leased for a term of three years. In addition, up to nine Airbus A320 aircraft may be put to the Company should GPA and/or Kawasaki elect to exercise its put options. As of February 28, 1994, none of the put options have been exercised. Lease agreements have been arranged for such put aircraft for terms of five to eighteen years at specified monthly lease rate factors. Item 8. Financial Statements and Supplementary Data. ------ ------------------------------------------- Financial statements of the Company as of December 31, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1993, together with the related notes and the Report of KPMG Peat Marwick, independent certified public accountants, are set forth on the following pages. Other required financial information and schedules are set forth herein, as more fully described in Item 14 hereof. 45 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders America West Airlines, Inc., D.I.P.: We have audited the accompanying balance sheets of America West Airlines, Inc., D.I.P. (the Company) as of December 31, 1993 and 1992, and the related statements of operations, cash flows and stockholders' equity (deficiency) for each of the years in the three-year period ended December 31, 1993. In connection with our audits of the financial statements, we also have audited the financial statement schedules V, VI, VIII and X for each of the years in the three-year period ended December 31, 1993. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of America West Airlines, Inc., D.I.P. as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles. Also in our opinion, the financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. The accompanying financial statements and financial statement schedules have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the financial statements, on June 27, 1991 the Company filed a voluntary petition seeking to reorganize under Chapter 11 of the federal bankruptcy laws. This event and circumstances relating to this event, including the Company's significant losses, accumulated deficit and highly leveraged capital structure, raise substantial doubt about its ability to continue as a going concern. Although the Company is currently operating as debtor-in-possession under the jurisdiction of the Bankruptcy Court, the continuation of the business as a going concern is contingent upon, among other things, the ability to (1) file a Plan of Reorganization which will gain approval of the creditors and stockholders and confirmation by the Bankruptcy Court, (2) maintain compliance with all debt covenants under the debtor-in-possession financing agreements, (3) achieve satisfactory levels of future operating results and cash flows and (4) obtain additional debt and equity. Also, as discussed in note 1 to the financial statements, as part of the Company's bankruptcy proceeding there is uncertainty as to the amount of claims that will be allowed and as to a number of disputed claims which are materially in excess of amounts reflected in the accompanying financial statements. The accompanying financial statements and financial statement schedules do not include any adjustments that might result from the outcome of these uncertainties. KPMG PEAT MARWICK Phoenix, Arizona March 18, 1994 F-1 AMERICA WEST AIRLINES, INC., D.I.P. Balance Sheets December 31, 1993 and 1992
Assets 1993 1992 ------ ---------- ---------- (in thousands) Current assets: Cash and cash equivalents (note 4) $ 99,631 $ 74,383 Accounts receivable, less allowance for doubtful accounts of $3,030,000 in 1993 and $2,542,000 in 1992 (note 11) 65,744 64,817 Expendable spare parts and supplies, less allowance for obsolescence of $7,231,000 in 1993 and $6,921,000 in 1992 28,111 34,431 Prepaid expenses 34,939 37,807 ---------- ---------- Total current assets 228,425 211,438 ---------- ---------- Property and equipment (notes 2, 4, 11 and 12): Flight equipment 872,104 841,239 Other property and equipment 180,607 189,755 ---------- ---------- 1,052,711 1,030,994 Less accumulated depreciation and amortization 385,776 328,870 ---------- ---------- 666,935 702,124 Equipment purchase deposits 51,836 52,431 ---------- ---------- 718,771 754,555 ---------- ---------- Restricted cash (note 11) 46,296 40,612 Other assets (note 12) 23,251 29,836 ---------- ---------- $1,016,743 $1,036,441 ========== ========== See accompanying notes to financial statements.
F-2 AMERICA WEST AIRLINES, INC., D.I.P. Balance Sheets December 31, 1993 and 1992
Liabilities and Stockholders' Deficiency 1993 1992 ---------------------------------------- ---------- ---------- (in thousands) Current liabilities: Current maturities of long-term debt (note 4) $ 125,271 $ 156,656 Accounts payable (note 11) 62,957 90,629 Air traffic liability 118,479 107,496 Accrued compensation and vacation benefits 11,704 13,004 Accrued interest 8,295 15,647 Accrued taxes 14,114 15,765 Other accrued liabilities 11,980 13,808 ---------- ---------- Total current liabilities 352,800 413,005 ---------- ---------- Estimated liabilities subject to Chapter 11 proceedings (notes 2 and 4) 381,114 348,322 Long-term debt, less current maturities (notes 4 and 11) 396,350 411,989 Manufacturers' and deferred credits (note 11) 73,592 84,694 Other liabilities (note 11) 67,149 73,044 Commitments, contingencies and subsequent events (notes 1, 2, 4, 6, 7, 9, 11 and 12) Stockholders' deficiency (notes 1, 4, 6, 7, 8, 9 and 12): Preferred stock, $.25 par value. Authorized 50,000,000 shares: Series B 10.5% convertible preferred stock, issued and outstanding 291,149 shares in 1992; $5.41 per share cumulative dividend (liquidation preference $15,000,000) - 73 Series C 9.75% convertible preferred stock issued and outstanding 73,099 shares; $1.33 per share cumulative dividend (liquidation preference $1,000,000) 18 18 Common stock, $.25 par value. Authorized 90,000,000 shares; issued and outstanding 25,291,102 shares in 1993 and 23,967,663 shares in 1992 6,323 5,992 Additional paid-in capital 197,010 195,407 Accumulated deficit (438,626) (475,791) ---------- ---------- (235,275) (274,301) Less deferred compensation and notes receivable - employee stock purchase plans (note 6) 18,987 20,312 Total stockholders' deficiency (254,262) (294,613) ---------- ---------- $1,016,743 $1,036,441 ========== ========== See accompanying notes to financial statements.
F-3 AMERICA WEST AIRLINES, INC., D.I.P. Statements of Operations Years ended December 31, 1993, 1992 and 1991 (in thousands except per share amounts)
1993 1992 1991 ----------- ----------- ----------- Operating revenues: Passenger $ 1,246,564 $ 1,214,816 $ 1,332,191 Cargo 40,161 42,077 43,651 Other 38,639 37,247 38,083 ----------- ----------- ----------- Total operating revenues 1,325,364 1,294,140 1,413,925 ----------- ----------- ----------- Operating expenses: Salaries and related costs 305,429 324,255 383,833 Rentals and landing fees 274,708 338,391 349,563 Aircraft fuel 166,313 186,042 223,347 Agency commissions 106,368 106,661 128,134 Aircraft maintenance materials and repairs 31,000 38,366 41,649 Depreciation and amortization 81,894 86,981 97,803 Restructuring charges (note 13) - 31,316 - Other 238,598 256,940 294,253 ----------- ----------- ----------- Total operating expenses 1,204,310 1,368,952 1,518,582 ----------- ----------- ----------- Operating income (loss) 121,054 (74,812) (104,657) ----------- ----------- ----------- Nonoperating income (expense): Interest income 728 1,418 5,724 Interest expense (contractual interest of $72,961, $73,931 and $79,271 for 1993, 1992 and 1991, respectively (note 4) (54,192) (55,826) (61,912) Loss on disposition of property and equipment (4,562) (1,283) (1,600) Reorganization expense, net (note 2) (25,015) (16,216) (58,440) Other, net (notes 4 and 11) (89) 14,958 (1,131) ----------- ----------- ----------- Total nonoperating expense, net (83,130) (56,949) (117,359) ----------- ----------- ----------- Income (loss) before income taxes 37,924 (131,761) (222,016) ----------- ----------- ----------- Income taxes (note 5) 759 - - ----------- ----------- ----------- Net income (loss) $ 37,165 $ (131,761) $ (222,016) =========== =========== =========== Earnings (loss) per share: Primary $ 1.50 $ (5.58) $ (10.39) =========== =========== =========== Fully diluted $ 1.04 $ (5.58) $ (10.39) =========== =========== =========== Shares used for computation: Primary 27,525 23,914 21,534 =========== =========== =========== Fully diluted 41,509 23,914 21,534 =========== =========== =========== See accompanying notes to financial statements.
F-4 AMERICA WEST AIRLINES, INC., D.I.P. Statements of Cash Flows Years ended December 31, 1993, 1992 and 1991 (in thousands of dollars)
1993 1992 1991 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ 37,165 $ (131,761) $ (222,016) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 81,894 86,981 97,803 Amortization of manufacturers' and deferred credits (5,186) (5,869) (9,851) Loss on disposition of property and equipment 4,562 1,283 1,600 Restructuring charges - 31,316 - Reorganization items 18,167 3,188 44,273 Other (554) 866 9,242 Changes in operating assets and liabilities: Decrease in short-term investments - - 19,705 Decrease (increase) in accounts receivable, net (927) 19,418 (13,945) Decrease (increase) in spare parts and supplies, net 6,320 (2,384) (3,227) Decrease in prepaid expenses 2,627 812 3,208 Increase in other assets and restricted cash (5,295) (1,141) (21,053) Increase (decrease) in accounts payable 9,014 (8,473) 65,083 Increase (decrease) in air traffic liability 8,749 30,723 (41,256) Decrease in accrued compensation and vacation benefits (1,300) (1,491) (909) Increase in accrued interest 10,368 25,640 23,676 Increase (decrease) in accrued taxes (1,764) 2,968 (2,945) Increase in other accrued liabilities 644 18,204 4,594 Increase (decrease) in other liabilities (11,126) 6,465 65,945 ----------- ----------- ----------- Net cash provided by operating activities 153,358 76,745 19,927 Cash flows from investing activities: Purchases of property and equipment (54,324) (69,208) (96,803) Decrease (increase) in equipment purchase deposits - 14,425 (7,294) Proceeds from disposition of property 3,715 383 275 Proceeds from manufacturers' credits - - 5,100 ----------- ----------- ----------- Net cash used in investing activities (50,609) (54,400) (98,722) (Continued)
F-5 AMERICA WEST AIRLINES, INC., D.I.P. Statements of Cash Flows, Continued Years ended December 31, 1993, 1992 and 1991 (in thousands of dollars)
1993 1992 1991 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of D.I.P. financing $ - $ 53,000 $ 78,000 Proceeds from issuance of debt - 22,804 - Repayment of debt (77,501) (75,871) (44,939) Proceeds from issuance of common stock - - 7,265 Preferred dividends paid - - (423) ----------- ----------- ----------- Net cash provided by (used in) financing activities (77,501) (67) 39,903 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 25,248 22,278 (38,892) ----------- ----------- ----------- Cash and cash equivalents at beginning of year 74,383 52,105 90,997 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 99,631 $ 74,383 $ 52,105 =========== =========== =========== See accompanying notes to financial statements.
F-6 AMERICA WEST AIRLINES, INC., D.I.P. Statements of Stockholders' Equity (Deficiency) Years ended December 31, 1993, 1992, and 1991 (in thousands of dollars except per share amounts)
Notes Receivable and Deferred Convertible Additional Compensation Preferred Common Paid-In Accumulated Employee Stock Stock Stock Capital Deficit Purchase Plans Total ----------- ------ ---------- ----------- ---------------- --------- Balance at January 1, 1991 $ 91 $ 4,832 $ 156,573 $ (118,669) $ (21,686) $ 21,141 Issuance of 253,422 shares of common stock sold at: $5.50 per share, net of expenses - 63 1,331 - - 1,394 Issuance of 2,755,938 shares of common stock pursuant to convertible subordinated debentures - 689 28,084 - - 28,773 Issuance of 10,841 shares of common stock pursuant to exercise of stock options and warrants - 3 38 - - 41 Repurchase of 1,356 shares of common stock pursuant to employee restricted stock plan - - (8) - - (8) Repurchase of 3,659 shares of common stock pursuant to employee stock purchase plan - (1) (23) - - (24) Employee restricted stock deferred compensation - - (1) - 214 213 Employee stock purchase plan: Issuance of 1,271,765 shares of common stock at: $.94-$7.50 per share - 318 4,601 - (889) 4,030 Deferred compensation - - 1,230 - 389 1,619 Preferred stock dividends Series B: $5.41 per share - - - (1,575) - (1,575) Series C: $1.33 per share - - - (98) - (98) Net loss - - - (222,016) - (222,016) ---- ------- --------- ---------- --------- -------- Balance at December 31, 1991 91 5,904 191,825 (342,358) (21,972) (166,510) ---- ------- --------- ---------- --------- -------- Issuance of 346,661 shares of common stock pursuant to convertible subordinated debentures - 86 3,599 - - 3,685 Employee restricted stock deferred compensation - - - - 101 101 Employee stock purchase plan: Issuance of 7,305 shares of common stock at: $.19-$2.63 per share - 2 (13) - 81 70 Deferred compensation - - (4) - 1,478 1,474 Preferred stock dividends Series B: $5.41 per share - - - (1,575) - (1,575) Series C: $1.33 per share - - - (97) - (97) Net loss - - - (131,761) - (131,761) ---- ------- --------- ---------- --------- -------- Balance at December 31, 1992 91 5,992 195,407 (475,791) (20,312) (294,613) ---- ------- --------- ---------- --------- -------- (Continued)
F-7 AMERICA WEST AIRLINES, INC., D.I.P. Statements of Stockholders' Equity (Deficiency), Continued Years ended December 31, 1993, 1992, and 1991 (in thousands of dollars except per share amounts)
Notes Receivable and Deferred Convertible Additional Compensation Preferred Common Paid-In Accumulated Employee Stock Stock Stock Capital Deficit Purchase Plans Total ----------- ------ ---------- ----------- ---------------- --------- Balance at December 31, 1992 $ 91 $ 5,992 $ 195,407 $ (475,791) $ (20,312) $(294,613) ---- ------- --------- ---------- --------- --------- Issuance of 170,173 shares of common stock pursuant to Series B convertible subordinated debentures - 43 1,896 - - 1,939 Issuance of 1,164,596 shares of common stock pursuant to convertible preferred stock (73) 291 (218) - - - Employee restricted stock deferred compensation - - - - 21 21 Employee stock purchase plan: Cancellation of 11,330 shares of common stock at: $.22-$1.59 per share - (3) (38) - 49 8 Deferred compensation - - (37) - 1,255 1,218 Net income - - - 37,165 - 37,165 ---- ------- --------- ---------- --------- --------- Balance at December 31, 1993 $ 18 $ 6,323 $ 197,010 $ (438,626) $ (18,987) $(254,262) ==== ======= ========= ========== ========= ========= See accompanying notes to financial statements.
F-8 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements December 31, 1993, 1992 and 1991 (1) Reorganization Under Chapter 11, Liquidity, Financial Condition and ------------------------------------------------------------------- Subsequent Events ----------------- On June 27, 1991, America West Airlines, Inc., D.I.P. (the "Company" or "America West") filed a voluntary petition in the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") to reorganize under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Company is currently operating as a debtor-in-possession ("D.I.P.") under the supervision of the Bankruptcy Court. As a debtor-in-possession, the Company is authorized to operate its business but may not engage in transactions outside its ordinary course of business without the approval of the Bankruptcy Court. Subject to certain exceptions under the Bankruptcy Code, the Company's filing for reorganization automatically enjoined the continuation of any judicial or administrative proceedings against the Company. Any creditor actions to obtain possession of property from the Company or to create, perfect or enforce any lien against the property of the Company are also enjoined. As a result, the creditors of the Company are precluded from collecting pre-petition debts without the approval of the Bankruptcy Court. The Company had the exclusive right for 120 days after the Chapter 11 filing on June 27, 1991 to file a plan of reorganization and 60 additional days to obtain necessary acceptances of such plan. Such periods may be extended at the discretion of the Bankruptcy Court, but only on a showing of good cause, and extensions have been obtained such that the Company has until June 10, 1994 to file its plan of reorganization with the Court or obtain an additional extension. Subject to certain exceptions set forth in the Bankruptcy Code, acceptance of a plan of reorganization requires approval of the Bankruptcy Court and the affirmative vote (i.e. 50% of the number and 66- 2/3% of the dollar amount) of each class of creditors and equity holders whose claims are impaired by the plan. Certain pre-petition liabilities have been paid after obtaining the approval of the Bankruptcy Court, including certain wages and benefits of employees, insurance costs, obligations to foreign vendors and governmental agencies, travel agent commissions and ticket refunds. The Company has also been allowed to honor all tickets sold prior to the date it filed for reorganization. In addition, the Company is authorized to pay pre-petition liabilities to essential suppliers of fuel, food and beverages and to other vendors providing critical goods and services. Subsequent to filing and with the approval of the Bankruptcy Court, the Company assumed certain executory contracts of essential suppliers. Parties to executory contracts may, under certain circumstances, file motions with the Bankruptcy Court to require the Company to assume or reject such contracts. Unless otherwise agreed, the assumption of a contract will require the Company to cure all prior defaults under the related contract, including all pre-petition liabilities unless terms can be negotiated. Unless otherwise agreed, the rejection of a contract is deemed to constitute a breach of the agreement as of the moment immediately preceding Chapter 11 filing, giving the other party to the contract a right to assert a general unsecured claim for damages arising out of the breach. (Continued) F-9 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements February 28, 1992 was set as the last date for the filing of proof of claims under the Bankruptcy Code and the Company's creditors have submitted claims for liabilities not paid and for damages incurred. There may be differences between the amounts at which any such liabilities are recorded in the financial statements and the amount claimed by the Company's creditors. Significant litigation may be required to resolve any such disputes. The Company has incurred and will continue to incur significant costs associated with the reorganization. The amount of these costs, which are being expensed as incurred, is expected to significantly affect results of operations. As a result of its filing for protection under Chapter 11 of the Bankruptcy Code, the Company is in default of substantially all of its debt agreements. All outstanding pre-petition unsecured debt of the Company has been presented in these financial statements within the caption Estimated Liabilities Subject to Chapter 11 Proceedings. Additional liabilities subject to the proceedings may arise in the future as a result of the rejection of executory contracts, including leases, and from the determination by the Bankruptcy Court (or agreement by parties in interest) of allowed claims for contingencies and other disputed amounts. Conversely, the assumption of executory contracts and unexpired leases may convert liabilities shown as subject to Chapter 11 proceedings to post-petition liabilities. Substantially all of the aircraft, engines and spare parts in the Company's fleet are subject to lease or secured financing agreements that entitle the Company's aircraft lessors and secured creditors to rights under Section 1110 of the Bankruptcy Code. Pursuant to Section 1110, the Company had 60 days from the date of its Chapter 11 filing, or until August 26, 1991, to bring its obligations to these aircraft lessors and secured creditors current and/or reach other mu- tually satisfactory negotiated arrangements. In September 1991, as a condition to the borrowings under the initial $55 million D.I.P. facility, the Company arranged for rent, principal and interest payment deferrals from a majority of its aircraft providers as a condition to the assumption of the related lease or secured borrowing by the Company. As a result of these arrangements, the Company was able to assume the executory contracts associated with 83 aircraft in its fleet without having to bring its obligations to these aircraft providers current. In addition, as part of the initial D.I.P. facility, the Company assumed and brought current lease agreements for 16 Airbus A320 aircraft, three CFM engines, a Boeing 757-200 and a Boeing 737-300. Twenty-two aircraft were deemed surplus to the Company's needs and the associated executory contracts were rejected. Included in 1991 reorganization costs is $35.2 million in write-offs of leasehold improvements, security deposits, accrued maintenance, accrued rents and other costs to return the aircraft which were subject to the rejected aircraft agreements. In certain cases, final agreements were reached with such aircraft providers and no further claims by such providers will be pursued as a result of the rejections. In other instances, the aircraft providers have filed claims in the normal course of the bankruptcy and as of December 31, 1993 significant claims for rejected aircraft have not yet been settled. (Continued) F-10 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements Due to the uncertain nature of many of the potential claims, the Company is unable to project the magnitude of such claims with any degree of certainty. However, the claims (pre-petition claims and administrative claims) that have been filed against the Company are in excess of $2 billion. Such aggregate amount includes claims of all character, including, but not limited to, unsecured claims, secured claims, claims that have been scheduled but not filed, duplicative claims, tax claims, claims for leases that were assumed, and claims which the Company believes to be without merit; however, claims filed for which an amount was not stated, are not reflected in such amount. The Company is unable to estimate the potential amount of such unstated claims; however, the amount of such claims could be material. The Company is in the process of reviewing the general unsecured claims asserted against the Company. In many instances, such review process will include the commencement of Bankruptcy Court proceedings in order to determine the amount at which such claims should be allowed. The Company has accrued its estimate of claims that will be allowed or the minimum amount at which it believes the asserted general unsecured claims will be allowed if there is no better estimate within the range of possible outcomes. However, the ultimate amount of allowed claims will be different and such differences could be material. The Company is unable to estimate the amount of such differences with any reasonable degree of certainty at this time. The Bankruptcy Code requires that all administrative claims be paid on the effective date of a plan of reorganization unless the respective claimants agreed to different treatment. Consequently, depending on the ultimate amount of administrative claims allowed by the Bankruptcy Court, the Company may be unable to obtain confirmation of a plan of reorganization. The Company is actively negotiating with claimants to achieve mutually acceptable dispositions of these claims. Since the commencement of the bankruptcy proceeding, claims alleging administrative expense priority totaling more than $153 million have been filed and an additional claim of $14 million has been alleged. As of February 28, 1994, $115 million of the filed claims have been allowed and settled for $50.2 million in the aggregate. The Company is currently negotiating the resolution of the remaining $38 million filed administrative expense claim (which relates to a rejected lease of a Boeing 737-300 aircraft) and the alleged $14 million administrative claim (which relates to a rejected lease of a Boeing 757-200 aircraft). Claims have been or may be asserted against the Company for alleged administrative rent and/or breach of return conditions (i.e. maintenance standards), guarantees and tax indemnity agreements related to aircraft or engines abandoned or rejected during the bankruptcy proceedings. Additional claims may be asserted against the Company and allowed by the Bankruptcy Court. The amount of such unidentified administrative claims may be material. (Continued) F-11 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements Plan of Reorganization ---------------------- Under the Bankruptcy Code, the Company's pre-petition liabilities are subject to settlement under a plan of reorganization. Pursuant to an extension granted by the Bankruptcy Court on February 2, 1994, the Company has the partially exclusive right, until June 10, 1994 (unless extended by the Bankruptcy Court), to file a plan of reorganization. Each of the official committees has also been approved to submit a plan of reorganization. The exclusivity period may be extended by the Bankruptcy Court upon a showing of cause after notice has been given and a hearing has been held, although no assurance can be given that any additional extensions will be granted if requested by the Company. The Company has agreed not to seek additional extensions of the exclusivity period without the advance consent of the Creditors' Committee and the Equity Committee. On December 8, 1993 and February 16, 1994, the Bankruptcy Court entered certain orders which provided for a procedure pursuant to which interested parties could submit proposals to participate in a plan of reorganization for America West. The Bankruptcy Court also set February 24, 1994 as the date for America West to select a "Lead Plan Proposal" from the proposals submitted. On February 24, 1994, America West selected as its Lead Plan Proposal an investment proposal submitted by AmWest Partners, L.P., a limited partnership ("AmWest"), which includes Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc. and Fidelity Management Trust Company. On March 11, 1994, the Company and AmWest entered into a revised investment agreement which substantially incorporates the terms of the AmWest investment proposal (the "Investment Agreement"). The Investment Agreement provides that AmWest will purchase from America West equity securities representing a 37.5% ownership interest in the Company for $120 million and $100 million in new senior unsecured debt securities. The Investment Agreement also provides that, in addition to the 37.5% ownership interest in the Company, AmWest would also obtain 72.9% of the total voting interest in America West after the Company is reorganized. The terms of the Investment Agreement will be incorporated into a plan of reorganization to be filed with the Bankruptcy Court; however, modifications to the Investment Agreement may occur prior to the submission of a plan of reorganization and such modifications may be material. There can be no assurance that a plan of reorganization based upon the Investment Agreement will be accepted by the parties entitled to vote thereon or confirmed by the Bankruptcy Court. In addition to the interest in the reorganized America West that would be acquired by AmWest pursuant to the Investment Agreement, the Investment Agreement also provides for the following: 1. The D.I.P. financing would be repaid in full with cash on the date a plan of reorganization is confirmed ("Reorganization Date"). (Continued) F-12 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements 2. On the Reorganization Date, unsecured creditors would receive 45% of the new common equity in the reorganized Company, with the potential to receive up to 55% of such equity if within one year after the Reorganization Date, the value of the securities dis- tributed to them has not provided them with a full recovery under the Bankruptcy Code. In addition, unsecured creditors would have the right to elect to receive cash at $8.889 per share up to an aggregate maximum amount of $100 million, through a repurchase by AmWest of a portion of the shares to be issued to unsecured creditors under a plan of reorganization. 3. Holders of equity interests would have the right to receive up to 10% of the new common equity of the Company, depending on certain conditions principally involving a determination as to whether the unsecured creditors had received a full recovery on account of their claims. In addition, holders of equity interests would have the right to purchase up to $15 million of the new common equity in the Company for $8.296 per share from AmWest, and would also receive warrants entitling them to purchase, together with AmWest, up to 5% of the reorganized Company's common stock, at a price to be set so that the warrants would have value only after the unsecured creditors would have received full recovery on their claims. 4. In exchange for certain concessions principally arising from cancellation of the right of Guinness Peat Aviation ("GPA") affiliates to put to America West 10 Airbus A320 aircraft at fixed rates, GPA, or certain affiliates thereof, would receive (i) 7.5% of the new common equity in the reorganized Company, (ii) warrants to purchase up to 2.5% of the reorganized Company's common stock on the same terms as the AmWest warrants, (iii) $3 million in new senior unsecured debt securities, and (iv) the right to require the Company to lease up to eight aircraft of types operated by the Company from GPA prior to June 30, 1999 on terms which the Company believes to be more favorable than those currently applicable to the put aircraft. See note 11 for an additional discussion of the put rights. 5. Continental Airlines, Inc., Mesa Airlines, Inc. and America West would enter into certain alliance agreements which would include code-sharing, schedule coordination and certain other relationships and agreements. A condition to proceeding with a plan of reorganization based upon the Investment Agreement would be that these agreements be in form and substance satisfactory to America West, including the Company's reasonable satisfaction that such alliance agreements when fully implemented will result in an increase in pre-tax income of not less than $40 million per year. 6. The expansion of the Company's board of directors to 15 members. Nine members would be designated by AmWest and other members reasonably acceptable to AmWest would include four members designated by representatives of the Company, the Equity Committee and the Creditors' Committee and two members designated by GPA. (Continued) F-13 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements 7. The Investment Agreement also provides for many other matters, including the disposition of the various types of claims asserted against the Company, the adherence to the Company's aircraft lease agreements, the amendment of the Company's aircraft pur- chase agreements and release of the Company's employees from all currently existing obligations arising under the Company's stock purchase plan in consideration for the cancellation of the shares of Company stock securing such obligations. The Company has also entered into a Revised Interim Procedures Agreement (the "Procedures Agreement") with AmWest. The Procedures Agreement is subject to the approval of the Bankrupty Court and sets forth terms and conditions upon which the Company must operate prior to the effective date of a confirmed plan of reorganization based upon the terms of the Investment Agreement. The Procedures Agreement provides for the reimbursement of AmWest's expenses (up to a maximum of $3.6 million) as well as a termination fee of up to $8 million under certain conditions. The Procedures Agreement has not yet been approved by the Bankruptcy Court. The Company is currently developing with AmWest a plan of reorganization based upon the foregoing terms. The Equity Committee has agreed to support the plan. The Creditors' Committee has indicated that it does not support the current terms of the Investment Agreement. Another group interested in developing a plan of reorganization with the Company has proposed to invest $155 million in equity securities and $65 million in new senior unsecured debt securities. The proponent of this proposal would receive a 33.5% ownership interest in the reorganized Company, current equity holders would receive a 4% ownership interest in the reorganized Company and the unsecured creditors would receive a 62.5% ownership interest in the reorganized company. Any plan of reorganization must be approved by the Bankruptcy Court and by specified majorities of each class of creditors and equity holders whose claims are impaired by the plan. Alternatively, absent the requisite approvals, the Company may seek Bankruptcy Court approval of its reorganization plan under Section 1129(b) of the Bankruptcy Code, assuming certain tests are met. The Company cannot predict whether any plan submitted by it will be approved. The Company is currently unable to predict when it may file a plan of reorganization based upon the Investment Agreement, but intends to do so as soon as practicable. Once a plan with a disclosure statement is filed by any party, the Bankruptcy Court will hold a hearing to determine the adequacy of the information contained in such disclosure statement. Only upon receiving an order from the Bankruptcy Court providing that the disclosure statement accompanying any such plan contains adequate information as required by Section 1125 of the Bankruptcy Code, may a party solicit acceptances or rejections of any such plan of reorganization. Following entry of an order approving the disclosure statement, the plan will be sent to creditors and equity holders for voting pursuant to both the Bankruptcy Code and orders that will be entered by the Bankruptcy Court. Following submission of the plan to holders of claims and equity interests, the Bankruptcy Court will hold a hearing to consider confirmation of the plan pursuant to Section 1129 of the Bankruptcy Code. Although the Bankruptcy Code provides for certain minimum time periods for these events, the Company is unable to reasonably estimate when a plan based on the Investment Agreement might be submitted for voting and confirmation. (Continued) F-14 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements If at any time the Creditors' Committee, the Equity Committee or any creditor of the Company or equity holder of the Company believes that the Company is or will not be in a position to sustain operations, such party can move in the Bankruptcy Court to compel a liquidation of the Company's estate by conversion to Chapter 7 bankruptcy proceedings or otherwise. In the event that the Company is forced to sell its assets and liquidate, it is unlikely that unsecured creditors or equity holders will receive any value for their claims or interests. The Company anticipates that the reorganization process will result in the restructuring, cancellation and/or replacement of the interest of its existing common and preferred stockholders. Because of the "absolute priority rule" of Section 1129 of the Bankruptcy Code, which requires that the Company's creditors be paid in full (or otherwise consent) before equity holders can receive any value under a plan of reorganization, the Company previously disclosed that it anticipated that the reorganization process would result in the elimination of the Company's existing equity interests. Due to recent events, including sustained improvement in the Company's operating results as well as general improvement in the condition of the United States' economy and airline industry, some form of distribution to the equity interests pursuant to Section 1129 may occur. However, there can be no assurances in this regard. The accompanying financial statements have been prepared on a going concern basis which assumes continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. As a result of the reorganization proceedings, there are significant uncertainties relating to the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might be necessary as a result of the outcome of the uncertainties discussed herein including the effects of any plan of reorganization. (2) Estimated Liabilities Subject to Chapter 11 Proceedings and ----------------------------------------------------------- Reorganization Expense ---------------------- Under Chapter 11, certain claims against the Company in existence prior to the filing of the petitions for relief under the Code are stayed while the Company continues business operations as debtor-in- possession. These pre-petition liabilities are expected to be settled as part of the plan of reorganization and are classified as "Estimated liabilities subject to Chapter 11 proceedings." Estimated liabilities subject to Chapter 11 proceedings as of December 31, 1993 and 1992 consists of the following:
December 31, 1993 1992 ---- ---- (in thousands) Long-term debt (including convertible subordinated debentures of $138.9 million and $140.8 million at December 31, 1993 and 1992, respectively) (note 4) $224,642 $235,026 Accounts payable and accrued liabilities 113,945 73,488 Accrued interest 16,808 14,261 Accrued taxes 25,719 25,547 -------- -------- $381,114 $348,322 ======== ========
(Continued) F-15 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements The debt balance included above consists of unsecured and secured obligations and other obligations that have not been affirmed by the Company through the Bankruptcy Court (note 4). Reorganization expense is comprised of items of income, expense, gain or loss that were realized or incurred by the Company as a result of reorganization under Chapter 11 of the Federal Bankruptcy Code. Such items consists of the following:
1993 1992 1991 ---- ---- ---- (in thousands) Provisions for pre-petition and administrative claims $18,231 $ 1,748 $35,203 Professional fees 7,227 11,147 8,531 D.I.P. financing issuance costs 1,378 1,760 2,660 Write-off of debt issuance costs - - 2,773 Employee termination and furlough costs - 561 1,343 Facility closing costs - 2,776 6,796 Interest income (2,635) (2,030) (1,365) Other 814 254 2,499 ------- ------- ------- $25,015 $16,216 $58,440 ======= ======= =======
(3) Summary of Significant Accounting Policies ------------------------------------------ (a) Financial Reporting for Bankruptcy Proceedings ---------------------------------------------- On November 19, 1990, the American Institute of Certified Public Accountants issued Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 provides guidance for financial reporting by entities that have filed petitions with the Bankruptcy Court and expect to reorganize under Chapter 11 of the Code. SOP 90-7 recommends that all such entities report consistently while reorganizing under Chapter 11, with the objective of reflecting their financial evolution. To achieve such objectives, their financial statements should distinguish transactions and events that are directly associated with the reorganization from those of the operations of the ongoing business as it evolves. SOP 90-7 became effective for financial statements of enterprises that filed petitions under the Code after December 31, 1990, although earlier application was encouraged. The Company has implemented the guidance provided by SOP 90-7 in the accompanying financial statements. Pursuant to SOP 90-7, pre-petition liabilities are reported on the basis of the expected amounts of such allowed claims, as opposed to the amounts for which those allowed claims may be settled. Under an approved final plan of reorganization, those claims may be settled at amounts substantially less than their allowed amounts. (Continued) F-16 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (b) Cash Equivalents ---------------- Cash equivalents consist of all highly liquid debt instruments purchased with original maturities of three months or less and are carried at cost which approximates market. (c) Restricted Cash --------------- Restricted cash includes cash held in Company accounts, but pledged to an institution which processes credit card sales transactions and cash deposits securing certain letters of credit. (d) Expendable Spare Parts and Supplies ----------------------------------- Flight equipment expendable spare parts and supplies are valued at average cost. Allowances for obsolescence are provided, over the estimated useful life of the related aircraft and engines, for spare parts expected to be on hand at the date the aircraft are retired from service. (e) Property and Equipment ---------------------- Property and equipment is stated at cost or, if acquired under capital leases, at the lower of the present value of minimum lease payments or fair market value at the inception of the lease. Interest capitalized on advance payments for aircraft acquisitions and on expenditures for aircraft improvements is part of the cost. Property and equipment is depreciated and amortized to residual values over the estimated useful lives or the lease term using the straight-line method. The Company discontinued capitalizing interest on June 27, 1991 due to the Chapter 11 filing. The estimated useful lives for the Company's property and equip- ment range from three to twelve years for owned property and equipment and to thirty years for the reservation and training center and technical support facilities. The estimated useful lives of the Company's owned aircraft, jet engines, flight equipment and rotable parts range from eleven to twenty-two years. Leasehold improvements relating to flight equipment and other property on operating leases are amortized over the life of the lease or the life of the asset, whichever is shorter. Routine maintenance and repairs are charged to expense as incurred. The cost of major scheduled airframe, engine and certain component overhauls are capitalized and amortized over the periods benefited and included in depreciation and amortization expense. Additionally, a provision for the estimated cost of scheduled airframe and engine overhauls required to be performed on leased aircraft prior to their return to the lessors has been provided. (Continued) F-17 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (f) Revenue Recognition ------------------- Passenger revenue is recognized when the transportation is provided. Ticket sales for transportation which has not yet been provided are reflected in the financial statements as air traffic liability. (g) Passenger Traffic Commissions and Related Fees ---------------------------------------------- Passenger traffic commissions and related fees are expensed when the transportation is provided and the related revenue is recognized. Passenger traffic commissions and related fees not yet recognized are included as a prepaid expense. (h) Income Taxes ------------ Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. As more fully discussed at note 5, adoption of the new standard changes the Company's method of accounting for income taxes from the deferred approach to an asset and liability approach. As with the prior standard, the Company continues to account for its investment tax credits and general business credits by use of the flow-through method. (i) Per Share Data -------------- Primary earnings (loss) per share is based upon the weighted average number of shares of common stock outstanding and dilutive common stock equivalents (stock options and warrants). Primary earnings per share reflect net income adjusted for interest on borrowings effectively reduced by the proceeds from the assumed conversion of common stock equivalents. Fully diluted earnings per share in 1993 is based on the average number of shares of common stock and dilutive common stock equivalents outstanding adjusted for conversion of outstanding convertible preferred stock and convertible debentures. Fully diluted earnings per share reflects net income adjusted for interest on borrowings effectively reduced by the proceeds from the assumed conversion of common stock equivalents. (Continued) F-18 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (j) Frequent Flyer Awards --------------------- The Company maintains a frequent travel award program known as "FlightFund" that provides a variety of awards to program members based on accumulated mileage. The estimated cost of providing the free travel, using the incremental cost method as adjusted for estimated redemption rates, is recognized as a liability and charged to operations as program members accumulate mileage. (k) Manufacturers' and Deferred Credits ----------------------------------- In connection with the acquisition of certain aircraft and engines, the Company receives various credits. Such manufacturers' credits are deferred until the aircraft and engines are delivered, at which time they are either applied as a reduction of the cost of acquiring owned aircraft and engines, resulting in a reduction of future depreciation expense, or amortized as a reduction of rent expense for leased aircraft and engines. (l) Fair Value of Financial Instruments ----------------------------------- The fair value estimates and assumptions used in developing the estimates of the Company's financial instruments are as follows: Cash and Cash Equivalents ------------------------- The carrying amount approximates fair value because of the short maturity of those instruments. Accounts Receivable and Accounts Payable ---------------------------------------- The carrying amount of accounts receivable and accounts payable approximates fair value as they are expected to be collected or paid within 90 days of year-end. Long-term Debt and Estimated Liabilities Subject to Chapter 11 -------------------------------------------------------------- Proceedings ----------- The fair value of long-term debt and estimated liabilities subject to Chapter 11 proceedings cannot readily be estimated as quoted market prices are not available. Additionally, future cash flows cannot be estimated as the repayment of these in- struments is subject to disposition within the bankruptcy proceedings. (m) Reclassifications ----------------- Certain prior year reclassifications have been made to conform to the current year presentation. (Continued) F-19 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (4) Long-term Debt -------------- Long-term debt consists of the following:
December 31, 1993 1992 ---- ---- (in thousands) D.I.P. financing, secured by substantially all Company assets (a) $ 83,577 $110,784 Note payable to aircraft provider for advance credits (a) 68,356 60,732 Notes payable secured by aircraft (b) 306,837 327,267 Line of credit agreements (c) 18,589 24,979 Note from an aircraft engine provider (d) 7,191 12,392 Notes payable secured by flight simulators (e) 20,064 22,804 Notes payable to administrative claimants (f) 10,734 - Other 6,273 9,687 -------- -------- 521,621 568,645 Less current maturities (125,271) (156,656) -------- -------- $396,350 $411,989 ======== ========
(Continued) F-20 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements Long-term debt included in estimated liabilities subject to Chapter 11 proceedings consists of the following:
December 31, 1993 1992 ---- ---- (in thousands) 7-3/4% convertible subordinated debentures due 2010 (g) $ 30,477 $ 30,752 7-1/2% convertible subordinated debentures due 2011 (h) 31,709 32,069 11-1/2% convertible subordinated debentures due 2009 (i) 76,722 78,025 Note payable to an aircraft provider for deferred pre-delivery payments (j) 21,126 21,126 Line of credit agreement (k) 9,854 11,000 Industrial development revenue bonds (l) 29,497 29,497 Letter of credit draws secured by rotable parts (m) 22,967 23,113 Other 2,290 9,444 -------- -------- $224,642 $235,026 ======== ========
As part of the Chapter 11 reorganization process, the Company is required to notify all known or potential claimants for the purpose of identifying all pre-petition claims against the Company. Additional bankruptcy claims and pre-petition liabilities may arise by termina- tion of various contractual obligations and as certain contingent and/or potentially disputed bankruptcy claims are allowed for amounts which may differ from those shown on the balance sheet. As discussed in note 1, payment of these liabilities, including maturity of debt obligations, is stayed while the debtor continues to operate as a debtor-in-possession. As a result, contractual terms have been suspended with respect to debt subject to the Chapter 11 proceedings. The following paragraphs include discussion of the original contractual terms of the long-term debt; however, the maturity and terms of the long-term debt subsequent to the petition date may differ as a result of negotiations that take place as part of the plan of reorganization. (Continued) F-21 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements No principal or interest may be paid on pre-petition debt without the approval of the Bankruptcy Court. The Company has continued to accrue and pay interest on its long-term debt related to D.I.P. financing, affirmed long-term debt and secured debt included in estimated liabilities subject to Chapter 11 proceedings only to the extent that, in the Company's opinion, the value of underlying collateral exceeds the principal amount of the secured claim. The Company believes it is probable such interest will be an allowed secured claim as part of the bankruptcy proceeding. Except as otherwise stated above, the Company ceased accruing interest on pre-petition debt as of June 27, 1991, due to uncertainties relating to a final plan of reorganization. (a) In September 1991, the Company completed arrangements for a $55 million D.I.P. credit facility. The D.I.P. credit facility is secured by a first priority lien senior to all other liens on substantially all existing assets of the Company, except that such lien is junior in priority to Permitted First Liens (as such term is defined in the D.I.P. credit facility documents) with respect to the property encumbered thereby. In December 1991, the Company completed arrangements for an additional $23 million of D.I.P. financing under terms and conditions substantially the same as those associated with the $55 million D.I.P. credit facility. Quarterly interest payments for the D.I.P. financings commenced in the quarter ending December 31, 1991 at the 90-day London Interbank Offered Rate (LIBOR) plus 3.5% and quarterly principal repayments of $3.9 million were to commence in September 1992 with the balance due in September 1993, or earlier upon confirmation of an approved plan of reorganization. In connection with the $23 million of D.I.P. financing, the Company agreed to convert advanced cash credits for 24 Airbus A320 aircraft previously provided to the Company into an unsecured priority term loan. At December 31, 1993, the amount of the term loan was $68.4 million including accrued interest of $21.9 million. Until the Reorganization Date, the term loan will accrue interest at 12% per annum and such interest will be added to the principal balance. On the Reorganization Date, 85% of the outstanding balance will be converted into an eight-year term loan which will accrue interest at 2% over 90-day LIBOR and will be secured by substantially all the assets of the Company if the D.I.P. financing is fully repaid. Principal payments will be made in equal quarterly installments, plus interest, commencing after the Reorganization Date. The Company has the right to prepay the loan if the D.I.P. financing is fully repaid. The remaining 15% of the term loan will be treated as a general unsecured claim without priority status under the Company's plan of reorganization. In the first quarter of 1994, the Company received information that the term loan was purchased by a third party. (Continued) F-22 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements In connection with the D.I.P. financing, a D.I.P. lender agreed to acquire the Company's Honolulu to Nagoya, Japan route for $15 million. The Nagoya route sale was finalized in March 1992, resulting in a gain of $15 million, which is included in other non-operating income in the accompanying statement of operations. Upon the completion of the sale of the Nagoya route, $10 million of the proceeds from the sale were paid to the lender to reduce the Company's obligation to the lender under the D.I.P. fi- nancing. The balance of the proceeds from the sale of the Nagoya route were added to the Company's working capital. The remaining D.I.P. balance was paid to this lender in connection with the September 1992 D.I.P. Facility. In September 1992, the Company completed arrangements to expand its existing D.I.P. financing by an additional $53 million (the "September 1992 D.I.P. Facility"). As a condition to the closing of the September 1992 D.I.P. Facility, the Company was required to reduce its aircraft fleet and the number of aircraft types from five to three pursuant to certain agreements with third parties, including the following: 1. With the exception of four lessors (two of which participated in the September 1992 D.I.P. Facility and did not defer or reduce their lease payments), aircraft lessors whose aircraft were retained in the fleet and who agreed to payment deferrals during July and August 1992, were required to waive any default which occurred as a result of such non- payments and to defer these payments without interest until the first calendar quarter of 1993. In addition, effective August 1, 1992, the rental rates on these retained aircraft were reduced to fair market lease rates for a two-year period. The rental rates adjust to market rates effective August 1, 1994. Of the remaining two lessors, one accepted rental payment reductions and the other agreed to a deferral of the rents from July through October 1992. Repayment of this deferral is monthly over seven years beginning November 1992 at level principal and interest at 90-day LIBOR plus 3.5%. 2. The aircraft lessors who accepted rent reductions and agreed to waive any administrative claims arising from the reductions stipulated that, if prior to July 31, 1994, the Company defaults on any of these leases and the aircraft are repossessed, the lessors are entitled to fixed damages which will be afforded priority as administrative claims. Lessors of 11 aircraft have the option, beginning August 1, 1994, to reset the rents to the current fair market rental rates and, if elected by the lessor, to readjust at two other two-year intervals during the remaining term of the lease. (Continued) F-23 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements The Company also agreed in certain cases that lessors could call the aircraft upon 180 days notice if the lessor had a better lease proposal from another party which the Company was unwilling to match. During the period August 1, 1994 through July 31, 1995, certain of these lessors may call their aircraft without first giving the Company the right to match any competing offer. Call rights with a right of first refusal affect 16 aircraft and call rights without a right of first refusal affect 10 aircraft. In addition, in order to induce several lessors to extend the lease terms of their aircraft, the Company agreed that the aircraft could be called by the lessors at the end of the original lease term. One lessor of 11 aircraft has the right to terminate each lease at the end of the original lease term of each aircraft. Such lessor also has the right to call its aircraft on 90 days notice at any time prior to the end of the amended lease term. America West has no right of first refusal with respect to such aircraft. To date, no lessor has exercised its call rights. 3. Certain principal and interest payments relating to owned aircraft due in July 1992 were deferred without interest and were repaid by March 31, 1993. Additionally, certain other principal and interest payments due from August 1992 through January 1993 were deferred and repaid beginning February 1993 over five to nine years with interest at approximately 10.25%. In lieu of payment deferrals, two of the aircraft lenders agreed to adjust the interest rates based on 90-day LIBOR plus 3.5% per annum. In September 1993, the Bankruptcy Court approved an amendment to the D.I.P. loan agreement extending the maturity date of the loan from September 30, 1993 to June 30, 1994. Concurrent with the extension of the maturity date, $8.3 million of the principal balance was repaid to one of the participants who did not agree with the amendment. Interest on all funds advanced under the D.I.P. facility accrues at 3.5% per annum, over 90-day LIBOR and is payable quarterly. The amended D.I.P. loan agreement defers all principal payments to the earlier of June 30, 1994 or the effective date of a confirmed Chapter 11 plan of reorganization with the exception of $5 million that will be due on March 31, 1994. The amended terms of the D.I.P. financing require the Company to notify the D.I.P. lenders if the unrestricted cash balance of the Company exceeds $125 million. Upon receipt of such notice, the D.I.P. lenders may require the Company to prepay the D.I.P. financing by the amount of such excess. Subsequent to December 31, 1993, the Company notified the D.I.P. lenders that the Company's unrestricted cash exceeded $125 million; however, the D.I.P. lenders have not exercised their prepayment rights. The D.I.P. financings contain a minimum unencumbered cash balance requirement of $55 million at December 31, 1993 and other financial covenants. At December 31, 1993, the Company was in compliance with these covenants. (Continued) F-24 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements As a condition to extending the maturity date of the D.I.P. financing in September 1993, the Company also agreed to pay a facility fee of $627,000 to the D.I.P. lenders on September 30, 1993 and to pay an additional facility fee equal to 1/4% of the then outstanding balance of the D.I.P. financing on March 31, 1994. Consequently, the outstanding balance of $83.6 million is classified as a current liability as of December 31, 1993. Presently, the Company does not possess sufficient liquidity to satisfy the D.I.P. financing nor does it appear likely that new equity capital will be obtained and a plan of reorganization confirmed prior to June 30, 1994. Consequently, the Company will be required to obtain alternative repayment terms from the D.I.P. lenders. There can be no assurance that alternative repayment terms will be obtained. The Company believes that any extension of the D.I.P. financing will be for a short period of time and would be concurrent with the implementation of a plan of reorganization. The D.I.P. financings contain a minimum unencumbered cash balance requirement of $55 million at December 31, 1993 and other financial covenants. At December 31, 1993, the Company was in compliance with these covenants. (b) These notes from financial institutions, secured by seventeen aircraft with a net book value of $327.6 million, are payable in semi-monthly, monthly, quarterly and semi-annual installments ranging from $75,000 to $1,637,000 plus interest at 30-day LIBOR plus 3.5% (6.88% at December 31, 1993) to 10.79%, with maturities ranging from 1999 to 2008. Approximately $105.3 million of these secured notes have provisions providing for the reset of interest rates at various future dates based on fluctuations in indices such as the Eurodollar rate. Additionally, interest rates and principal payments for certain of these notes were modified, as discussed above, in connection with the September 1992 D.I.P. Facility. (c) The Company has a $40 million line of credit that extends to December 31, 1997 for which no borrowing can occur after December 31, 1994. The purpose of the line is to provide for the initial provisioning of spare parts for Airbus A320 aircraft. The loan is repaid quarterly with level principal payments of $970,000 each and interest at LIBOR plus 4%. At December 31, 1993 and 1992, the Company had borrowings outstanding of $15.5 million and $20.4 million, respectively, under this credit facility. However, the lender will not make the unused credit of $24.5 million available at December 31, 1993 as a result of the Chapter 11 filing. This loan was affirmed in December 1991 by the Bankruptcy Court under Section 1110 of the Bankruptcy Code. The Company also has a $25 million line of credit that extends to September 1997 under which no borrowing could occur after September 1992. The credit line was used for spare engine parts and has an interest rate of LIBOR plus 4%. At December 31, 1993 and 1992, the Company had borrowings outstanding of $3.1 million and $4.6 million, respectively, under this credit facility. In connection with the financing by this same lender of two aircraft flight simulators in October 1992 (see (e)), this loan was affirmed in the bankruptcy proceeding. Consequently, the outstanding balance at December 31, 1993 is included in long-term debt. (Continued) F-25 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (d) This note from an aircraft engine manufacturer was originally made for $30 million in September 1990. The note is secured by two aircraft, spare engine parts and other equipment. Interest on the note began to accrue at its inception at 90-day LIBOR plus 2.0%, compounded quarterly, until September 1993 when all such accrued interest, or approximately $6 million, was paid. Interest is currently paid quarterly at the same interest rate. In October 1992, this lender financed two new flight simulators which were securing this note (see (e)), and this loan was reduced by the amount of such financing, or approximately $22.8 million. Repayment of the balance of this loan is dependent on the future delivery of certain firm ordered aircraft scheduled to begin in November 1996 (however, the related aircraft purchase agreement has been neither affirmed nor rejected at December 31, 1993). In connection with the above financing of the two flight simulators, this note was affirmed in the bankruptcy proceedings, and the outstanding balances at December 31, 1993 and 1992 are included in long-term debt. (e) In October 1992, the Company acquired two flight simulators and executed two notes secured by the simulators. The notes are payable in 84 equal monthly principal installments, plus accrued interest at LIBOR plus 2%. However, the Company has the right, upon the giving of notice to the lender, to fix the interest rate at the greater of the then current LIBOR plus 2% or 6.375%. In connection with this financing, the Company affirmed in the bankruptcy proceedings the agreements for a certain note payable (see (d) above) and a line of credit (see (c) above). (f) In 1993, the Company settled three administrative claims with three four-year promissory notes totaling $9.6 million with quarterly principal payments and interest at 6%. At December 31, 1993, the outstanding balance of these promissory notes was $8.7 million. Also in 1993, the Company renegotiated a note for certain ground equipment for $2 million as part of an administrative claim settlement which takes effect upon the confirmation of a plan of reorganization. The Company is required to make adequate protection payments of $8,000 per month from the settlement date until plan confirmation, at which time, the note term is 5 years with interest at 6%. (g) The Company's 7-3/4% convertible subordinated debentures are convertible into common stock at $13.50 per share. The debentures are redeemable at prices ranging from 101.55% of the principal amount at December 31, 1993 to 100% of the principal amount in 1995 and thereafter. Annual sinking fund payments of $1.5 million are required beginning in 1995. (h) The Company's 7-1/2% convertible subordinated debentures are convertible into common stock at $14.00 per share. The debentures are redeemable at prices ranging from 102.25% of the principal amount at December 31, 1993 to 100% of the principal amount in 1996 and thereafter. Annual sinking fund payments of $1.6 million are required beginning in 1996. (Continued) F-26 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (i) The Company's 11-1/2% convertible subordinated debentures are convertible into common stock at $10.50 per share. The debentures are redeemable at prices ranging from 105.75% of the principal amount from January 1, 1994 to 100% of the principal amount in 1999 and thereafter. Annual sinking fund payments of $5.8 million are required beginning in 1999. During 1991, certain bondholders converted $22.1 million of the 11-1/2% convertible subordinated debentures into common stock. The conversion of the 11-1/2% subordinated debentures resulted in a charge to other non-operating expense of $875,000 for incremental shares issued upon conversion. Certain bondholders converted $1.4 million of the 7-1/2% convertible subordinated debentures and $4.4 million of the 7-3/4% convertible subordinated debentures into common stock. During 1992, certain bondholders converted $95,000 of the 7-1/2% convertible subordinated debentures, $100,000 of the 7-3/4% convertible subordinated debentures and $3.5 million of the 11-1/2% convertible subordinated debentures into common stock. During 1993, certain bondholders converted $360,000 of the 7-1/2% convertible subordinated debentures, $275,000 of the 7-3/4% convertible subordinated debentures and $1.3 million of the 11-1/2% convertible subordinated debentures into common stock. All of the convertible subordinated debenture interests will be subject to settlement of their stated amounts in a plan of reorganization, thereby eliminating the need for continued deferral of the debt issuance costs. Therefore, the unamortized debt issuance costs of $2.8 million for these convertible subordinated debentures were charged to operations as reorganization expense in 1991. The Company ceased accruing interest on all of these debentures as of June 27, 1991 in accordance with SOP 90-7. (j) This note from an aircraft manufacturer for deferred pre-delivery payments was required under a purchase agreement entered into in 1990. The deferred pre-delivery payments will accrue interest at one year LIBOR plus 4% with both principal and interest due upon delivery of the aircraft. The Company has ceased accruing interest on the outstanding balance in accordance with SOP 90-7. The acquisition of the aircraft associated with these deferred pre-delivery payments is subject to the affirmation or rejection of the respective aircraft purchase agreement by the Company in the reorganization proceeding. (Continued) F-27 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (k) The Company has a $20 million secured revolving credit facility with a group of financial institutions that expired on April 17, 1993. Borrowings under this credit facility were either made i) at the federal funds rate plus 1%, ii) based on a CD rate or iii) 90-day LIBOR two business days prior to the first day of the interest period. The borrowings are secured by certain assets. The Company is obligated to pay a commitment fee equal to 1/4% per annum on the average daily amount by which the aggregate commitments exceed the applicable borrowing base and 1/2% per annum on the average daily amount by which the lower of the aggregate commitments or applicable borrowing base exceeds the aggregate principal amount on all outstanding loans. At December 31, 1993 and 1992, the Company had an outstanding balance of $9.9 million and $11 million, respectively, under the revolving credit agreement. Proceeds from sales of assets securing the loan were used to prepay the loan during 1993. The Company ceased accruing interest on the outstanding balance as of June 27, 1991 in accordance with SOP 90-7. (l) The holders of industrial development revenue bonds have the right to put the bonds back to the Company at various times. If such a put occurs, the Company has an agreement with the underwriters to remarket the bonds. Any bonds not remarketed will be retired utilizing a letter of credit. Any funding under the letter of credit will be in the form of a two-year term loan at prime plus 2%. During the first quarter of 1991, the Company redeemed $14.5 million of the $44 million of industrial develop- ment revenue bonds issued and outstanding and agreed to a seven- year amortization schedule for the redemption of the remaining balance. In July and August 1991, $29.5 million in the aggregate was drawn against the letter of credit facility that supported these bonds. The Company intends to remarket the bonds in the future. Such draws were made on behalf of holders of such bonds who exercised their right to put the bonds back to the Company for purchase. The bonds are currently held in trust for the benefit of the Company. These bonds were issued in connection with the Company's technical support facility. (m) These draws on a letter of credit from a financial institution, secured by spare rotable parts with a net book value of $35.8 million, are payable in quarterly installments of $1.3 million plus interest at prime plus 4.5%. The Company has ceased accruing interest as of June 27, 1991 on the outstanding balance in accordance with SOP 90-7. Maturities of long-term debt, excluding $225 million included in estimated liabilities subject to Chapter 11 proceedings, for the years ending December 31 are as follows:
(in thousands) 1994 $ 125,271 1995 41,949 1996 44,957 1997 39,544 1998 32,916 Thereafter 236,984
(Continued) F-28 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (5) Income Taxes ------------ Adoption of New Accounting Standard ----------------------------------- As of January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 is a fundamental change in the manner used to account for income taxes in that the deferred method has been replaced with an asset and liability approach. Under SFAS 109, deferred tax assets (subject to a possible valuation allowance) and liabilities are recognized for the expected future tax consequences of events that are reflected in the Company's financial statements or tax returns. In the year of adoption, SFAS 109 permits an enterprise to record in its current year financial statements, the cumulative effect (if any) of the change in accounting principle. Upon adoption, the Company did not need to record a cumulative effect adjustment. Income Tax Expense ------------------ For the year ended December 31, 1993, the Company recorded income tax expense as follows: Current taxes: Federal $ 675 State 84 ----- $ 759 ===== Deferred taxes $ - =====
For the year ended December 31, 1993, income tax expense is solely attributable to income from continuing operations. The difference in income taxes at the federal statutory rate ("expected taxes") to those reflected in the financial statements (the "effective rate") results from the effect of the benefit of net operating loss carryforwards of $12.6 million and state income tax expense, net of federal tax benefit of $55,000, for an effective tax rate of 2%. In 1992 and 1991, the tax benefits at the federal statutory rate of 34% were offset by the generation of net operating loss carryforwards. At December 31, 1993, the Company has available net operating loss, business tax credit and alternative minimum tax credit carryforwards for federal income tax purposes of $530.3 million, $12.7 million and $700,000, respectively. The net operating loss carryforwards expire during the years 1999 through 2007 while the business credit carryforwards expire during the years 1997 through 2006. However, such carryforwards are not fully available to offset federal (and, in certain circumstances, state) alternative minimum taxable income. Accordingly, income tax expense recognized for the year ended December 31, 1993, is attributable to the Company's expected net current liability for federal and various state alternative minimum taxes. The alternative minimum tax credit carryforward does not expire and is available to reduce future income tax payable. (Continued) F-29 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements As of December 31, 1993, to the best of the Company's knowledge, it has not undergone a statutory "ownership change" (as defined in Section 382 of the Internal Revenue Code) that would result in any material limitation of the Company's ability to use its net operating loss and business tax credit carryforwards in future tax years. Should an "ownership change" occur prior to confirmation of a plan of reor- ganization, the Company's ability to utilize said carryforwards would be significantly restricted. Further, the net operating loss and business tax credit carryforwards may be limited as a result of the Company's reorganization under the United States Bankruptcy Code. Composition of Deferred Tax Items --------------------------------- The Company has not recognized any net deferred tax items for the year ended December 31, 1993. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1993 are a result of the temporary differences related to the items described as follows:
Net Deferred Items ------------------ (in thousands) Deferred income tax liabilities: Property and equipment, principally depreciation differences $(105,242) --------- Deferred income tax assets: Aircraft leases 20,594 Frequent flyer accrual 3,721 Reorganization expenses 16,527 Net operating loss carryforwards 212,124 Tax credit carryforwards 12,706 Other 5,986 --------- Total deferred income tax assets 271,658 Valuation allowance (166,416) --------- Net deferred items $ - =========
SFAS 109 requires a "more likely than not" criterion be applied when evaluating the realizability of a deferred tax asset. Given the Company's history of losses for income tax purposes, the volatility of the industry within which the Company operates and certain other factors, the Company has established a valuation allowance for the portion of its net operating loss carryforwards that may not be available due to expirations after considering the net reversals of future taxable and deductible differences occurring in the same periods. In this context, the Company has taken into account prudent and feasible tax planning strategies. After application of the valuation allowance, the Company's net deferred tax assets and liabilities are zero. (Continued) F-30 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (6) Employee Stock Purchase Plans and Other Employee Benefit Programs ----------------------------------------------------------------- The Company has a stock purchase plan covering its directors, officers and employees and certain other persons providing service to the Company, as well as a separate plan covering its California resident employees. At December 31, 1993, the number of shares authorized under the plans is 10,450,000. Each participating employee is required to purchase a number of shares having an aggregate purchase price equivalent to 20% of such employee's annual base wage or salary on the date of purchase. Each participating employee has the option of simultaneously purchasing additional shares having an aggregate purchase price not exceeding 20% of such wage or salary. California resident employees electing to participate in the plan may purchase a number of shares having an aggregate purchase price not exceeding 40% of their annual base wage or salary on the date of purchase at a specified price. Participating employees can elect to finance their purchase through the Company for up to 20% of their annual base wage or salary over a five-year period at an interest rate of 9.5%. Employee notes receivable of $17.6 million existed at December 31, 1993 and were classified in the stockholders' deficiency section. Shares issued under the plans cannot be sold, transferred, assigned, pledged or encumbered in any way for a period of two years from the date such shares are paid for and delivered to participating employees. The employees' purchase price is 85% of the market price on the date of purchase. The difference between the employees' purchase price and the market price is recorded as deferred compensation and is amortized over five years. The plans provide for the purchase of additional shares of common stock up to 10% of the employee's annual base wage during the first year of employment and 20% of the employee's annual base wage during each subsequent calendar year. Such purchases may be financed through the Company at the same terms as indicated above, as long as total outstanding amounts previously financed do not exceed 10% of the employee's annual base compensation. Effective August 1, 1991, the Company suspended the mandatory portion of the Employee Stock Purchase Plan for 60 days. Subsequent to the expiration of the 60-day period, the Company indefinitely suspended the Employee Stock Purchase Plan. The Company also suspended payroll deductions related to the Employee Stock Purchase Plan as a result of a 10% across the board reduction in wages which commenced August 1, 1991 for all employees whose wages had not been previously reduced. The unpaid employee stock purchase notes continue to accrue interest. The Company anticipates that the reorganization process will result in the restructuring, cancellation and/or replacement of the interests of its existing common and preferred stockholders. (Continued) F-31 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements The Bankruptcy process has caused the suspension of the Company's profit sharing plan which covers all personnel. The plan provided for the distribution of 15% of annual pre-tax profits to employees based on each individual's base wage. The Company made no distributions under the plan in 1993, 1992 or 1991. The Company implemented a 401(k) defined contribution plan on January 1, 1989, covering essentially all employees of the Company. Participants may contribute from 1% to 10% of their pre-tax earnings to a maximum of $8,994. The Company will match 25% of a participant's contributions up to 6% of the participant's annual pre-tax earnings. The Company's contribution expense to the plan totaled $2.1 million, $2 million and $4.9 million in 1993, 1992 and 1991, respectively. The Company provides no post-retirement benefits to its former employees other than the continuation of flight benefits on a stand- by, non-revenue basis; the cost of which is not material. Additionally, no material post-employment benefits are provided. (7) Convertible Preferred Stock --------------------------- Annual dividends of $5.41 per share are payable quarterly on the 291,149 shares of voting Series B 10.5% convertible preferred stock. Each preferred share is entitled to four votes and may be converted into four shares of common stock subject to certain anti-dilution provisions. The preferred shares are redeemable at the Company's election, if the price of common stock is at least $19.32 per share, at $51.52 per share plus unpaid accrued dividends plus a redemption premium starting at 3% during 1991 and decreasing 1% per year to zero during and after 1994. During 1993, the Series B convertible preferred stock was converted into 1,164,596 shares of common stock. Annual dividends of $1.33 per share are payable quarterly on the 73,099 shares of voting Series C 9.75% convertible preferred stock. Such shares may be converted into an equal number of shares of common stock subject to certain anti-dilution provisions. The preferred shares are redeemable at the Company's election at $13.68 per share plus unpaid accrued dividends plus a redemption premium starting at 4% during 1991 and decreasing 1% per year to zero during and after 1995. Under Delaware law, the Company is precluded from paying dividends on its outstanding preferred stock until such time as the Company's stockholder deficiency has been eliminated. At December 31, 1993, the Company was delinquent in the payment of its sixth consecutive dividends on the Preferred Stock. See note 1 for a discussion of the potential effects of the Company's reorganization upon preferred stock. (Continued) F-32 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (8) Common Stock ------------ Certain "Rights" have been distributed to certain shareholders of record on August 25, 1986. The Rights, which entitle the holder to purchase one one-hundredth (1/100th) of a share of Series D Participating Preferred Stock at a price of $200, are not exercisable unless certain conditions relating to a possible attempt to acquire the Company are met. In the event of an acquisition or merger, the Rights will entitle the holder of a Right to purchase that number of common shares of the acquiring or surviving entity having twice the market value of the exercise price of each Right. The Rights expire on August 24, 1996 and are redeemable at a price of $.03 per Right under certain conditions. The Board of Directors has authorized the purchase of up to 700,000 shares of the Company's common stock from time to time in open market transactions. The Company has purchased and retired 348,410 shares as of December 31, 1993 at an average per share price of $8.31. (9) Stock Options and Warrants -------------------------- The Company has an Incentive Stock Option Plan and has reserved 13,225,000 shares of common stock for issuance upon the exercise of stock options granted under the plan. Of the total shares reserved, 10,350,000 shares are restricted for issuance to employees other than certain management employees. Options are granted at fair market value on the date of grant and generally become exercisable over a five-year period, and ultimately lapse if unexercised at the end of ten years. Activity under the Incentive Stock Option Plan is as follows:
Incentive Stock Option Plan ---------------------------------------- Number of Options ---------------------- Key Other Option Price Management Employees Per Share ---------- --------- ------------ Outstanding January 1, 1991 1,721,326 5,215,028 $2.50 - $13.06 Granted 52,000 2,434,880 $0.94 - $ 7.50 Canceled (254,025) (535,116) $1.38 - $12.81 Exercised (8,981) (1,860) $2.50 - $ 9.13 --------- --------- -------------- Outstanding December 31, 1991 1,510,320 7,112,932 $0.94 - $13.06 Granted - 414,060 $1.13 - $ 2.63 Canceled (183,700) (791,199) $0.27 - $13.06 --------- --------- -------------- Outstanding December 31, 1992 1,326,620 6,735,793 $0.94 - $13.06 Canceled (284,990) (1,005,192) $0.94 - $12.81 --------- ---------- -------------- Outstanding December 31, 1993 1,041,630 5,730,601 $0.94 - $13.06 ========= ========== ==============
(Continued) F-33 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements At December 31, 1993, options to purchase 3,731,608 shares were exercisable at prices ranging from $0.94 to $13.06 per share under the Incentive Stock Option Plan. Effective March 13, 1992, additional grants under the Plan were suspended. The Company has a Nonstatutory Stock Option Plan under which options to purchase 3,785,880 shares of common stock at prices ranging from $5.06 to $10.25 per share (fair market value on date of grant) have been granted, of which 1,961,410 stock options are outstanding as of December 31, 1993. During 1991, 40,000 options were granted at $6.00 per share. During 1993, 1992 and 1991, no options were exercised. At December 31, 1993, all options were exercisable. Options expire 10 years from date of grant. The Company had granted warrants and options to purchase 227,500 shares of common stock to members of the Board of Directors who are not employees of the Company. At December 31, 1993, 110,000 options are outstanding and exercisable through February 4, 1996 at prices of $6.00 to $9.00 per share (fair market value at date of grant). No warrants or options were granted or exercised during 1993, 1992 or 1991. The Company has adopted a Restricted Stock Plan and has reserved 250,000 shares of common stock for issuance at no cost to key employees. Grants that are issued will vest over a three to five-year period. As of December 31, 1993, the Company granted 93,870 shares and the related unamortized deferred compensation was $5,320. In 1991, the operation of the Restricted Stock Plan was suspended due to the Company's reorganization. (10) Supplemental Information to Statements of Cash Flows ---------------------------------------------------- Cash paid for interest, net of amounts capitalized, during the years ended December 31, 1993, 1992 and 1991 was approximately $44 million, $46 million and $33 million, respectively. Cash paid for income taxes during the year ended December 31, 1993 was $537,000. Cash flows from reorganization items in connection with the Chapter 11 proceedings during the years ended December 31, 1993, 1992 and 1991 were as follows:
1993 1992 1991 ---- ---- ---- (in thousands) Interest received on cash accumulations $ 2,635 $ 2,030 $ 1,365 Professional fees paid for services rendered (7,372) (11,346) (6,913) D.I.P. financing issuance costs paid (1,378) (1,760) (2,660)
(Continued) F-34 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements In addition, during the years ended December 31, 1993, 1992 and 1991, the Company had the following non-cash financing and investing activities:
1993 1992 1991 ---- ---- ---- (in thousands) Conversion of long-term debt to common stock $ 1,938 $ 3,685 $ 27,898 ======= ======= ======== Draws taken by third parties on letters of credit $ - $11,201 $ 42,415 ======= ======= ======== Equipment acquired through capital leases $ 709 $ 437 $ 10,028 ======= ======= ======== Notes payable issued to equipment seller $ 818 $22,804 $106,510 ======= ======= ======== Notes payable issued for administrative claim settlements $11,597 $ - $ - ======= ======= ======== Preferred stock dividends declared but unpaid $ - $ 1,672 $ 1,250 ======= ======= ======== Accrued interest reclassified to long-term debt $15,137 $16,443 $ 19,311 ======= ======= ========
(11) Commitments and Contingencies ----------------------------- (a) Leases ------ During 1991, the Company restructured its lease commitment for Airbus A320 aircraft with the lessors. As a result of the restructuring, the Company's obligation to lease ten A320 aircraft was canceled and the basic rental rate for twelve aircraft was revised to provide for the repayment to the lessor over a ten-year period of certain advanced credits received by the Company which relate to the ten canceled aircraft. (Continued) F-35 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements In the third quarter of 1991, the Company requested a deferral of rent and other periodic payments from its aircraft providers. The deferral was requested in an effort to conserve cash and improve the Company's liquidity position. As a condition of securing the $78 million D.I.P. financing, the Company was required to obtain from most aircraft providers rent, principal and interest payment deferrals in excess of $100 million covering the six-month period of June through November 1991. These deferrals will generally be repaid with interest at 10.5% over the remaining term of the lease or secured borrowing with repayment commencing December 1991. At December 31, 1993 and 1992, the remaining unpaid deferrals are reported as follows:
December 31, 1993 1992 ---- ---- (in thousands) Accounts payable $ 7,567 $20,672 Other liabilities 31,425 28,196 Long-term debt 18,671 20,769 ------- ------- $57,663 $69,637 ======= =======
In the third quarter of 1992, the Company requested an additional deferral of rent and other periodic payments from its aircraft providers. The deferral was requested to assure sufficient liquidity to sustain operations while additional debtor-in- possession financing was obtained (note 4). The 1992 deferrals will generally be repaid either without interest during the first quarter of 1993 or with interest over a period of seven years. At December 31, 1993 and 1992, the remaining unpaid deferrals are reported as follows:
December 31, 1993 1992 ---- ---- (in thousands) Accounts payable $ 9,650 $17,528 Long-term debt 21,539 25,346 ------- ------- $31,189 $42,874 ======= =======
(Continued) F-36 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements As of December 31, 1993, the Company had 66 aircraft under operating leases with remaining terms ranging from four months to 20 years. The Company has options to purchase most of the aircraft at fair market value at the end of the lease term. Certain of the agreements require security deposits and maintenance reserve payments. The Company also leases certain terminal space, ground facilities and computer and other equipment under noncancelable operating leases. Future minimum rental payments for years ending December 31 under noncancelable operating leases with initial terms of more than one year are as follows:
(in thousands) 1994 $ 191,606 1995 182,236 1996 179,110 1997 169,797 1998 160,759 Thereafter 1,333,187 ---------- $2,216,695 ==========
Collectively, the operating lease agreements require security de- posits with lessors of $8.1 million and bank letters of credit of $17.7 million. The letters of credit are collateralized by certain spare rotable parts with a net book value of $35.8 million and $17.6 million in restricted cash. Rent expense (excluding landing fees) was approximately $245 million in 1993, $307 million in 1992 and $319 million in 1991. (b) Revenue Bonds ------------- Special facility revenue bonds have been issued by a municipality used for leasehold improvements at the airport which have been leased by the Company. Under the operating lease agreements, which commenced in 1990, the Company is required to make rental payments sufficient to pay principal and interest when due on the bonds. The Company ceased rental payments in June 1991. The principal amount of such bonds outstanding at December 31, 1992 and 1991 was $40.7 million. In October 1993, the Company and the bondholder agreed to reduce the outstanding balance of the bonds to $22.5 million and adjust the related operating lease payments sufficient to pay principal and interest on the reduced amount effective upon the confirmation of a plan of reorganization. The remaining principal balance of $18.2 million will be accorded the same treatment under the plan of reorganization as a pre-petition unsecured claim. The Company also agreed to make adequate protection payments in the amount of $150,000 per month from August 1993 to plan confirmation. (Continued) F-37 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (c) Aircraft Acquisitions --------------------- At December 31, 1993, the Company had on order a total of 93 aircraft of the types currently comprising the Company's fleet, of which 51 are firm and 42 are options. The table below details such deliveries.
Firm Orders ------------------------------------ Option 1994 1995 1996 1997 Thereafter Total Orders Total ---- ---- ---- ---- ---------- ----- ------ ----- Boeing: 737-300 - - 4 2 - 6 10 16 757-200 - 4 3 - - 7 10 17 Airbus: A320-200 9 5 2 8 14 38 22 60 - - - -- -- -- -- -- Total: 9 9 9 10 14 51 42 93 = = = == == == == ==
The current estimated aggregate cost for these firm commitments and options is approximately $5.2 billion. Future aircraft deliveries are planned in some instances for incremental additions to the Company's existing aircraft fleet and in other instances as replacements for aircraft with lease terminations occurring during this period. The purchase agreements to acquire 24 Boeing 737-300 aircraft had been affirmed in the Company's bankruptcy proceeding. With timely notice to the manufacturer, all or some of these deliveries may be converted to Boeing 737-400 aircraft. At December 31, 1993, eight Boeing 737 delivery positions had been eliminated due to the lack of a required reconfirmation notice by the Company to Boeing leaving 16 delivery positions as reflected above. The failure to reconfirm such delivery positions exposes the Company to loss of pre-delivery deposits and other claims which may be asserted by Boeing in the bankruptcy proceeding. The purchase agreements for the remaining aircraft types have not been assumed, and the Company has not yet determined which of the other aircraft pur- chase agreements, if any, will be affirmed or rejected. As part of the $68.4 million term loan (see note 4(a)), the Company terminated an agreement to lease 24 Airbus A320 aircraft and ultimately replaced it with a put agreement to lease up to four such aircraft. The lessor is under no obligation to lease such aircraft to the Company and has the right to remarket these aircraft to other parties. Prior to its bankruptcy filing, the Company also entered into a similar arrangement with another lessor, whereby the Company terminated its agreement to lease 10 Airbus A320 aircraft and replaced it with a put agreement to lease up to 10 Airbus A320 aircraft. The put agreement related to the term loan requires the lessor to notify the Company prior to July 1, 1994 if it intends to require the Company to lease any of its put aircraft. The other put agreement requires 180 days prior notice of the delivery of a put aircraft. The agreement also provides that the lessor may not put more than five aircraft to the Company in any one calendar year. This put right expires on December 31, 1996. No more than nine put aircraft (from both lessors combined) may be put to the Company in one calendar year. The put aircraft are reflected in the "Firm Orders" section of the table above. (Continued) F-38 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements The Investment Agreement provides that as partial consideration for the cancellation of certain put rights, the lessor will receive the right to require the Company to lease up to eight aircraft prior to June 30, 1999. The Company does not have firm lease or debt financing commitments with respect to the future scheduled aircraft deliveries (other than for the put aircraft referred to above). In addition to the aircraft set forth in the chart above, the Company also has a pre-petition executory contract under which the Company holds delivery positions for four Boeing 747-400 aircraft under firm orders and another four under options. The contract allows the Company, with the giving of adequate notice, to substitute other Boeing aircraft types for the Boeing 747-400 in these delivery positions. As a result, the Company is still evaluating its future fleet needs and is currently unable to determine if it will substitute other aircraft types or reject this agreement. (d) Concentration of Credit Risk ---------------------------- The Company does not believe it is subject to any significant concentration of credit risk. At December 31, 1993, approximately 82% of the Company's receivables related to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on America West. These receivables are short-term, generally being settled shortly after sale or in the month following usage. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. (12) Related Party Transactions -------------------------- During 1989, the Company sold 486,219 shares of common stock at $6.31 and $9.79 to the stockholder that purchased 3,029,235 shares of common stock at $10.50 in 1987 and $1 million of the Series C preferred stock in 1985. This stockholder has the right to maintain a 20% voting interest through the purchase of common stock from the Company at a price per share which is the average market price per share for the preceding six months. In 1990, the stockholder made direct purchases on the open market to maintain its 20% voting interest. On February 15, 1991, the stockholder purchased 253,422 shares of common stock from the Company at $5.50 per share. No such purchases occurred in 1993 or 1992. The Company has entered into various aircraft acquisition and leasing agreements with this stockholder at terms comparable to those obtained from third parties for similar transactions. The Company leases 11 aircraft from this stockholder and the rental payments for such leases amounted to $33.7 million in 1993, $33.8 million in 1992 and $18.1 million in 1991. At December 31, 1993, the Company was obligated to pay $232 million under these leases through August 2003 unless terminated earlier at the stockholder's option. In 1991, the stockholder drew upon a $7.5 million letter of credit which had been issued in its favor in lieu of a cash reserve for periodic heavy maintenance overhauls. This cash deposit is included in other assets at December 31, 1993 and 1992. (Continued) F-39 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements In addition, the stockholder participated as a lender in the September 1992 D.I.P. Facility and advanced $10 million of the $53 million in total D.I.P. financing. In September 1993, the stockholder was repaid the then outstanding balance of $8.3 million as a result of not participating in the extension of the maturity date of the debt financing. In order to assist the Chairman of the Board with certain costs associated with his service as chairman, the Company pays an office overhead allowance of $4,167 per month to a company owned by the chairman. During 1993 and 1992, such payments totaled approximately $50,000 and $16,000, respectively. Additionally, a former member of the Board of Directors provided consulting services to the Company during 1993 and 1992 for which he received fees of approximately $39,000 and $47,000, respectively. (13) Restructuring Charges --------------------- Restructuring charges consist of the following:
1992 ---- (in thousands) Write-off for certain assets related to station closures or route restructuring $ 9,529 Provision for spare parts for aircraft types no longer in service 12,651 Provision for employee severance 2,284 Loss on return of aircraft 6,852 ------- $31,316 =======
The restructuring charges were necessitated by aircraft fleet reductions and other operational changes. The Company has reduced its fleet to 85 aircraft and has reduced the number of aircraft types in the fleet from five to three. (Continued) F-40 AMERICA WEST AIRLINES, INC., D.I.P. Notes to Financial Statements (14) Quarterly Financial Data (Unaudited) ------------------------------------ Summarized quarterly financial data for 1993 and 1992 are as follows (in thousands of dollars except per share amounts):
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter ------- ------- ------- ------- Total operating revenues: 1993 $316,605 $324,910 $335,113 $348,736 1992 $337,050 $333,511 $321,590 $301,989 Operating income (loss): 1993 $ 17,168 $ 25,179 $ 32,981 $ 45,726 1992 (a) $ (7,974) $(15,979) $(48,534) $ (2,325) Nonoperating expense, net 1993 $(14,990) $(14,710) $(18,285) $(35,145) 1992 (b) $ (2,010) $(17,390) $(22,230) $(15,319) Income tax expense 1993 $ (44) $ (209) $ (293) $ (213) 1992 $ - $ - $ - $ - Net income (loss) 1993 $ 2,134 $ 10,260 $ 14,403 $ 10,368 1992 $ (9,984) $(33,369) $(70,764) $(17,644) Earnings (loss) per share 1993: Primary $ .09 $ .41 $ .56 $ .40 Fully diluted $ .09 $ .28 $ .38 $ .28 1992: Primary $ (0.44) $ (1.41) $ (2.97) $ (0.75)
(a) During the third quarter of 1992, restructuring charges for employee separation costs, losses related to returning aircraft to lessors, write-off of assets related to the restructuring and a loss provision related to spare parts expected to be sold amounting to $31.3 million was recorded. (b) During the first quarter of 1992, a gain of $15 million was recorded for the transfer of the Honolulu/Nagoya route to another carrier. F-41 Item 9 Changes in and Disagreements with Accountants on Accounting and ------ --------------------------------------------------------------- Financial Disclosure. -------------------- During the last two fiscal years, the Company has not filed a Form 8-K to report a change in accountants because of a disagreement over accounting principles or procedures, financial statement disclosure, or otherwise. 46 PART III Item 10. Directors and Executive Officers of the Registrant. ------- -------------------------------------------------- Information respecting the names, ages, terms, positions with the Company and business experience of the executive officers and the directors of the Company as of February 28, 1994, is set forth below. Each director has served continuously with the Company since his first election.
Director Term Name Age Position Since Expires (3) ---- --- -------- -------- ----------- William A. Franke 57 Chairman of the 1992 1994 Board And Chief Executive Officer A. Maurice Myers 53 President, Chief 1994 1994 Operating Officer and Director Thomas P. Burns 52 Senior Vice N/A N/A President-Sales and Marketing Programs Alphonse E. Frei 55 Senior Vice N/A N/A President-Finance; Chief Financial Officer Martin J. Whalen 53 Senior Vice N/A N/A President- Administration and General Counsel Frederick W. Bradley, Jr.(1)(2) 67 Director 1992 1992 O. Mark De Michele(2) 60 Director 1986 1993 Samuel L. Eichenfield(2) 57 Director 1992 1992 Richard C. Kraemer(1) 49 Director 1992 1993 James T. McMillan(1)(2) 68 Director 1993 1993 John R. Norton III(1) 64 Director 1992 1992 John Tierney(1) 48 Director 1993 1993 Declan Treacy(2) 37 Director 1993 1994 ------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. (3) The Company has not held a meeting of its stockholders in since May 1991 to elect directors. Accordingly, each director, including those directors with terms expiring in 1992, 1993 and 1994, shall serve until either their resignation or the later of (i) his term expiration or (ii) such time as his successor is duly elected and qualified.
47 William A. Franke was named Chairman of the Board of Directors in ----------------- September 1992. On December 31, 1993, Mr. Franke was elected to also serve as the Company's Chief Executive Officer. In addition to his responsibilities at America West, Mr. Franke serves as president of the financial services firm, Franke & Co., a company he has owned since May 1987. From November 1989 until June 1990, Mr. Franke served as the Chairman of Circle K Corporation's executive committee with the responsibility for Circle K Corporations's restructure. In May 1990, the Circle K Corporation filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code. From June 1990 until August 1993, Mr. Franke served as the chairman of a special committee of directors overseeing the reorganization of the Circle K Corporation. Mr. Franke has also served in various other capacities at Circle K Corporation since 1990. Mr. Franke was also involved in the restructuring of the Valley National Bank of Arizona (now Bank One Arizona). Mr. Franke also serves as a director of Phelps Dodge Corp. and Central Newspapers Inc. A. Maurice Myers was named president and chief operating officer on ---------------- December 31, 1993 and was named to the Board of Director in 1994. Prior to joining America West, Mr. Myers was the president and chief executive officer of Aloha Airgroup, Inc. an aviation services corporation which owns and operates Aloha Airlines and Aloha IslandAir. Mr. Myers joined Aloha in 1983 as vice president of marketing and became its president and chief executive officer in June 1985. Mr. Myers is a member of the boards of directors of Air Transport Association of America and Hawaiian Electric Industries. Thomas P. Burns has served as Senior Vice President-Sales and Marketing --------------- since August 1987. Mr. Burns joined the Company in April 1985 as Vice President-Sales. Mr. Burns was employed for 25 years by Continental Airlines in various sales and passenger service positions. From 1982 to 1983, he was employed as North American Manager of Sales for UTA, a French airline. Mr. Burns returned to Continental from 1983 through March 1985, where he served as Director of International Sales prior to joining the Company. Alphonse E. Frei has been Senior Vice President-Finance and Chief ---------------- Financial Officer since April 1985. He joined the Company in April 1983 as Vice President-Controller. Prior to that time he had 23 years of experience at Continental Airlines where he held a variety of management positions in finance and data processing. Mr. Frei served as a member of the Company's Board of Directors from 1986 to 1992. Mr. Frei is also a member of the board of directors of Swift Transportation Co., Inc. Martin J. Whalen has been Senior Vice President-Administration and ---------------- General Counsel of the Company since July 1986. From 1980 until July 1986, Mr. Whalen was employed by McDonnell Douglas Helicopter Company and its predecessors, most recently as Vice President of Administration. He also held positions in labor relations, personnel and legal affairs at Hughes Airwest and Eastern Airlines. Frederick W. Bradley, Jr. has served as a member of the Board of ------------------------- Directors since September 1992. Immediately prior to joining the Board of Directors, Mr. Bradley was a senior advisor with Simat, Helliesen & Eichner, Inc. Mr. Bradley formerly served as senior vice president of Citibank/Citicorp's Global Airline and Aerospace business. Mr. Bradley joined Citibank/Citicorp in 1958. In addition, Mr. Bradley serves as a member of the board of directors of Shuttle, Inc. (USAir Shuttle) and the Institute of Air Transport, Paris, France. Mr. Bradley also serves as chairman of the board of directors of Aircraft Lease Portfolio 48 Securitization 92-1 Ltd. and as President of IATA's International Airline Training Fund of the United States. O. Mark De Michele has served as a member of the Board of Directors ------------------ since 1986 and is president, chief executive officer and a director of Arizona Public Service Company. Mr. De Michele joined Arizona Public Service Company in 1978 as vice president of corporate relations, and also served as its chief operating officer and an executive vice president. Mr. De Michele is also a member of the board of directors of the Pinnacle West Capital Corporation. Samuel L. Eichenfield has served as a member of the Board of Directors --------------------- since September 1992 and is chairman of the board of directors and chief executive officer of GFC Financial Corporation. Mr. Eichenfield has also served as chief executive officer of Greyhound Financial Corporation, a subsidiary of GFC Financial Corporation, since joining GFC in 1987. Richard C. Kraemer has served as a member of the Board of Directors ------------------ since September 1992 and is president and chief operating officer of UDC Homes, Inc. Mr. Kraemer is also a member of the UDC Homes, Inc. board of directors. Prior to joining UDC Homes, Inc. in 1975, Mr. Kraemer held a variety of positions at American Cyanamid Company. James T. McMillan has served as a member of the Board of Directors since ----------------- December 1993. Mr. McMillan joined McDonnell Douglas Finance Corporation as its president in 1968 and retired as its chairman of the board in 1991. Mr. McMillan also served in various capacities for the McDonnell Douglas Corporation from August 1954 until August 1990, most recently as a Senior Vice President and Group Executive. John R. Norton III has served as a member of the Board of Directors ------------------ since September 1992 and was former Deputy Secretary of the United States Department of Agriculture from 1985 to 1986. Mr. Norton is currently a principal of J.R. Norton Company, an agricultural and real estate. Mr. Norton is also a member of the board of directors of Aztar Corp., Pinnacle West Capital Corporation, Arizona Public Service Company and Terra Industries, Inc. John F. Tierney has served as a member of the Board of Directors since --------------- December 1993. Mr. Tierney is the Assistant Chief Executive and Finance Director of GPA Group plc, an Irish aircraft leasing concern, and has served GPA Group plc in various such capacity since 1981. See Certain Relationships and Related Transactions. Declan Treacy has served as a member of the Board of Directors since ------------- December 1993. Mr. Tierney is the General Manager - Corporate Finance of GPA Group plc, an Irish aircraft leasing concern, and has served GPA Group plc in various such capacity since 1988. See Certain Relationships and Related Transactions. In February 1993, the Company and its debtor-in -possession lenders amended the terms of D.I.P. financing and in connection therewith the Company and certain of such lenders entered into an Amended and Restated Management Letter Agreement pursuant to which such lenders shall have a right to approve the membership of the Company's Board of Directors. Under the terms of such letter agreement GPA has the right to appoint two members to the Board of Directors, the remaining D.I.P. lenders (except Kawasaki) have the right to appoint five members to the Board of Directors, one member of the Board must be a member of America West management and two members must be independent. 49 The Compensation Committee of the Board of Directors, which met ten times during 1993 reviews all aspects of compensation of executive officers of the Company and makes recommendations on such matters to the full Board of Directors. In addition, the Compensation Committee reviews and approves all compensation and employee benefit plans, the Company's organizational structure and plans for the development of successors to corporate officers and other key members of management. The Audit Committee, which met nine times during 1993, makes recommendations to the Board concerning the selection of outside auditors, reviews the financial statements of the Company and considers such other matters in relation to the internal and external audit of the financial affairs of the Company as may be necessary or appropriate in order to facilitate accurate and timely financial reporting. The Company does not maintain a standing nominating committee or other committee performing similar functions. During the fiscal year ended December 31, 1993, the Board of Directors of the Company met on twenty-nine occasions. During the period in which he served as director, each of the directors attended 75 percent or more of the meetings of the Board of Directors and of the meetings held by committees of the Board on which he served. 50 Item 11. Executive Compensation. ------- ---------------------- The table below sets forth information concerning the annual and long- term compensation for services in all capacities to the corporation for the fiscal years ended December 31, 1993, 1992 and 1991, of those persons who were, at December 31, 1993 (i) the chief executive officer and (ii) the other four most highly compensated executive officers of the Corporation (the "Named Officers"): SUMMARY COMPENSATION TABLE
Annual Compensation -------------------- Other All Annual Other Compen- Compen- Name and Principal Position Year Salary sation(2) sation(3) --------------------------- ---- -------- --------- --------- William A. Franke(1) 1993 $450,000 -0- -0- Chairman of the Board and Chief 1992 $131,250 -0- -0- Executive Officer 1991 N/A N/A N/A Thomas P. Burns 1993 $123,200 $4,004 $2,182 Senior Vice President-Sales and 1992 $123,200 -0- $2,182 Marketing 1991 $125,767 -0- N/A Alphonse E. Frei 1993 $156,800 $5,096 $2,182 Senior Vice President-Finance and 1992 $156,800 -0- $2,182 Chief Financial Officer 1991 $160,067 -0- N/A Don Monteath(4) 1993 $156,800 $5,096 $2,182 Senior Vice President- 1992 $156,800 -0- $2,182 Operations 1991 $160,067 -0- N/A Martin J. Whalen 1993 $134,000 $4,368 $2,016 Senior Vice President- 1992 $134,000 -0- $2,016 Administration and General Counsel 1991 $137,200 -0- N/A Michael J. Conway(5) 1993 $432,000 $8,250 $2,182 Former Chief Executive Officer and 1992 $432,000 -0- $2,182 President 1991 $444,000 -0- N/A ---------------- (1) Mr. Franke was elected Chairman of the Board on September 17, 1992 and was elected Chief Executive Officer on December 31, 1993. (2) Represents amount paid pursuant to the Company's transition pay program. (3) Consists of Company contributions to the Company's 401(k) Plan on behalf of the Named Officer. (4) Mr. Monteath resigned as Senior Vice President-Operations in February 1994. (5) Mr. Conway was replaced as the President and Chief Executive Officer on December 31, 1993.
51 Option Plan Information ----------------------- During the fiscal year ended December 31, 1993, none of the Named Officers exercised any options. All options held by the Named Officers have exercise prices greater than the fair market value of the Common Stock on December 31, 1993. The following table sets forth information with respect to the Company's Restated Nonstatutory Stock Option Plan ("NSOP") and Incentive Stock Option Plan ("ISO") as of the fiscal year ended December 31, 1993 with respect to the Named Officers. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND OPTION/SAR VALUE AS OF DECEMBER 31, 1993
Number of Unexercised Options at Fiscal Year End --------------------------- Name Plan Exercisable Unexercisable ---- ---- ----------- ------------- William A. Franke NSOP -0- -0- ISO -0- -0- Thomas P. Burns NSOP 109,640 -0- ISO 17,300 -0- Alphonse E. Frei NSOP 191,560 -0- ISO 20,000 -0- Don Monteath NSOP 206,560 -0- ISO 21,000 -0- Martin J. Whalen NSOP 143,480 -0- ISO 12,033 -0- Michael J. Conway NSOP 717,400 -0- ISO 28,000 -0-
Termination of Employment Arrangements -------------------------------------- The Company has made certain Termination of Employment Arrangements in keeping with its practice under its July 26, 1991 Termination of Employment Guidelines, as amended: In connection with the termination of employment of Mr. Michael J. Conway as an officer of the Company, the Company agreed to pay Mr. Conway $503,000 in termination allowances, payable as an initial severance payment in the amount of $304,200, an additional $163,800 in six monthly installments of $27,300 each, and a $35,000 transition expense allowance. The Company also agreed to continue the payment until December 31, 1994, of premiums aggregating about $33,000 on certain life insurance policies owned by Mr. Conway. The foregoing payments were in addition to continuation of medical insurance benefits and certain other fringe benefit arrangements. 52 In connection with the termination of employment of Mr. Don Monteath as an officer of the Company, the Company agreed to pay Mr. Monteath a severance payment of $168,862. This payment was in addition to continuation of medical insurance benefits and certain other fringe benefit arrangements. Director Compensation --------------------- Each non-employee director at December 31, 1993, is compensated as follows: an annual retainer of $25,000 plus $1,000 for each Board meeting attended, $1,000 for each committee meeting attended and reimbursement for expenses incurred in attending the meetings. Directors are also entitled to certain air travel benefits. Other Agreements ---------------- Mr. Franke, Chairman of the Board of Directors, is also the president of the financial services firm, Franke & Co. In order to assist Mr. Franke with certain costs associated with his service as Chairman and Chief Executive Officer, the Company pays Franke & Co. an office overhead allowance of $4,167 per month. 53 Item 12. Security Ownership of Certain Beneficial Owners and Management. ------- -------------------------------------------------------------- The following table sets forth information, as of March 15, 1994, concerning the capital stock beneficially owned by each director of the Company, by each of the named executive officers, by the directors and executive officers of the Company as a group, and by each Stockholder known by the Company to be the beneficial owner of more than five percent of the Common Stock or Preferred Stock.
Shares Beneficially Owned(1) Percent of Class(1) --------------------- ------------------- Name Common Preferred Common Preferred ------------------------- ------ --------- ------ --------- William A. Franke -0- * A. Maurice Myers -0- * Thomas P. Burns 168,810 Alphonse E. Frei 214,171 * Don Monteath 227,560 * Martin J. Whalen 155,571 * Frederick W. Bradley, Jr. -0- * Michael J. Conway(2) 826,518 3.2% O. Mark De Michele 20,200 * Samuel L. Eichenfield -0- * Richard C. Kraemer -0- * James T. McMillan -0- * John R. Norton, III -0- * John F. Tierney -0- * Declan Treacy -0- * Transpacific Enterprises, Inc.(3) Common Stock 3,527,876 12.2% Series C Preferred Stock 73,099 100%
54
Shares Beneficially Owned(1) Percent of Class(1) --------------------- ------------------- Name Common Preferred Common Preferred ------------------------- ------ --------- ------ --------- Merrill Lynch Asset Management, Inc.(4) Debentures 3,604,496 12.5% Continental Assurance Company(5) Debentures 1,428,571 5.3% Lehman Brothers Inc.(6) Common Stock 1,463,025 6.0% Debentures 3,147,172 11.1% All executive officers and directors as a group (17 persons) 1,826,680 6.8% ------------- * Less than 1%. (1) Except where specifically indicated, assumes the conversion of the Company's 7 3/4% Convertible Subordinated Debentures Due 2010, 7 1/2% Convertible Subordinated Debentures Due 2011 and 11 1/2% Convertible Subordinated Debentures Due 2009 (collectively the "Debentures"), and the exercise of all outstanding options and warrants. As of March 15, 1993, the exercise price of all the options and warrants held by the officers and directors exceeded the fair market value of the Common Stock. The following directors and executive officers of the Company hold exercisable options and/or warrants to purchase, and Debentures convertible into, the number of shares of Common Stock set forth in parentheses: Mr. Burns (126,940), Mr. Frei (211,560), Mr. Monteath (227,560), Mr. Whalen (155,513), Mr. Conway (745,400) and Mr. De Michele (15,000). All officers and directors as a group hold Debentures convertible into and exercisable options and/or warrants to purchase 1,697,992 shares of Common Stock. (2) Represents America West's estimates. Mr. Conway was replaced as the Company's President and Chief Executive Officer on December 31, 1993 and resigned as a member of the Board of Directors effective January 31, 1994. (3) Address: 110-110th Avenue North East, Suite 509, Bellevue, Washington 98004. The foregoing are amounts as reported on a Schedule 13D dated February 15, 1994 filed with the Commission. Shares beneficially owned, include shares of Common Stock owned by Transpacific and by its affiliates. Not included in the amount set forth above are 128,000 shares of Common Stock owned by a subsidiary of a Transpacific affiliate. The shares of Preferred Stock held by Transpacific are convertible into an equal number of shares of Common Stock. Had such Preferred Stock been converted at March 15, 1994, Transpacific would have held approximately 12.5 percent of the issued and outstanding Common Stock. Pursuant to an agreement with the Company, Transpacific has a right 55 to maintain a 20 percent voting interest in the Company. As of March 15, 1994, Transpacific had a 12.5 percent voting interest in the Company. (4) Address: 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Assumes the conversion of $49.6 million of Debentures into Common Stock. The foregoing are amounts as reported on a Schedule 13G dated March 11, 1988, filed with the Commission. (5) Address: CNA Plaza, Chicago, Illinois 60685. Assumes the conversion of $15 million of Debentures into Common Stock. The foregoing are amounts as reported on a Schedule 13G dated February 14, 1991, filed with the Commission. (6) Address: 3 World Financial Center, New York, New York 10285. The foregoing are amounts as reported on a Schedule 13G dated March 9, 1994 (the "Lehman 13G"). The Lehman 13G does not set forth their specific Debenture and Common Stock holdings set forth herein. However, the Company has independently verified the Debenture and Common Stock holdings set forth above as of February 28, 1994. The Lehman 13G also lists Lehman Brothers Holdings and America Express Company as having beneficial ownership of the America West securities disclosed in the Lehman 13G. American Express Company disclaims such beneficial ownership.
56 Item 13. Certain Relationships and Related Transactions. ------- ---------------------------------------------- Transpacific Enterprises, Inc., an affiliate of Ansett Airlines of Australia ("Ansett Airlines"), holds all the Company's Series C Preferred Stock and certain shares of Common Stock. Pursuant to the terms of an agreement between the Company and Transpacific, Transpacific has the right to maintain a 20 percent voting interest in the Company through the purchase of Common Stock from the Company. See Item 12. Security Ownership ------- of Certain Beneficial Owners and Management. The Company presently leases or subleases a total of eleven Boeing 737 aircraft from Ansett Airlines or its affiliates for terms expiring at various dates through August 2003 (unless terminated earlier at Ansett's option). All of these leases were renegotiated in 1992 resulting in reduced rents and extended terms (Ansett may upon 90 days notice to the Company terminate any lease during the extension periods). As of December 31, 1993, the Company was obligated to pay approximately $232 million over the respective terms of these aircraft leases. Ansett Worldwide Aviation U.S.A. ("Ansett"), an affiliate of Transpacific and Ansett, provided the Company with $10 million of the September 1992 D.I.P. financing. In connection with such loan, Ansett received the right to designate one member to the Company's Board of Directors. Ansett was repaid in full in September 1993 and Tibor Sallay, Ansett's designated director, resigned from the Company's Board of Directors concurrent with such repayment. Affiliates of GPA Group, plc ("GPA") have loaned the Company approximately $70 million of D.I.P. financing. Under the terms of the D.I.P. financing documents, GPA has the right to designate two members to the Company's board of directors. John F. Tierney and Declan Treacy currently serve as GPA's designated directors. The Company presently leases or subleases a total of sixteen Airbus A320 aircraft from GPA or its affiliates for terms expiring at various dates through July 2013. As of December 31, 1993, the Company was obligated to pay approximately $1.136 billion over the respective terms of these aircraft leases. Effective January 1, 1994, Mr. A. Maurice Myers left his position as President and Chief Executive Officer of Aloha Airlines, Inc. to join the Company as President and Chief Operating Officer. The Employment Agreement between the Company and Mr. Myers provides an initial two year term at a base salary of $375,000 per year. Mr. Myers also received a $100,000 transition allowance. The Company has agreed to assist Mr. Myers in purchasing a residence in Phoenix, Arizona by a loan of up to $200,000 and to loan to Myers up to $500,000 if he elects to exercise options to acquire stock of Aloha Airlines, Inc. The loans would be nonrecourse to Mr. Myers but would be secured by such residence and stock. Upon confirmation of a plan of reorganization during the term of Mr. Myers' employment, the Company has agreed to seek Bankruptcy Court approval of payment to Mr. Myers of a reorganization success bonus, and grant, pursuant to the plan of reorganization, options to acquire shares of common stock in the reorganized Company. The Company has also agreed to provide to Mr. Myers certain retirement benefits, reduced for vested accrued benefits payable under plans maintained by his former employer. If Mr. Myers' employment with the Company is terminated or his responsibilities are materially altered following a change in control, he is entitled to receive a severance payment equal to 200% of his base salary and, for a period of 12 months, medical and life insurance coverages as provided immediately prior to such termination. Mr. Myers is entitled to participate in any incentive plans or other fringe benefits provided by the Company to other key employees. 57 The Board of Directors has discussed and continues to discuss change of control severance arrangements and a reorganization success bonus with Mr. William A. Franke. It also has discussed and continues to discuss reorganization success bonuses for other key employees of the Company. It is the policy of the Company that transactions with affiliates be on terms no less favorable to the Company than those obtainable from unaffiliated third parties. 58 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. ------- --------------------------------------------------------------- (a) Financial Statements. -------------------- (1) Report of KPMG Peat Marwick (2) Financial Statements and Notes to Financial Statements of the Company, including Balance Sheets as of December 31, 1993 and 1992 and related Statements of Operations, Cash Flows and Stockholders' Equity (Deficiency) for each of the years in the three-year period ended December 31, 1993 (b) Financial Statement Schedules. ----------------------------- (1) Schedule V. Property, Plant and Equipment (2) Schedule VI. Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment (3) Schedule VIII. Valuation and Qualifying Accounts (4) Schedule X. Supplementary Income Statement Information Schedules not listed above and columns within certain Schedules have been omitted because of the absence of conditions under which they are required or because the required material information is included in the Financial Statements or Notes to the Financial Statements included herein. 59 (c) Exhibits -------- Exhibit Number Description and Method of Filing ------ -------------------------------- 3-A(1) Restated Certificate of Incorporation of the Company, dated May 19, 1988 - Incorporated by reference to Exhibit 3-A to the Company's Schedule 13E-4 Issuer Tender Offer Statement (SEC File No. 5-34444 ("13E-4") 3-A(2) Amendment to Restated Certificate of Incorporation of the Company - Incorporated by reference to Exhibit 3-A(2) to the Company's Report on Form 10-K for the year ended December 31, 1989 (the "1989 10-K") 3-B Restated Bylaws of the Company, as amended through December 31, 1993 - Filed herewith -------------- 4-A(1) Certificate of Designation, Voting Powers, Preferences and Rights of the Series of Preferred Stock of the Company, Designated Series B Convertible Preferred Stock, dated March 15, 1984 - Incorporated by reference to Exhibit 3-D of the Company's Form S-1 Registration Statement (SEC File No. 2-89212) 4-B(1) Certificate of Designation, Voting Powers, Preferences and Rights of the Series of Preferred Stock of the Company Designated Series C 9.75% Convertible Preferred Stock, dated October 8, 1985 - Incorporated by reference to Exhibit 3-E(1) of the Company's Form S-1 Registration Statement (SEC File No. 33-3800) ("S-1 No. 33-3800") 4-B(2) Series C 9.75% Convertible Preferred Stock Certificate No. 1 for 73,099 Shares issued to Transpacific Enterprises, Inc., dated October 9, 1985 - Incorporated by reference to Exhibit 3-E(2) to S-1 No. 33-3800 4-C Form of Certificate of Designation, Voting Powers, Preferences and Rights of the Series of Preferred Stock of the Company's Designated Series D Participating Preferred Stock, dated July 23, 1986 - Incorporated by reference to Exhibit 1 of the Company's Form 8-A Registration Statement (SEC File No. 0-12337) ("Form 8-A No. 0-12337") 4-D Indenture dated as of August 1, 1985, between the Company and First Interstate Bank of Arizona, N.A., as Trustee, including form of 7 3/4% Convertible Subordinated Debenture due 2010 - Incorporated by reference to Exhibit 4 to the Company's Form S-1 Registration Statement (SEC File No. 2-99206) 60 Exhibit Number Description and Method of Filing ------ -------------------------------- 4-E Form of Indenture dated as of March 15, 1986, between the Company and First Interstate Bank of Arizona, N.A., as Trustee, including form of 7-1/2% Convertible Subordinated Debenture due 2011 - Incorporated by reference to Exhibit 4-B to S-1 No. 33-3800 4-F Form of Indenture, dated as of December 15, 1988, between the Company and First Interstate Bank of Arizona, N.A., as Trustee, including form of 11 1/2% Convertible Subordinated Debenture due 2009 - Incorporated by reference to Exhibit T3C to the Company's Form T-3 Application for Qualification of Indenture Under Trust Indenture Act of 1939 (SEC File No. 22-19024) 4-G Amended and Restated Rights Agreement, effective as of July 23, 1986 and dated as of June 17, 1988, between the Company and First Interstate Bank of Arizona, N.A., as Rights Agent - Incorporated by reference to Exhibit 2 to Amendment No. 1 to Form 8-A filed on Form 8 (SEC File No. 0-12337) 10-A(1)* America West Airlines, Inc. Stock Purchase Plan, as amended through February 26, 1991 - Incorporated by reference to Exhibit 10-A(1) to the Company's Report on Form 10-K for the year ended December 31, 1990 (the "1990 10-K") 10-A(2)* America West Airlines, Inc. Stock Purchase Plan for California and Alberta Resident Employees, as amended through February 26, 1991 - Incorporated by reference to Exhibit 10-A(2) to the 1990 Form 10-K 10-A(3)* America West Airlines, Inc. Incentive Stock Option Plan, as amended through February 27, 1990 - Incorporated by reference to Exhibit 10-A(3) to the 1989 Form 10-K 10-A(4)* Restated Nonstatutory Stock Option Plan, as of February 27, 1990 - Incorporated by reference to Exhibit 10-A(4) to the 1989 Form 10-K 10-A(5)* Non-Employee Directors Stock Option Plan, as of June 27, 1989 - Incorporated by reference to Exhibit 10-A(5) to the 1989 Form 10-K 10-A(6)* Restricted Stock Plan - Incorporated by reference to Exhibit 10-A(6) to the 1989 Form 10-K 10-A(7)* 1991 Incentive Stock Option Plan - Incorporated by reference to Exhibit 10-A(7) to the 1990 Form 10-K 10-C(1)* Stock Purchase and Sale Agreement dated October 9, 1985, between the Company and Transpacific Enterprises, Inc. - Incorporated by reference to Exhibit 10-H to S-1 No. 33-3800 61 Exhibit Number Description and Method of Filing ------- -------------------------------- 10-C(2)* Stock Purchase and Sale Agreement dated July 31, 1987, between the Company and Transpacific Enterprises, Inc. - Incorporated by reference to Exhibit 10-E(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 10-D(1) Second Restated and Amended Letter of Credit Reimbursement Agreement, dated as of April 27, 1990 among the Company, the Industrial Bank of Japan, Participating Banks and Bank of America National Trust and Savings Association - Incorporated by reference to Exhibit 10-D(3) to the 1990 Form 10-K 10-D(2) Third Amendment to Second Restated and Amended Letter of Credit Reimbursement Agreement - Incorporated by reference to Exhibit 10-D(4) to the 1990 Form 10-K 10-E Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate Airport Facility Revenue Bonds - Incorporated by reference to Exhibit 10.e to the Company's Report on Form 10-Q for the quarter ended September 30, 1986 10-F(1) Trust Indenture dated July 1, 1989 between The Industrial Development Authority of the City of Phoenix, Arizona and First Interstate Bank of Arizona, N.A. - Incorporated by Reference to Exhibit 10-D(8) to 1989 Form 10-K 10-F(2) Airport Use Agreement dated as of July 1, 1989 among the City of Phoenix, The Industrial Development Authority of the City of Phoenix, Arizona and the Company - Incorporated by reference to Exhibit 10-D(9) to 1989 Form 10-K 10-F(3) First Amendment dated as of August 1, 1990 to Airport Use Agreement dated as of July 1, 1989 among the City of Phoenix and the Industrial Development Authority of the City of Phoenix, Arizona and the Company - Incorporated by reference to Exhibit 10-(D)(9) to the Company's Report on Form 10-Q for the quarter ended September 30, 1990 (the "9/30/90 10-Q") 10-G(1) Revolving Loan Agreement dated as of April 17, 1990, by and among the Company, the Bank signatories thereto, and Bank of America National Trust and Savings Association, as Agent for the Banks (the "Revolving Loan Agreement") - Incorporated by reference to Exhibit 10-1 to Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990 10-G(2) First Amendment dated as of April 17, 1990 to Revolving Loan Agreement - Incorporated by reference to Exhibit 10-(D)(10) to the 9/30/90 10-Q 62 Exhibit Number Description and Method of Filing ------- -------------------------------- 10-G(3) Second Amendment dated as of September 28, 1990 to Revolving Loan Agreement - Incorporated by reference to Exhibit 10-(D)(11) to the 9/30/90 10-Q 10-G(4) Third Amendment dated as of January 14, 1991 to Revolving Loan Agreement - Incorporated by reference to Exhibit 10-D(13) to the 1990 Form 10-K 10-H Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September 28, 1990 between AVSA, S.A.R.L. ("AVSA") and the Company, together with Letter Agreement Nos. 1-10, inclusive - Incorporated by reference to Exhibit 10-(D)(1) to the 9/30/90 10-Q 10-I Loan Agreement, dated as of September 28, 1990, among the Company, AVSA and AVSA, as agent - Incorporated by reference to Exhibit 10-(D)(2) to the 9/30/90 10-Q 10-J V2500 Support Contract Between the Company and IAE International Aero Engines AG ("IAE"), dated as of September 28, 1990, together with Side Letters Nos. 1-4, inclusive - Incorporated by reference to Exhibit 10-(D)(3) to the 9/30/90 10-Q 10-K Spares Credit Agreement, dated as of September 28, 1990, Between the Company and IAE - Incorporated by reference to Exhibit 10-(D)(4) to the 9/30/90 10-Q 10-L Master Credit Modification Agreement, dated as of October 1, 1992, among the Company, IAE International Aero Engines AG, Intlaero (Phoenix A320) Inc., Intlaero (Phoenix B737) Inc., CAE Electronics Ltd., and Hughes Rediffusion Simulation Limited - Incorporated by reference to Exhibit 10-L to the Company's Report on Form 10-K for the year ended December 31, 1992 (the "1992 10-K") 10-M(1) Credit Agreement, dated as of September 28, 1990 Between the Company and IAE - Incorporated by reference to Exhibit 10-(D)(5) to the 9/30/90 10-Q 10-M(2) Amendment No. 1 to Credit Agreement, dated March 1, 1991 - Incorporated by reference to Exhibit 10-M(2) to the Company's 1992 10-K 10-M(3) Amendment No. 2 to Credit Agreement, dated May 15, 1991 - Incorporated by reference to Exhibit 10-M(3) to the Company's 1992 10-K 10-M(4) Amendment No. 3 to Credit Agreement, dated October 1, 1992 - Incorporated by reference to Exhibit 10-M(4) to the Company's 1992 10-K 63 Exhibit Number Description and Method of Filing ------- -------------------------------- 10-N(1) Form of Third Amended and Restated Credit Agreement dated as of September 30, 1993, among the Company, various lenders, and BT Commercial Corp. as Administrative Agent (without exhibits) - Filed herewith -------------- 10-N(2) Form of Amended and Restated Management Letter Agreement, dated as of September 30, 1993 from the Company to the Lenders - Filed herewith -------------- 10-N(3) Form of Amendment to Amended and Restated Management Letter Agreement; Consent to Amendment of Bylaws dated February 8, 1994 from the Company to the Lenders - Filed herewith -------------- 10-0(1) Cash Management Agreement, dated September 28, 1991, among the Company, BT and First Interstate of Arizona, N.A. - Incorporated by reference to Exhibit 10-D(21) to the 1991 10-K 10-O(2) First Amendment to Cash Management Agreement, dated December 1, 1991, among the Company, BT and First Interstate of Arizona, N.A. - Incorporated by reference to Exhibit 10-D(22) to the 1991 10-K 10-O(3) Second Amendment to Cash Management Agreement, dated September 1, 1992, among the Company, BT, and First Interstate Bank of Arizona, N.A. - Incorporated by reference to Exhibit 10-O(3) to the Company's 1992 10-K 10-P Loan Restructuring Agreement, dated as of December 1, 1991 between the Company and Kawasaki - Incorporated by reference to Exhibit 10-D(23) to the 1991 10-K 10-Q Restructuring Agreement, dated as of December 1, 1991 between the Company and Kawasaki - Incorporated by reference to Exhibit 10- D(24) to the 1991 10-K 10-R(1) A320 Put Agreement, dated as of December 1, 1991 between the Company and Kawasaki - Incorporated by reference to Exhibit 10- D(25) to the 1991 10-K 10-R(2) First Amendment to A320 Put Agreement, dated September 1, 1992 - Incorporated by reference to Exhibit 10-R(2) to the Company's 1992 10-K 10-S(1) A320 Put Agreement, dated as of June 25, 1991 between the Company and GPA Group plc - Incorporated by reference to Exhibit 10-D(26) to the 1991 10-K 10-S(2) First Amendment to Put Agreement, dated as of September 1, 1992 - Incorporated by reference to Exhibit 10-S(2) to the Company's 1992 10-K 64 Exhibit Number Description and Method of Filing ------- -------------------------------- 10-T Restructuring Agreement, dated as of June 25, 1991 among GPA Group, plc, GPA Leasing USA I, Inc., GPA Leasing USA Sub I, Inc. and the Company - Incorporated by reference to Exhibit 10-D(27) to the 1991 10-K 10-U Form of Interim Procedures Agreement dated as of March 11, 1994 between America West Airlines and AmWest Partners, L.P. - Filed herewith -------------- 10-V For of Investment Agreement dated as of March 11, 1994 between America West Airlines and AmWest Partners, L.P. - Filed herewith -------------- 11 Statement re: computation of net income (loss) per common share - Filed herewith -------------- 12 Statement re: computation of ratio of earnings to fixed charges - Filed herewith -------------- 23 Consent of KPMG Peat Marwick (regarding Form S-8 Registration Statements) - Filed herewith -------------- 24 Powers of Attorney - See Signature Page - ---------------- * Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this form. (d) Reports on Form 8-K ------------------- 1. The Company filed with the Securities and Exchange Commission a Form 8-K dated October 6, 1993 reporting information concerning the extension of the D.I.P Financing to June 30, 1994 and the resignation of board members. 2. On October 26, 1993, the Company filed with the Securities and Exchange Commission a Form 8-K reporting information that the pilots voted in favor of being represented by the Air Line Pilots Associations (ALPA). 65 Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICA WEST AIRLINES, INC. Date: March 30, 1994 By /s/ A. E. Frei --------------------------------------- Alphonse E. Frei Senior Vice President - Finance POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William A. Franke, A. Maurice Myers and Alphonse E. Frei, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ William A. Franke Chairman of the Board of March 30, 1994 --------------------------- Director and Chief William A. Franke Executive Officer /s/ A. Maurice Myers President, Chief March 30, 1994 --------------------------- Operating Officer and A. Maurice Myers Director 66 Signature Title Date --------- ----- ---- /s/ A. E. Frei Senior Vice President-- March 30, 1994 --------------------------- Finance (Principal Alphonse E. Frei Financial and Accounting Officer) /s/ O. Mark De Michele Director March 30, 1994 --------------------------- O. Mark De Michele /s/ Frederick W. Bradley Director March 30, 1994 --------------------------- Frederick W. Bradley /s/ Samuel L. Eichenfield Director March 30, 1994 --------------------------- Samuel L. Eichenfield /s/ Richard C. Kraemer Director March 30, 1994 --------------------------- Richard C. Kraemer /s/ James T. McMillan Director March 30, 1994 --------------------------- James T. McMillan /s/ John R. Norton Director March 30, 1994 --------------------------- John R. Norton /s/ John F. Tierney Director March 30, 1994 --------------------------- John F. Tierney /s/ Declan Treacy Director March 30, 1994 --------------------------- Declan Treacy 67 AMERICA WEST AIRLINES, INC. Schedule V -- Property, Plant and Equipment Years ended December 31, 1993, 1992 and 1991 (in thousands of dollars)
Balance at Balance beginning Additions at end Classification of period at cost Retirements Transfers of period - -------------- ---------- --------- ----------- --------- ---------- 1993 - ---- Building and improvements. . . . . . . . . . $ 72,917 $ 71 $ (3,340) $ 1,482 $ 71,130 Flight equipment owned . . . . . . . . . . . 767,080 45,082 (19,922) 26,602 818,842 Leasehold improvements--Flight equipment . . 36,550 31 (1,183) 5,428 40,826 Ground property and equipment. . . . . . . . 111,131 1,303 (9,654) 2,111 104,891 Construction in progress . . . . . . . . . . 43,316 9,367 (38) (35,623) 17,022 ---------- --------- ----------- --------- ---------- $1,030,994 $ 55,854 $ (34,137) $ - $1,052,711 ========== ========= =========== ========= ========== 1992 - ---- Building and improvements. . . . . . . . . . $ 83,596 $ 341 $ (11,967) $ 947 $ 72,917 Flight equipment owned . . . . . . . . . . . 759,579 39,876 (33,192) 817 767,080 Leasehold improvements--Flight equipment . . 40,604 (63) (8,234) 4,243 36,550 Ground property and equipment. . . . . . . . 117,408 1,950 (9,083) 856 111,131 Construction in progress . . . . . . . . . . 23,955 28,034 (1,810) (6,863) 43,316 ---------- --------- ----------- -------- ---------- $1,025,142 $ 70,138 $ (64,286) $ - $1,030,994 ========== ========= =========== ======== ========== 1991 - ---- Building and improvements. . . . . . . . . . $ 87,287 $ 330 $ (9,863) $ 5,842 $ 83,596 Flight equipment owned . . . . . . . . . . . 768,728 86,033 (104,964) 9,782 759,579 Leasehold improvements--Flight equipment . . 35,516 2,547 (14,678) 17,219 40,604 Ground property and equipment. . . . . . . . 103,979 6,551 (936) 7,814 117,408 Construction in progress . . . . . . . . . . 27,139 42,351 (4,878) (40,657) 23,955 ---------- --------- ----------- --------- ---------- $1,022,649 $ 137,812 $ (135,319) $ - $1,025,142 ========== ========= =========== ========= ==========
AMERICA WEST AIRLINES, INC. Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant, and Equipment Years ended December 31, 1993, 1992 and 1991 (in thousands of dollars)
Additions Balance at charged to Balance beginning costs and at end of Classification of period expenses Retirements period -------------- ---------- ---------- ----------- --------- 1993 - ---- Building and improvements. . . . . . . . . . $ 18,163 $ 4,237 $ (1,309) $ 21,091 Flight equipment . . . . . . . . . . . . . . 226,972 59,896 (14,717) 272,151 Leasehold improvements - Flight equipment. . 16,493 4,137 (1,096) 19,534 Ground property and equipment. . . . . . . . 67,242 13,624 (7,866) 73,000 ---------- ---------- ----------- --------- $ 328,870 $ 81,894 $ (24,988) $ 385,776 ========== ========== =========== ========= 1992 - ---- Building and improvements. . . . . . . . . . $ 17,790 $ 4,763 $ (4,390) $ 18,163 Flight equipment . . . . . . . . . . . . . . 174,235 72,523 (19,786) 226,972 Leasehold improvements - Flight equipment. . 14,262 4,184 (1,953) 16,493 Ground property and equipment. . . . . . . . 55,466 16,202 (4,426) 67,242 ---------- ---------- ----------- --------- $ 261,753 $ 97,672 $ (30,555) $ 328,870 ========== ========== =========== ========= 1991 - ---- Building and improvements. . . . . . . . . . $ 15,418 $ 5,626 $ (3,254) $ 17,790 Flight equipment . . . . . . . . . . . . . . 133,526 67,750 (27,041) 174,235 Leasehold improvements - Flight equipment. . 15,542 6,073 (7,353) 14,262 Ground property and equipment. . . . . . . . 37,660 18,354 (548) 55,466 ---------- ---------- ----------- --------- $ 202,146 $ 97,803 $ (38,196) $ 261,753 ========== ========== =========== =========
AMERICA WEST AIRLINES, INC. Schedule VIII - Valuation and Qualifying Accounts Years ended December 31, 1993, 1992, 1991 (in thousands of dollars)
Balance at Charged to Charged Balance beginning costs and to other at end of Description of period expenses accounts Deductions period ----------- ---------- ---------- -------- ---------- --------- Allowance for doubtful receivables: Years ended: December 31, 1993. . . . . . . . . $2,542 $5,474 $ - $4,986 $3,030 ====== ====== ====== ====== ====== December 31, 1992. . . . . . . . . $3,603 $3,800 $ - $4,861 $2,542 ====== ====== ====== ====== ====== December 31, 1991. . . . . . . . . $1,203 $5,300 $ - $2,900 $3,603 ====== ====== ====== ====== ====== Reserve for obsolescence: Years ended: December 31, 1993. . . . . . . . . $6,921 $ 902 $ - $ 592 $7,231 ====== ====== ====== ====== ====== December 31, 1992. . . . . . . . . $3,638 $3,283 $ - $ - $6,921 ====== ====== ====== ====== ====== December 31, 1991. . . . . . . . . $2,296 $1,342 $ - $ - $3,638 ====== ====== ====== ====== ======
AMERICA WEST AIRLINES, INC. Schedule X - Supplementary Income Statement Information Years ended December 31, 1993, 1992, 1991 (in thousands of dollars)
ITEM 1993 1992 1991 - ---- ------- ------- ------- Advertising costs. . . . . . . . . . . . . . . $25,118 $25,007 $29,821 ======= ======= ======= Aircraft maintenance materials and repairs . . $31,000 $38,366 $41,649 Amortization of deferred overhauls included in depreciation and amortization. . . . . . 29,870 31,482 27,453 ------- ------- ------- Maintenance and repairs. . . . . . . . . $60,870 $69,848 $69,102 ======= ======= ======= Other items are not listed because they are either shown in the financial statements or the amounts are less than 1% of revenues for all periods.
EX-3.B 2 RESTATED BYLAWS RESTATED BYLAWS OF AMERICA WEST AIRLINES, INC. (as Amended through and effective on December 31, 1993) 1. OFFICES. ------- 1.01 Offices. In addition to its registered office in the ------- State of Delaware, the Corporation shall have a general office at Maricopa County, Arizona, and such other offices, either within or without the State of Delaware, at such locations as the Board of Directors may from time to time determine or the business of the Corporation may require. 2. SEAL. ---- 2.01 Seal. The Corporation shall have a seal, which shall ---- have inscribed thereon its name and year of incorporation and the words, "Corporate Seal Delaware." 2.02 The seal shall be kept in safe custody by the Secretary of the Corporation. It shall be affixed by the Chairman of the Board, the President, any Vice President, the Secretary or any Assistant Secretary, or the Treasurer to any corporate instrument or document requiring it, by practice or by law, and when so affixed, it may be attested by the signature of the officer so affixing it. 3. MEETINGS OF STOCKHOLDERS. ------------------------ 3.01 Place of Meetings. All meetings of stockholders of ----------------- the Corporation shall be held at the general office of the Corporation in Maricopa County, State of Arizona, unless otherwise specified in the notice calling any such meeting. 3.02 (a) Annual Meetings. The annual meeting of --------------- Stockholders for 1984 shall be held at the Corporate offices on Friday, May 18, 1984, at 10:00 a.m. or at such other time, date and place as shall be determined by the Board of Directors, complying with Section 3.04(b) of the Bylaws of the Corporation. All subsequent annual meetings of Stockholders, beginning with the annual meeting to be held in 1985, shall be held on the first Tuesday of May, if not a legal holiday, and if a legal holiday, 1 then on the next business day following, or at such other time, date and place as shall be determined by the Board of Directors, complying with Section 3.04(b) of the Bylaws of the Corporation. (b) At each annual meeting the stockholders shall elect, by plurality of the votes cast, one class of Directors as provided in Section 4.03 of these Bylaws and shall transact such other business as may properly be brought before them. (c) The Board of Directors may, in advance of any annual or special meeting of the stockholders, adopt an agenda for such meeting, adherence to which the Chairman of the Board may enforce. 3.03 Special Meetings. Special meetings of the ---------------- stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed herein or by statute, may be called by the Chairman of the Board and shall be called by the Secretary at the written request, or by resolution adopted by the affirmative vote, of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Stockholders of the Corporation shall not be entitled to request a special meeting of the stockholders. 3.04 (a) Notices of Meetings. Notices of meetings of ------------------- stockholders shall be in writing and shall state the place (which may be within or without the State of Delaware), date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which a meeting is called. No business other than that specified in the notice thereof shall be transacted at any special meeting. (b) Such notice shall either be delivered personally or mailed, postage prepaid, to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. If mailed, the notice shall be directed to the stockholder at his address as it appears on the records of the Corporation. Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. 3.05 Adjourned Meetings. When a meeting is adjourned to ------------------ another time or place, unless otherwise provided by these Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders may transact any business which might have been transacted at the original meeting. If an adjournment is for more than thirty (30) days or if after an adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. 2 3.06 Quorum and Adjournment. Except as otherwise provided ---------------------- by law, by the Certificate of Incorporation of this Corporation or by these Bylaws, the presence, in person or by proxy, of the holders of a majority of the stock issued and outstanding and entitled to vote thereat, shall be requisite and shall constitute a quorum for the transaction of business at all meetings of stockholders. If, however, such majority shall not be present or represented at any meeting of stockholders, the holders of a majority of the stock entitled to vote, present in person or by proxy, shall have the power to adjourn the meeting. 3.07 Majority Vote Required. When a quorum is present at ---------------------- any meeting of stockholders, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall constitute the act of the stockholders, unless by express provision of law or of the Certificate of Incorporation or of these Bylaws a different vote is required, in which case such express provision shall govern and control. 3.08 Manner of Voting. At each meeting of stockholders, ---------------- every stockholder having the right to vote shall be entitled to vote in person or by proxy. Proxies need not be filed with the Secretary of the Corporation until the meeting is called to order, but shall be filed before being voted. Each stockholder shall have one vote for each share of stock having voting power registered in his name on the books of the Corporation on the record date fixed as provided in Section 6.04 of these Bylaws, for the determination of stockholders entitled to vote at such meeting. All elections of directors shall be by written ballot. 3.09 (a) Proxies. At any meeting of stockholders, any ------- stockholder may be represented and vote by proxy or proxies appointed by a written form of proxy. In the event that any form of proxy shall designate two or more persons to act as proxies, a majority of such persons present at the meeting or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by the form of proxy upon all of the persons so designated unless the form of proxy shall otherwise provide. (b) The Board of Directors may, in advance of any annual or special meeting of the stockholders, prescribe additional regulations concerning the manner of execution and filing of proxies and the validation of the same, which are intended to be voted at any such meeting. 3.10 Organization. At each meeting of stockholders, the ------------ Chairman of the Board shall preside and the Secretary shall act as Secretary of the meeting. 3 4. DIRECTORS. --------- 4.01 Powers. The Board of Directors shall exercise all of ------ the power of the Corporation except such as are by law, or by the Certificate of Incorporation of this Corporation or by these Bylaws conferred upon or reserved to the stockholders of any class or classes. 4.02 (a) Number. The number of Directors of this ------ Corporation shall be a minimum of five (5) and a maximum of thirteen (13) persons. The Board of Directors shall have sole authority to determine the number of Directors, within the limits set forth herein, and may increase or decrease the exact number of Directors from time to time by resolution duly adopted by such Board. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. The exact number of Directors shall be eleven (11) until so increased or decreased; provided however, that so long as the Amended and Restated Management Letter Agreement between America West Airlines, Inc. and the lenders party thereto dated as of September 30, 1993 (such Amended and Restated Management Letter of Agreement, as supplemented and amended from time to time, being hereinafter referred to as the "Management Agreement") shall remain in force and effect, the exact number of directors shall be as prescribed in the Management Agreement. (b) At all times the composition of the Board of Directors shall comply in all respects with the U.S. citizenship requirements of the Federal Aviation Act of 1958, as amended. 4.03 (a) Classification of Board. From and after the ----------------------- first annual meeting of stockholders, the Board of Directors shall be divided into three classes, in respect to term of office, each class to contain as nearly as may be one third (1/3) of the whole number of the Board. Of the Board of Directors elected at the first annual meeting of the stockholders, the members of the first class shall serve until the annual meeting of stockholders held in 1983; the members of the second class shall serve until the annual meeting of stockholders held in 1984; and the members of the third class shall serve until the annual meeting of stockholders held in 1985. (b) At each annual meeting after the first annual meeting, the stockholders shall elect, by a plurality of the votes cast, one class of Directors to serve until the annual meeting of stockholders held three (3) years next following, provided, however, that in each case Directors shall continue to serve until their successors shall be elected and shall qualify. 4.04 Nominations. No person shall be elected to the Board ----------- of Directors of this Corporation at an annual meeting of the stockholders, or at a special meeting called for that purpose, 4 unless a written nomination of such person to the Board of Directors by a stockholder of the Corporation shall be received by the Secretary of the Corporation at least thirty (30) days prior to such meeting. 4.05 Resignations. Any Director may resign at any time by ------------ giving written notice to the Board of Directors or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of such resignation shall not be necessary to make it effective. 4.06 (a) Removal. At any special meeting of the ------- stockholders duly called as provided heretofore, any or all of the Directors may, by a vote of the holders of a majority of all the shares of stock issued and outstanding and entitled to vote thereat, be removed from office for cause, and the successor or successors of the Director or Directors so removed may be elected at such meeting. In the absence of such an election, any vacancy or vacancies may be filled as provided herein. (b) As used herein, "cause" for the removal of a Director shall be deemed to exist if (i) there has been a finding by not less than two-thirds (2/3) of the entire Board of Directors that cause exists and the Directors have recommended removal to the stockholders, or (ii) any other cause defined by law. 4.07 (a) Vacancies. In case any vacancy shall occur on --------- the Board of Directors because of death, resignation, retirement, disqualification, removal, an increase in the authorized number of Directors or any other cause, the Board of Directors may, at any meeting, by resolution adopted by the affirmative vote of two-thirds (2/3) of the Directors then in office, though less than a quorum, elect a Director or Directors to fill such vacancy or vacancies until the next election of the class for which such Director or Directors shall have been chosen; provided however, that so long as the Management Agreement shall remain in force and effect, any vacancy on the Board of Directors shall be filled in accordance with the provisions of the Management Agreement. (b) If, as a result of a disaster or emergency (as determined in good faith by the then remaining Directors), it becomes impossible to ascertain whether or not vacancies exist on the Board of Directors, and a person is or persons are elected by Directors, who in good faith believe themselves to be a majority of the remaining Directors, to fill a vacancy or vacancies that said remaining Directors in good faith believe exists, then the acts of such person or persons who are so elected as Directors shall be valid and binding upon the Corporation and the stockholders, although it may subsequently develop that at the time of the election (i) there was in fact no vacancy or vacancies existing on the Board of Directors, or (ii) the 5 Directors who so elected such person or persons did not in fact constitute a majority of the remaining Directors. 4.08 Organization. At each meeting of the Board of ------------ Directors, the Chairman of the Board shall preside, and the Secretary shall act as Secretary of the meeting. 4.09 Annual Meetings. The Board of Directors shall meet --------------- each year following the annual meeting of stockholders, at the place where such meeting of stockholders has been held, for the purpose of organization, election of officers, and consideration of such other business as may properly be brought before the meeting, and no notice of any kind to either old or new members of the Board of Directors of such annual meeting shall be necessary. 4.10 Regular Meetings. Regular meetings of the Board of ---------------- Directors shall be held monthly. Such meetings may be held without notice at such times and places, within or without the State of Delaware, as shall from time to time be determined by the Board of Directors. In the absence of any such determination, such meetings shall be held at such times and places, within or without the State of Delaware, as shall be designated by the Chairman of the Board on not less than three (3) days' notice to each Director, given either personally, by telephone, by facsimile transmission, by mail, by telegram or by telex. 4.11 Special Meetings. Special meetings of the Board of ---------------- Directors shall be held at the call of the Chairman of the Board at such times and places, within or without the State of Delaware, as he shall designate, on not less than three (3) days' notice to each Director, given either personally, by telephone, by facsimile transmission, by mail, by telegram or by telex. Special meetings shall be called by the Secretary on like notice at the written request of a majority of the Directors. 4.12 Quorum and Powers of a Majority. At all meetings of ------------------------------- the Board of Directors and of each committee thereof, a majority of the members shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the Board of Directors or such committee, unless by express provision of law or of the Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control. In the absence of a quorum, a majority of the members present may, without notice other than announcement at the meeting, adjourn a meeting from time to time until a quorum be present. 4.13 Waiver of Notice. Notice of any meeting of the Board ---------------- 6 of Directors, or any committee thereof, need not be given to any member if waived by him in writing, whether before or after such meeting is held, or if he shall sign the minutes or if he shall attend the meeting. 4.14 (a) Manner of Acting. Members of the Board of ---------------- Directors, or any committee thereof, may participate in any meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating therein can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (b) Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. 4.15 (a) Compensation. The Board of Directors, by a ------------ resolution or resolutions may fix, and from time to time change, the compensation of Directors. (b) Each Director shall be entitled to reimbursement from the Corporation for his or her reasonable expenses incurred in attending meetings of the Board of Directors or any committee thereof. (c) Nothing contained in these Bylaws shall be construed to preclude any Director from serving the Corporation in any other capacity and from receiving compensation from the Corporation for service rendered to it in such other capacity. 4.16 [Reserved.] 4.17 Committees. The Board of Directors may, by resolution ---------- or resolutions adopted by the affirmative vote of a majority of the whole Board of Directors, designate one or more committees, each committee to consist of two or more Directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolutions adopted by the Board of Directors. 4.18 (a) Committees in General. Except as otherwise --------------------- provided by these Bylaws, each committee shall adopt its own rules governing the time, place and method of holding its meetings and the conduct of its proceedings and shall meet as 7 provided by such rules or by resolution of the Board of Directors. Unless otherwise provided by these Bylaws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 4.10 of these Bylaws with respect to notices of special meetings of the Board of Directors. (b) Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. (c) Any member of any committee, other than a member thereof serving ex officio, may be removed from such committee ---------- either with or without cause, any time, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors at any meeting thereof. Any vacancy in any committee shall be filled by the Board of Directors in the manner prescribed by these Bylaws for the original appointment of the members of such committee. 5. OFFICERS. -------- 5.01 (a) Number. The officers of the Corporation shall be a ------ President, one or more Vice Presidents (including one or more Executive Vice Presidents and one or more Senior Vice Presidents if deemed appropriate by the Board of Directors), a Secretary and a Treasurer. The Board of Directors may also elect a Chairman of the Board; provided that, so long as the Management Agreement shall remain in force and effect, the Board of Directors shall elect a Chairman of the Board in compliance with the terms and conditions of the Management Agreement. The Board of Directors may also elect such other officers as the Board of Directors may from time to time deem appropriate or necessary. Except for the Chairman of the Board (if one shall be elected), none of the officers of the Corporation need be a director of the Corporation. Any two or more offices may be held by the same person. (b) The Chairman of the Board (if one shall be elected) shall be the Chief Executive Officer unless the Board of Directors, by resolution adopted by the affirmative vote of not less than two-thirds (2/3) of the Directors then in office, designates the President as Chief Executive Officer. The President shall be the Chief Operating Officer. If at any time the office of the Chairman of the Board shall not be filled, the President shall also be the Chief Executive Officer. (c) The Board of Directors may delegate to the Chief Executive Officer the power to appoint one or more employees of the corporation as divisional or departmental vice presidents and fix their duties as such appointees. However, no such divisional 8 or departmental vice president shall be considered as an officer of the Corporation, the officers of the Corporation being limited to those officers elected by the Board of Directors. 5.02 Election of Officers, Qualification and Term. The -------------------------------------------- officers of the Corporation to be elected by the Board of Directors shall be elected annually at the first meeting of the Board of Directors held after each annual meeting of the stockholders. Each such officer shall hold office for one (1) year and until his successor shall have been duly elected and shall qualify in his stead unless the Board of Directors shall have provided by contract or otherwise in any particular case, or until he shall have resigned and his resignation shall have become effective, or until he shall have been removed in the manner hereinafter provided. Notwithstanding anything in this Section 5.02 to the contrary, the Chairman of the Board may be elected only by the vote of two-thirds (2/3) of the Directors then in office (who may include the Director who is or is to be the Chairman of the Board). 5.03 Removal. Except as otherwise expressly provided in a ------- contract duly authorized by the Board of Directors, any officer elected by the Board of Directors may be removed, either with or without cause, at any time by resolution adopted by the affirmative vote of a majority of the whole Board of Directors at any meeting thereof; provided that the Chairman of the Board may be removed only by the vote of two-thirds (2/3) of the Directors then in office (excluding the Director who is the Chairman of the Board), and provided further that so long as the Management Agreement shall remain in force and effect, the Chairman of the Board may not be removed except in compliance with the terms and conditions of the Management Agreement. 5.04 Resignations. Any officer of the Corporation may ------------ resign at any time by giving written notice to the Board of Directors or the Chairman of the Board. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5.05 Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause may be filled for the unexpired portion of the term by election by the Board of Directors at any meeting thereof; provided that so long as the Management Agreement shall remain in effect, any vacancy in the office of Chairman of the Board shall be filled in accordance with the provisions of the Management Agreement. 5.06 Salaries. The salaries of all officers of the -------- Corporation shall be fixed by the Board of Directors from time to time, and no officer shall be prevented from receiving such 9 salary by reason of the fact that he is also a Director of the Corporation. 5.07 (a) The Chairman of the Board. The Chairman of the ------------------------- Board (if one shall be elected) shall have the powers and duties customarily and usually associated with the office of the Chairman of the Board. He shall preside at meetings of the stockholders and of the Board of Directors. In the event of his temporary absence or disability and the absence or disability of the President, the Chairman of the Board shall have the power to designate any Director to preside at any or all meetings of the stockholders and of the Board of Directors. (b) If at any time the office of President shall not be filled, or in the event of the disability of the President, the Chairman of the Board (if one shall be elected) shall have the duties and powers of the President. The Chairman of the Board shall have such other powers and perform such other duties as may be delegated to him by the Board of Directors. 5.08 The President. In the event of the disability of the ------------- Chairman of the Board, the President shall have the powers and duties of the Chairman of the Board. The President shall have such other powers and perform such other duties as may be delegated to him by the Board of Directors or the Chairman of the Board (if one shall be elected). 5.09 [Reserved.] 5.10 The Vice Presidents. The Vice Presidents shall have -------------------- such powers and perform such duties as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board or the President. 5.11 The Secretary and the Assistant Secretary. (a) The ----------------------------------------- Secretary shall attend meetings of the Board of Directors and meetings of the Stockholders and record all votes and minutes of all such proceedings in a book kept for the purpose and shall perform like duties for the committees of Directors as provided for in these Bylaws when required. He shall give, or cause to be given, notice of all meetings of Stockholders and of the Board of Directors, and shall have such other powers and perform such other duties as may from time to time be assigned to him by the Board of Directors or the Chairman of the Board. (b) The Assistant Secretaries shall have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board or the Secretary. In case of the absence or disability of the Secretary, the Assistant Secretary designated by the Secretary (or, in the absence of such designation, the senior Assistant Secretary) shall perform the duties and exercise the powers of 10 the Secretary. 5.12 (a) The Treasurer and the Assistant Treasurer. The ----------------------------------------- Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. (b) The Treasurer shall disburse funds of the Corporation as may from time to time be ordered by the Board of Directors, taking proper vouchers for such disbursements, and render to the Board of Directors, the Chairman of the Board and President whenever they may require it, an account of all his transactions as Treasurer and of the financial conditions of the Corporation. (c) The Treasurer shall also maintain adequate records of all assets, liabilities and transactions of the Corporation and shall see that adequate audits thereof are currently and regularly made. He shall have such other powers and perform such other duties as may from time to time be assigned to him by the Board of Directors, the Chairman of the Board or the President. (d) The Assistant Treasurers shall have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President or the Treasurer. In case of the absence or disability of the Treasurer, the Assistant Treasurer designated by the Treasurer (or, in the absence of such designation, the senior Assistant Treasurer) shall perform the duties and exercise the powers of the Treasurer. 5.13 Treasurer's Bond. If required by the Board of ---------------- Directors, the Treasurer or any Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as are satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. 5.14 Chief Executive Officer. The Chief Executive Officer ----------------------- shall have, subject to the supervision, direction and control of the Board of Directors, the general powers and duties of supervision, direction and management of the affairs and business of the Corporation usually vested in the chief executive officer of a corporation, including, without limitation, all powers necessary to direct and control the organizational and reporting 11 relationships within the Corporation. If at any time the office of Chairman of the Board shall not be filled, the Chief Executive Officer shall have the powers and duties of the Chairman of the Board. 5.15 Chief Operating Officer. The Chief Operating Officer ----------------------- shall, subject to the supervision, direction and control of the Chief Executive Officer, manage the day-to-day operations of the Corporation and, in general, shall assist the Chief Executive Officer. 6. STOCK. ----- 6.01 Certificates. Certificates of shares of the stock of ------------ the Corporation shall be issued under the seal of the Corporation, or facsimile thereof, and shall be numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall bear a serial number, shall exhibit the holder's name and the number of shares evidenced thereby, and shall be signed by the Chairman of the Board, the President or any vice president of the Corporation and the Secretary or the Treasurer. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person or entity were such officer, transfer agent or registrar at the date of issue. 6.02 Transfers. Transfers of stock of the Corporation --------- shall be made on the books of the Corporation only upon surrender to the Corporation of a certificate for the shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Thereupon, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 6.03 Lost, Stolen or Destroyed Certificates. Any person -------------------------------------- claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or an affirmation of that fact, and shall give the Corporation a bond of indemnity in satisfactory from and with one or more satisfactory sureties, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. 6.04 Record Date. In order that the Corporation may ----------- determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other 12 distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors shall fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action, except that the record date for the first annual meeting of stockholders is fixed by these Bylaws as of the close of business on November 16, 1981. 6.05 Registered Stockholders. The Corporation shall be ----------------------- entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in any such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Delaware. 6.06 (a) Powers of the Board. The Board of Directors ------------------- shall have power and authority to make all such rules and regulations as it shall deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. (b) The Board of Directors may appoint and remove transfer agents and registrars of transfers, and may require all stock certificates to bear the signature of any such transfer agent and/or any such registrar of transfers. (c) The Board of Directors shall have power and authority to create and issue (whether or not in connection with the issue and sale of any stock or other securities of the Corporation) warrants, rights or options entitling the holders thereof to purchase from the Corporation any shares of any class or classes or any other securities of the Corporation. Such warrants, rights or options shall be evidenced by such instrument or instruments as shall be approved by the Board of Directors. (d) The terms upon which, the time or times (which may be limited or unlimited in duration) at or within which, and the price or prices at which any such shares or other securities may be purchased from the Corporation upon the exercise of any such warrant, right or option shall be such as shall be fixed and stated in a resolution or resolutions of the Board of Directors providing for the creation and issue of such warrants, rights or options. The Board of Directors is hereby authorized to create and issue any such warrants, rights or options from time to time for such consideration and to such persons, firms or corporations as the Board of Directors, in its sole discretion, may determine setting aside from the authorized but unissued stock of the Corporation the requisite number of shares for issuance upon the 13 exercise of such warrants, rights or options. 7.0 MISCELLANEOUS. ------------- 7.01 (a) Place and Inspection of Books. The books of the ----------------------------- Corporation other than such books as are required by law to be kept within the State of Delaware, shall be kept at such place or places either within or without the State of Delaware as the Board of Directors may from time to time determine. (b) At least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder shall be prepared. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (c) The Board of Directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may be by law specifically open to inspection or as otherwise provided by these Bylaws) or any of them shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be restricted and limited accordingly. 7.02 (a) Indemnification of Directors, Officers, Employees ------------------------------------------------- and Agents. The Corporation shall indemnify any person who was ---------- or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid or owed in settlement actually and reasonably paid or incurred by him or rendered or levied against him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any 14 criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, in itself, --------------- create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses, including attorneys' fees, actually and reasonably paid or incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that, despite the adjudication of liability but in view of all circumstances of the case, such person fairly and equitably merits indemnification. (c) To the extent that a person who may be entitled to indemnification by the Corporation under this section is or has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses, including attorney's fees, actually and reasonably paid or incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsection (a) or (b). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, (iii) the stockholders, or (iv) in any case in which 15 applicable law makes court approval a prerequisite to indemnification, by the court in which such action, suit or proceeding was brought or another court of competent jurisdiction. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this section. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of the stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (g) The provisions of this section shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the estate, executors, administrators, heirs, legatees or devisees of a person entitled to indemnification hereunder and the term "person," where used in the section shall include the estate, executors, administrators, heirs, legatees or devisees of such person. (h) For the purposes of this Section 7.02, (i) "employee benefit plan" and "fiduciary" shall be deemed to include, but not be limited to, the meanings set forth, respectively, in Sections 3(3) and 21(A) of the Employee Retirement Income Security Act of 1974, as amended, (ii) references to the judgments, fines and amounts paid or owed in settlement or rendered or levied shall be deemed to encompass and include excise taxes required to be paid pursuant to applicable law in respect of any transaction involving an employee benefit plan, and (iii) references to the Corporation shall be deemed to include any predecessor corporation and any constituent corporation absorbed in a merger, consolidation or other reorganization of or by the Corporation which, if its separate existence had continued, would have had power and authority to indemnify its directors, officer, employees, agents or fiduciaries so that any person who was a director, officer, employee, agent or fiduciary of such predecessor or constituent corporation, or served at the request of such predecessor or constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Section 7.02 with 16 respect to the Corporation as such person would have with respect to such predecessor or constituent corporation if its separate existence had continued. 7.03 (a) Dividends. Dividends may be declared at the --------- discretion of the Board of Directors at any meeting thereof. (b) Dividends may be paid to stockholders from the Corporation's surplus, as computed in accordance with the laws of the State of Delaware, or in case there shall be no surplus, out of its net profits for the fiscal year then current and/or the preceding fiscal year, but not otherwise. When the Directors shall so determine, dividends may be paid in stock. A Director shall be fully protected in relying in good faith upon the books of account of the Corporation or statements prepared by any of its officers as to the value and amount of the assets, liabilities or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared. (c) Before payment of any dividend or any distribution of profits, there may be set aside out of the said surplus of the Corporation such sum or sums as the Board of Directors from time to time, in its discretion thinks proper as a reserve fund to meet contingencies, or for equalizing dividends, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation and the Board of Directors may abolish any such reserve in the manner in which it was created. 7.04 Execution of Deeds, Contracts, Etc. Subject always to ----------------------------------- the specific directions of the Board of Directors, all deeds, mortgages and bonds made by the Corporation and all other written contracts and agreements to which the Corporation shall be a party shall be executed in its name by the Chairman of the Board, the President, or a Vice President, or such other person or persons as may be authorized by any such officer. 7.05 Checks. All checks, drafts, acceptances, notes and ------ other orders, demands or instruments in respect to the payment of money may be signed or endorsed on behalf of the Corporation by such officer or officers or by such agent or agents as the Board of Directors may from time to time designate. 7.06 Voting Shares in Other Corporations. The Corporation ----------------------------------- may vote any and all shares held by it in any other corporation or corporations by the Chairman of the Board. 7.07 Fiscal Year. The fiscal year of the Corporation shall ----------- correspond with the calendar year. 7.08 Gender/Number. As used in this instrument, the ------------- 17 masculine, feminine or neuter gender, and the singular or plural number, shall each include the others whenever context so indicates. 7.09 Paragraph Titles. The titles of the paragraphs have ---------------- been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms and provisions hereof. 8. LIMITATIONS OF OWNERSHIP BY NON-CITIZENS. ---------------------------------------- 8.01 Definitions. ----------- (a) "Act" shall mean The Federal Aviation Act of 1958, as amended (Title 49 United States Code) or as the same may be from time to time amended. (b) "Foreign Stock Record" shall have the meaning set forth at Section 8.03 hereof. (c) "Non-Citizen" shall mean any person or entity who is not a "citizen of the United States" as defined in Section 101 of the Act, including any agent, trustee or representative of a Non-Citizen. (d) "Own or Control" or "Owned or Controlled" shall mean (i) ownership of record, (ii) beneficial ownership or (iii) the power to direct, by agreement, agency or in any other manner, the voting of Stock. Any determination by the Board of Directors as to whether Stock is Owned or Controlled by a Non-Citizen shall be final. (e) "Permitted Percentage" shall mean 25 percent of the voting power of the Stock. (f) "Stock" shall mean the outstanding capital stock of the Corporation entitled to vote; provided, however, that for the purpose of determining the voting power of Stock that shall at any time constitute the Permitted Percentage, the voting power of Stock outstanding shall not be adjusted downward solely because shares of Stock may not be entitled to vote by reason of any provision of this Section 8. 8.02 Policy. It is the policy of the Corporation that, ------ consistent with the requirements of Section 101 of the Act, Non- Citizens shall not Own or Control more than the Permitted Percentage and, if Non-Citizens nonetheless at any time Own or Control more than the Permitted Percentage, the voting rights of the Stock in excess of the Permitted Percentage shall be automatically suspended in accordance with Sections 8.03 and 8.04 below. 18 8.03 Foreign Stock Record. The Corporation or any transfer -------------------- agent designated by it shall maintain a separate stock record (the "Foreign Stock Record") in which shall be registered Stock known to the Corporation to be Owned or Controlled by Non- Citizens. The Foreign Stock Record shall include (i) the name and nationality of each such Non-Citizen, (ii) the number of shares of Stock Owned or Controlled by such Non-Citizen and (iii) the date of registration of such shares in the Foreign Stock Record. In no event shall shares in excess of the Permitted Percentage be entered on the Foreign Stock Record. In the event that the Corporation shall determine that Stock registered on the Foreign Stock Record exceeds the Permitted Percentage, sufficient shares shall be removed from the Foreign Stock Record so that the number of shares entered therein does not exceed the Permitted Percentage. Stock shall be removed from the Foreign Stock Record in reverse chronological order based upon the date of registration therein. 8.04 Suspension of Voting Rights. If at any time the --------------------------- number of shares of Stock known to the Corporation to be Owned or Controlled by Non-Citizens exceeds the Permitted Percentage, the voting rights of Stock Owned or Controlled by Non-Citizens and not registered on the Foreign Stock Record at the time of any vote or action of the stockholders of the Corporation shall, without further action by the Corporation, be suspended. Such suspension of voting rights shall automatically terminate upon the earlier of the (i) transfer of such shares to a person or entity who is not a Non-Citizen, or (ii) registration of such shares on the Foreign Stock Record, subject to the final sentence of Section 8.03. 9. AMENDMENT. --------- 9.01 Amendment. These Bylaws may be altered, amended or --------- repealed by the affirmative vote of the holders of a majority of the stock issued and outstanding and entitled to vote at any meeting of stockholders or by resolution adopted by the affirmative vote of not less than a majority of the Directors in office at any annual or regular meeting of the Board of Directors or at any special meeting of the Board of Directors if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting. 19 EX-10.N(1) 3 FORM OF THIRD AMENDED AND RESTATED CREDIT AGREEMENT $83,616,597.27 THIRD AMENDED AND RESTATED CREDIT AGREEMENT among AMERICA WEST AIRLINES, INC. VARIOUS LENDERS and BT COMMERCIAL CORP. as ADMINISTRATIVE AGENT ------------------------------- Dated as of September 30, 1993 ------------------------------- TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . 3 1.01 Defined Terms . . . . . . . . . . . . . . . 3 1.02 Other Definitional Provisions . . . . . . . 26 SECTION 2. LOANS . . . . . . . . . . . . . . . . . . . 26 2.01 Commitments and Loans . . . . . . . . . . . 26 2.02 [Reserved] . . . . . . . . . . . . . . . . . 27 2.03 [Reserved] . . . . . . . . . . . . . . . . . 27 2.04 [Reserved] . . . . . . . . . . . . . . . . . 27 2.05 Notes . . . . . . . . . . . . . . . . . . . 27 2.06 [Reserved] . . . . . . . . . . . . . . . . . 27 2.07 Interest . . . . . . . . . . . . . . . . . . 27 2.08 Principal Repayments . . . . . . . . . . . . 28 2.09 Interest Period Indemnification . . . . . . 28 2.10 Taxes . . . . . . . . . . . . . . . . . . . 29 2.11 Cost Indemnities . . . . . . . . . . . . . . 32 2.12 Distribution of Proceeds . . . . . . . . . . 34 SECTION 3. FEES . . . . . . . . . . . . . . . . . . . 37 3.01 Facility Fee . . . . . . . . . . . . . . . . 37 3.02 Fees of Administrative Agent and Collateral Agent . . . . . . . . . . . . . . . . . . . 37 SECTION 4. PREPAYMENTS; PAYMENTS . . . . . . . . . . . 37 4.01 Voluntary Prepayments . . . . . . . . . . . 37 4.02 Mandatory Prepayments . . . . . . . . . . . 38 4.03 Method and Place of Payment . . . . . . . . 40 4.04 Net Payments . . . . . . . . . . . . . . . . 40 SECTION 5. CONDITIONS PRECEDENT AND RELATED PROVISIONS 40 5.01 Conditions to the Effective Date . . . . . . 40 5.02 Conditions to All Loans . . . . . . . . . . 46 5.03 Conditions Precedent to Amendment Effective Date . . . . . . . . . . . . . . . . . . . 48 5.04 Conditions Precedent to Second Amendment Effective Date . . . . . . . . . . . . . . 53 5.05 Conditions Precedent to Third Amendment Effective Date . . . . . . . . . . . . . . 61 SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS 65 6.01 Corporate Status . . . . . . . . . . . . . . 66 6.02 Corporate Power and Authority . . . . . . . 66 6.03 No Violation . . . . . . . . . . . . . . . . 66 6.04 Governmental Approvals . . . . . . . . . . . 67 6.05 Priority; Security Interests . . . . . . . . 67 6.06 Financial Statements; Financial Condition; Undisclosed Liabilities; etc . . . . . . . 67 6.07 Litigation . . . . . . . . . . . . . . . . . 69 -i- Page ---- 6.08 True and Complete Disclosure . . . . . . . . 69 6.09 Use of Proceeds; Margin Regulations . . . . 69 6.10 Tax Returns and Payments . . . . . . . . . . 70 6.11 Compliance with ERISA . . . . . . . . . . . 70 6.12 Subsidiaries . . . . . . . . . . . . . . . . 71 6.13 Compliance with Statutes, etc . . . . . . . 71 6.14 Investment Company Act . . . . . . . . . . . 72 6.15 Public Utility Holding Company Act . . . . . 72 6.16 End of Fiscal Year; Fiscal Quarters . . . . 73 6.17 The Orders . . . . . . . . . . . . . . . . . 73 6.18 Operations . . . . . . . . . . . . . . . . . 73 6.19 GPA Agreements/Kawasaki Agreements . . . . . 74 SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . 74 7.01 Information Covenants . . . . . . . . . . . 75 7.02 Books, Records and Inspections . . . . . . . 80 7.03 Maintenance of Property; Insurance . . . . . 80 7.04 Corporate Franchises . . . . . . . . . . . . 81 7.05 Compliance with Statutes, etc . . . . . . . 81 7.06 End of Fiscal Years; Fiscal Quarters . . . . 81 7.07 Performance of Obligations . . . . . . . . . 82 7.08 Minimum Designated Collateral Balances . . . 82 7.09 Hazardous Materials . . . . . . . . . . . . 85 7.10 Cash Management . . . . . . . . . . . . . . 85 7.11 Further Assurances . . . . . . . . . . . . . 88 SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . 90 8.01 Liens . . . . . . . . . . . . . . . . . . . 90 8.02 Consolidation, Merger, Sale of Assets, etc . 93 8.03 Distributions . . . . . . . . . . . . . . . 94 8.04 Leases . . . . . . . . . . . . . . . . . . . 95 8.05 Indebtedness . . . . . . . . . . . . . . . . 95 8.06 Advances, Investments and Loans . . . . . . 96 8.07 Capital Expenditures . . . . . . . . . . . . 97 8.08 Limitation on Repayments, etc . . . . . . . 98 8.09 Transactions with Affiliates . . . . . . . . 102 8.10 Subsidiaries . . . . . . . . . . . . . . . . 102 8.11 Chapter 11 Claims . . . . . . . . . . . . . 102 8.12 Final Extension Loan Order . . . . . . . . . 102 8.13 Conversion to Chapter 7 . . . . . . . . . . 102 8.14 Operation of Specified Aircraft/Engines. . 103 8.15 Operating Plan Covenants . . . . . . . . . . 103 8.16 Slots and Routes . . . . . . . . . . . . . . 105 8.17 Seizures . . . . . . . . . . . . . . . . . . 106 8.18 ERISA . . . . . . . . . . . . . . . . . . . 106 SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . 107 9.01 Payments . . . . . . . . . . . . . . . . . . 107 -ii- Page ---- 9.02 Representations, etc . . . . . . . . . . . . 107 9.03 Covenants . . . . . . . . . . . . . . . . . 107 9.04 The Case, etc . . . . . . . . . . . . . . . 107 9.05 Credit Documents and Kawasaki Credit Agreement . . . . . . . . . . . . . . . . . 108 9.06 Judgments . . . . . . . . . . . . . . . . . 108 9.07 GPA Agreements/Kawasaki Agreements . . . . . 109 9.08 Governance . . . . . . . . . . . . . . . . . 110 9.09 Casualties . . . . . . . . . . . . . . . . . 110 9.10 ERISA . . . . . . . . . . . . . . . . . . . 110 9.11 Other Indebtedness . . . . . . . . . . . . . 111 9.12 Change of Control . . . . . . . . . . . . . 111 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . 113 10.01 Payment of Expenses, etc . . . . . . . . . 113 10.02 Survival . . . . . . . . . . . . . . . . . 115 10.03 Notices . . . . . . . . . . . . . . . . . . 115 10.04 Benefit of Agreement . . . . . . . . . . . 115 10.05 No Waiver; Remedies Cumulative . . . . . . 117 10.06 Payments Pro Rata . . . . . . . . . . . . . 117 10.07 Calculations; Computations . . . . . . . . 118 10.08 GOVERNING LAW . . . . . . . . . . . . . . . 118 10.09 Counterparts . . . . . . . . . . . . . . . 118 10.10 Headings Descriptive . . . . . . . . . . . 118 10.11 Amendment or Waiver . . . . . . . . . . . . 118 10.12 Domicile of Loans . . . . . . . . . . . . . 120 10.13 Confidentiality . . . . . . . . . . . . . . 120 10.14 Set-Off . . . . . . . . . . . . . . . . . . 121 10.15 WAIVER OF JURY TRIAL . . . . . . . . . . . 122 10.16 Time of the Essence . . . . . . . . . . . . 122 10.17 Specified Lien Releases . . . . . . . . . . 122 10.18 Administrative Agent; Collateral Agent . . 123 10.19 Dating and Effectiveness . . . . . . . . . 123 10.20 Participation by Commerce and Economic Development Commission . . . . . . . . . . 123 10.21 Covenants Do Not Preclude Negotiation of a Plan of Reorganization . . . . . . . . . . 124 10.22 Certain Consents . . . . . . . . . . . . . 124 10.23 Certain Waivers . . . . . . . . . . . . . . 124 -iii- Page ---- ANNEX Annex 1 Lenders' Commitments and Addresses SCHEDULES Schedule 1 A320 Leases Schedule 2 Designated Collateral Schedule 3 [Reserved] Schedule 4 [Reserved] Schedule 5 Deferral Aircraft Schedule 6 Designated Aircraft Leases Schedule 7 Engine Leases Schedule 8 Real Property Schedule 9 Liabilities and Obligations Schedule 10 Litigation Schedule 11 Slots, Routes and Domestic Schedule Gates Schedule 12 Insurance Policies and Programs Schedule 13 [Reserved] Schedule 14 Permitted First Liens Schedule 15 Existing Debt Schedule 16 Existing Investments Schedule 17 Kawasaki Leases Schedule 18 Stipulations Schedule 19 Aircraft Rental and Loan Reductions and Deferrals Schedule 20 [Reserved] Schedule 21 [Reserved] EXHIBITS Exhibit A Promissory Note Exhibit B [Reserved] Exhibit C Officer's Certificate Exhibit D-1 Interim Order Exhibit D-2 Final Order Exhibit D-3 GPA Order Exhibit D-4 Northwest Order Exhibit D-5 Additional Loan Order and Kawasaki Order Exhibit D-6 Second Additional Loan Order Exhibit D-7 Interim Extension Loan Order Exhibit D-8 Final Extension Loan Order Exhibit E Action Plan Summary Exhibit F Security Agreement Exhibit G Aircraft/Engine Mortgage Exhibit H Parts Mortgage Exhibit I Initial Cash Management Agreement -iv- Page ---- Exhibit J-1 Real Property Mortgage Exhibit J-2 Lessor Consent Agreement Exhibit J-3 Senior Lender Agreement Exhibit J-4 Assignment of Gate Leases Exhibit K Slot Deed of Conveyance Exhibit L Slot Lease Agreement Exhibit M Collateral Certificate Exhibit N Agency Agreement Exhibit O Daily Cash Management Report Exhibit P By-Law Letter Agreement Exhibit Q Officer's Certificate Exhibit R First Amendment to Cash Management Agreement Exhibit S First Amendment to Agency Agreement Exhibit T First Amendments to Deeds of Trust Exhibit U Amendment No. 1 to Assignment of Gate Leases Exhibit V-1 First Amendment to Consent of the City of Phoenix (Hangar) Exhibit V-2 First Amendment to Consent of the City of Phoenix (11 acre parcel) Exhibit W Consent of First Interstate Bank of Arizona, N.A. Exhibit X Kawasaki Letter Regarding Intercreditor Agreements Exhibit Y Officer's Certificate Exhibit Z Second Amendment to Cash Management Agreement Exhibit AA Second Amendment to Agency Agreement Exhibit BB Second Amendments to Deeds of Trust Exhibit CC Assignment of Gate Leases Amendment No. 2 Exhibit DD-1 Second Amendment to Consent of the City of Phoenix (Hangar) Exhibit DD-2 Second Amendment to Consent of the City of Phoenix (11 acre parcel) Exhibit EE Consent of First Interstate Bank of Arizona N.A. Exhibit FF Letter Regarding Intercreditor Agreements Exhibit GG First Amendment to Security Agreement Exhibit HH Amendment No. 3 to Aircraft/Engine Mortgage Exhibit II Amendment No. 1 to Parts Mortgage Exhibit JJ First Amendment to Slot Lease Agreement Exhibit KK Management Letter Agreement Exhibit LL Northwest Release and Termination Exhibit MM Third Amendments to Deeds of Trust Exhibit NN Assignment of Gate Leases Amendment No. 3 Exhibit OO Third Amendments to Consents of the City of Phoenix -v- Page ---- Exhibit PP Second Amendment to Slot Lease Agreement Exhibit QQ Ansett Release and Termination Exhibit RR Amended and Restated Management Letter Agreement Exhibit SS Amendment No. 2 to Parts Mortgage -vi- THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of September 30, 1993, is entered into among AMERICA WEST AIRLINES, INC. (the "Borrower"), a Delaware -------- corporation, as debtor and debtor-in-possession under Chapter 11 of Title 11 of the United States Code entitled "Bankruptcy" (the "Bankruptcy Code"), the Lenders, and BT --------------- COMMERCIAL CORP., acting in the manner and to the extent described in the Agency Agreement (in such capacity, the "Administrative Agent"), and, subject to the terms and -------------------- conditions set forth herein, amends and restates in its entirety the Credit Agreement, dated as of August 26, 1991, among the Borrower, the Existing Lenders (other than Kawasaki) and the Administrative Agent (the "Original Credit --------------- Agreement"), as heretofore amended and restated by the --------- Amended and Restated Credit Agreement, dated as of December 1, 1991, among the Borrower, the Existing Lenders, Northwest and the Administrative Agent (such Amended and Restated Credit Agreement being referred to herein as the "First ----- Amended and Restated Credit Agreement"), and as heretofore -------------------------------------- further amended and restated by the Second Amended and Restated Credit Agreement, dated as of September 1, 1992, among the Borrower, the Existing Lenders, Ansett, the Second Amendment Lenders and the Administrative Agent (such Second Amended and Restated Credit Agreement being referred to herein as the "Second Amended and Restated Credit ---------------------------------- Agreement", and the Second Amended and Restated Credit --------- Agreement, as amended and restated hereby, and as further amended, modified or supplemented from time to time, being referred to herein as this "Agreement"). --------- R E C I T A L S: WHEREAS, all capitalized terms used herein shall have the meanings provided in Section 1 below; WHEREAS, on June 27, 1991, the Borrower filed a voluntary petition with the Bankruptcy Court initiating the Case and has continued in the possession of its assets and in the management of its business pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, pursuant to and subject to the terms and conditions of the Original Credit Agreement, the Existing Lenders (other than Kawasaki) and Northwest agreed to make Loans to the Borrower in an aggregate principal amount not to exceed $55,000,000; WHEREAS, pursuant to the First Amended and Restated Credit Agreement, the Original Credit Agreement was amended and restated to, among other things, provide for the NY1-53665.4 making of an additional Loan by Kawasaki to the Borrower in the principal amount of $23,000,000; WHEREAS, pursuant to the Second Amended and Restated Credit Agreement, the First Amended and Restated Credit Agreement was amended and restated to, among other things, provide for the making of additional Loans by GPA Sub and the Second Amendment Lenders to the Borrower in the principal amount of $53,000,000; WHEREAS, simultaneously with the making of such additional Loans by GPA Sub and the Second Amendment Lenders, the Borrower prepaid from the proceeds of such additional Loans all of the Loans made by Northwest under the Original Credit Agreement and outstanding under the First Amended and Restated Credit Agreement in an aggregate principal amount of $9,876,364; WHEREAS, after giving effect to the making of such additional Loans by GPA Sub and the Second Amendment Lenders and the prepayment of the Loans made by Northwest under the Original Credit Agreement, on the Second Amendment Effective Date, there were Loans outstanding under the Second Amended and Restated Credit Agreement in an aggregate principal amount of $110,783,636.00; WHEREAS, after giving effect to the making by the Borrower of scheduled payments and mandatory prepayments of Loans pursuant to and in accordance with the Second Amended and Restated Credit Agreement (including, without limitation, the waiving by the Lenders of certain mandatory prepayments), on the date hereof, there are Loans outstanding under the Second Amended and Restated Credit Agreement in an aggregate principal amount of $91,913,239.20 (of which $8,296,641.93 are Ansett Loans); WHEREAS, the Borrower has requested the Lenders to extend the maturity of the Loans to the Maturity Date (as hereinafter defined); WHEREAS, all of the Lenders are willing to extend the maturity of the Loans to the Maturity Date (as hereinafter defined), but Ansett desires that the Ansett Loans mature and be paid in full on September 30, 1993; WHEREAS, after giving effect to the foregoing extension of the maturity of the Loans to the Maturity Date (as hereinafter defined) and the foregoing payment of the Ansett Loans, there will be Loans outstanding under the Second Amended and Restated Credit Agreement in an aggregate principal amount of $83,616,597.27; NY1-53665.4 -2- WHEREAS, subject to the terms and conditions set forth herein, the Borrower, the Lenders and the Administrative Agent desire that the Second Amended and Restated Credit Agreement be amended and restated in its entirety to provide (among other things) for the foregoing extension of the maturity of the Loans to the Maturity Date (as hereinafter defined) and the foregoing payment of the Ansett Loans; NOW, THEREFORE, THE PARTIES HERETO AGREE THAT THE AMENDED AND RESTATED CREDIT AGREEMENT IS AMENDED AND RESTATED TO READ IN ITS ENTIRETY AS FOLLOWS: SECTION 1. DEFINITIONS. ----------- 1.01 Defined Terms. As used in this Agreement, ------------- the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A320 Leases" shall mean those certain Aircraft ----------- Sublease Agreements listed on Schedule 1 hereto, as the same may be amended, supplemented or otherwise modified. "Additional Credit" shall have the meaning ----------------- provided in Section 5.02(c). "Additional Loan Order" shall mean an order of the --------------------- Bankruptcy Court in the form of Exhibit D-5 (as such form may be modified in a manner acceptable to each of the Lenders, in their sole and absolute discretion) to the extent, and only to the extent, such order does not constitute the "Kawasaki Order" (as such term is defined herein). "Administrative Agent" shall have the meaning -------------------- provided in the first paragraph of this Agreement and includes any successor in such capacity. "Affiliate" shall mean, with respect to any --------- Person, any other Person (i) directly or indirectly con- trolling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 25% of the voting securities of such Person; provided, however, in no event -------- ------- shall any of the GPA Entities, Kawasaki, Kawasaki Enterprises Inc., Kawasaki Steel Corporation or any other Lender be considered an Affiliate of the Borrower. A Person shall be deemed to control a corporation if such Person NY1-53665.4 -3- possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Agency Agreement" shall mean the Agency Agreement ---------------- among the Borrower, the Administrative Agent, the Collateral Agent and the Lenders in the form of Exhibit N hereto, as modified, supplemented or amended from time to time. "Agreement" shall mean this Third Amended and --------- Restated Credit Agreement, as modified, supplemented or amended from time to time. "Aircraft/Engine Mortgage" shall mean, ------------------------ collectively, the Aircraft and Engine Chattel Mortgage and Security Agreement in the form of Exhibit G hereto, and the Spare Parts Chattel Mortgage and Security Agreement in the form of Exhibit H hereto, as same may be amended, modified or supplemented from time to time. "Aircraft Finance Agreement" shall mean the -------------------------- Aircraft Finance Agreement, dated as of September 28, 1990, between the Borrower and Kawasaki, as amended and restated in its entirety by the Kawasaki Restructuring Agreement, the Kawasaki Put Agreement and the Kawasaki Credit Agreement, and as further amended, supplemented or modified from time to time. "Amended and Restated Management Letter Agreement" ------------------------------------------------ shall mean a letter agreement in the form of Exhibit RR hereto, as the same may be amended, modified or supplemented from time to time. "Amendment Effective Date" shall have the meaning ------------------------ specified in Section 5.03. "Ansett" shall mean Ansett Worldwide Aviation, ------ U.S.A., a Nevada partnership, and its successors and assigns. "Ansett Loans" shall mean all of the loans made by ------------ Ansett under the Second Amended and Restated Credit Agreement and outstanding immediately prior to the Third Amendment Effective Date in an aggregate principal amount of $8,296,641.93. "Asset Sale" shall mean the sale, transfer or ---------- other disposition to any Person after the Filing Date of any property or other assets of the Borrower; provided, however, -------- ------- Asset Sale shall not include the sale, transfer or other NY1-53665.4 -4- disposition of property or other assets referred to in Section 8.02(i) to the extent that the aggregate Net Proceeds in any one fiscal year of the Borrower from the sale, transfer or other disposition of all such property or other assets do not exceed $1,000,000. "Assignment of Gate Leases" shall mean an ------------------------- Assignment of Gate Leases in the form of Exhibit J-4 hereto, as same may be amended, modified or supplemented from time to time. "Authorized Officer" shall mean and include the ------------------ Chief Executive Officer, the Chief Operating Officer, a Senior Vice President, an Executive Vice President, the Treasurer, an Assistant Treasurer, or the Vice President and Controller of the Borrower. "Aviation Act" shall mean the Federal Aviation Act ------------ of 1958, as amended from time to time, or any similar legis- lation of the United States enacted in substitution or replacement thereof. "Bankruptcy Code" shall have the meaning provided --------------- in the first paragraph of this Agreement. "Bankruptcy Court" shall mean the United States ---------------- Bankruptcy Court, District of Arizona, or such other court having jurisdiction over the Case from time to time. "Borrower" shall have the meaning specified in the -------- first paragraph of this Agreement. "Business Day" shall mean any day except Saturday, ------------ Sunday and any other day which shall be in New York City a legal holiday or a day on which banking institutions are authorized by law or other government action to close and, when used with respect to a Loan or interest thereon, shall include a London Business Day. "By-Law Letter Agreement" shall mean a letter ----------------------- agreement in the form of Exhibit P hereto, as same may be amended, modified or supplemented from time to time. "Capital Expenditures" shall have the meaning -------------------- provided in Section 8.07. "Case" shall mean the Chapter 11 case of the ---- Borrower pending in the Bankruptcy Court. "Cash Covenant Amount" shall have the meaning -------------------- provided in Section 8.15(d). NY1-53665.4 -5- "Cash Equivalents" shall mean, as to any Person, ---------------- (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumental- ity thereof (provided that the full faith and credit of the United States is pledged in support thereof) having matur- ities of not more than six months from the date of acqui- sition, (ii) domestic time deposits and certificates of deposit of any commercial bank incorporated in the United States of recognized standing having capital and surplus in excess of $500,000,000 and having unsecured debt rated at least A or the equivalent thereof from Standard & Poor's Corporation (an "Eligible Bank") on the date of making of ------------- the deposit with maturities of not more than six months from the date of acquisition by such Person, (iii) repurchase obligations entered into with an Eligible Bank with a term of not more than seven days for underlying securities of the types described in clause (i) above, (iv) commercial paper issued by the parent corporation of any Eligible Bank on the date of the acquisition of the commercial paper (provided that the parent corporation and the bank are both incorpor- ated in the United States) and commercial paper issued by any Person incorporated in the United States rated, on the date of the acquisition of the commercial paper, at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc., and in each case maturing not more than six months after the date of acquisition by such Person and (v) shares or interests in any money market mutual fund substantially all of the assets of which are required to be invested in securities of the type described in clause (i) above and which is rated AAA or the equivalent by Standard & Poor's Corporation and P-1 or the equivalent by Moody's Investors Service, Inc. "Code" shall mean the Internal Revenue Code of ---- 1986, as amended from time to time. Section references to the Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provisions of the Code amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all "Collateral" under, ---------- and as defined in, the Orders or any Security Document. "Collateral Agent" shall mean the Administrative ---------------- Agent acting as collateral agent, or any Person engaged or otherwise designated by the Administrative Agent to act as collateral agent, pursuant to the Agency Agreement and the Security Documents. NY1-53665.4 -6- "Commitment" shall mean, with respect to each ---------- Lender, (i) at any time on or prior to the Second Amendment Effective Date, the amount of such Lender's aggregate commitment to make loans under the Original Credit Agreement, the First Amended and Restated Credit Agreement and/or the Second Amended and Restated Credit Agreement, as set forth opposite such Lender's name in Annex I thereto directly below the column entitled "Commitment", and (ii) at any time after the Second Amendment Effective Date, the loans of such Lender outstanding under the Second Amended and Restated Credit Agreement and this Agreement. "Concentration Account" shall have the meaning --------------------- provided in the Initial Cash Management Agreement or any other cash management arrangements entered into by the Borrower at the request of the Required Lenders pursuant to Section 7.10. "Confidential Material" shall have the meaning --------------------- provided in Section 10.13. "Contingent Obligation" shall mean, as to any --------------------- Person, any obligation of such Person guaranteeing any indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary ------------------- ------- obligor") in any manner, whether directly or indirectly, ------- including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obliga- tion or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase prop- erty, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless or give "comfort" to the holder of such primary obligation against loss in respect thereof; provided, -------- however, that the term Contingent Obligation shall not ------- include endorsements of instruments for deposit or collec- tion in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obliga- tion in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. NY1-53665.4 -7- "Controlled Group" shall mean all members of a ---------------- controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with and including the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code. "Credit Documents" shall mean this Agreement, each ---------------- Note, the Agency Agreement, each Security Document, each certificate delivered hereunder or thereunder and each other document designated as such. "Customary Permitted Liens" shall mean ------------------------- (i) Liens (other than Environmental Liens and any Lien imposed under ERISA) for taxes, assess- ments or charges of any Governmental Authority or claim not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained; (ii) Liens perfected after the Filing Date under Section 546 of the Bankruptcy Code, statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens (other than any Lien imposed under ERISA) imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained; (iii) Liens (other than any Lien imposed under ERISA) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repay- ment of Indebtedness or with respect to leases of real or personal property), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (iv) easements (including, without limita- tion, reciprocal easement agreements and utility agreements), rights-of-way and land use covenants (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower and which do not materially detract from NY1-53665.4 -8- the value or transferability of the property to which they attach or impair the use thereof to the Borrower or as Collateral; (v) rights of tenants, subtenants, franchisees or parties in possession (other than a debtor in possession, trustee in bankruptcy or receiver of the Borrower of Real Property owned or leased by the Borrower), or options or rights of first refusal, whether pursuant to leases, subleases, franchise agreements, other occupancy agreements or otherwise, with respect to real property owned by the Borrower, if such rights were vested on the Filing Date or created thereafter in the ordinary course of business in transactions permitted under this Agreement; (vi) extensions, renewals or replacements of any Lien referred to in paragraphs (i) through (iv) above, provided, that the principal amount of the -------- obligation secured thereby is not increased and that any such extension, renewal or replacement is limited to the property originally encumbered thereby; (vii) building restrictions, zoning laws and other statutes, laws, rules, regulations, ordinances and restrictions related to the use of Real Property, and any amendments thereto, now or at any time hereafter adopted by any Governmental Authority having jurisdiction; and (viii) pooling, interchange and other similar arrangements customary in the ordinary course of the Borrower's business as and to the extent permitted under the Permitted First Liens and the Security Documents. "Default" shall mean any event, act or condition ------- which with notice or lapse of time, or both, would constitute an Event of Default. "Deferral Aircraft" shall mean the aircraft ----------------- described on Schedule 5 hereto. "Designated Aircraft Leases" shall mean those -------------------------- certain Aircraft Lease Agreements listed on Schedule 6 hereto, as the same may be amended, supplemented or otherwise modified from time to time. "Designated Collateral" shall mean the Collateral --------------------- described in Schedule 2. NY1-53665.4 -9- "Distribution", with respect to any Person, shall ------------ mean that such Person has declared or paid any dividend or returned any capital to, its stockholders or authorized or made any other distribution, payment or delivery of property or cash to its stockholders as such, or redeemed, retired, purchased, or otherwise acquired, directly or indirectly, for consideration, any shares of any class of its capital stock (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Person (or any options or warrants issued by such Person with respect to its capital stock), or shall have paid or made provision for payment of any profit sharing arrangement. Without limiting the foregoing, "Distributions" with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights plans, equity incentive or achievement plans or any similar plans or the setting aside of any funds for the foregoing purposes. "Dollars" and the sign "$" shall each mean freely ------- - transferable lawful money of the United States (expressed in dollars). "Domestic Gates" shall mean each landing gate -------------- located at an airport within the United States. "DOT" shall mean the United States Department of --- Transportation or similar regulatory authority established in replacement thereof. "Effective Date" shall have the meaning provided -------------- in Section 5.01. "1110 Indebtedness" shall mean any Indebtedness ----------------- secured by a Lien described in Section 1110 of the Bankruptcy Code. "Eligible Receivable" shall mean, at the time of ------------------- any determination thereof, any Receivable (as defined in the Security Agreement) of the Borrower which meets the follow- ing standards of eligibility: (i) the Borrower has lawful and absolute title to such Receivable; (ii) such Receivable is a valid, binding and legally enforceable obligation of the Account NY1-53665.4 -10- Debtor (as defined in the Security Agreement) who is obligated under such Receivable; (iii) such Receivable is not subject to any litigation, or other proceeding, dispute, setoff, counterclaim or other claim or defense on the part of the Account Debtor denying liability under such Receivable in whole or in part; (iv) the Borrower has the full and unqualified right to assign and grant Liens in such Receivable to the Collateral Agent as security for the Obligations; (v) such Receivable is not subject to any Lien in favor of any other Person; (vi) such Receivable is a bona fide Receivable ---- ---- consisting of a proper and accurate amount due from the Account Debtor arising from the sale of goods or the rendering of services in the ordinary course of the Borrower's business and which does not consist of a prepaid expense, warranty payment or claim against any manufacturer, vendor, supplier or other Person or an adjustment for unreported sales or any other travel agency adjustment, except that 75% of the amount of an adjustment for unreported sales or any other travel agency adjustment may constitute an Eligible Receivable; (vii) with respect to such Receivable, no Account Debtor is (a) incorporated in or primarily conducting business in any jurisdiction located outside the United States; (b) an Affiliate of the Borrower; (c) a foreign government or any agency, department, or instrumentality thereof; (d) the subject of any reorganization, bankruptcy, receivership, custodianship, insolvency, or other like condition, except an Account Debtor that is an airline whose Receivable is through the Airline Clearing House; NY1-53665.4 -11- (e) an agency, department, or instrumental- ity of the United States or any state or local governmental authority in the United States unless the requirements of the Assignment of Claims Act of 1940, as amended, and any similar state or local legislation shall have been satisfied in respect thereof and the Required Lenders are satisfied as to the absence of set- offs, counterclaims and other defenses to payment on the part of the United States or such state or local govern- mental authority; or (f) a Person as to which the Borrower has modified its standard terms of payment as a result of concerns about the creditworthiness of such Account Debtor (e.g., by requiring prepayment or cash ---- on delivery); (viii) such Receivable is not outstanding more than 180 days; (ix) such Receivable is not a Receivable owing by an Account Debtor which, at the time of any determination of Eligible Receivables, owes any amount with respect to any Receivable that has been outstanding more than 180 days; (x) with respect to the Account Debtor under such Receivable, the Borrower is not indebted to such Account Debtor for any goods provided or services rendered by such Account Debtor or otherwise, except an Account Debtor that is an airline whose Receivable is through the Airline Clearing House; (xi) such Receivable is not payable in any consideration other than cash and in U.S. Dollars; and (xii) such Receivable is evidenced by an invoice or other writing, if any, customary and appropriate in the air transportation business, and is not evidenced by any instrument or chattel paper. A Receivable which is at any time an Eligible Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible NY1-53665.4 -12- Receivable until such time as it once again meets all of the foregoing requirements. Notwithstanding the provisions of the preceding clause (iii), a Receivable which is at any time subject to a dispute on the part of the Account Debtor denying liability under such Receivable in part shall constitute an Eligible Receivable to the extent of the portion thereof which is not in dispute (so long as such Receivable otherwise satisfies all of the foregoing requirements). In addition, any such Receivable which is in dispute as to a portion thereof shall not preclude another Receivable of the same Account Debtor from constituting an Eligible Receivable pursuant to the provisions of the preceding clause (ix). "Engine Collateral" shall mean the three CFM 56-3B ----------------- engines of the Borrower bearing manufacturer's serial numbers 720601, 720772 and 720867. "Engine Leases" shall mean those certain Engine ------------- Sublease Agreements listed on Schedule 7 hereto, as the same may be amended, supplemented or otherwise modified. "Environmental Lien" shall mean a Lien in favor of ------------------ any Governmental Authority for (i) any liability under Hazardous Materials Laws or (ii) damages arising from or costs incurred by such Governmental Authority in response to a release or threatened release of Hazardous Materials. "ERISA" shall mean the Employees Retirement Income ----- Security Act of 1974, as amended from time to time. Section references to ERISA, are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "Event of Default" shall have the meaning provided ---------------- in Section 9. "Event of Default Collateralization Amount" shall ----------------------------------------- have the meaning provided in Section 7.10(b). "Existing Debt" shall have the meaning provided in ------------- Section 8.05. "Existing Lenders" shall mean GPA Leasing USA I, ---------------- Inc., GPA Sub and Kawasaki Leasing International Inc. "Existing Secured Debt" shall mean all Indebted- --------------------- ness of the Borrower secured on the Filing Date by Permitted First Liens. NY1-53665.4 -13- "FAA" shall mean the Federal Aviation Adminis- --- tration or similar regulatory authority established in replacement thereof. "Facility Fee" shall have the meaning provided in ------------ Section 3.01. "Fees" shall mean all amounts payable pursuant to ---- or referred to in Section 3.01. "Filing Date" shall have the meaning provided in ----------- the second Whereas clause of this Agreement. "Final Extension Loan Order" shall mean an order -------------------------- of the Bankruptcy Court in the form of Exhibit D-8 (as such form may be modified pursuant to Section 7.10(a) in a manner acceptable to the Required Lenders, in their sole and absolute discretion, and as such form may otherwise be modified in a manner acceptable to each of the Lenders, in its sole and absolute discretion). "Final Order" shall have the meaning provided in ----------- Section 5.02(c). "First Amended and Restated Credit Agreement" ------------------------------------------- shall have the meaning specified in the first paragraph of this Agreement. "Foreign Lender" shall have the meaning provided -------------- in Section 2.10(a). "Governmental Actions" shall mean any regulations, -------------------- authorizations, applications, approvals, consents, exemp- tions, filings, licenses, notices, registrations, orders, rulings, decrees, judgments, permits, guidance, policy or program and other requirements of, to or with any Governmental Authority. "Governmental Authority" shall mean any government ---------------------- (federal, foreign, state, local or other) and any governmental or quasi-governmental, regulatory, judicial or public authority, board, body, commission, bureau, agency or the like. "GPA Agreements" shall mean, collectively, the -------------- A320 Leases, the Engine Leases, the Put Agreement and the Designated Aircraft Leases. "GPA Entity" shall mean GPA Group plc or any ---------- Subsidiary thereof, and their successors and assigns. NY1-53665.4 -14- "GPA Order" shall have the meaning provided in --------- Section 5.01(h). "GPA Sub" shall mean GPA Leasing USA Sub I, Inc., ------- a Connecticut corporation, and its successors and assigns. "Hazardous Materials" shall mean (i) any oil, ------------------- flammable substance, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances, asbestos or any other materials or pollutants which because of characteristics of flammability, ignitibility, corros- sivity or reactivity, or because they exist in such quantity or manner, are required by a Governmental Authority to be reported or remediated; (ii) any chemical, material sub- stance or constituent defined as or included in the defini- tion of "hazardous pollutants" (under Section 112 of the Clean Air Act, as it may be amended from time to time), "hazardous substance," "hazardous waste," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or words of similar import under any applicable local, state or federal law or under the regulations adopted, or publications promulgated pursuant thereto, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et -- seq.; the Hazardous Materials Transportation Act, as --- amended, 49 U.S.C. Section 1801, et seq.; the Resource -- --- Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1251, -- --- et seq.; Toxic Substances Control Act, 15 U.S.C. -- --- Section 2601-2629; Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136-136y; or similar state statutes; and (iii) any other chemical, material or substance, release or discharge of which or exposure to which is prohibited, limited or regulated by any Governmental Authority or may or could pose a hazard to the health and safety of the occupants of any of the properties of the Borrower or the owners and/or occupants of property under, adjacent to or surrounding any such property. References herein to Collateral in respect of Hazardous Materials also include all property on (including but not limited to buildings, improvements, soils or ground waters) or under the surface thereof or adjacent thereto or surrounding the property on or under which the Collateral is located. "Hazardous Materials Claims" shall mean any and -------------------------- all enforcement, remediation, clean-up, removal or other Governmental Actions instituted or completed by any Person pursuant to any Hazardous Materials Laws, or any written notice of any enforcement, clean-up, removal or other Governmental Actions or orders pursuant to any Hazardous NY1-53665.4 -15- Materials Laws, together with all claims made by any third party against the Borrower or any of its properties relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. "Hazardous Materials Laws" shall mean any and all ------------------------ federal, state or local laws, ordinances, rules, regula- tions, or other enforceable requirements now or hereafter existing or enacted relating to the environment, health and safety, and Hazardous Materials (including, without limita- tion, the use, handling, transfer, consolidation, transpor- tation, production, disposal, discharge or storage thereof) or to industrial hygiene or the environmental conditions on, under or about any of the property of the Borrower, including, without limitation, soil and groundwater conditions. "High Density Airport" shall mean and include each -------------------- of John F. Kennedy, Washington National, Newark and O'Hare Airports. "Indebtedness" shall mean, as to any Person, with- ------------ out duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the face amount of all letters of credit issued for the account of such Person and all drafts drawn thereunder, (iii) all liabilities of the types described in clauses (i), (ii), (iv), (v), (vi) and (vii) of this definition and secured by any Lien on any property (including, without limitation, a leasehold interest) owned by such Person, whether or not such liabilities have been assumed by such Person, (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all Contingent Obligations of such Person, (vi) all obligations of such Person under "take-or-pay" or other similar arrangements and (vii) all obligations of such Person under interest rate or currency exchange protection or other similar agreements, provided that Indebtedness -------- shall not include trade payables and accrued expenses, in each case arising in the ordinary course of business, or the Permitted Expenses. "Initial Cash Management Agreement" shall mean the --------------------------------- Cash Management Agreement among the Local Bank, the Collateral Agent and the Borrower in the form of Exhibit I hereto, as modified, supplemented or amended from time to time. "Inter-Creditor Agreement" means the Inter- ------------------------ Creditor Agreement dated as of August 26, 1991 between the NY1-53665.4 -16- Collateral Agent, the Lenders and First Interstate Bank of Arizona, N.A., as same may be amended, modified or supplemented from time to time. "Interest Payment Date" shall have the meaning --------------------- provided in Section 2.07(c). "Interest Period" shall mean, with respect to each --------------- Loan, the period from the date of the disbursement of such Loan to the first Interest Payment Date and each period thereafter beginning and ending on successive Interest Payment Dates; provided, however, that in the event that any -------- ------- amount is not paid when due, "Interest Period" shall mean such period consisting of one Business Day, one week, one month or three months as the Administrative Agent may select in its sole and absolute discretion. The Administrative Agent shall notify the Lenders and the Borrower of any such selection. "Interim Extension Loan Order" shall mean an order ---------------------------- of the Bankruptcy Court in the form of Exhibit D-7 (as such form may be modified in a manner acceptable to each of the Lenders, in its sole and absolute discretion). "Interim Order" shall have the meaning provided in ------------- Section 5.02(c). "Investment Account" shall have the meaning ------------------ provided in the Initial Cash Management Agreement or any other cash management arrangements entered into by the Borrower at the request of the Required Lenders pursuant to Section 7.10. "Investment Account Minimum" shall have the -------------------------- meaning provided in Section 8.15(e). "Kawasaki" shall mean Kawasaki Leasing -------- International Inc., a Delaware corporation. "Kawasaki Agreements" shall mean and include ------------------- (i) the Aircraft Finance Agreement, (ii) the Kawasaki Leases, (iii) the Kawasaki Credit Agreement, (iv) the Kawasaki Restructuring Agreement, (v) the Kawasaki Put Agreement, and (vi) all leases and subleases entered into from time to time under and pursuant to the Kawasaki Put Agreement. "Kawasaki Credit Agreement" shall mean the Loan ------------------------- Restructuring Agreement, dated as of December 1, 1991, between the Borrower and Kawasaki, as amended, supplemented or modified from time to time. NY1-53665.4 -17- "Kawasaki Leases" shall mean those certain --------------- agreements listed on Schedule 17 hereto, as the same may be amended, supplemented or modified from time to time. "Kawasaki Order" shall mean an order of the -------------- Bankruptcy Court in the form of Exhibit D-5 (as such form may be modified in a manner acceptable to Kawasaki, in its sole and absolute discretion) to the extent, and only to the extent, such order relates to the Kawasaki Agreements (and the authorization of the Borrower to enter into and perform its obligations under the Kawasaki Agreements) and affords administrative priority to the obligations of the Borrower under the Kawasaki Credit Agreement. "Kawasaki Put Agreement" shall mean the Put ---------------------- Agreement, dated as of December 1, 1991, between the Borrower and Kawasaki, as amended, supplemented or modified from time to time. "Kawasaki Restructuring Agreement" shall mean the -------------------------------- Restructuring Agreement, dated as of December 1, 1991, between the Borrower and Kawasaki, as amended, supplemented or modified from time to time. "Kawasaki Stipulations" shall mean and include --------------------- (i) the Joint Stipulation with Respect to Bankruptcy Code Section 1110 . . . [N160AW], (ii) the Joint Stipulation with Respect to Bankruptcy Code Section 1110 . . . [N910AW], and (iii) the Joint Stipulation with Respect to Bankruptcy Code Section 1110 . . . [720-601, 720-772, 720-867]. "Lender" shall mean each institution listed in ------ Annex I, as well as any Person that becomes a "Lender" hereunder pursuant to Section 10.04. "Lessor Lenders" shall mean (i) GPA Leasing USA I, -------------- Inc., GPA Sub and each other Subsidiary of GPA Group plc which is or hereafter becomes a Lender, and (ii) Kawasaki and each Subsidiary of Kawasaki Enterprises, Inc. which is or hereafter becomes a Lender; provided that each such -------- Person shall only be a "Lessor Lender" at such times as it is a Lender hereunder. "LIBOR" shall mean for each Interest Period: ----- (i) the rate of interest determined by the Administrative Agent as follows: (y) On the second London Business Day prior to the first day of an Interest Period (a "LIBOR ----- Determination Date"), the Administrative Agent will ------------------ NY1-53665.4 -18- determine the arithmetic mean of the offered rates for deposits in United States dollars for the period in its good faith judgment comparable to the Interest Period which appear on the Reuters Screen LIBO Page at approximately 11:00 A.M., London time, on such LIBOR Determination Date. "Reuters Screen LIBO Page" means ------------------------ the display designated as Page "LIBO" on the Reuters Monitor Money Rate Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). If only one such rate is quoted, then LIBOR shall mean such quoted rate; or (z) If no offered rates appear on the Reuters Screen LIBO Page, the Administrative Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Administrative Agent, to provide the Adminis- trative Agent with its offered quotations, or the rate at which it would offer, for deposits in United States dollars for a period comparable to the Interest Period to prime banks in the London interbank market at approximately 11:00 A.M., London time, on such LIBOR Determination Date and in a principal amount equal to an amount of not less than U.S. $1 million that is representative of a single transaction in such market at such time, and LIBOR will be the arithmetic mean of all such quotations provided or, if only one quotation is provided, such quotation; in either case divided by ------- (ii) an amount equal to one minus the aggregate (but without duplication) weighted average of the maximum rates (expressed as a decimal) of reserve requirements in effect from time to time (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) as in effect from time to time or offshore Dollar liabilities which are required to be maintained by a member bank of such System (such rate to be adjusted to the next higher 1/100 of 1%). "Lien" shall mean any mortgage, pledge, hypothe- ---- cation, encumbrance, lien (statutory or other), or other security agreement of any kind or nature whatsoever (includ- ing, without limitation, any conditional sale or other title retention agreement and any lease having substantially the NY1-53665.4 -19- same effect as any of the foregoing and any assignment or deposit arrangement in the nature of a security device). "Lien Termination Date" shall have the meaning --------------------- provided in Section 10.17. "Loan" shall mean a loan by a Lender to the ---- Borrower under and pursuant to the Original Credit Agreement, the First Amended and Restated Credit Agreement and/or the Second Amended and Restated Credit Agreement. "Local Bank" shall have the meaning provided in ---------- the Initial Cash Management Agreement. "London Business Day" shall mean any day on which ------------------- dealings in deposits in United States dollars are transacted in the London interbank market. "Margin Stock" shall have the meaning provided in ------------ Regulation U of the Board of Governors of the Federal Reserve System. "Management Letter Agreement" shall mean a letter --------------------------- agreement in the form of Exhibit KK hereto, as the same may be amended, modified or supplemented from time to time. "Maturity Date" shall mean the earliest of ------------- (x) June 30, 1994, (y) the effective date of a confirmed plan of reorganization for the Borrower under Chapter 11 of the Bankruptcy Code and (z) the date of substantial consummation (as such term is defined in Section 1101 of the Bankruptcy Code) of a plan of reorganization for the Borrower under Chapter 11 of the Bankruptcy Code. "Merchant Agreement Supplement" shall mean an ----------------------------- amendment to the Supplement to Merchant Agreement, dated as of March 15, 1991, between the Borrower and First Interstate Bank of Arizona, N.A., as modified, supplemented or amended from time to time with the prior written consent of the Required Lenders. "Mortgage" shall mean the Mortgages in the forms -------- of Exhibit J-1 hereto, as same may be amended, modified or supplemented from time to time. "Mortgaged Property" shall have the meaning ------------------ provided in Section 5.01(f). "Multiemployer Plan" shall mean a "multiemployer ------------------ plan" as defined in Section 4001(a)(3) of ERISA. NY1-53665.4 -20- "Net Proceeds" shall mean for each Asset Sale the ------------ proceeds (net of expenses actually paid by the Borrower as a result thereof) received by the Borrower from such Asset Sale less any Existing Secured Debt or any Indebtedness secured by a Permitted First Lien, including, without limitation, interest period breakage or make-whole premiums payable in connection therewith, of the Borrower required, as permitted by the Bankruptcy Court, to be repaid with such proceeds. "Northwest" shall mean Northwest Airlines, Inc., a --------- Minnesota corporation. "Northwest Order" shall have the meaning provided --------------- in Section 5.01(h). "Note" shall have the meaning provided in Section ---- 2.05(a). "Notice Office" shall mean the office of the ------------- Administrative Agent shown opposite its name on the signa- ture pages hereof, or such other office as the Administra- tive Agent may hereafter designate in writing as such to the other parties hereto. "Obligations" and "Credit Agreement Obligations" ----------- ---------------------------- shall mean all amounts payable at any time or from time to time and all other liabilities and obligations of the Borrower owing to the Administrative Agent, the Collateral Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document. "Official Committee" shall mean any official ------------------ committee appointed in the Case with the approval of the Bankruptcy Court. "Operating Plan" shall mean the Borrower's Summary -------------- Pro Forma Financial Statements, Plan Revision No. 9, June 1993 through December 1994, dated July 15, 1993, a certified copy of which has been delivered to the Administrative Agent and each Lender, as the same has been amended, supplemented and modified by the Borrower's Plan Revision No. 9 Amendments, dated September 21, 1993, a certified copy of which has been delivered to the Administrative Agent and each Lender, and as the same may be further amended, supplemented or otherwise modified with the consent of the Required Lenders. "Operating Route" shall mean any Route which is --------------- being operated such that it is not likely to be deemed "dormant" by the DOT. NY1-53665.4 -21- "Orders" shall mean and include the Interim Order, ------ the Final Order, the Additional Loan Order, the Second Additional Loan Order, the Interim Extension Loan Order and the Final Extension Loan Order. "Original Credit Agreement" shall have the meaning ------------------------- specified in the first paragraph of this Agreement. "Payment Office" shall mean the account of the -------------- Administrative Agent located at One Bankers Trust Plaza, New York, New York 10006, or such other account as the Adminis- trative Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty ---- Corporation established pursuant to Section 4002 of ERISA or any successor thereto. "Pension Plan" shall mean any employee benefit ------------ plan which is subject to the provisions of Title IV of ERISA and which is maintained for employees of the Borrower or any member of the Controlled Group, other than a Multiemployer Plan. "Percentage" shall mean, for each Lender, a ---------- fraction (expressed as a percentage), the numerator of which is the outstanding principal amount of the Loans of such Lender, as in effect at the time of determination, and the denominator of which is the outstanding principal amount of the Loans of all of the Lenders, as in effect at such time. "Permitted Expenses" shall mean all fees and ------------------ expenses of professionals retained pursuant to Section 327 of the Bankruptcy Code by the Borrower or by an Official Committee, and expenses of members of an Official Committee, and all compensation awarded under Sections 503(b)(2) through 503(b)(6) of the Bankruptcy Code, as such may be allowed by the Bankruptcy Court and paid by the Borrower from time to time, provided, however, that upon the -------- ------- occurrence of an Event of Default, then, from and after such event, Permitted Expenses shall mean the sum of (i) all amounts previously paid by the Borrower to professionals retained by the Borrower or an Official Committee, or Official Committee members' expenses, and all compensation awarded under Sections 503(b)(2) through 503(b)(6) of the Bankruptcy Code, as of the date of such Event of Default, and (ii) $1,000,000 of such expenses if such date occurs prior to January 1, 1992 and $2,000,000 of such expenses if such date occurs after December 31, 1991, and, provided, -------- further, however, that Permitted Expenses shall not include ------- ------- expenses incurred in connection with any objection to the NY1-53665.4 -22- validity, priority or extent of any Lien or priority status granted to the Lenders hereunder or pursuant to any of the Orders or to the enforceability of any rights granted hereunder or under the other Credit Documents, the GPA Agreements or the Kawasaki Agreements or any of the Orders or the GPA Order or the Kawasaki Order. "Permitted First Liens" shall mean the Liens --------------------- described in clauses (i), (v), (viii) and (ix) of Section 8.01. "Person" shall mean any individual, partnership, ------ joint venture, firm, corporation, association, trust or other enterprise or Governmental Authority. "Projections" shall have the meaning provided in ----------- Section 6.06(e). "Put Agreement" shall mean that certain A320 Put ------------- Agreement, dated as of June 25, 1991, between GPA Group plc and the Borrower, as the same may be amended, supplemented or otherwise modified from time to time. "Real Property" shall mean all of the right, title ------------- and interest of the Borrower in and to land, improvements and fixtures, including leaseholds and Domestic Gates. "Required Lenders" at any time shall mean Lenders ---------------- the principal amount of whose Loans outstanding exceed 75% of the total principal amount of Loans outstanding (it being understood that the use of the term "Required Lenders" shall be subject to the provisions of the first sentence of Section 10.11, which provisions may require the consent of or other action by Lenders whose Loans exceed a greater percentage than the percentage stated in this definition). "Routes" shall mean international route ------ authorities held by the Borrower. "SEC" shall have the meaning provided in Section --- 7.01(e). "Second Additional Loan Order" shall mean an order ---------------------------- of the Bankruptcy Court in the form of Exhibit D-6 (as such form may be modified pursuant to Section 7.10(a) in a manner acceptable to the Required Lenders, in their sole and absolute discretion, and as such form may otherwise be modified in a manner acceptable to all of the Lenders, in their sole and absolute discretion). NY1-53665.4 -23- "Second Amended and Restated Credit Agreement" -------------------------------------------- shall have the meaning specified in the first paragraph of this Agreement. "Second Amendment Effective Date" shall have the ------------------------------- meaning specified in Section 5.04. "Second Amendment Lender" shall mean Ansett and ----------------------- each Lender (other than an Existing Lender) that became a Lender and made a Loan on the Second Amendment Effective Date. "Section 7.10(c) Amount" shall have the meaning ---------------------- provided in Section 7.10(c). "Secured Creditors" shall mean each of the ----------------- Lenders, the Collateral Agent and the Administrative Agent. "Security Agreement" shall mean a Security ------------------ Agreement in the form of Exhibit F hereto, as the same may be amended, modified or supplemented from time to time. "Security Documents" shall mean and include the ------------------ Orders, the Security Agreement, the Inter-Creditor Agreement, the Mortgage, the Assignment of Gate Leases, the Aircraft/Engine Mortgage, the Slot Deed of Conveyance, the Slot Lease, the Initial Cash Management Agreement and the other agreements related to the Concentration Account and/or the Investment Account, and any ancillary documentation which is required or otherwise executed to evidence and/or perfect the liens and security interests and other rights granted to the Collateral Agent on behalf of the Lenders pursuant to this Agreement, the Orders, the Security Agreement, the Inter-Creditor Agreement, the Mortgage, the Aircraft/Engine Mortgage, the Slot Deed of Conveyance, the Slot Leases, the Initial Cash Management Agreement and the other agreements related to the Concentration Account and/or the Investment Account. "Slot" shall mean all of the rights, titles, ---- interest and privileges of an air carrier in and to the primary operating authority granted by the FAA pursuant to Title 14, to conduct one Instrument Flight Rule (as defined under the Aviation Act) take-off or landing in a specified one-hour or half-hour period at a High Density Airport. The term "Slot" as used herein shall include all Slots created after the date hereof pursuant to Title 14. "Slot Collateral" means the Slots of the Borrower --------------- at O'Hare Airport and John F. Kennedy Airport. NY1-53665.4 -24- "Slot Deed of Conveyance" shall mean the Deed of ----------------------- Conveyance and Assignment of Allocated Instrument Flight Rules Operations Times of the Slots made by the Borrower in favor of the Collateral Agent in the form of Exhibit K, as modified, supplemented or amended from time to time. "Slot Lease" shall mean, collectively, the Slot ---------- Lease Agreement with respect to the Slots made by the Collateral Agent to the Borrower in form attached hereto as Exhibit L, as modified, supplemented or amended from time to time. "Specified Aircraft and Engines" shall mean and ------------------------------ include the Aircraft and Engines described on Part A of Schedule 1 to the Aircraft and Engine Chattel Mortgage and Security Agreement in the form of Exhibit G hereto, as such Schedule may be modified, supplemented or amended from time to time. "Subsidiary" shall mean, as to any Person, (i) any ---------- corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more subsidiaries of such Person and (ii) any partner- ship, association, joint venture or other entity in which such Person and/or one or more subsidiaries of such Person has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to "Subsidiary" shall mean a Subsidiary of the Borrower. "Successor Merchant Bank Arrangement" shall have ----------------------------------- the meaning provided in Section 7.10(a). "Taxes" shall have the meaning provided in Section ----- 2.10(a). "Termination Event" shall mean (i) a "Reportable ----------------- Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provision for 30-day notice to the PBGC under such regulations), (ii) the withdrawal of the Borrower or any member of the Controlled Group from a Pension Plan during a plan year in which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, (iv) the insti- NY1-53665.4 -25- tution of proceedings to terminate a Pension Plan by the PBGC, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. "Third Amendment Effective Date" shall have the ------------------------------ meaning specified in Section 5.05. "Title 14" shall mean Title 14 of the Code of -------- Federal Regulations, Part 93, Subparts K and S, as amended from time to time or any recodification thereof. "UCC" shall mean the Uniform Commercial Code as --- from time to time in effect in the relevant jurisdiction. "United States" and "U.S." shall each mean the ------------- ---- United States of America. "Written" or "in writing" shall mean any form of ------- ---------- written communication or a communication by means of telex, telecopier or facsimile device, telegraph or cable. 1.02 Other Definitional Provisions. References ----------------------------- herein to "Sections", "Exhibits" and "Schedules" shall be to Sections of, and Exhibits or Schedules attached to, this Agreement unless otherwise specifically provided. Refer- ences herein to "this Agreement", "herein", "hereof" or "hereunder" shall be to this Agreement, as amended, supple- mented or otherwise modified from time to time in accordance with Section 10.11. Except as otherwise expressly provided herein, references to other agreements or instruments shall mean such agreements or instruments as the same may be amended, supplemented or modified from time to time. SECTION 2. LOANS. ----- 2.01 Commitments and Loans. --------------------- (a) Subject to and upon the terms and conditions set forth in the Original Credit Agreement, the First Amended and Restated Credit Agreement and/or the Second Amended and Restated Credit Agreement, each Lender honored its Commitment and made its Loans (it being acknowledged and agreed that on and as of the date hereof the Loans of each Lender are outstanding in the aggregate principal amount set forth opposite such Lender's name in Annex I to this Agreement). NY1-53665.4 -26- (b) Amounts prepaid or repaid under the Original Credit Agreement, the First Amended and Restated Credit Agreement, the Second Amended and Restated Credit Agreement and this Agreement may not be reborrowed (it being acknowledged and agreed that the Lenders are not obligated to make any further or additional loans under this Agreement). 2.02 [Reserved]. ---------- 2.03 [Reserved]. ---------- 2.04 [Reserved]. ---------- 2.05 Notes. ----- (a) The Borrower's obligation to pay the prin- cipal of, and interest on, all Loans made by each Lender is evidenced in part by a promissory note duly executed and delivered to such Lender by the Borrower substantially in the form of Exhibit A hereto (each a "Note" and collectively ---- the "Notes"). ----- (b) Each Note issued to each Lender (i) is payable to the order of such Lender and is dated the Effective Date or such later date on which such Lender acquired or increased its Commitment, (ii) is in a stated principal amount equal to the Commitment of such Lender as in effect on the date of issuance thereof or the increase in the Commitment of such Lender on the date of issuance thereof and is payable in the outstanding principal amount of the Loans evidenced thereby from time to time, (iii) matures on the Maturity Date, (iv) bears interest as provided in Section 2.07 in respect of the Loans evidenced thereby and (v) is entitled to the benefits of this Agreement and all other Credit Documents. (c) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer, record the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect any of the Borrower's obligations in respect of such Loans. 2.06 [Reserved]. ---------- 2.07 Interest. -------- (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Loan from the date the proceeds thereof are made available to the Borrower NY1-53665.4 -27- until maturity thereof (whether by acceleration or other- wise) at a rate per annum which shall be 3-1/2% in excess of the applicable LIBOR in effect from time to time. (b) Overdue principal and overdue interest in respect of each Loan and all other amounts not paid when due under the Credit Documents shall bear interest at a rate per annum which shall be 5-1/2% in excess of the applicable LIBOR for the Interest Period selected by the Administrative Agent in effect from time to time. Interest which accrues under this Section 2.07(b) shall be payable on demand. (c) Except as provided in Section 2.07(b), accrued (and theretofore unpaid) interest shall be payable in respect of each Loan in arrears (i) on the last Business Day of each calendar quarter, (ii) at maturity (whether by acceleration or otherwise) and (iii) after such maturity, on demand. Each date described in clauses (i), (ii) and (iii) of the preceding sentence of this Section 2.07(c) is referred to herein as an "Interest Payment Date". --------------------- 2.08 Principal Repayments. The Borrower shall -------------------- repay the principal amount of the Loans outstanding in installments in the following amounts and on the following dates: (i) on March 31, 1994, in a principal amount equal to $5,000,000.00; and (ii) on June 30, 1994, in a principal amount equal to $78,616,597.27 or such lesser principal amount of the Loans as is then outstanding. Notwithstanding anything herein to the contrary, (i) if on or prior to October 8, 1993, the Final Extension Loan Order shall not have been entered or, if entered, shall have been stayed, reversed, vacated, rescinded, modified or amended in any respect (other than modifications or amendments acceptable to each of the Lenders, in its sole and absolute discretion), on October 8, 1993, the aggregate unpaid balance of all principal of and all accrued and unpaid interest (including, without limitation, accrued and unpaid interest at the rate specified in Section 2.07(b) for each day subsequent to September 30, 1993 and prior to the date of payment) on the Loans and all other amounts due hereunder or under any other Credit Document shall be due and payable in full, and (ii) if not theretofore paid as provided in the preceding clause (i), on the Maturity Date, the aggregate unpaid balance of all principal and all accrued and unpaid interest on the Loans and all other amounts due hereunder or under any other Credit Document shall be due and payable in full. 2.09 Interest Period Indemnification. Without ------------------------------- limiting Section 2.11 hereof, the Borrower agrees to indemnify each Lender and to hold each Lender harmless from NY1-53665.4 -28- any loss or expense, including, without limitation, any such loss or expense arising from interest, fees or indemnities payable by such Lender to lenders of funds obtained by it in order to maintain its Loans hereunder and any such loss or expense (including, without limitation, loss of anticipated profit) incurred in liquidating or reemploying swaps, loans or deposits from which such funds were obtained or priced, which such Lender may sustain or incur as a consequence of (i) default by the Borrower in the payment when due of the principal of or interest on any Loan hereunder, (ii) failure or default by the Borrower to repay or prepay after the Borrower has given a notice of repayment or prepayment or is required to make a prepayment pursuant to Section 4, and (iii) the making of any repayment or prepayment of a Loan or payment of interest in respect thereof (including, without limitation, pursuant to Sections 4.01 or 4.02) on a day which is not the last day of an applicable Interest Period. The Borrower shall pay to each Lender any amounts owing to such Lender pursuant to this Section 2.09 within five (5) Business Days after it receives the Lender's certificate certifying in reasonable detail the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. Such Lender shall deliver a copy of any such certificate to the Administrative Agent at the same time such certificate is delivered to the Borrower. 2.10 Taxes. ----- (a) The Borrower shall pay all amounts payable hereunder or under the Credit Documents to the Adminis- trative Agent and each Lender free and clear of, and without deduction or withholding for or on account of, any present and future taxes, levies, imposts, duties, fees, assess- ments, deductions, withholdings or other charges imposed by any country, jurisdiction or any political subdivision or taxing authority thereof or therein, excluding (i) net income and franchise taxes (including minimum, net worth or capital taxes) imposed on such Person by any taxing authority of the United States of America (or the principal country of tax residence of the ultimate parent corporation of such Person pursuant to this Agreement) or political subdivision thereof or by any country, jurisdiction or any political subdivision or taxing authority thereof or therein in which the lending office with respect to the Loans of such Lender hereunder or principal office of such Person is located and (ii) withholding taxes described in the second paragraph of this Section 2.10(a) (all such nonexcluded taxes, levies, imposts, duties, fees, assessments, deduc- tions, withholdings and other charges being hereinafter referred to as "Taxes"). If any Taxes shall be required by ----- law to be deducted or withheld from any payment of an amount NY1-53665.4 -29- payable hereunder or under the other Credit Documents by the Borrower or the Administrative Agent (other than the with- holding taxes described in the next paragraph), the Borrower shall increase the amount paid so that the Administrative Agent or such Lender receives when due (and is entitled to retain), after deduction or withholding for or on account of such Taxes (including, without limitation, any taxes, levies, imposts, duties, fees, deductions, withholdings (other than withholdings permitted pursuant to the next paragraph), assessments or other charges applicable to additional amounts payable under this Section), the full amount of the payment provided for herein or in the other Credit Documents. In the event the Borrower is required by a Lender to pay any additional amount to such Lender pursuant to this Section 2.10, such Lender will designate a different lending office if such designation will avoid the need for, or reduce, such additional amount and will not be otherwise disadvantageous to such Lender in its sole and absolute judgment. The Borrower or the Administrative Agent may properly as required by law deduct any withholding taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent and such withholdings shall not be subject to indemnification (i) if any Lender which is organized under the laws of a jurisdiction outside of the United States (a "Foreign Lender") fails or is unable -------------- to furnish to the Borrower or the Administrative Agent a statement (for example, an Internal Revenue Service Form 1001 or Form 4224) when reasonably requested by the Borrower or the Administrative Agent which, had it been furnished, would have provided the Borrower or the Administrative Agent a complete exemption from any duty to withhold, (ii) if a Foreign Lender furnishes to the Borrower or Administrative Agent a statement of the type described in preceding clause (i), but only to the extent such statement does not provide the basis for a complete exemption from withholding, (iii) if a Foreign Lender notifies the Borrower or the Administrative Agent that circumstances on which such an exemption was based no longer exist or (iv) if the taxation authority notifies the Borrower or the Administrative Agent that the Borrower or the Administrative Agent, as the case may be, may not rely on such a statement, that such an exemption is not available, or that withholding is required. Each Foreign Lender further agrees to furnish to the Borrower and the Administrative Agent annually and before the first payment is made by the Borrower to or for the benefit of such Foreign Lender, an appropriate statement in duplicate that the income it receives hereunder, is, or is expected to be, either effectively connected with a United States trade or business or exempt from withholding pursuant NY1-53665.4 -30- to the terms of an income tax treaty (for example, an Internal Revenue Service Form 1001 or Form 4224) or other- wise is exempt from withholding tax. In addition, if (x) any Lender fails to provide its employer identification number (or otherwise qualify for exemption from back-up withholding), (y) there is a notified payee underreporting, or (z) there has been a payee certification failure, the Borrower or the Administrative Agent may properly treat itself as required by law to deduct any back-up withholding taxes for or in respect of any sum payable hereunder to any Lender or the Administrative Agent and such withholding taxes shall not be subject to indemnification hereunder. (b) The Borrower shall pay on or prior to the due date and in accordance with applicable law (i) all past, present and future Taxes imposed with respect to payments by the Borrower or amounts payable or deemed payable by the Borrower under the Credit Documents or the execution, delivery, acquisition, recordation, filing, registration, or enforcement of any Credit Document, (ii) all past, present and future stamp, documentary, transfer, recording, property (real or personal and including intangible personal property)), excise or other similar Taxes, levies, imposts, duties, fees, assessments and other charges imposed by any jurisdiction with respect to any payment by the Borrower under a Credit Document or the execution, delivery, acqui- sition, recordation, filing, registration, or enforcement of any Credit Document, (iii) all past, present and future Taxes, levies, imposts, duties, fees, assessments and other charges imposed by any jurisdiction with respect to any payment or reimbursement by the Borrower pursuant to this Section 2.10, and (iv) any interest, penalties, or additions to tax or other charges or expenses incurred in connection with any amount required to be paid under this Section 2.10, unless such interest, penalties or additions to tax are the result of the gross negligence of the applicable Lender or the Administrative Agent. (c) The Administrative Agent or any Lender may pay, but shall not be obligated to pay, any amount which is to be paid by the Borrower pursuant to this Section 2.10. The Administrative Agent or such Lender shall, to the extent practicable, give prior notice to the Borrower of the pay- ment of any such amount (and, if practicable, the method of calculating such Tax), or, if not practicable to give prior notice, shall give notice to the Borrower of the payment of any such amount (and, if practicable, the method of calculating such Tax) promptly thereafter. The Borrower shall, within five (5) Business Days after demand of the Administrative Agent or any Lender and whether or not such amount shall have been correctly or legally asserted or NY1-53665.4 -31- imposed, reimburse the Administrative Agent or such Lender for such amount together with interest thereon at the rate for defaults on payments then in effect from and including the date paid by the Administrative Agent or such Lender to and excluding the date on which the Administrative Agent or such Lender is reimbursed by the Borrower in full. The Borrower shall also reimburse the Administrative Agent or any Lender for any and all Taxes and interest, penalties and expenses thereon or with regard thereto within five (5) Business Days after demand therefor. The Borrower may contest with the relevant taxing authorities, at the Borrower's expense, any Taxes (whether or not paid by the Administrative Agent or the Lender) that, in the Borrower's reasonable opinion, have been incorrectly calculated or imposed, provided, that the Borrower shall pay all amounts -------- owing to the Administrative Agent or respective Lenders as provided above and shall not be permitted to await the outcome of the respective contest. The Administrative Agent or such Lender shall cooperate with the Borrower in any such tax contest. In the event that any amount paid by the Administrative Agent or any Lender pursuant to this Section 2.10 is found not to be owed by the Borrower and is repaid or reimbursed to the Administrative Agent or such Lender, the Administrative Agent or such Lender shall promptly reimburse such amount (and any additional related amounts paid by the Borrower to such Lender or the Administrative Agent pursuant to Section 2.10(a) hereof) to the Borrower. (d) Upon request of the Administrative Agent or any Lender, the Borrower shall provide to the Administrative Agent or such Lender original tax receipts, or notarized copies thereof, evidencing payment of all applicable Taxes (whether on interest, fees or other amounts) to the appropriate Governmental Authority within 10 Business Days of the earlier of the date on which any such payment is due or the date of such request of the Administrative Agent or such Lender. 2.11 Cost Indemnities. Within five (5) Business ---------------- Days after demand therefor, the Borrower agrees to pay for, reimburse and indemnify and hold each Lender harmless from and against any and all losses, costs, expenses, claims, charges and indemnities of any type whatsoever which are directly related to the Loans of such Lender (including by any reasonable attribution or allocation) which are payable by, charged to or asserted against such Lender by any provider of funds to such Lender or provider of an interest or currency exchange agreement to such Lender, as a result of any increased costs or decreased rate of return applicable to such provider of funds or as a result of a Default or Event of Default hereunder, including, without NY1-53665.4 -32- limitation, make whole premiums, increased costs, capital adequacy charges, reserve charges, or withholding taxes. In addition, with respect to each Lender, the Borrower agrees to pay the following (without duplication): (a) Increased Costs. If any applicable law, rule --------------- or regulation or any change in any law, rule or regulation or in the interpretation or administration thereof by any Governmental Authority (including, without limitation, any central bank or comparable agency charged with the interpre- tation or administration thereof) or compliance by any Lender (or its lending office) with any request or directive of any such Governmental Authority, whether or not having the force of law: (i) shall subject any Lender (or its lending office) to any tax, duty or other charge with respect to its obligation to make Loans or its Loans or shall change the basis of taxation of payments to any Lender (or its lending office) of the principal of or interest with respect to its Loans or any other amounts due in respect of its Loans or in respect of its obligation to make Loans (except for changes in the rate of tax on the overall net income of such Lender or its lending office imposed by the jurisdiction in which such Lender's principal office or lending office is located); or (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit, compulsory loan, capital adequacy or similar requirement against assets of, or deposits or other liabilities with or for the account of, or credit or credit commitments extended by, or any acquisition of funds by or for the account of, any Lender (or its lending office) or shall impose on any Lender (or its lending office) or the applicable interbank market any other condition affecting its Loans, or its obligations to make or continue Loans; and the result of any of the foregoing is to increase the cost to such Lender (or its lending office) of (x) being obligated to make, (y) making or (z) maintaining its Loans, or reduce the amount of any sum received or receivable by such Lender (or its lending office) under this Agreement, by an amount deemed by such Lender to be material, then, within five (5) Business Days after demand by such Lender, which demand shall be delivered in writing to the Borrower, with a copy to the Administrative Agent, the Borrower will pay to such Lender such additional amount or amounts as will NY1-53665.4 -33- compensate such Lender for such increased cost or reduction for so long as such Lender is subject to such increased cost or reduction. Such Lender will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not be otherwise disadvantageous to such Lender in its sole and absolute judgment. A certificate of such Lender setting forth in reasonable detail such additional amount or amounts necessary to compensate such Lender shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging or attribution methods. (b) Capital Adequacy. If any Lender shall have ---------------- determined that compliance with any applicable law, rule or regulation regarding capital adequacy or any interpretation or administration thereof, of any Governmental Authority (including, without limitation, any central bank or compar- able agency charged with the interpretation or administra- tion thereof), or compliance by any Lender (or its lending office) or any corporation controlling such Lender with any request or directive regarding capital adequacy whether or not having the force of law of any such Governmental Authority, has or would have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's obligations hereunder (including, without limitation, its Loans) or under other obligations of such type or otherwise have the effect of reducing the rate of return on such Lender's or any such controlling corporation's capital as a consequence of its obligations hereunder (including, without limitation, its Loans) or under other obligations of such type, then from time to time, within five (5) Business Days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation in such circumstances, to the extent such Lender determines such increase in capital or reduction is allocable to such Lender's obligations (including, without limitation, its Loans) hereunder. A certificate of any Lender claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 2.12 Distribution of Proceeds. Upon and after ------------------------ the occurrence and during the continuance of an Event of Default, if the Administrative Agent, the Collateral Agent NY1-53665.4 -34- or a Secured Creditor receives funds in respect of any sale, disposition, set-off or other realization on or with respect to the Collateral, the Administrative Agent, the Collateral Agent or such Secured Creditor shall distribute and each Secured Creditor shall apply such funds in the following order of priority: (i) first, to pay all fees, expenses and ----- other amounts due the Administrative Agent or the Collateral Agent under the Credit Documents; (ii) second, to pay all accrued and unpaid ------ interest on the Loans, pro rata, in accordance with the outstanding principal amounts of the Loans; (iii) third, to pay all principal of the ----- Loans, pro rata, in accordance with the outstanding principal amounts of the Loans; and (iv) fourth, to pay all other Obligations, ------ pro rata, in accordance with the respective amounts of such Obligations which are then due and payable to each Secured Creditor. Notwithstanding anything to the contrary in this Section 2.12: (i) if at the time of receipt by the Administrative Agent, the Collateral Agent or a Secured Creditor of funds in respect of any sale, disposition, set-off or other realization on or with respect to the Slot Collateral (or any part or portion thereof) any Loans held by the GPA Entities or any accrued interest thereon remains unpaid, the first $10 million of such funds shall be applied to pay Loans held by the GPA Entities and any accrued interest thereon to the holders thereof in such proportion or priority as they may agree among themselves or, in the absence of any such agreement, as may be directed by GPA Sub, and the balance of such funds shall be applied to pay all other Obligations in the order of priority set forth in the first paragraph of this Section 2.12; and (ii) if funds in respect of any sale, disposition, set-off or other realization on or with respect to any Collateral other than the Slot Collateral shall be distributed to the Secured Creditors pursuant to this Section 2.12 prior to the distribution to the Secured Creditors pursuant to this Section 2.12 of funds in respect of the sale, disposition, set-off or other realization on or with NY1-53665.4 -35- respect to the Slot Collateral (or any portion thereof), then, promptly after the final distribution to the Secured Creditors pursuant to this Section 2.12 of funds in respect of the final sale, disposition, set-off or other realization on or with respect to all of the Slot Collateral, GPA Sub shall pay to each other Lender an amount which, when added to the aggregate amount of funds theretofore received by such Lender pursuant to this Section 2.12, shall result in such Lender having received an aggregate amount of funds equal to the amount of funds such Lender would have received pursuant to this Section 2.12 had all of the proceeds of the sale, disposition, set-off or other realization on or with respect to all of the Slot Collateral (in the amount actually realized) been distributed to the Secured Creditors pursuant to this Section 2.12 prior to the distribution to the Secured Creditors pursuant to this Section 2.12 of any funds in respect of any sale, disposition, set-off or other realization on or with respect to any other Collateral. Any Secured Creditor may allocate internally amounts received hereunder in a different order, although for purposes of making subsequent distributions pursuant to this Section 2.12 all such amounts shall be deemed applied in the order required above, and any such different allocation shall have no effect on the rights or obligations of the Borrower, the Administrative Agent, the Collateral Agent or the other Secured Creditors hereunder. In making distributions hereunder, the Collateral Agent shall be entitled to conclusively rely on statements received by it from the respective Secured Creditors as to the respective amounts owing to them pursuant to, or as described in, the relevant provisions of this Section 2.12. Furthermore, the Collateral Agent shall be entitled to wait for its receipt of any such information before making a distribution in accordance with this Section 2.12. The parties expressly acknowledge and agree that the proceeds of any sale, disposition, set-off or other realization on or with respect to any Collateral that are referred to in this Section 2.12 shall not, and shall not be construed to, include any such proceeds that are received by a Secured Creditor in its capacity as the holder of a Permitted First Lien on such Collateral. NY1-53665.4 -36- SECTION 3. FEES. ---- 3.01 Facility Fee. ------------ The Borrower shall pay to the Administrative Agent (i) on the Third Amendment Effective Date, for the account of and distribution to each Lender, a fee in an amount equal to 0.75% of the principal amount of the Loans of such Lender outstanding on the Third Amendment Effective Date, and (ii) on March 31, 1994 (but only if all or any portion of the Loans are then outstanding), for the account of and distribution to each Lender, a fee in an amount equal to 0.25% of the principal amount of the Loans of such Lender outstanding on the Third Amendment Effective Date (the fees described in the preceding clauses (i) and (ii) being referred to, collectively, as the "Facility Fee"). ------------ 3.02 Fees of Administrative Agent and Collateral ------------------------------------------- Agent. ----- The Borrower shall pay to the Administrative Agent and to the Collateral Agent, for their respective own accounts, or shall reimburse the Lenders for payment of, such fees as the Administrative Agent or the Collateral Agent (including, without limitation, their respective successors and assigns), as the case may be, and the Borrower have agreed separately for performance of the services of the Administrative Agent and the Collateral Agent hereunder and under the other Credit Documents; provided, however, that the Borrower and the Administrative -------- ------- Agent or the Collateral Agent, as the case may be, shall obtain the prior written consent of the Required Lenders to such fees. SECTION 4. PREPAYMENTS; PAYMENTS. --------------------- 4.01 Voluntary Prepayments. The Borrower shall --------------------- have the right to prepay the Loans, without premium or penalty (except as provided in Section 2.09 or 2.11), in whole or in part from time to time on the following terms and conditions: (i) the Borrower shall give the Administrative Agent irrevocable notice in writing of its intent to make a prepayment at its Notice Office at least one Business Day prior to the date of such prepayment, which notice in each case shall indicate the amount of such prepayment and which notice the Administrative Agent shall promptly transmit to each of the Lenders; and (ii) each partial prepayment shall be in an aggregate principal amount of at least $1 million. Each prepayment pursuant to this Section 4.01 in respect of the Loans shall be applied pro NY1-53665.4 -37- rata to the Loans of each Lender and shall reduce the aggregate installment repayments of Loans required by Section 2.08 in inverse order of their maturity. 4.02 Mandatory Prepayments. If on any date --------------------- (i) the required amounts of rotables, equipment or receivables described in Section 7.08 are less in any category than as required in Section 7.08, the Borrower shall repay on such date that principal amount of Loans as is equal to such deficiency, provided that in lieu of prepayment of Loans by reason -------- of each deficiency in the required amounts of rotables specified in Section 7.08, the Investment Account Minimum shall be increased, effective as of the 20th day next following the last day of the month to which such deficiency relates, by an amount equal to the amount of such deficiency (as the amount of such deficiency is determined on the basis of the report delivered pursuant to Section 7.01(h) and the amount of such increase is set forth in the report delivered pursuant to Section 7.01(o)); or (ii) an Asset Sale is consummated, the Borrower shall repay on the last Business Day of the month in which such Asset Sale is consummated the Loans in an amount equal to the Net Proceeds of such Asset Sale; provided, however, that in the event no Default -------- ------- or Event of Default has occurred and is continuing or would result therefrom and such Asset Sale is of property or other assets of the Borrower which is not Designated Collateral, Slot Collateral or Engine Collateral, the Collateral Agent or the Lenders shall release 30% of the Net Proceeds to the Borrower to be used as working capital and the remaining 70% of the Net Proceeds shall be used to prepay the Loans as aforesaid; and provided further, however, if the -------- ------- ------- property which is the subject of the Asset Sale is Slot Collateral (or any part or portion thereof), the first $10 million of the Net Proceeds from such Asset Sale shall be used to repay the Loans (subject to and in accordance with clause (v) of this Section 4.02) and the balance of such Net Proceeds shall be deposited in the Investment Account; and provided further, however, -------- ------- ------- if the property which is the subject of the Asset Sale is Engine Collateral (or any part or portion thereof), the Net Proceeds from such Asset Sale shall be deposited in the Investment Account; or (iii) an Event of Loss (as defined in the Aircraft/Engine Mortgage or the Slot Lease) or other NY1-53665.4 -38- casualty or any condemnation, taking or requisition with respect to any Collateral occurs and (x) the property which is the subject of the loss is not repaired or replaced so as to be of at least equal value and utility as was the property subject thereto prior to the applicable Event of Loss, casualty, condemnation, taking or requisition (assuming it was in the condition required under the Credit Documents) and subjected to the Lien in favor of the Collateral Agent in the priority contemplated hereunder within the time period specified in and in accordance with the provisions of the applicable Security Document or, if no time is specified, within sixty (60) days of such casualty, the Borrower shall repay on such date the Loans in an amount equal to the greater of the value attributed to such Collateral on the most recent collateral certificate delivered pursuant to Section 7.01(h) or the proceeds of any insurance with respect thereto (after payment of any Existing Secured Debt of the Borrower or any Indebtedness secured by a Permitted First Lien required to be repaid with such proceeds) or (y) the property is so repaired or replaced, the Borrower shall repay the Loans in an amount equal to any insurance proceeds remaining after repair or replacement of the Collateral as above provided; provided, however, that if the Event of Loss is with -------- ------- respect to the Slot Collateral (or any part or portion thereof), the repayment of Loans shall be applied as if resulting from a sale of such Slot Collateral (or such part or portion thereof) in accordance with clause (v) of this Section 4.02; and provided further, however, if -------- ------- ------- the Event of Loss is with respect to the Engine Collateral (or any part or portion thereof), in lieu of repaying Loans as provided in this clause (iii), the Borrower shall deposit in the Investment Account an amount of moneys equal to the principal amount of Loans which would otherwise be required to be repaid as provided in this clause (iii); or (iv) the amount of "net available cash" (as such term is defined in Section 8.15(d)) exceeds $125,000,000, the Borrower shall give prompt written notice of such excess to the Lenders in accordance with Section 7.01(n) and, if requested by the Required Lenders, the Borrower shall repay on such date as is specified by the Required Lenders the Loans in an amount equal to the amount of such excess or such lesser amount as may be specified by the Required Lenders; or NY1-53665.4 -39- (v) Each prepayment pursuant to this Section 4.02 in respect of the Loans shall be applied pro rata to the Loans of each Lender; provided, however, that -------- ------- the first $10 million of Net Proceeds of any sale or other disposition of the Slot Collateral (or any part or portion thereof) shall be used to repay Loans held by the GPA Entities to the holders thereof in such proportion or priority as such holders may agree among themselves or, in the absence of any such agreement, as may be directed by GPA Sub. After Loans held by the GPA Entities have been repaid as provided in the immediately preceding sentence, all remaining Net Proceeds of any sale or other disposition of the Slot Collateral (or any part or portion thereof) shall be deposited in the Investment Account. Each payment of Loans pursuant to this Section 4.02 shall be applied to reduce the aggregate installment payments of Loans required to be paid pursuant to Section 2.08 in the inverse order of their maturity. The foregoing shall not be construed as a waiver of any of the provisions of this Agreement or the other Credit Documents. 4.03 Method and Place of Payment. Except as --------------------------- otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Adminis- trative Agent for the account of the Lender or Lenders entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Administrative Agent. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 4.04 Net Payments. All payments made by the ------------ Borrower hereunder, under any Note or under any other Credit Document will be made without setoff, counterclaim or other defense. SECTION 5. CONDITIONS PRECEDENT AND RELATED -------------------------------- PROVISIONS. ---------- 5.01 Conditions to the Effective Date. The -------------------------------- obligation of the Lenders (such term and all other capitalized terms used in this Section 5.01 having the respective meanings stated or ascribed in the Original Credit Agreement and references in this Section 5.01 to "hereof" and "this Agreement" being references to the NY1-53665.4 -40- Original Credit Agreement) to make Loans under this Agreement became effective on the date (the "Effective --------- Date") on which each of the following conditions was ---- satisfied: (a) Execution of Agreement; Notes. (i) The ----------------------------- Borrower, the Administrative Agent and each institution then a Lender hereunder shall have executed a counterpart hereof (whether the same or different counterpart) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent written notice (actually received) at such office that the same has been signed and mailed to it and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Lenders the appropriate Note executed by the Borrower in the amount, maturity and as otherwise provided herein. (b) Corporate Documents; Proceedings; Officer's ------------------------------------------- Certificates. The Lenders shall have received from the ------------ Borrower a certificate, dated the Effective Date, signed by the President and Chief Operating Officer, Senior Vice President-Finance or the Vice President and Controller of the Borrower and attested to by the Secretary or any Assistant Secretary of the Borrower in the form of Exhibit C with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of the Borrower and the resolutions of the Borrower referred to in such certificate, together with such other certificate or certificates pertaining to the subject matter of the By-Law Letter Agreement as any Initial Lender shall have requested, and the foregoing shall be satisfactory to all of the Lenders. (c) Opinions of Counsel. The Lenders shall have ------------------- received opinions, addressed to the Administrative Agent and each of the Lenders and dated the Effective Date, from (i) Daugherty, Bradford & Fowler, covering the filing, perfection and priority of the Aircraft/Engine Mortgages, (ii) from Streich Lang covering the due authority, legality, enforceability and other matters related to the Credit Documents and the requirements hereof, (iii) from Faegre & Benson covering the entry of the Interim Order, the Final Order, the GPA Order, the Northwest Order, the taking of any appeals therefrom and Liens on the property or other assets of the Borrower approved by the Bankruptcy Court, if any, and (iv) from Winthrop, Stimson, Putnam & Roberts covering the United States citizenship of the Borrower, the Slot Lease and other matters involving the DOT and FAA, and such other opinions with respect to other matters incident to transactions contemplated herein, as any Initial Lender may NY1-53665.4 -41- request and as are acceptable to all of the Lenders in their sole and absolute discretion. (d) Slots. Title to the Slots described on ----- Annex A to the Slot Deed of Conveyance shall have been transferred to the Collateral Agent pursuant to the Slot Deed of Conveyance and the Borrower shall have duly authorized, executed and delivered the Slot Lease, which Slot Lease shall be in full force and effect. (e) Security Agreement. The Borrower shall have ------------------ duly authorized, executed and delivered the Security Agreement, which shall be in full force and effect covering all of the "Collateral" referred to therein, together with: (i) proper Form UCC-1 financing statements and such other proper documents for filing or recording in the appropriate offices; (ii) certified copies of Requests for Information or Copies (Form UCC-11) or equivalent reports listing all effective financing statements or other recordations that name the Borrower as debtor that are filed in Arizona, Nevada, California, Hawaii and New York, together with copies of such other financing statements or other recordations (none of which shall cover the Collateral referred to in the Security Agreement except to the extent evidencing Permitted First Liens); (iii) evidence that all other actions necessary or, in the opinion of any Initial Lender, desirable to perfect and protect the security interests created by the Security Agreement have been taken; and (iv) any other documents, instruments or chattel paper required under the Security Agreement. (f) Mortgage. The Borrower shall have (i) duly -------- authorized, executed, delivered and filed with the appropriate Governmental Authorities (a) the Mortgage, which Mortgage shall cover all of the Real Property owned or leased by the Borrower as listed in Schedule 8 (each, a "Mortgaged Property" and collectively the "Mortgaged ------------------ --------- Properties"), and (b) the Assignment of Gate Leases, (ii) ---------- obtained the consent of any landlord with respect to any Real Property leased to the Borrower by such landlord, which consent shall be substantially in the form of Exhibit J-2 hereto, and (iii) obtained the consent of any holder of a Permitted First Lien on such Real Property in substantially the form of Exhibit J-3 hereto and shall have provided to NY1-53665.4 -42- the Lenders A.L.T.A. surveys and title reports in form and substance, and showing title vested in the Borrower and the absence of Liens other than Permitted First Liens and Customary Permitted Liens which (except as described in clauses (iv) and (vii) of the definition thereof) are junior and subordinate to the Lien of the Mortgage, in form and substance acceptable to all of the Lenders in their sole and absolute discretion with respect to all of the Mortgaged Properties. (g) Aircraft/Engine Mortgage. The Borrower shall ------------------------ have duly authorized, executed and delivered the Aircraft/Engine Mortgage covering all aircraft, engines and spare parts then owned by the Borrower (other than any thereof the exclusion of which shall have been consented to by each Initial Lender acting in its sole and absolute discretion), together with evidence of filing for recording with the FAA of such Aircraft/Engine Mortgage and with the priority contemplated hereby and thereby, in form and substance acceptable to all of the Lenders in their sole and absolute discretion. (h) GPA Agreements/Northwest Agreements. The ----------------------------------- Bankruptcy Court shall have issued an order in the form of Exhibit D-3 hereto (as such form may be modified in a manner acceptable to each of the GPA Entities, in their sole and absolute discretion, the "GPA Order") authorizing the --------- Borrower to assume each of the GPA Agreements pursuant to Section 365 of the Bankruptcy Code, and the Bankruptcy Court shall have issued a final order in the form of Exhibit D-4 hereto (as such form may be modified in a manner acceptable to Northwest in its sole and absolute discretion, the "Northwest Order") authorizing the Borrower to enter into --------------- and perform its obligations under each of the Northwest Agreements pursuant to applicable provisions of the Bankruptcy Code and each such Order shall be in full force and effect and not subject to any appeal, stay or injunction. The Borrower shall have (x) paid in full all payment obligations then due (after giving effect to the rent deferrals in the case of the Designated Aircraft Leases) under each of the GPA Agreements, and by doing so shall have satisfied the Borrower's obligations with respect thereto under Section 365 of the Bankruptcy Code and (y) executed and delivered each of the Northwest Agreements, each of which shall be in full force and effect. (i) Payment of Fees, etc. The Borrower shall --------------------- have paid all costs, fees and expenses owing in connection with the Credit Documents and due to the Administrative Agent, the Collateral Agent or any Lender on or before the NY1-53665.4 -43- Effective Date (including, without limitation, legal fees and expenses). (j) Specified Aircraft. Immediately prior to the ------------------ effectiveness of the filing of the Aircraft/Engines Mortgage with the FAA the Specified Aircraft and Engines shall be located in the United States of America. (k) Operating Plan. The Board of Directors of -------------- the Borrower shall have adopted the Operating Plan (as defined in the Credit Agreement) and the Borrower shall have provided evidence satisfactory to all of the Lenders in their sole and absolute discretion that the "Action Plan Summary" terms set forth on Exhibit E have been implemented and are in full force and effect and the Borrower is in compliance therewith. (l) Inter-Creditor Agreement. The Borrower and ------------------------ First Interstate Bank of Arizona shall have entered into the Merchant Agreement Supplement and the Collateral Agent, the Lenders and First Interstate Bank of Arizona, N.A. shall have entered into the Inter-Creditor Agreement, in each case, relating to and providing for the relative priorities of the Liens of First Interstate Bank of Arizona, N.A. and the Collateral Agent on certain of the Collateral, and the Bankruptcy Court shall have issued an order in substantially the form of Exhibit C to the Merchant Agreement Supplement authorizing the amendments effected by the Merchant Agreement Supplement; and the Merchant Agreement Supplement, the Inter-Creditor Agreement and such order shall be in form and substance acceptable to all of the Lenders in their sole and absolute discretion. (m) Lease Amendments. The A320 Leases and the ---------------- Engine Leases shall have been amended in form and substance reasonably satisfactory to the GPA Entities party thereto to provide for the elimination of the "net worth" covenant during the Case and the reinstitution of a comparable "net worth" covenant upon the effective date of a confirmed plan of reorganization for the Borrower under Chapter 11 of the Bankruptcy Code. (n) Other Funds. The Borrower shall have ----------- received binding commitments or such other assurances, in each case as may be acceptable to all of the Lenders in their sole and absolute discretion, for the provision of additional funds to the Borrower, consisting of Indebtedness or equity or proceeds from the sale of the Nagoya Route, in an aggregate amount not less than $40 million, which, if Indebtedness, shall be (i) unsecured, but up to $30 million of which Indebtedness may have administrative priority under NY1-53665.4 -44- Section 364(c)(1) of the Bankruptcy Code which is pari passu ---- ----- with, but not senior to, the Obligations, or (ii) secured for an amount of up to $30 million subject to and in accordance with Section 8.01(vi) (and without the benefit of any administrative priority described in the preceding clause (i) of this paragraph), and in each case on terms and conditions acceptable to the Lenders in their sole and absolute discretion. (o) By-Laws and Related Actions. The Lenders --------------------------- (which did not include Kawasaki) shall have received evidence, satisfactory in form and substance to them, that all actions described in the By-Law Letter Agreement to be taken on or prior to the Effective Date shall have been taken, including, without limitation, the adoption of requisite resolutions of the Board of Directors of the Borrower with respect thereto, which resolutions shall be in full force and effect on and as of the Effective Date. (p) Initial Cash Management Arrangements. The ------------------------------------ Borrower, the Collateral Agent and the Local Bank shall have duly authorized, executed and delivered the Initial Cash Management Agreement and the Borrower shall have otherwise established an accounts receivables collection system (including, without limitation, lock box accounts) and cash concentration and management system, and entered into agreements related thereto, satisfactory to the Required Lenders in their sole and absolute discretion whereby the Investment Account has been established with the Collateral Agent in the name of the Collateral Agent for the benefit of the Secured Creditors and the Concentration Account has been established with the Local Bank in the name of the Collateral Agent for the benefit of the Secured Creditors to which all cash received by, or deposited by, or paid to the Borrower at accounts (including lock box accounts in the name of the Collateral Agent for the benefit of the Secured Creditors) at the Local Bank and all other financial insti- tutions or otherwise are transferred on a daily basis, all of which accounts shall be subject to a first priority perfected security interest in favor of the Collateral Agent under the Security Agreement and the Orders, and which arrangements shall provide for minimum required balances in the Investment Account as set forth in Section 7.10. (q) Insurance Certificates and Opinions. The ----------------------------------- Borrower shall have provided the Lenders with all insurance certificates, opinions and schedules referred to in Section 7.03 and under the Security Documents. (r) Consents. The Borrower shall have provided -------- to the Lenders the confirmation by the FAA of the transfer NY1-53665.4 -45- of the Slots as contemplated by Section 5.01(d), the notices to the Japanese lessors under all applicable Japanese leveraged leases, the filing under the Assignment of Claims Act of 1940 necessary or advisable to perfect the Borrower's assignment of claims against the United States Government and all other notices, consents, approvals, licenses or other action as may be necessary or advisable in the opinion of any Lender to provide the Secured Creditors with the benefits of the Collateral, in each case in form and substance acceptable to all of the Lenders in their sole and absolute discretion. 5.02 Conditions to All Loans. The obligation of ----------------------- each Lender to make any Loans was subject, at the time of the making of such Loans and after giving effect thereto, to the satisfaction of the following conditions (other than, in the case of the Loans made on the Second Amendment Effective Date, the condition set forth in the following paragraph (f)): (a) No Default. There shall exist no Default or ---------- Event of Default. (b) Representations and Warranties. All ------------------------------ representations and warranties of or on behalf of the Borrower herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of such Loans. (c) Orders. The Lenders shall have received a ------ certified copy of an order of the Bankruptcy Court in the form of Exhibit D-1 (as such form may be modified in a manner acceptable to each of the Lenders, in their sole and absolute discretion, the "Interim Order"), and the Interim ------------- Order shall be in full force and effect and shall not have been stayed, reversed, vacated, rescinded, modified or amended in any respect (other than modifications acceptable to each of the Lenders, in their sole and absolute discretion), provided that upon the earlier of (i) -------- September 25, 1991 and (ii) the making of any Loan the aggregate amount of which, when added to the sum of the principal amount of all Loans then outstanding would exceed the credit availability amount authorized by the Bankruptcy Court in the Interim Order (collectively, the "Additional ---------- Credit"), each of the Lenders shall have received a ------ certified copy of an order of the Bankruptcy Court in the form of Exhibit D-2, or as otherwise acceptable to each of the Lenders (the "Final Order"), and at the time of the ----------- extension of any Additional Credit the Final Order shall be in full force and effect, and shall not have been stayed, NY1-53665.4 -46- reversed, vacated, rescinded, modified or amended in any respect (other than modifications acceptable to each of the Lenders, in their sole and absolute discretion); and if either the Interim Order or the Final Order is the subject of a pending appeal in any respect, neither the making of the Loans nor the performance by the Borrower of any of its obligations under any of the Credit Documents or any other document or instrument referred to herein shall be the subject of a presently effective stay pending appeal. Neither the GPA Order nor the Northwest Order shall have been appealed, amended, stayed, vacated or rescinded. (d) Effective Date. The Effective Date shall -------------- have occurred. (e) Collateral Certificate. The Administrative ---------------------- Agent shall have received a certificate substantially in the form of Exhibit M executed by the Chief Financial Officer, Senior Vice President-Finance, Treasurer or Vice President and Controller of the Borrower of the description, value and location of the Collateral as of the date of the making of such Loans, the value of which Collateral shall, among other things, be equal to or in excess of the applicable value set forth in Section 7.08. (f) Deferrals. The Borrower shall have provided --------- evidence in form and substance acceptable to the Required Lenders in their sole and absolute discretion that the Borrower has obtained from the lessors and debt holders in respect of the Deferral Aircraft rental and principal and interest moratoriums (or rebates with respect to such obligations to adjust for such obligations with respect to leases or debt for which rental or principal or interest, as the case may be, is not payable during such period) in an aggregate amount of not less than $100,000,000 (or such lesser amount as the Required Lenders shall approve in their sole and absolute discretion) and as are necessary to provide the Borrower with the minimum number of aircraft required under the Operating Plan; and the terms and conditions of such moratoriums shall be in full force and effect (without any unfulfilled conditions to the effectiveness thereof or subject only to such conditions to the effectiveness thereof as the Required Lenders shall approve in their sole and absolute discretion) and provide for repayment of the deferred amounts with an interest rate of not more than 10.5% per annum over a term of not less than four years commencing December 1991 or as otherwise approved by the Required Lenders in their sole and absolute discretion; and the terms of the stipulations with respect to, and the documentation evidencing, such moratoriums (or NY1-53665.4 -47- rebates) shall be satisfactory in form and substance to the Required Lenders in their sole and absolute discretion. (g) Governmental Action. No Governmental Action ------------------- shall purport to, and no Governmental Action or other action or proceedings shall have been filed, instituted, threatened or issued which seeks to, enjoin or restrain or otherwise adversely affect the making of such Loans or the proposed use of the proceeds of any Loan or the Borrower's compliance with the terms of the Credit Documents. (h) Additional Corporate Documents. All ------------------------------ corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated in this Agreement and the other Credit Documents shall be satisfactory in form and substance to the Required Lenders, and the Lenders shall have received all information and copies of all documents and papers, including records of corporate proceedings and governmental approvals, if any, and such additional certificates and opinions, which any Lender reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. (i) Payment of Fees, etc. The Borrower shall --------------------- have paid all costs, fees and expenses owing in connection with the Credit Documents and due to the Administrative Agent, the Collateral Agent or any Lender on or before the date of the making of such Loans (including, without limitation, legal fees and expenses). The request by the Borrower for the making of each Loan and the acceptance by the Borrower of each Loan constituted a representation and warranty by the Borrower to each of the Lenders making such Loan that all the representations and warranties in Section 6 of the Original Credit Agreement, the First Amended and Restated Credit Agreement or the Second Amended and Restated Credit Agreement, as applicable, were true and correct on and as of the date of such Loan as though repeated thereon, that after giving effect to such Loan no Default or Event of Default was in existence and that applicable conditions specified in Section 5 of the Original Credit Agreement, the First Amended and Restated Credit Agreement or the Second Amended and Restated Credit Agreement, as applicable, were satisfied or waived in writing as of that time. 5.03 Conditions Precedent to Amendment Effective ------------------------------------------- Date. The amendment and restatement of the Original Credit ---- Agreement (such term and all other capitalized terms used in this Section 5.03 having the respective meanings stated or NY1-53665.4 -48- ascribed in the First Amended and Restated Credit Agreement and references in this Section 5.03 to "hereof" and "this Agreement" being references to the First Amended and Restated Credit Agreement) pursuant to the First Amended and Restated Credit Agreement, and the obligation of each Lender under the First Amended and Restated Credit Agreement (including, without limitation, Kawasaki) to make Loans under the First Amended and Restated Credit Agreement (subject to the terms and conditions thereof), became effective on December 13, 1991 (the "Amendment Effective ------------------- Date"), the date on which each of the following conditions ---- was satisfied or waived in writing by all of the Lenders in their sole and absolute discretion: (a) Execution of Agreement; Note. (i) The ---------------------------- Borrower, the Administrative Agent and the Lenders shall have executed a counterpart hereof (whether the same or different counterpart) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent written notice (actually received) at such office that the same has been signed and mailed to it and (ii) there shall have been delivered to the Administrative Agent for the account of Kawasaki a Note executed by the Borrower in the amount, maturity and as otherwise provided in this Agreement. (b) Corporate Documents; Proceedings; Officer's ------------------------------------------- Certificate. The Lenders shall have received from the ----------- Borrower a certificate, dated the Amendment Effective Date, signed by the President and Chief Executive Officer, Senior Vice President-Finance or the Vice President and Controller of the Borrower and attested to by the Secretary or any Assistant Secretary of the Borrower in the form of Exhibit Q with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of the Borrower and the resolutions of the Borrower referred to in such certifi- cate, and the foregoing shall be satisfactory to all of the Lenders. (c) Opinions of Counsel. The Lenders shall have ------------------- received opinions, addressed to the Administrative Agent and each of the Lenders and dated the Amendment Effective Date, from (i) Streich Lang covering the due authority, legality, enforceability and other matters related to this Agreement and the other Credit Documents and the requirements hereof and thereof, and (ii) Faegre & Benson covering the entry of the Additional Loan Order and the Kawasaki Order and the taking of any appeals therefrom and Liens on the property or other assets of the Borrower approved by the Bankruptcy Court, and such other opinions with respect to other matters NY1-53665.4 -49- incident to transactions contemplated herein, as any Lender may request and as are acceptable to all of the Lenders in their sole and absolute discretion; and Kawasaki shall have received letters from Daugherty, Bradford & Fowler and from Winthrop, Stimson, Putnam & Roberts entitling Kawasaki to rely on the opinions delivered by such counsel pursuant to Section 5.01(c) of this Agreement. (d) Cash Management Agreement. The Borrower, the ------------------------- Collateral Agent and the Local Bank shall have duly authorized, executed and delivered the First Amendment to Cash Management Agreement in substantially the form of Exhibit R, amending the Initial Cash Management Agreement. (e) Agency Agreement. Each of the Borrower, the ---------------- Administrative Agent, the Collateral Agent and the Lenders shall have authorized, executed and delivered the First Amendment to Agency Agreement in substantially the form of Exhibit S, amending the Agency Agreement. (f) Mortgage and Assignment of Gate Leases. The -------------------------------------- Borrower shall have (i) duly authorized, executed and delivered and filed with the appropriate Governmental Authorities (a) the First Amendments to Deeds of Trust in substantially the forms of Exhibits T-1, T-2 and T-3, amending each Mortgage encumbering the Mortgaged Properties, and (b) the First Amendment to Assignment of Gate Leases in substantially the form of Exhibit U, amending the Assignment of Gate Leases, and (ii) provided to the Lenders title reports in form and substance satisfactory to the Lenders, and showing title vested in the Borrower and the absence of Liens other than Liens shown on the title reports delivered on the Effective Date. (g) Mortgage Consents. The City of Phoenix, as ----------------- landlord, and the Collateral Agent shall have duly authorized, executed and delivered the First Amendments to Consent Agreement in substantially the forms of Exhibits V-1 and V-2. First Interstate Bank of Arizona, N.A., as first mortgagee, shall have duly authorized, executed and delivered the consent letter in substantially the form of Exhibit W. (h) Additional Loan Order and Kawasaki Order. ---------------------------------------- The Lenders shall have received a certified copy of an order of the Bankruptcy Court in the form of Exhibit D-5, and such order shall be in full force and effect and shall not have been stayed, reversed, vacated, rescinded, modified or amended in any respect (other than modifications acceptable to each of the Lenders, in their sole and absolute discretion). NY1-53665.4 -50- (i) Kawasaki Agreements and Kawasaki -------------------------------- Stipulations. The Borrower and Kawasaki shall have executed ------------ and delivered each of the Kawasaki Agreements and each of the Kawasaki Agreements shall be acceptable in form and substance to each of the Lenders, in their sole and absolute discretion. Pursuant to the Kawasaki Credit Agreement, all of the credit advances payable under the Aircraft Finance Agreement shall have been restructured into the Loan (as defined in the Kawasaki Credit Agreement). Stipulations amending the Kawasaki Stipulations to permit Kawasaki to terminate the lease or financing which is the subject of each such Stipulation upon three months' notice, exercisable after December 15, 1991, and to permit rent payments and debt service thereunder to be brought current shall have been executed and delivered by the respective parties thereto and approved by the Bankruptcy Court. The Borrower shall have paid in full all payment obligations then due under each of the Kawasaki Agreements. (j) Intercreditor Agreements. Kawasaki shall ------------------------ have executed and delivered a letter in substantially the form of Exhibit X pursuant to which Kawasaki agrees to be bound by the provisions of the intercreditor agreements listed on Schedule 1 to such letter. (k) Consent of Certain Lessors. The lessors -------------------------- party to the stipulations with the Borrower listed on Schedule 18 hereto shall have consented to the lien of the Lenders pursuant to the Security Agreement on the Borrower's right, title and interest in and to the aircraft leases identified in such stipulations. (l) Insurance. The Borrower shall have provided --------- to the Lenders all insurance certificates, opinions and schedules required by Section 7.03 and the Security Documents to be provided to the Lenders on the Effective Date (as if references therein to the Effective Date were to the Amendment Effective Date). (m) Operating Plan. The Operating Plan, in the -------------- form and with the content approved by each of the Lenders, acting in its sole and absolute discretion, shall have been adopted by the management of the Borrower; and the Borrower shall have provided evidence satisfactory to all of the Lenders in their sole and absolute discretion that the Borrower is in compliance with the Operating Plan (including, without limitation, the implementation of all plans and programs required by the terms of the Operating Plan to be implemented on or prior to the Amendment Effective Date). NY1-53665.4 -51- (n) Credit Documents. The Borrower shall have ---------------- provided to Kawasaki (i) copies of each of the Credit Documents (including, without limitation, the Security Documents), certified by an appropriate officer of the Borrower as being true, correct and complete and in full force and effect on and as of the Amendment Effective Date and (ii) evidence, reasonably satisfactory to Kawasaki, in its sole and absolute discretion, that all actions described in Section 5.01 of the Credit Agreement and all other actions which, in the reasonable opinion of Kawasaki, are necessary or desirable to perfect and protect the Liens created by the Security Documents have been taken. (o) Payment of Fees, etc. The Borrower shall --------------------- have paid all costs, fees and expenses owing in connection with this Agreement, the other Credit Documents and the documents referred to herein and therein and due to the Administrative Agent, the Collateral Agent and each Lender on or before the Amendment Effective Date (including, without limitation, legal fees and expenses). (p) Representations and Warranties. All ------------------------------ representations and warranties of or on behalf of the Borrower in this Agreement and all the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date. (q) Other Action. There shall have been taken ------------ such other actions, and the Lenders shall have received such other documents, instruments, opinions, reliance letters, certifications and copies of governmental consents, permits, licenses and approvals, as any Lender shall have reasonably requested and which are acceptable to all of the Lenders in their sole and absolute discretion. On the Amendment Effective Date, Kawasaki became a Lender under the First Amended and Restated Credit Agreement, with a Commitment equal to the amount set forth opposite its name on Annex I attached thereto. The Borrower and each of the Existing Lenders acknowledged that, pursuant to the Original Credit Agreement and the By-Law Letter Agreement, the Borrower granted to each Existing Lender certain rights of approval with respect to members of the Board of Directors of the Borrower and the Executive Committee of such Board of Directors. The Borrower and each Existing Lender further acknowledged that Kawasaki was not then, and had not at any time been, a party to the Original Credit Agreement or to the By-Law Letter Agreement, and that the Borrower did not at any time grant to Kawasaki any rights of approval with NY1-53665.4 -52- respect to members of the Board of Directors of the Borrower or the Executive Committee of such Board of Directors. The Lenders, the Borrower and Kawasaki agreed that neither Kawasaki nor any of its officers, directors or advisors would be liable or responsible to any Person for any exercise of the rights of any Existing Lender under the Original Credit Agreement or the By-Law Letter Agreement or for any act or omission of any Director of the Borrower approved by any Existing Lender. The Borrower, each Existing Lender and Kawasaki agreed and acknowledged that no agency relationship has existed or was intended to be created by the First Amended and Restated Credit Agreement between Kawasaki on the one hand and any Existing Lender or any Director approved by such Existing Lender on the other hand. On the Amendment Effective Date, the By-Law Letter Agreement was terminated and became of no further force or effect. Subject to and upon the terms and conditions set forth in the First Amended and Restated Credit Agreement (including, without limitation, Section 5.02 thereof), on the Amendment Effective Date, each Lender made the Loan provided by clause (c) of Section 2.02 thereof to be made by such Lender on the Amendment Effective Date. All of such Loans were made simultaneously by the Lenders following acknowledgement and agreement by the Lenders that the Amendment Effective Date had occurred. Notwithstanding the amendment and restatement of the Original Credit Agreement by the First Amended and Restated Credit Agreement, all of the Obligations continued to be secured by the Collateral (as defined in the First Amended and Restated Credit Agreement) and the Borrower acknowledged and agreed that the Collateral (as defined in the Original Credit Agreement) remained subject to a lien and security interest in favor of the Collateral Agent for the benefit of the Lenders and Northwest. The First Amended and Restated Credit Agreement was intended as a substitution of, and not as payment of, the Obligations of the Borrower under the Original Credit Agreement and all amounts outstanding and owing by the Borrower under the Original Credit Agreement were deemed to be outstanding and owing by the Borrower under the First Amended and Restated Credit Agreement. 5.04 Conditions Precedent to Second Amendment ---------------------------------------- Effective Date. The amendment and restatement of the First -------------- Amended and Restated Credit Agreement pursuant to the Second Amended and Restated Credit Agreement, and the obligation of GPA Sub and each Second Amendment Lender under the Second Amended and Restated Credit Agreement to make Loans referred to in clause (d) of Section 2.02 of the Second Amended and NY1-53665.4 -53- Restated Credit Agreement (subject to the terms and conditions of the Second Amended and Restated Credit Agreement), became effective on September 17, 1992 (the "Second Amendment Effective Date"), the date on which each ------------------------------- of the following conditions was satisfied or waived in writing by all of the Lenders in their sole and absolute discretion (it being understood that all capitalized terms used in this Section 5.04 and defined in the Second Amended and Restated Credit Agreement have the meanings defined in the Second Amended and Restated Credit Agreement and that all references in this Section 5.04 to "hereof" and "this Agreement" are references to the Second Amended and Restated Credit Agreement): (a) Execution of Agreement; Notes. (i) The ----------------------------- Borrower, the Administrative Agent and each Lender shall have executed a counterpart hereof (whether the same or a different counterpart) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent written notice (actually received) at such office that the same has been signed and mailed to it and (ii) there shall have been delivered to the Administrative Agent for the account of GPA Sub and each Second Amendment Lender Notes for such Lenders executed by the Borrower in the amounts, maturity and as otherwise provided in this Agreement. (b) Corporate Documents; Proceedings; Officer's ------------------------------------------- Certificate. The Lenders shall have received from the ----------- Borrower a certificate, dated the Second Amendment Effective Date, signed by the President and Chief Executive Officer, Senior Vice President-Finance or the Vice President and Controller of the Borrower and attested to by the Secretary or any Assistant Secretary of the Borrower in the form of Exhibit Y with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of the Borrower and the resolutions of the Borrower referred to in such certificate, and the foregoing shall be satisfactory to all of the Lenders in their sole and absolute discretion. (c) Opinions of Counsel. The Lenders shall have ------------------- received opinions, addressed to the Administrative Agent and each of the Lenders and dated the Second Amendment Effective Date, from (i) Streich Lang covering the due authority, legality, enforceability and other matters related to this Agreement and the other Credit Documents and the require- ments hereof and thereof, (ii) Faegre & Benson covering the entry of the Second Additional Loan Order and the taking of any appeals therefrom and Liens on the property or other assets of the Borrower approved by the Bankruptcy Court, NY1-53665.4 -54- (iii) Daugherty, Fowler & Peregrin, covering the filing, perfection and priority of the Aircraft/Engine Mortgage (and amendments thereto), and (iv) Winthrop, Stimson, Putnam & Roberts covering the United States citizenship of the Borrower, the Slot Lease (and amendments thereto) and other matters involving the DOT and the FAA, and such other opinions with respect to other matters incident to transactions contemplated herein, as any Lender may request and as are acceptable to all of the Lenders in their sole and absolute discretion. (d) Cash Management Agreement. The Borrower, the ------------------------- Collateral Agent and the Local Bank shall have duly autho- rized, executed and delivered the Second Amendment to Cash Management Agreement in substantially the form of Exhibit Z, amending the Initial Cash Management Agreement. (e) Agency Agreement. Each of the Borrower, the ---------------- Administrative Agent, the Collateral Agent and the Lenders shall have authorized, executed and delivered the Second Amendment to Agency Agreement in substantially the form of Exhibit AA, amending the Agency Agreement. (f) Mortgage and Assignment of Gate Leases. The -------------------------------------- Borrower shall have (i) duly authorized, executed and deliv- ered and filed with the appropriate Governmental Authorities (a) the Second Amendments to Deeds of Trust in substantially the forms of Exhibits BB-1, BB-2 and BB-3, amending each Mortgage encumbering the Mortgaged Properties, and (b) the Second Amendment to Assignment of Gate Leases in substan- tially the form of Exhibit CC, amending the Assignment of Gate Leases, and (ii) provided to the Lenders title reports in form and substance satisfactory to all of the Lenders in their sole and absolute discretion, and showing title vested in the Borrower and the absence of Liens other than Liens shown on the title reports delivered on the Effective Date. (g) Mortgage Consents. The City of Phoenix, as ----------------- landlord, and the Collateral Agent shall have duly autho- rized, executed and delivered the Second Amendments to Consent Agreement in substantially the forms of Exhibits DD-1 and DD-2. First Interstate Bank of Arizona, N.A., as first mortgagee, shall have duly authorized, executed and delivered the consent letter in substantially the form of Exhibit EE. (h) Second Additional Loan Order. The Lenders ---------------------------- shall have received a certified copy of the Second Additional Loan Order, and the Second Additional Loan Order shall be entered by the Court and in full force and effect and shall not have been stayed, reversed, vacated, NY1-53665.4 -55- rescinded, modified or amended in any respect (other than modifications acceptable to all of the Lenders, in their sole and absolute discretion), and no appeal shall been taken from the Second Additional Loan Order and the time to take any such appeal shall have expired. (i) Intercreditor Agreements. Each of the ------------------------ Lenders shall have executed and delivered a letter in substantially the form of Exhibit FF pursuant to which each Lender affirms or reaffirms, as the case may be, that it shall be bound by the provisions of the intercreditor agreements listed on Schedule 1 to such letter. (j) Consent of Certain Lessors. The lessors -------------------------- party to the stipulations with the Borrower listed on Schedule 18 hereto shall have consented to the lien of the Lenders pursuant to the Security Agreement on the Borrower's right, title and interest in and to the aircraft leases identified in such stipulations. (k) Insurance. The Borrower shall have provided --------- to the Lenders all insurance certificates, opinions and schedules required by Section 7.03 and the Security Docu- ments to be provided to the Lenders on the Effective Date (as if references therein to the Effective Date were to the Second Amendment Effective Date). (l) Operating Plan and Consultant's Report. The -------------------------------------- Operating Plan and the report thereon of Simat, Helliesen & Eichner, Inc., the Borrower's consultant, shall be satisfactory in form and content to all of the Lenders, acting in their sole and absolute discretion, and the Operating Plan shall have been adopted by the management and the Board of Directors of the Borrower; and the Borrower shall have provided evidence satisfactory to all of the Lenders in their sole and absolute discretion that the Borrower is in compliance with the Operating Plan (includ- ing, without limitation, the achievement and implementation of all actions required by, and the further cost reductions outlined in, the Operating Plan to be achieved or implemented on or prior to the Second Amendment Effective Date). (m) Security Agreement. The Borrower and the ------------------ Collateral Agent shall have duly authorized, executed and delivered the First Amendment to Security Agreement in substantially the form of Exhibit GG, amending the Security Agreement. (n) Aircraft/Engine Mortgage and Spare Parts ---------------------------------------- Mortgage. The Borrower and the Collateral Agent shall have -------- NY1-53665.4 -56- duly authorized, executed and delivered (i) Amendment No. 3 to Aircraft/Engine Mortgage in substantially the form of Exhibit HH, amending the Aircraft/Engine Mortgage, and (ii) Amendment No. 1 to the Spare Parts Mortgage in substantially the form of Exhibit II, amending the Spare Parts Mortgage, together with evidence of filing for recording with the FAA of such amendments and with the priority contemplated hereby and thereby. (o) Slots. The Borrower and the Collateral Agent ----- shall have duly authorized, executed and delivered the First Amendment to Slot Lease Agreement in substantially the form of Exhibit JJ, amending the Slot Lease Agreement, and all matters involving the DOT and the FAA relating to the Slots shall be acceptable to all of the Lenders in their sole and absolute discretion. (p) Financial Accommodations. The Borrower shall ------------------------ have received from third parties a minimum of $11 million in financial accommodations on terms acceptable to all of the Lenders in their sole and absolute discretion, including, without limitation, the financial accommodations set forth on Schedule 20 hereto; and the Borrower shall have provided evidence thereof in form and substance satisfactory to all of the Lenders in their sole and absolute discretion. (q) Prepayment of Northwest Loans and Release and --------------------------------------------- Termination by Northwest. Simultaneously with the ------------------------ effectiveness of this Agreement and the funding by GPA Sub and the Second Amendment Lenders of the Loans referred to in clause (d) of Section 2.02 hereof, (i) all of the Loans made by Northwest under the Original Credit Agreement and outstanding under the Credit Agreement shall be prepaid in full, together with accrued and unpaid interest thereon, as provided in Section 2.04, and (ii) Northwest shall have duly authorized, executed and delivered a Release and Termination in substantially the form of Exhibit LL releasing all of its right, title and interest in and to the Collateral, the Loans and the Credit Documents. (r) Aircraft Rental and Loan Reductions and --------------------------------------- Deferrals. The Borrower shall have provided evidence in --------- form and substance acceptable to all of the Lenders in their sole and absolute discretion that the Borrower shall have received from aircraft providers (other than the GPA Entities) rental and interest rate reductions, rental and principal payment deferrals and aircraft fleet reductions in the amounts, for the periods and otherwise as set forth in Schedule 19 (or on such other terms as all of the Lenders shall approve in their sole and absolute discretion); and the terms and conditions of such rental and interest rate NY1-53665.4 -57- reductions, rental and principal payment deferrals and aircraft fleet reductions shall be in full force and effect (without any unfulfilled conditions to the effectiveness thereof or subject only to such conditions to the effectiveness thereof as all of the Lenders shall approve in their sole and absolute discretion); and the terms of the stipulations with respect to, and the documentation evidencing, such interest rate reductions, rental and principal payment deferrals and aircraft fleet reductions shall be satisfactory in form and substance to all of the Lenders in their sole and absolute discretion. (s) Corporate Governance and Related Actions. ---------------------------------------- The Borrower shall have duly authorized, executed and delivered the Management Letter Agreement substantially in the form of Exhibit KK and the Lenders (other than Kawasaki) shall have received evidence, satisfactory in form and substance to all of the Lenders (other than Kawasaki) in their sole and absolute discretion, that all actions described in the Management Letter Agreement to be taken on or prior to the Second Amendment Effective Date shall have been taken to the satisfaction of all of the Lenders (other than Kawasaki) in their sole and absolute discretion. (t) A320 Put Agreements. Pursuant to ------------------- documentation, satisfactory in form and substance to all of the Lenders in their sole and absolute discretion, (i) each of Kawasaki and GPA Group plc shall have cancelled its right to put A320 aircraft to the Borrower pursuant to the Kawasaki Put Agreement and the Put Agreement, respectively, on or prior to December 31, 1993, (ii) the Borrower shall have agreed that, if in the discretion of its management, the Borrower increases its fleet of A320 aircraft on or after January 1, 1993 and on or prior to December 31, 1993, then (in lieu of taking A320 aircraft from other sources and subject to availability from Kawasaki and the GPA Entities) the Borrower will take A320 aircraft first from Kawasaki and then from the GPA Entities on the same terms and conditions as would have been applicable under the Kawasaki Put Agreement and the Put Agreement, respectively, had the put options thereunder not been so cancelled, and (iii) the Borrower shall have granted to Kawasaki the right to put four A320 aircraft (each of which shall have fewer than 100 flight hours of commercial operation) to the Borrower during the period January 1, 1994 through December 31, 1994 on the terms provided in the Kawasaki Put Agreement. (u) Directors' and Officers' Liability Insurance. -------------------------------------------- The Borrower shall have provided the Lenders with evidence satisfactory to all of the Lenders in their sole and absolute discretion that the Borrower has in effect on the NY1-53665.4 -58- Second Amendment Effective Date (i) directors' and officers' liability insurance, and (ii) corporate indemnification of directors, in each case, sufficient to facilitate and support the changes in the corporate governance of the Borrower contemplated by the Management Letter Agreement. (v) No Material Adverse Change. In the opinion -------------------------- of the Lenders, no material adverse change shall have occurred since August 18, 1992 in (i) the financial condition, business or prospects of the Borrower or (ii) the airline industry. (w) Credit Documents. The Borrower shall have ---------------- provided to each of the Second Amendment Lenders (i) copies of each of the Credit Documents (including, without limita- tion, all amendments thereto), certified by an appropriate officer of the Borrower as being true, correct and complete and in full force and effect on and as of the Second Amend- ment Effective Date and (ii) evidence, reasonably satisfac- tory to all of the Second Amendment Lenders, in their sole and absolute discretion, that all actions described in Section 5.01 of the Credit Agreement have been taken. (x) Payment of Fees, etc. The Borrower shall --------------------- have paid all costs, fees and expenses owing in connection with this Agreement, the other Credit Documents and the documents referred to herein and therein and due to the Administrative Agent, the Collateral Agent and each Lender on or before the Second Amendment Effective Date (including, without limitation, legal fees and expenses). (y) Representations and Warranties. All repre- ------------------------------ sentations and warranties of or on behalf of the Borrower in this Agreement and all the other Credit Documents shall be true and correct in all material respects on and as of the Second Amendment Effective Date with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date. (z) Retention of Consultant. The Lenders shall ----------------------- have received evidence, satisfactory to all of the Lenders in their sole and absolute discretion, that Simat, Helliesen & Eichner, Inc. has been retained by the Borrower as a consultant to advise and assist the Borrower with respect to the implementation of the Operating Plan. (aa) Other Action. There shall have been taken ------------ such other actions, and all of the Lenders shall have received such other documents, instruments, opinions, reliance letters, certifications and copies of governmental consents, permits, licenses and approvals, as any Lender NY1-53665.4 -59- shall have reasonably requested and which are acceptable to all of the Lenders in their sole and absolute discretion. On the Second Amendment Effective Date, each Second Amendment Lender became a Lender under the Second Amended and Restated Credit Agreement, with a Commitment equal to the amount set forth opposite its name on Annex I attached to the Second Amended and Restated Credit Agreement and the Commitment of GPA Sub was increased to the amount set forth opposite its name on Annex I to the Second Amended and Restated Credit Agreement. The Borrower and each of the Lenders (other than Kawasaki) acknowledged that, pursuant to the Second Amended and Restated Credit Agreement and the Management Letter Agreement, the Borrower granted to each Lender (other than Kawasaki) certain rights of approval with respect to members of the Board of Directors of the Borrower and the Executive Committee of such Board of Directors. The Borrower and each Lender (other than Kawasaki) further acknowledged that Kawasaki is not a party to the Management Letter Agreement, and that the Borrower did not grant to Kawasaki any rights of approval with respect to members of the Board of Directors of the Borrower or the Executive Committee of such Board of Directors. The Lenders, the Borrower and Kawasaki agreed that neither Kawasaki nor any of its officers, directors or advisors would be liable or responsible to any Person for any exercise of the rights of any other Lender under the Management Letter Agreement or for any act or omission of any Director of the Borrower approved by any such Lender. The Borrower and each Lender (including Kawasaki) agreed and acknowledged that no agency relationship has existed or was intended to be created by the Second Amended and Restated Credit Agreement, between Kawasaki on the one hand and any other Lender or any Director approved by such Lender on the other hand. Subject to and upon the terms and conditions set forth in the Second Amended and Restated Credit Agreement (including, without limitation, Section 5.02 thereof), on the Second Amendment Effective Date, GPA Sub and each Second Amendment Lender made the Loan provided by clause (d) of Section 2.02 of the Second Amended and Restated Credit Agreement to be made by such Lender on the Second Amendment Effective Date. All of such Loans were made simultaneously by GPA Sub and the Second Amendment Lenders following acknowledgement and agreement by GPA Sub and the Second Amendment Lenders that the Second Amendment Effective Date had occurred. Notwithstanding the amendment and restatement of the First Amended and Restated Credit Agreement by the Second Amended and Restated Credit Agreement, all of the Obligations continued to be secured by the Collateral (as defined in the NY1-53665.4 -60- First Amended and Restated Credit Agreement) and the Borrower acknowledged and agreed that the Collateral (as defined in the First Amended and Restated Credit Agreement) remained subject to a lien and security interest in favor of the Collateral Agent for the benefit of the Secured Cred- itors. The Second Amended and Restated Credit Agreement was intended as a substitution of, and not as payment of, the Obligations of the Borrower under the First Amended and Restated Credit Agreement and all amounts outstanding and owing by the Borrower under the First Amended Credit Agreement were deemed to be outstanding and owing by the Borrower under the Second Amended and Restated Credit Agreement. 5.05 Conditions Precedent to Third Amendment --------------------------------------- Effective Date. The amendment and restatement of the Second -------------- Amended and Restated Credit Agreement pursuant to this Agreement, and the agreement of each Lender to extend the maturity of the Loans of such Lender to the Maturity Date (as defined in this Agreement) shall become effective on the date (the "Third Amendment Effective Date"), which date must ------------------------------ occur not later than September 30, 1993, on which each of the following conditions is satisfied unless waived in writing by all of the Lenders in their sole and absolute discretion: (a) Execution of Agreement. The Borrower, the ---------------------- Administrative Agent and each Lender shall have executed a counterpart hereof (whether the same or a different counter- part) and shall have delivered the same to the Administra- tive Agent at its Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent written notice (actually received) at such office that the same has been signed and mailed to it. (b) Corporate Documents; Proceedings; Officer's ------------------------------------------- Certificate. The Lenders shall have received from the ----------- Borrower a certificate, dated the Third Amendment Effective Date, signed by the Chairman of the Board of Directors, the President and Chief Executive Officer, the Senior Vice President-Finance or the Vice President and Controller of the Borrower and attested to by the Secretary or any Assistant Secretary of the Borrower in substantially the form of Exhibit Y with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of the Borrower and the resolutions of the Borrower referred to in such certificate, and the foregoing shall be satisfactory to all of the Lenders in their sole and absolute discretion. (c) Opinions of Counsel. The Lenders shall have ------------------- received opinions, addressed to the Administrative Agent and NY1-53665.4 -61- each of the Lenders and dated the Third Amendment Effective Date, from (i) Andrews & Kurth L.L.P. and Martin J. Whalen covering the due authority, legality, enforceability and other matters related to this Agreement and the other Credit Documents and the requirements hereof and thereof, (ii) Faegre & Benson covering the entry of the Interim Extension Loan Order and the taking of any appeals therefrom and Liens on the property or other assets of the Borrower approved by the Bankruptcy Court, and (iii) Winthrop, Stimson, Putnam & Roberts covering the United States citizenship of the Borrower and other matters involving the DOT and the FAA, and such other opinions with respect to other matters incident to transactions contemplated herein, as any Lender may request and as are acceptable to all of the Lenders in their sole and absolute discretion. (d) Mortgage and Assignment of Gate Leases. The -------------------------------------- Borrower shall have (i) duly authorized, executed and deliv- ered and filed with the appropriate Governmental Authorities (a) the Third Amendments to Deeds of Trust in substantially the forms of Exhibits MM-1, MM-2 and MM-3, amending each Mortgage encumbering the Mortgaged Properties, and (b) the Third Amendment to Assignment of Gate Leases in substan- tially the form of Exhibit NN, amending the Assignment of Gate Leases, and (ii) provided to the Lenders title reports in form and substance satisfactory to all of the Lenders in their sole and absolute discretion, and showing title vested in the Borrower and the absence of Liens other than Liens shown on the title reports delivered on the Effective Date. (e) Mortgage Consents. The City of Phoenix, as ----------------- landlord, and the Collateral Agent shall have duly autho- rized, executed and delivered the Third Amendments to Consent Agreement in substantially the forms of Exhibits OO-1 and OO-2. (f) Slots. The Borrower and the Collateral Agent ----- shall have duly authorized, executed and delivered the Second Amendment to Slot Lease Agreement in substantially the form of Exhibit PP. (g) Interim Extension Loan Order. The Lenders ---------------------------- shall have received a certified copy of the Interim Extension Loan Order, and the Interim Extension Loan Order shall have been entered by the Bankruptcy Court and shall be in full force and effect and shall not have been stayed, reversed, vacated, rescinded, modified or amended in any respect (other than modifications acceptable to all of the Lenders, in their sole and absolute discretion), and no appeal shall been taken from the Interim Extension Loan Order. NY1-53665.4 -62- (h) Operating Plan. The Operating Plan and the -------------- recommendations contained in the report thereon of Simat, Helliesen & Eichner, Inc., the Borrower's consultant, shall have been adopted by the management and the Board of Directors of the Borrower. (i) Payment of Ansett Loans and Release and --------------------------------------- Termination by Ansett. Prior to or simultaneously with the --------------------- effectiveness of this Agreement and the extension of the maturity of the Loans to the Maturity Date (as defined herein), (i) all of the Ansett Loans shall be paid in full, together with accrued and unpaid interest thereon, and (ii) Ansett shall have duly authorized, executed and delivered a Release and Termination in substantially the form of Exhibit QQ releasing all of its right, title and interest in and to the Collateral, the Loans and the Credit Documents. (j) Corporate Governance and Related Actions. ---------------------------------------- The Borrower shall have duly authorized, executed and delivered the Amended and Restated Management Letter Agreement substantially in the form of Exhibit RR and the Lenders (other than Kawasaki) shall have received evidence, satisfactory in form and substance to all of the Lenders (other than Kawasaki) in their sole and absolute discretion, that all actions described in the Amended and Restated Management Letter Agreement to be taken on or prior to the Third Amendment Effective Date shall have been taken to the satisfaction of all of the Lenders (other than Kawasaki) in their sole and absolute discretion. (k) No Material Adverse Change. In the opinion -------------------------- of the Lenders, no material adverse change shall have occurred since September 15, 1993 in the financial condition, business or prospects of the Borrower. (l) Payment of Fees, etc. The Borrower shall --------------------- have paid all costs, fees and expenses owing in connection with this Agreement, the other Credit Documents and the documents referred to herein and therein and due to the Administrative Agent, the Collateral Agent and each Lender on or before the Third Amendment Effective Date (including, without limitation, legal fees and expenses). (m) No Default; Representations and Warranties. ------------------------------------------ No Default or Event of Default shall have occurred and be continuing on and as of the Third Amendment Effective Date and all representations and warranties of or on behalf of the Borrower in this Agreement and all the other Credit Documents shall be true and correct in all material respects on and as of the Third Amendment Effective Date with the NY1-53665.4 -63- same effect as though such representations and warranties had been made on and as of the Third Amendment Effective Date (it being understood and agreed that in the event of any inconsistency between the representations and warranties of or on behalf of the Borrower in this Agreement and the representations and warranties of or on behalf of the Borrower in the other Credit Documents, the representations and warranties of or on behalf of the Borrower in this Agreement shall control); and the Lenders shall have received a certificate, dated the Third Amendment Effective Date, and signed by the Vice President and Controller of the Borrower, to such effect. (n) Governmental Action. No Governmental Action ------------------- shall purport to, and no Governmental Action or other action or proceedings shall have been filed, instituted, threatened or issued which seeks to, enjoin or restrain or otherwise adversely affect the extension of the maturity of the Loans to the Maturity Date (as defined herein) or the other transactions provided for herein or contemplated hereby or the Borrower's compliance with the terms hereof or of the other Credit Documents. (o) Other Action. There shall have been taken ------------ such other actions, and all of the Lenders shall have received such other documents, instruments, opinions, reliance letters, certifications and copies of governmental consents, permits, licenses and approvals, as any Lender shall have reasonably requested and which are acceptable to all of the Lenders in their sole and absolute discretion. On the Third Amendment Effective Date, the maturity of the Loans of each Lender shall be extended to the Maturity Date (as defined herein) and the Loans of each Lender shall continue to be outstanding in an aggregate principal amount equal to the amount set forth opposite its name on Annex I attached hereto (and each Lender shall be deemed to have waived any mandatory prepayments of the Loans of such Lender otherwise required pursuant to Sections 4.02(i), 4.02(ii) and 4.02(iv) of the Second Amended and Restated Credit Agreement during the period July 1, 1993 through September 30, 1993). The Borrower and each of the Lenders (other than Kawasaki) hereby acknowledge that, pursuant to this Agreement and the Amended and Restated Management Letter Agreement, the Borrower has granted to each Lender (other than Kawasaki) certain rights of approval with respect to members of the Board of Directors of the Borrower and the Executive Committee of such Board of Directors. The Borrower and each Lender (other than Kawasaki) further acknowledge that Kawasaki is not a party to the Amended and Restated Management Letter Agreement, and that the Borrower NY1-53665.4 -64- has not granted to Kawasaki any rights of approval with respect to members of the Board of Directors of the Borrower or the Executive Committee of such Board of Directors. Neither Kawasaki nor any of its officers, directors or advisors shall be liable or responsible to any Person for any exercise of the rights of any other Lender under the Amended and Restated Management Letter Agreement or for any act or omission of any Director of the Borrower approved by any such Lender. The Borrower and each Lender (including Kawasaki) agree and acknowledge that no agency relationship exists or is intended to be created hereby between Kawasaki on the one hand and any other Lender or any Director approved by such Lender on the other hand. On the Third Amendment Effective Date, the Management Letter Agreement shall be amended and restated in its entirety as provided in the Amended and Restated Management Letter Agreement (and the Management Letter Agreement shall be of no further force or effect). Notwithstanding the amendment and restatement of the Second Amended and Restated Credit Agreement, all of the Obligations shall continue to be secured by the Collateral and the Borrower acknowledges and agrees that the Collateral remains subject to a lien and security interest in favor of the Collateral Agent for the benefit of the Secured Cred- itors. Except as provided herein and in the Release and Termination executed and delivered by Ansett pursuant hereto, this Agreement is intended as a substitution of, and not as payment of, the Obligations of the Borrower under the Second Amended and Restated Credit Agreement and all amounts outstanding and owing by the Borrower under the Second Amended and Restated Credit Agreement shall be deemed to be outstanding and owing by the Borrower hereunder. Notwithstanding anything herein or in any of the other Credit Documents which may be to the contrary, for all purposes hereof and thereof, the Maturity Date shall be as provided herein. SECTION 6. REPRESENTATIONS, WARRANTIES AND ------------------------------- AGREEMENTS. ---------- In order to induce the Lenders to enter into this Agreement and to extend the maturity of the Loans to the Maturity Date (as defined herein), the Borrower makes the following representations, warranties and agreements as of the Third Amendment Effective Date, which shall survive the execution and delivery of this Agreement and the extension of the maturity of the Loans to the Maturity Date (as defined herein). NY1-53665.4 -65- 6.01 Corporate Status. The Borrower (i) is a ---------------- duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its property and assets and to transact the business in which it is engaged and (iii) is duly qualified as a foreign corporation and in good standing in each jurisdiction where the ownership, leasing or operation of its property or the conduct of its business requires such qualification except where the failure to be so qualified is not reasonably likely to have a material adverse effect on the business, operations, property or other assets or condition (financial or otherwise) of the Borrower or on the Collateral or the rights or remedies of the Collateral Agent in respect thereof. 6.02 Corporate Power and Authority. Subject to ----------------------------- the entry of the Interim Extension Loan Order by the Bankruptcy Court, the Borrower has the corporate power to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Credit Documents. The Borrower has duly executed and delivered each of the Credit Documents to which it is a party, and each of such Credit Documents constitutes its legal, valid and binding obligation enforceable against the Borrower in accordance with its terms. 6.03 No Violation. Neither the execution, ------------ delivery or performance by the Borrower of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or govern- mental instrumentality, (ii) will conflict or be incon- sistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the property or assets of the Borrower pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other material agreement, contract or instrument to which the Borrower is a party or by which its property or assets are bound or to which it may be subject, in each case to the extent entered into or assumed on or after the Filing Date, or (iii) will violate any provision of the Certificate of Incorporation or By-Laws of the Borrower. NY1-53665.4 -66- 6.04 Governmental Approvals. No order, consent, ---------------------- approval, license, authorization or validation of, or filing, recording or registration with (except the entry of the Orders and those which have been obtained or made or may be required to be made in the future under any Credit Document and cannot be obtained until such future time) or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any Credit Document. 6.05 Priority; Security Interests. ---------------------------- (a) The Obligations constitute allowed adminis- trative expense claims in the Case having priority over all administrative expenses of the kind specified in Section 503(b) or 507(b) of the Bankruptcy Code, except for the Permitted Expenses and except as expressly permitted by Section 8.05(vi). (b) The Obligations shall be at all times secured by a Lien on the Collateral in favor of the Collateral Agent for the benefit of the Secured Creditors, which Lien shall be a first priority Lien on all Collateral and perfected by operation of the Orders, except that the Lien securing the Obligations may be junior in priority to the Permitted First Liens with respect to the property encumbered thereby. The Borrower has good and marketable title to all Collateral owned by it free and clear of all Liens, except (i) Liens securing the Obligations, (ii) the Permitted First Liens and (iii) other Liens permitted by Section 8.01, all of which Liens referred to in this clause (iii) (other than the Liens permitted by clause (vi) of Section 8.01) are and shall be junior and subordinate to the Liens securing the Obligations. All filings, notices, recordings and other actions taken or made in the United States or any State thereof or in any other jurisdiction necessary to perfect the Liens on the Collateral created pursuant to the Security Documents and the Orders have been made, given or accomplished. 6.06 Financial Statements; Financial Condition; ------------------------------------------ Undisclosed Liabilities; etc. ----------------------------- (a) The consolidated balance sheet of the Borrower at December 31, 1992 and the related consolidated statements of operations, shareholders' equity and cash flows of the Borrower for the fiscal year ended on such date and heretofore furnished to the Lenders present fairly in NY1-53665.4 -67- all material respects the financial position of the Borrower at the date of such balance sheet and the results of operations of the Borrower for such periods covered in the statements of operations except as expressly disclosed therein and in the notes thereto in conformity with generally accepted accounting principles and practices consistently applied. (b) The consolidated balance sheet of the Borrower at June 30, 1993 and the related consolidated statements of operations and cash flows of the Borrower for the six month period ended on such date and heretofore furnished to the Lenders present fairly in all material respects the financial position of the Borrower at the date of such balance sheet and the results of the operations of the Borrower for such periods covered in the statements of operations thereby, except as otherwise disclosed therein and in the notes thereto in conformity with generally accepted accounting principles and practices consistently applied, subject to appropriate year-end audit adjustments. (c) Since September 15, 1993, there has been no material adverse change in the business, operations, property or other assets or condition (financial or otherwise) of the Borrower, including, without limitation, as a result of any casualty, strike, lockout or labor dispute. (d) Except as fully reflected in the financial statements (including the footnotes thereto) referred to in Section 6.06 (b) or in Schedule 9 hereto, there are no liabilities or obligations (excluding current obligations and liabilities incurred in the ordinary course of business) with respect to the Borrower of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due), which either individually or in aggregate are or would be reasonably likely to be materially adverse to the ability of the Borrower to satisfy the Obligations in accordance with their terms or the ability of the Borrower to consummate the transactions contemplated by the Credit Documents. (e) The projections presented in the Operating Plan (the "Projections") are based on good faith estimates ----------- and assumptions made by the management of the Borrower on and as of the date of the Operating Plan; and the management of the Borrower believes that the Projections are reasonable and attainable, it being recognized by the Lenders, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or NY1-53665.4 -68- periods covered by the Projections may differ from the projected results and that such differences may be material. (f) The property register furnished by the Borrower to the Lenders on and as of the Effective Date was a true, complete and accurate description of all aircraft, engines, rotables, Slots, Real Property and other material property or other material assets of the Borrower. 6.07 Litigation. Except as set forth in Schedule ---------- 10 hereto, there are no actions, suits or proceedings, other than the Case, pending or, to the knowledge of the Borrower, threatened that are reasonably likely to materially and adversely affect the business, operations, property or other assets or condition (financial or otherwise) of the Borrower or the ability of the Borrower to perform its obligations hereunder or under any of the other Credit Documents. 6.08 True and Complete Disclosure. All factual ---------------------------- information (taken as a whole) furnished on or prior to the Third Amendment Effective Date by the Borrower in writing to any Lender (including, without limitation, all information contained in the Credit Documents but excluding (i) the Projections and any other forecasts and projections of financial information and results submitted to any Lender, and (ii) factual information which was superseded or re- placed on or prior to the date hereof) for purposes of or in connection with this Agreement, or any transaction con- templated herein, is true and accurate as of the date hereof in all material respects and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. 6.09 Use of Proceeds; Margin Regulations. ----------------------------------- (a) All proceeds of the Loans were used for the Borrower's working capital purposes in accordance with the Operating Plan as defined in the Original Credit Agreement, the First Amended and Restated Credit Agreement and/or the Second Amended and Restated Credit Agreement, as applicable (including, without limitation, to pay amounts due under the A320 Leases, the Engine Leases and the Kawasaki Leases). (b) No part of the proceeds of any Loan were used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purposes of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof violated or was NY1-53665.4 -69- inconsistent with the provisions of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. 6.10 Tax Returns and Payments. The Borrower has ------------------------ filed all federal income tax returns and all other tax returns required to be filed by it and has paid all income and other taxes payable by it which have become due pursuant to such tax returns and all other taxes and assessments payable by it which have become due, other than those (x) not yet delinquent, (y) contested in good faith and for which adequate reserves have been established or (z) the payment of which is excused or stayed as a result of the Borrower's commencement of the Case. The Borrower has paid, or has provided adequate reserves for the payment of, all federal and state income taxes applicable for all prior fiscal years and for the current fiscal year to the date hereof. 6.11 Compliance with ERISA. --------------------- (a) The Borrower and each member of the Controlled Group is in compliance in all respects with any applicable provisions of ERISA and the regulations and published interpretations thereunder including all procedural and fiduciary provisions. (b) No Pension Plan has an accumulated or waived funding deficiency within the meaning of Section 412 of the Code and no Pension Plan is insolvent or in reorganization. (c) No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan administered by the Borrower or any member of the Controlled Group or any administrator designated by the Borrower or any member of the Controlled Group. (d) There are no unfunded vested liabilities under any Pension Plans administered by the Borrower or any member of the Controlled Group or any administrators designated by the Borrower or any member of the Controlled Group. (e) Neither the Borrower nor any member of the Controlled Group has incurred or reasonably expects to incur any withdrawal liability under ERISA to any Multiemployer Plan or any similar liability or exposure. (f) Neither the Borrower nor any member of the Controlled Group has incurred, or expects to incur, any material liability to or on account of any Pension Plan NY1-53665.4 -70- pursuant to Section 515, 4062, 4063, 4064, 4201, or 4204 of ERISA. (g) No Lien imposed under the Code or ERISA on the assets of the Borrower nor any member of the Controlled Group exists or is likely to arise on account of any Pension Plan. 6.12 Subsidiaries. There are no Subsidiaries of ------------ the Borrower and the Borrower does not hold, directly or indirectly, legally or beneficially, more than 5% of the outstanding voting stock or similar interests of any other Person. 6.13 Compliance with Statutes, etc. ------------------------------ (a) The Borrower is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, domestic or foreign, in respect of the conduct of its businesses and the ownership of its property, except (x) such noncompliances as are not likely to, in the aggregate, have a material adverse effect on the business, operations, property or other assets or condition (financial or otherwise) of the Borrower or on its ability to perform its obligations hereunder or under the other Credit Documents or on the Collateral or any rights or remedies of the Collateral Agent or the Lenders in respect thereof or (y) any statute, regulation, order or restriction with which the Borrower is not required to comply by virtue of the Bankruptcy Code, the pendency of the Case or of any order issued in the Case. (b) Without limiting the foregoing, no Hazardous Materials (i) exist on, under or about the Borrower's assets or otherwise with respect to the Collateral, or (ii) have at any time been transported to or from such property or used, generated, manufactured, stored or disposed of on, under or about such assets which, in the case of clauses (i) and (ii) above, would violate any permits, regulations or other Governmental Actions or would give rise to any Hazardous Materials Claim materially and adversely affecting any Collateral, including, without limitation, the economic value, use, operation or transferability of any Collateral or for which the Administrative Agent or any Lender could have any liability or obligation with respect thereto or would have a material adverse effect on the business, property or other assets, condition, financial or otherwise, or operations of the Borrower or could give rise to an Environmental Lien. The Borrower has obtained all permits, licenses and authorizations required under all Hazardous NY1-53665.4 -71- Materials Laws and is in compliance with the terms and conditions of such permits, licenses and authorizations and all applicable Hazardous Materials Laws except where the failure to obtain such permit, license or authorization or where such noncompliance would not affect any Collateral, would not result in any liability of the Administrative Agent or any Lender, and would not have a material adverse effect on the business, property or other assets, condition, financial or otherwise, or operations of the Borrower or on its ability to perform its obligations hereunder or under the other Credit Documents or on the Collateral or any rights or remedies of the Collateral Agent or the Lenders in respect thereof. The Borrower has not been notified that it is liable for any penalties, fines or forfeitures for failure to comply with any of the foregoing in the manner set forth above. The Borrower is in compliance with, and not in breach of or default under, any applicable writ, order, judgment, injunction, decree, lease, first mortgage, or other agreement or instrument to which the Borrower is a party which would materially and adversely affect the ability of the Borrower to operate any portion of the Real Property or personal property owned or leased by it and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute noncompliance, breach of or default thereunder the breach of which is likely to have a material adverse effect on the property or other assets, business operation, condition (financial or otherwise) of the Borrower. There are no legal or governmental proceedings pending or, to the knowledge of the Borrower, threatened, which (a) question the validity, term or entitlement of the Borrower for any permit, license, order or registration required for the operation of any facility or personal property which the Borrower currently operates and (b) wherein an unfavorable decision, ruling or finding would have a material adverse effect on the business, operation, property or other assets or condition (financial or otherwise) of the Borrower or on its ability to perform its obligations hereunder or under the other Credit Documents or on the Collateral or any rights or remedies of the Collateral Agent or the Lenders in respect thereof. 6.14 Investment Company Act. The Borrower is not ---------------------- an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6.15 Public Utility Holding Company Act. The ---------------------------------- Borrower is not a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. NY1-53665.4 -72- 6.16 End of Fiscal Year; Fiscal Quarters. The ----------------------------------- last day of the fiscal year of the Borrower shall be on December 31 and the last day of each of the fiscal quarters of the Borrower shall be on March 31, June 30, September 30 and December 31. 6.17 The Orders. The Final Order has been ---------- entered and has not been amended, stayed, vacated or rescinded (except (i) to the extent superseded by the Final Order and (ii) as amended in a manner satisfactory to all of the Lenders in their sole and absolute discretion), and the obligations of the parties to the Credit Documents have not been stayed. Upon the maturity (whether by acceleration or otherwise) of any of the Obligations, the Lenders shall be entitled to immediate payment of such Obligations without further application to or order by the Bankruptcy Court. Upon any Event of Default the Collateral Agent shall be entitled to take the actions or enforce the remedies set forth in the Orders and the Security Documents without further application to or order by the Bankruptcy Court or any notice to (other than as expressly provided in the provisos to the third to last sentence of Section 9) or consent of any other Person. The GPA Order has been duly entered, and the GPA Order has not been appealed, amended, stayed, vacated or rescinded. The Additional Loan Order and the Kawasaki Order have been entered and have not been amended, stayed, vacated or rescinded (except as amended in a manner satisfactory to all of the Lenders in their sole and absolute discretion). The Second Additional Loan Order has been entered and has not been amended, stayed, vacated or rescinded (except as amended in a manner satisfactory to all of the Lenders in their sole and absolute discretion). The Interim Extension Loan Order has been entered and has not been amended, stayed, vacated or rescinded (except as amended in a manner satisfactory to all of the Lenders in their sole and absolute discretion). 6.18 Operations. ---------- (a) Set forth on Schedule 11 is a true, correct and complete list of (x) all Slots and Routes held or used by the Borrower and (y) all Domestic Gates owned or leased by the Borrower, in each case, as of the Third Amendment Effective Date. The Borrower represents and warrants that it holds the Slots held by it pursuant to Title 14, subject only to the regulations of the FAA, and that it has, at all times after obtaining such Slots, complied in all material respects with all of the terms, conditions and regulations set forth in Title 14, including, without limitation, the usage requirements set forth in 93.227 thereof, and that there exists no material violation of such terms, conditions NY1-53665.4 -73- and regulations that gives the FAA the right to terminate, cancel, withdraw or modify any such Slots. Furthermore, the Borrower shall not use any Slot which is to be used in essential air service operations (as defined by the FAA) for international or non-essential air service operations. (b) The Borrower is a "citizen of the United States" as defined in section 101(16) of the Aviation Act and a duly certificated "air carrier" within the meaning of the Aviation Act authorized to transport passengers and cargo in domestic and international air transportation and certificated under Sections 401 and 604(b) of the Aviation Act. All such certificates are in full force and effect and duly issued to the Borrower by the DOT (or the Civil Aeronautics Board) and the FAA, and the Borrower has in full force and effect and duly issued to it all licenses, permits, authorizations, certificates of compliance, certificates of public convenience and necessity and other certificates (including, without limitation, air carrier operating certificates and operations specifications issued by the FAA pursuant to Part 121 of the Regulations of the FAA and all applicable aircraft registration requirements of the FAA, including those set forth in Part 47 of the regulations of the FAA) which are required by the DOT or the FAA for the conduct of the business of the Borrower as now conducted. There are no license fees owed on the Borrower's DOT or FAA licenses. The Borrower is in compliance with all material requirements of the certificates and authorizations issued to it by the DOT and the FAA. 6.19 GPA Agreements/Kawasaki Agreements. Each of ---------------------------------- the GPA Agreements and the Kawasaki Agreements is in full force and effect, no "Default" or "Event of Default" under and as defined in any such agreement (other than an event of default which consists of the existence of the Case) has occurred and is continuing and each of the representations and warranties of the Borrower in the GPA Agreements and the Kawasaki Agreements is true and correct as if made on the Third Amendment Effective Date (except to the extent any such representation or warranty expressly refers to a prior date). SECTION 7. AFFIRMATIVE COVENANTS. --------------------- The Borrower covenants and agrees that, unless the Required Lenders otherwise consent in their sole and absol- ute discretion, on and after the Third Amendment Effective Date and until the Loans and the Notes, together with all interest, fees and other Obligations payable hereunder or under the other Credit Documents, are paid in full: NY1-53665.4 -74- 7.01 Information Covenants. The Borrower will --------------------- furnish to each Lender: (a) Weekly and Monthly Reports. By the Wednesday -------------------------- after the end of each week, beginning with the first week or part thereof in which the Third Amendment Effective Date occurs, internal reports on the operations of the Borrower in respect of such week and for the period from the beginning of the current fiscal year to the end of such week, in a format, and in a level of detail, reasonably acceptable to and agreed upon by the Required Lenders; and within 20 days after the end of each month, other than a month which ends a fiscal quarter or a fiscal year of the Borrower, the balance sheet of the Borrower as at the end of such month and the related statements of operations and cash flows for such month and for the elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth comparative figures for the related periods in the prior fiscal year, all of which shall be certified on behalf of the Borrower by the Chief Financial Officer, Treasurer or Vice President and Controller of the Borrower (subject to year-end audit adjustments); and within 20 days after the end of each month, a report with respect to sales of assets during such month, in a format, and in a level of detail, reasonably acceptable to the Required Lenders and demonstrating compliance with the provisions of Sections 8.02(i), 8.02(iii) and 4.02(ii) of this Agreement; and within 20 days after the end of each month, a report with respect to leases entered into during such month, in a format, and in a level of detail, reasonably acceptable to the Required Lenders, and demonstrating compliance with the provisions of Section 8.04 of this Agreement. (b) Financial Statements. Within 50 days after -------------------- the close of the first three fiscal quarters in each fiscal year of the Borrower and within 105 days after the last fiscal quarter in any fiscal year of the Borrower (or, if earlier, at the time of filing with the SEC in the case of any accounting period ending after the Effective Date), the balance sheet of the Borrower as at the end of such quarterly period and the related statements of operations, cash flows and stockholders' equity for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, in each case setting forth comparative figures for the related periods in the prior fiscal year, all of which shall be certified on behalf of the Borrower by the Chief Financial Officer, Treasurer or Vice President and Controller of the Borrower (subject to appropriate year-end audit adjustments in the case of statements relating to the first three quarters of any fiscal year) and, in the case of statements relating to NY1-53665.4 -75- the last quarter of the fiscal year and for such fiscal year, certified by KPMG Peat Marwick or another independent certified public accounting firm of recognized national standing selected by the Borrower and reasonably acceptable to the Required Lenders without qualification as to the scope of the audit or as to generally accepted accounting principles or practices. (c) Officer's Certificates. At the time of the ---------------------- delivery of the financial statements provided for in Section 7.01(b), a certificate of the Chief Financial Officer, Treasurer or Vice President and Controller of the Borrower, stating that he has reviewed the terms of this Agreement and the Credit Documents and has made or caused to be made under this provision a review in reasonable detail of the transactions and condition of the Borrower during the period covered thereby and is authorized to act on behalf of the Borrower, to the effect that to the best of his knowledge, no Default or Event of Default has occurred and is continuing, or if such Chief Financial Officer, Treasurer or Vice President and Controller is unable to make the certifications required herein, he shall supply a statement setting forth the reasons for such inability, specifying the nature and extent of such reasons. Such certificate shall also set forth the calculations required to establish whether the Borrower was in compliance with each of the provisions of Section 7.08 and Section 8, at the end of such fiscal quarter or year, as the case may be. (d) Notice of Default or Litigation. Promptly, ------------------------------- and in any event within three Business Days after the Borrower obtains knowledge thereof, notice of (i) the occur- rence of any Default or Event of Default or (ii) any litigation or governmental proceeding not filed in the Case commenced (x) against the Borrower which could materially and adversely affect the business, operations, property or other assets or condition (financial or otherwise) of the Borrower or its ability to perform its obligations hereunder or under the other Credit Documents or the Collateral or the rights or remedies of the Collateral Agent in respect thereof or (y) with respect to any Credit Document. (e) Other Reports and Filings. Promptly, copies ------------------------- of (i) all financial information, proxy materials and other information and reports concerning material developments in the business, operations, property or other assets or condition (financial or otherwise) of the Borrower, which the Borrower (x) has filed with the Securities and Exchange Commission or any governmental agencies substituted therefor (the "SEC") or any comparable agency outside of the United --- States, including periodic filings required as of the NY1-53665.4 -76- Effective Date by such agency, (y) has filed with the FAA or the DOT, or, in each case, any comparable agency outside of the United States or (z) has delivered to the Board of Directors, any member of an Official Committee (exclusive of materials delivered to members of an Official Committee in their individual non-representative capacity) or holders of, or to any agent or trustee with respect to, Indebtedness of the Borrower in its capacity as such a holder, agent or trustee (unless such information or materials have theretofore been delivered to the Lenders pursuant to this Section 7.01), and (ii) all financial and management reports regarding the Borrower in connection with any audit by its independent accountants, including, without limitation, any report making accounting control recommendations or noting deficiencies. (f) Pleadings, etc. Promptly after the same is --------------- available, (i) copies of all material pleadings, motions, applications, judicial information, financial information and other documents not generally noticed to all parties- in-interest on the official service list in the Case (x) filed by or on behalf of the Borrower with the Bankruptcy Court in the Case or (y) distributed by or on behalf of the Borrower to any Official Committee, except information which is publicly available and information which the Borrower reasonably believes is in the possession of, or generally available to, the Lenders and (ii) copies of all pleadings, motions and applications filed by third parties (it being understood that any of the foregoing relating to ordinary course of business matters and customary for bankruptcy proceedings shall not be deemed material for this clause (f)). (g) Slot Use; Notice of Slot Use Prohibition. ---------------------------------------- (i) In the event that the Borrower shall have determined not to use any Operating Route or Slot held by it in accordance with Title 14 or any applicable law or regulation, the Borrower shall give written notice to the Lenders no later than three days following the date of such determination, which notice shall identify such Slot or Operating Route, and the extent of use of such Slot or Operating Route in the twelve months preceding such notice, and (ii) in the event of the proposal or imposition of any law, rule or regulation with respect to Routes or Slots, which law, rule or regula- tion could have the effect of (x) prohibiting or restricting in any respect the ability of the Borrower to acquire, hold, sell or otherwise transfer the right to hold or use the Operating Routes or Slots, or (y) in any other respect, adversely affecting the interests of the Lenders, the Borrower will, in each case, within three days of such event, give written notice of such proposal or imposition. NY1-53665.4 -77- (h) Collateral Schedules. On or before the 20th -------------------- day of each month, a certificate executed by the Chief Financial Officer, Treasurer or Vice President and Control- ler of the Borrower of the existing Collateral, the value thereof (showing, among other things, by type and category of Collateral in detail reasonably acceptable to the Required Lenders, compliance with Section 7.08 and Section 4.02(i)) and all locations thereof, plus any additional filing, registration, or other action necessary or advisable to fully perfect the Collateral Agent's security interest therein under applicable law (other than under the Bankruptcy Code by reason of the Orders) in substantially the form of Exhibit M hereto. (i) ERISA. Promptly (and in no event later than ----- 10 days) after becoming aware of the occurrence of any (i) Termination Event, or (ii) "prohibited transaction," as such term is defined in Section 4975 of the Code, in connection with any Pension Plan of the Borrower or any trust created thereunder, a written notice from an officer of the Borrower specifying the nature thereof, what action the Borrower proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto; and with reasonable promptness copies of (iii) all notices received by the Borrower or any member of the Controlled Group of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan; (iv) each Form 5500 annual report, including Schedule B thereto (Actuarial Information) filed by the Borrower or any member of the Controlled Group with the Internal Revenue Service with respect to each Pension Plan; and (v) all notices received by the Borrower or any member of the Controlled Group from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA. (j) Compliance Reports. In March of 1994, ------------------ (x) reports of the type described in Section 5.01(e)(ii) in each jurisdiction in which the UCC-1 financing statements referred to in Section 5.01(e)(i) were filed and in which any other UCC-1 financing statements were subsequently filed (which shall show UCC-1 financing statements covering all applicable Collateral duly filed and none of which shall disclose evidence of any Liens other than Permitted First Liens), and (y) an opinion of FAA counsel referred to in Section 5.01(c)(i) (or other FAA counsel reasonably acceptable to the Required Lenders) showing the filing, perfection and priority of all Collateral covered by the Aircraft/Engine Mortgage and the absence of any Liens other NY1-53665.4 -78- than Permitted First Liens, such opinion to be in form and substance reasonably acceptable to the Required Lenders. (k) Other Information. From time to time, such ----------------- other information or documents (financial or otherwise), including, without limitation, board papers and minutes, and further including, without limitation, revised cash flow statements and revised profit and loss statements, in each case, supporting or relating to transactions with respect to which the Borrower seeks or is required to obtain the consent, concurrence, approval and/or waiver of the Required Lenders, as the Administrative Agent or any Lender may request in its sole and absolute discretion. (l) Board and Committee Meetings. Upon the ---------------------------- request of any Lender (other than Kawasaki), such Lender may (but shall be under no obligation to) attend (on a non- participating basis) meetings of the Borrower's Executive Committee (as such Executive Committee is constituted on the Second Amendment Effective Date) or portions of meetings of the Borrower's Board of Directors or committees thereof at which matters relating to the Operating Plan and its implementation, monitoring and oversight are discussed. (m) Monthly Projections. Within ten days after ------------------- the end of each month, internal projections for the three- month period following the end of such month, which projections shall (i) be based upon the Borrower's most recent internal performance information, (ii) set forth profit and loss projections on no less than a monthly basis and cash flow projections on a daily basis, and (iii) otherwise be in a form acceptable to the Required Lenders. (n) Excess of "net available cash" Over ----------------------------------- $125,000,000. If on any date the amount of "net available ------------ cash" (as such term is defined in Section 8.15(d)) exceeds $125,000,000, then, within two Business Days of such date, the Borrower shall give written notice of such excess to the Lenders. (o) Increase in Investment Account Minimum -------------------------------------- pursuant to Section 4.02(i). On or before the 20th day of --------------------------- each month, a certificate executed by the Chief Financial Officer, Treasurer or Vice President and Controller of the Borrower and furnished to the Lenders, the Collateral Agent and the Administrative Agent, setting forth (i) the amount by which the Investment Account Minimum is required to be increased pursuant to Section 4.02(i) by reason of a deficiency in the value of rotables as of the last day of such month, and (ii) the amount to which the Investment Account Minimum is increased by reason of such deficiency. NY1-53665.4 -79- 7.02 Books, Records and Inspections. The ------------------------------ Borrower will keep proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles and all require- ments of applicable law shall be made of all dealings and transactions in relation to its business and activities. The Borrower will permit officers and designated repre- sentatives of the Administrative Agent, the Collateral Agent or any Lender to visit and inspect any of the properties of the Borrower to the extent permitted by law, and to examine the books of account of the Borrower and discuss the affairs, finances and accounts of the Borrower with, and be advised as to the same by, its and their officers, all at such reasonable times and intervals and to such reasonable extent as the Administrative Agent, the Collateral Agent or any Lender may request. 7.03 Maintenance of Property; Insurance. The ---------------------------------- Borrower shall maintain or cause to be maintained in good repair, working order and condition, excepting ordinary wear and tear and damage due to casualty, all of its aircraft, aircraft engines, ground equipment, simulators, terminals, offices and all other properties material to its operations and will make or cause to be made all appropriate repairs, renewals and replacements thereof, consistent with past practice as in effect prior to the Filing Date. The Borrower shall maintain or cause to be maintained, with financially sound and reputable insurers the liability and property insurance policies and programs listed on Schedule 12 hereto or substantially similar programs or policies and amounts or other programs, policies and amounts reasonably acceptable to the Administrative Agent and the Required Lenders. On or before the expiration or renewal date thereof, the Borrower shall deliver or cause to be delivered to the Lenders insurance certificates and opinions evidencing compliance with the requirements hereof and of each Credit Document for each such policy or program then in effect: (i) the amount of such policy, (ii) the risks insured against by such policy, (iii) the name of the insurer, each insured party under such policy and the loss payees under any property damage insurance and (iv) the policy number of such policy. All such policies shall contain an endorsement providing for naming of the Administrative Agent, the Collateral Agent and the other Secured Creditors as additional insureds, for payment to the Collateral Agent on behalf of the Lenders in the case of hull and other property damage insurance of all money due or to become due thereunder except to the extent the holder of a Permitted First Lien is the loss payee for such proceeds, prior notice to the Administrative Agent of cancellation or material changes in the terms of the insurance and such NY1-53665.4 -80- other terms as the Administrative Agent may reasonably request. The provisions of this Section 7.03 shall be deemed to be in addition to, but not in limitation of, the provisions of any of the Security Documents that require the maintenance of insurance. 7.04 Corporate Franchises. The Borrower will do -------------------- or cause to be done all things necessary to preserve and keep in full force and effect its existence and its rights (including, franchises, licenses and patents), except in all cases with respect to such rights, other than with respect to Slots and Routes, where (x) the failure to do so is not reasonably likely to have a material adverse effect on the business, operations, property, assets or condition (financial or otherwise) of the Borrower or (y) the failure to do so is excused by virtue of the status of the Borrower as a debtor-in-possession in the Case or any order issued in the Case; provided, however, that in all cases the Borrower -------- ------- shall preserve and keep in full force and effect all rights which are applicable to the Collateral or the loss of which could have a material adverse effect on the Collateral, including, without limitation, on the value or transfer- ability thereof. 7.05 Compliance with Statutes, etc. The Borrower ------------------------------ will comply with all applicable laws, statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as (x) are not reasonably likely to (A) result in a forfeiture or cancellation of the right of the Borrower to use the Slots held or used by it or (B) in the aggregate, have a material adverse effect on the business, operations, property or other assets or condition (financial or otherwise) of the Borrower or (y) are excused by virtue of the status of the Borrower as the debtor-in-possession in the Case or any order issued in the Case; provided, however, that in all -------- ------- cases the Borrower shall comply with all laws, statutes, regulations, orders and restrictions which are applicable to the Collateral or if noncompliance therewith could have a material adverse affect on the Collateral, including, without limitation, on the value or transferability thereof. 7.06 End of Fiscal Years; Fiscal Quarters. After ------------------------------------ the Third Amendment Effective Date, the Borrower shall not change the date on which any of its fiscal quarters or its fiscal year shall end. NY1-53665.4 -81- 7.07 Performance of Obligations. The Borrower -------------------------- will perform all of its obligations arising after the Filing Date, and not stayed as a result of the Case, under the terms of each agreement by which it is bound, except such non-performances as are not reasonably likely to, in the aggregate, have a material adverse effect on the business, operations, property, assets or condition (financial or otherwise) of the Borrower or which are described in the Operating Plan as agreements that will not be assumed or otherwise performed. 7.08 Minimum Designated Collateral Balances. -------------------------------------- Without limiting any other provision of this Agreement or the other Credit Documents, the Borrower shall maintain at all times Collateral of the following types and with the following values as of the last day of each calendar month: (a) Rotables Minimum Value -------- ------------- B747-200 Rotables - $11 million B757-200 Rotables - $23 million B737-300 Rotables - $17 million B737-200 Rotables - $21 million Total Rotables - $72 million; less for each category of rotables the amounts by which the Investment Account Minimum is increased as the result of a deficiency in the required value of rotables in such category; and provided, however, that the -------- ------- amount (if any) by which the aggregate value of B757-200 and B737-300 rotables exceeds the aggregate minimum value specified above for B757-200 and B737-300 rotables may be added, without duplication, to (i) the value of B737-200 rotables for the purpose of determining compliance with the required minimum value of B737-200 rotables and/or (ii) the value of B747-200 rotables for the purpose of determining compliance with the required minimum value of B747-200 rotables; and provided further, however, that if -------- ------- ------- rotables of any category are the subject of an Asset Sale (to which the Required Lenders shall have consented in their sole and absolute discretion), then the aggregate minimum value specified above for the rotables of such category and for total rotables shall be reduced by the greater of the net book value of the rotables that are NY1-53665.4 -82- the subject of such Asset Sale (calculated as provided in the succeeding paragraph of this Section 7.08(a)) and the gross proceeds of such Asset Sale. The value of rotables shall be deemed to be the net book value of the rotables after giving effect to depreciation thereof in accordance with the Borrower's accounting principles and practices in effect as of the date hereof (which principles and practices the Borrower repre- sents and warrants were in effect for the Borrower's most recent full fiscal year and agrees shall not be changed); provided, however, that overhaul, refurbishment and other -------- ------- such costs may be capitalized and included in the net book value of the applicable rotables only to the extent such costs would be included in accordance with such accounting principles and practices and shall in any event be included only with respect to rotables for auxiliary power units, constant speed drives and landing gear and, provided -------- further, however, that in all cases, as of the last day of ------- ------- each month, not less than 65% of the total value of all rotables shall be in serviceable condition with FAA tags and in the possession of the Borrower and no more than 35% of the total value of all rotables shall be in the possession of overhaul agencies, vendors or any Person other than the Borrower. (b) Certain Equipment Minimum Value --------- ------------- Ground support, $30 million, less ---- maintenance, depreciation charges passenger service, properly taken with food service, respect thereto on and telecommunication, after August 1, 1991 surface transpor- and less the principal ---- tation, office, amount of any Loans computer and repaid pursuant to storage Section 4.02(i) as the result of a deficiency in the required value of such equipment. The value of such equipment shall be deemed to be the net book value thereof after deducting depreciation thereof in accordance with the Borrower's accounting principles and practices in effect as of the date hereof (which principles and practices the Borrower represents and warrants were in effect for the Borrower's most recent fiscal year and agrees shall not be changed). NY1-53665.4 -83- (c) Receivables Minimum Value ----------- ------------- Non Offsettable $20 million Eligible Receivables Total Eligible $65 million Receivables less the principal ---- (Offsettable amount of any Loans and Non- repaid pursuant to Offsettable Section 4.02(i) as a Receivables) result of a deficiency in the required value of total receivables; provided, however, that the amount of cash or Cash Equiva- -------- ------- lents on deposit in or to the credit of the Investment Account which is in excess of the Investment Account Minimum may be added to the value of Total Eligible Receivables (but not Non-Offsettable Eligible Receivables) for the purpose of determining compliance with the required minimum value of total receivables (but not Non-Offsettable Receivables). The value of Eligible Receivables shall be deemed to be the net book value thereof after deducting an allowance for bad debts in accordance with the Borrower's accounting principles and practices in effect as of the date hereof (which principles and practices the Borrower represents and warrants were in effect for the Borrower's most recent fiscal year and agrees shall not be changed). The categorization of Non-Offsettable Receivables and Offsettable Receivables shall be made based on the Borrower's accounting principles and practices in effect as of the date hereof (which principles and practices the Borrower represents and warrants were in effect for the Borrower's most recent fiscal year and agrees shall not be changed), but in no event shall Non-Offsettable Receivables include Receivables for goods which have not been shipped or delivered or for services which have not been performed, Airline Clearing House Universal Air Travel Card Receivables, travel agency area settlement plan Receivables, travel agency non area settlement plan Receivables, or credit card Receivables; provided, however, that to the -------- ------- extent the Borrower demonstrates the sufficiency thereof through analyses and supportive documentation acceptable to the Required Lenders, the Required Lenders may in their sole and absolute discretion, agree to allow the Borrower to characterize a portion of such Receivables as Non- Offsettable Receivables. NY1-53665.4 -84- 7.09 Hazardous Materials. The Borrower will ------------------- handle, store, utilize, dispose of, transport, discharge or emit any Hazardous Materials only in accordance with applicable laws or other requirements of any Governmental Authority. The Borrower will promptly take any and all necessary remedial action required by any Governmental Authority or by any Hazardous Material Law or prudent under the circumstances in response to the presence, storage, use, disposal, transportation or discharge of any Hazardous Materials on, under or about any of its assets which would affect the Collateral or could result in any liability or obligation to the Administrative Agent or any Lender with respect thereto or would have a material adverse effect upon the business, operations, property or other assets or condition (financial or otherwise) of the Borrower. In the event the Borrower undertakes any remedial action with respect to any Hazardous Material on, under or about any of its assets, the Borrower shall conduct and complete such remedial action in compliance with all applicable federal, state and local laws, regulations, rules, ordinances and policies, and in accordance with the orders and directives of all Governmental Authorities except in each case where such presence, storage, use, disposal, transportation or discharge of any Hazardous Materials is being contested in good faith. The Borrower shall promptly notify the Administrative Agent of any such remedial action and provide to the Administrative Agent such information or reports relating thereto as it may request. 7.10 Cash Management. --------------- (a) The Borrower shall comply with all terms and conditions of the Initial Cash Management Agreement and any other cash management arrangements entered into pursuant to Section 5.01(p). In addition, the Borrower shall institute and comply with such other account and cash management arrangements as the Required Lenders may request in their sole and absolute discretion, including, without limitation, changes in the banks at which the accounts are held, the existing lock box system, the collection of receivables and the concentration of cash. In furtherance of the foregoing, the Borrower shall execute and deliver such additional lock box and concentration account cash management agreements as are contemplated by the Initial Cash Management Agreement or as the Required Lenders may request in their sole and absolute discretion. The Borrower shall not enter into a new or revised merchant bank arrangement with respect to the VISA/Master Card credit card program (a "Successor Merchant ------------------ Bank Arrangement") unless (i) the Borrower shall have given ---------------- to all of the Lenders at least 20 days' prior written notice of such Successor Merchant Bank Arrangement, (ii) all NY1-53665.4 -85- documents evidencing and/or relating to such Successor Merchant Bank Arrangement shall be satisfactory in form and substance to the Required Lenders in their sole and absolute discretion, and (iii) prior to or simultaneously with the entry by the Borrower into such Successor Merchant Bank Arrangement, (a) the Borrower shall have delivered, and/or caused to be delivered, all such amendments, supplements and/or replacements of the Initial Cash Management Agreement and all documents relating thereto as the Required Lenders shall have requested, each in form and substance satisfactory to the Required Lenders in their sole and absolute discretion, and (b) to the extent deemed necessary or appropriate by the Required Lenders in their sole and absolute discretion, there shall have been entered an amendment, in form and substance satisfactory to the Required Lenders in their sole and absolute discretion, to the Second Additional Loan Order and/or the Loan Extension Order which reflects and accommodates, on a basis no less favorable to the Lenders than that contained in the Second Additional Loan Order and/or the Loan Extension Order in respect of the predecessor merchant bank arrangement, any Liens on cash collateral granted pursuant to the aforesaid documents relating to such Successor Merchant Bank Arrangement and the release of any Liens on cash collateral that secure the predecessor merchant bank arrangement. (b) The Borrower shall cause (i) to be deposited in the Concentration Account all unrestricted cash funds of the Borrower, (ii) to be transferred from the Concentration Account and deposited in the Investment Account from time to time any surplus of the moneys on deposit in the Concentration Account over an amount equal to $5 million (plus such other amounts as may be included in the "Concentration Account Maximum" as such term is defined in the Initial Cash Management Agreement), and (iii) to be deposited in the Investment Account from time to time all proceeds of the investment of moneys on deposit in the Investment Account in Cash Equivalents; provided, however, -------- ------- that the Borrower may cause to be withdrawn from the Investment Account and deposited in the Concentration Account from time to time amounts that are required to meet the operating cash flow requirements of the Borrower after application of amounts on deposit in the Concentration Account and available for such purpose, so long as no Default or Event of Default shall have occurred and be continuing on the date of each such withdrawal and so long as after giving effect to each such withdrawal the amount on deposit in the Investment Account shall be at least equal to the Investment Account Minimum for such day. Amounts deposited in the Concentration Account pursuant to this NY1-53665.4 -86- Section 7.10(b) shall be used by the Borrower to meet the cash flow requirements of the Borrower. (c) Notwithstanding the provisions of Section 7.10(b), the "Section 7.10(c) Amount" (required as a ---------------------- condition to the use of amounts on deposit in the Investment Account in accordance with the provisos to the remedies of the Lenders contained in Section 9) shall, as of any day, be an amount at least equal to the Investment Account Minimum for such day. (d) Notwithstanding the provisions of Section 7.10(b), if at any time following the occurrence and continuance of an Event of Default, there shall be on deposit in the Investment Account an amount (referred to as the "Event of Default Collateralization Amount") equal to ----------------------------------------- the sum of (i) the outstanding principal amount of the Loans, (ii) interest accrued and to accrue on the Loans to the next Interest Payment Date for the Loans, and (iii) all other amounts due and to become due under this Agreement to the next Interest Payment Date for the Loans (as the Event of Default Collateralization Amount is confirmed by the Required Lenders to the Borrower, the Collateral Agent and the Local Bank), then the Borrower may, without the necessity to obtain the consent of the Required Lenders, (A) cause to be withdrawn from the Investment Account and deposited in the Concentration Account from time to time amounts that are in excess of the Event of Default Collateralization Amount and are required to meet the operating cash flow requirements of the Borrower after application of amounts on deposit in the Concentration Account and available for such purpose, and (B) cause to be withdrawn from the Concentration Account and used for such purpose amounts that are from time to time on deposit in the Concentration Account; and provided further, however, that -------- ------- ------- the Borrower shall cause amounts to be withdrawn from the Concentration Account and used for such purpose prior to causing amounts on deposit in the Investment Account to be withdrawn and used for such purpose. (e) At any time the amount on deposit in the Investment Account shall be less than the Investment Account Minimum, the Borrower shall (i) cause the Local Bank and/or the Collateral Agent to notify the Lenders of the amount on deposit in the Investment Account and the Concentration Account as of the close of business on each day, and (ii) furnish to the Lenders on each day a certificate of the Chief Financial Officer, Treasurer or Vice President and Controller of the Borrower, in the form of Exhibit O, containing (x) a projection of the Borrower's cash inflow and cash outflow for the next succeeding day, (y) the amount NY1-53665.4 -87- of moneys withdrawn from the Concentration Account and the Investment Account on such day to meet the operating cash flow requirements of the Borrower, and (z) such other information as is set forth in and required by Exhibit O. (f) The covenants of the Borrower contained in Sections 7.10(b), (c), (d) and (e) shall not limit, alter or modify in any respect any provision of any cash management arrangement described or referred to in Section 7.10(a). 7.11 Further Assurances. ------------------ (a) Whenever and so often as reasonably requested by the Administrative Agent, the Collateral Agent or the Required Lenders, the Borrower will promptly execute and deliver or cause to be executed and delivered, at its own expense, all such other and further instruments, documents or assurances, and promptly do or cause to be done all such other and further things as may be necessary and reasonably required, in order to further and more fully vest in the Collateral Agent all rights, interests, powers, benefits, privileges and advantages conferred or intended to be conferred by this Agreement, the other Credit Documents and the Orders. (b) The Borrower agrees that any time and from time to time, at the expense of the Borrower, it will promptly execute and deliver all further instruments and documents, including, without limitation, aircraft, aircraft engines, aircraft parts mortgages and gates assignments and take all further action that may be necessary or desirable, or that the Administrative Agent, the Collateral Agent or the Required Lenders may request, to perfect and protect any Lien granted or purported to be granted hereby, by the other Credit Documents or the Orders, and including in any event the execution and delivery of an amendment or supplement (including detailed property descriptions) to the Mortgage in respect of Real Property acquired after the Effective Date, or to enable the Collateral Agent to exercise and enforce its rights and remedies with respect to any Collateral. Without limiting the generality of the foregoing, the Borrower will record the Mortgages if not already recorded and provide promptly upon the request of the Required Lenders A.L.T.A. title insurance in an amount not less than the value of such Real Property as set forth in Schedule 8 hereto with respect to the Lien of the Collateral Agent on all or any Real Property, A.L.T.A. surveys, and a "phase I" environmental report on Hazardous Materials with respect to Real Property, in each case in form and substance reasonably acceptable to the Required Lenders. Also, without limiting the generality of the fore- NY1-53665.4 -88- going, the Borrower will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or that the Administrative Agent, the Collateral Agent or the Required Lenders may request, to protect and preserve the Liens granted or purported to be granted hereby and by the other Credit Documents and the Orders. Furthermore, without limiting the generality of the foregoing, the Borrower will execute and record Amendment No. 2 to Parts Mortgage in substantially the form of Exhibit YY and cause to be furnished to the Lenders an opinion of FAA Counsel, in reasonably acceptable form, with respect thereto. (c) The Borrower hereby authorizes the Collateral Agent to file one or more financing or continuation state- ments or other applicable documents, and amendments thereto, relative to all or any part of the Collateral without the signature of the Borrower, where permitted by law. A carbon, photographic or other reproduction of the applicable Security Document or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement or other applicable document where permitted by law. The Collateral Agent will promptly send to the Borrower any such documents which it files without the signature of the Borrower and the Collateral Agent will promptly send the filing or recordation information with respect thereto. (d) In the event that the Collateral Agent shall exercise any of its rights and remedies pursuant to the Orders or any Security Document with respect to a sale of any portion of the Collateral, the Borrower shall cooperate in good faith with the Collateral Agent in effecting such sale and execute such agreements, documents and instruments as requested by the Collateral Agent in connection therewith. (e) Upon the request of the Collateral Agent, the Borrower shall deliver certificates, chattel paper or instruments representing any Collateral covered by any Security Document and/or take such other action under any Security Document as the Collateral Agent may request in order to protect the security interests purported to be granted thereby. (f) Upon the request of the Required Lenders, the Borrower shall cause to be prepared and delivered to the Lenders an audit and valuation, prepared by a firm of independent consultants acceptable to the Required Lenders, with respect to the Borrower's rotables and/or receivables. NY1-53665.4 -89- SECTION 8. NEGATIVE COVENANTS. ------------------ The Borrower agrees that, unless the Required Lenders otherwise consent in their sole and absolute discretion, subject to the provisions of Section 10.21 of this Agreement, on and after the Third Amendment Effective Date and until the Loans, and the Notes, together with all interest, fees and other Obligations payable hereunder or under the other Credit Documents, are paid in full: 8.01 Liens. The Borrower will not create, incur, ----- assume or suffer to exist any Lien upon or with respect to any property or other assets (real or personal, tangible or intangible) of the Borrower whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with or without recourse to the Bor- rower), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any recording or notice statute (except in connection with the Liens permitted below), or apply to the Bankruptcy Court for the authority to do any of the foregoing; provided that the creation, incurrence, -------- assumption or existence of the following shall be permitted (and the Borrower may apply to the Bankruptcy Court for approval of): (i) valid and enforceable Liens in existence on the Filing Date to the extent described in Schedule 14 hereto and to the extent of the principal of the Indebtedness secured thereby on the Filing Date, toget- her with interest, fees, expenses and other charges then and thereafter payable in respect of such Indebtedness in accordance with the terms of such Indebtedness as in effect on the Filing Date, and after giving effect to any cross-collateralization of such Indebtedness in accordance with the terms of such Indebtedness as in effect on the Filing Date, (including, without limitation, Liens securing Indebtedness consisting of the payment deferrals referred to in Section 5.02(f), but excluding in any event a Lien on any Collateral or any other Lien in favor of First Interstate Bank of Arizona, N.A., except Liens on Collateral as set forth on Schedule 14 attached hereto and a Lien on cash constituting part of the "Reserve" or the "Original Reserve" in accordance with the Merchant Agreement Supplement), without giving effect to any extensions or replacements of such Liens, only to the extent encumbering the assets described in such Schedule 14 on the Filing Date and proceeds and NY1-53665.4 -90- replacement assets of a similar type (A) if a Lien thereon was expressly provided in the security agreement providing for the Lien referred to in Schedule 14 and only to the extent of the principal of the Indebtedness secured thereby on the Filing Date, together with interest, fees, expenses and other charges then and thereafter payable in respect of such Indebtedness in accordance with the terms of such Indebtedness as in effect on the Filing Date, and after giving effect to any cross-collateralization of such Indebtedness in accordance with the terms of such Indebtedness as in effect on the Filing Date, or (B) if such Lien is approved after the Filing Date by an order of the Bankruptcy Court as a first or prior Lien; (ii) Liens securing the Obligations; (iii) Liens arising under capitalized leases to the extent permitted by Section 8.05(iii); (iv) Customary Permitted Liens; (v) Liens securing purchase money Indebtedness permitted under Sections 8.05(vii) and 8.07 incurred after the Filing Date to acquire the property subject to such Lien so long as such Lien attaches only to the property so acquired and the amount of the Indebtedness incurred in connection therewith and secured by such Lien does not exceed 95% of the acquisition price of the property subject to such Lien; (vi) Liens on the Collateral securing the Indebtedness permitted by Section 8.05(vi), provided -------- that such Liens are pari passu with, but not senior to, ---- ----- the Liens of the Security Documents, and provided -------- further that all documentation relating to such Liens ------- and Indebtedness is reasonably satisfactory to all of the Lenders; (vii) Liens securing the Indebtedness under the Spares Credit Agreement, dated as of September 28, 1990, between the Borrower and IAE International Aero Engines AG, as amended and supplemented, and the Credit Agreement, dated as of September 28, 1990, between the Borrower and IAE International Aero Engines AG, as amended and supplemented, on assets of the Borrower not subject to the Liens of such Spares Credit Agreement and such Credit Agreement on the Filing Date but thereafter subjected to such Liens pursuant to Section 4.03 of such Spares Credit Agreement and Section 3.03 NY1-53665.4 -91- of such Credit Agreement, which Liens are subject and subordinate to the Liens securing the Obligations and all extensions, modifications, renewals and replace- ments thereof, provided that, in each case, (i) the -------- respective documentation with respect to such Liens shall expressly provide that the holder or holders of such Liens shall not, and shall have no right to, exercise any right to foreclose or otherwise realize on the assets subject thereto, or exercise any remedies thereunder, prior to the occurrence of the Lien Termination Date hereunder, and (ii) the respective documentation with respect to such Liens shall express- ly provide that such Liens shall terminate upon any release or termination (including any such releases or terminations pursuant to Section 8.02 hereof or as a result of any sale or other disposition of the Collateral as a result of the enforcement of the remedies contained herein and in the Security Documents) of the Liens created pursuant to the Security Documents (other than such releases occurring solely as a result of the occurrence of the Lien Termination Date hereunder), with the rights of the holders of such Liens in the event of any realization or foreclosure of the respective Collateral being only to receive any excess proceeds remaining from such realization or disposition after the repayment in full of all Obligations and the occurrence of the Lien Termination Date hereunder; (viii) Liens constituting security deposits, maintenance reserves and similar arrangements (a) in effect prior to the Filing Date, (b) approved by order of the Bankruptcy Court prior to the Effective Date, or (c) approved in writing by the Required Lenders; and Liens on cash or investments constituting proceeds of drawings under letters of credit issued for the account of the Borrower prior to the Filing Date and held as, or in lieu of, security deposits, maintenance reserves or similar arrangements; and (ix) Liens on cash collateral securing the obligations of the Borrower in connection with any Successor Merchant Bank Arrangement, provided that such -------- Liens are in replacement or substitution or otherwise in lieu of Liens on cash collateral securing the obligations of the Borrower in connection with a predecessor merchant bank arrangement, and provided -------- further that all documents relating to such Liens are ------- satisfactory to the Required Lenders, and provided -------- further that all conditions precedent to such Successor ------- Merchant Bank Arrangement set forth in Section 7.10(a) NY1-53665.4 -92- have been satisfied; and with respect to the Successor Merchant Bank Arrangement to which Electronic Data Systems Corporation is a party, the liens on Real Property (securing the obligations of the Borrower in connection therewith) to which the Required Lenders consented pursuant to letter agreement, dated April 14, 1993, with the Borrower. 8.02 Consolidation, Merger, Sale of Assets, etc. ------------------------------------------- The Borrower will not wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consoli- dation, or convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its property or other assets, or enter into any partnerships, joint ventures or sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or other assets (other than purchases or other acquisitions of inventory, materials, equipment and other property in the ordinary course of business) of any Person, or apply to the Bankruptcy Court to do any of the foregoing, except that the foregoing shall not preclude (and the Borrower may apply to the Bankruptcy Court for approval of): (i) subject to maintaining the required levels of certain types of Collateral described in Section 7.08, sales and leases by the Borrower of inventory, materials, equipment and other property (exclusive in any case of aircraft, engines, Real Property, Slots and receivables), in the ordinary course of business not required to be approved by the Bankruptcy Court under Section 363 of the Bankruptcy Code; (ii) Capital Expenditures to the extent not in violation of Section 8.07; (iii) Asset Sales (exclusive of Designated Collateral except to the extent permitted by clause (i) above) by the Borrower for cash at fair market value (as approved by the Board of Directors of the Borrower) pursuant to the Operating Plan, so long as (x) prior to any such Asset Sale, the Borrower shall have received written consent of the Required Lenders with respect thereto, which consent may be withheld or granted in their sole and absolute discretion, provided that the -------- written consent of the Required Lenders shall not be required with respect to any such Asset Sale or Asset Sales if (I) the net book value of each item of the property subject to such Asset Sale or Asset Sales is less than $50,000, (II) the proceeds of the sale or NY1-53665.4 -93- other disposition of each such item is at least equal to 40% of the net book value of such item, and (III) the Net Proceeds of all such Asset Sales effected in any one month without the prior written consent of the Required Lenders do not exceed $100,000, (y) after giving effect to any such Asset Sale (including any such Asset Sale effected without the written consent of the Required Lenders), the requirements of Sections 4.02 and 7.08 are satisfied and no Default or Event of Default shall have occurred and be continuing or would result therefrom after giving effect thereto, and (z) the proceeds received from the consummation of such Asset Sale are applied as provided in Section 4.02; (iv) terminations of leases by way of rejection under the Bankruptcy Code and in accordance with the Operating Plan and terminations of leases of aircraft by reason of the exercise of call rights under such leases in accordance with the terms of such call rights as set forth on Schedule 19; or (v) to the extent expressly indicated on Schedule 19 with respect to particular aircraft, transfers of such aircraft to the holders of the Permitted First Liens on such aircraft or to the lessors of such aircraft. To the extent the Required Lenders waive the provisions of this Section 8.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 8.02 and/or the definition of the term "Asset Sale" contained in Section 1.01, the Collateral Agent shall (if applicable, following any required prepayment of the Loans as provided in Section 4.02) take such action, at the Borrower's expense, as the Borrower may reasonably request to release the Collateral Agent's lien on the Collateral subject to the Asset Sale, but not the proceeds thereof, so that it may be free and clear of the Liens created by the applicable Security Document and the Orders. Nothing contained in this Section 8.02 shall preclude the Borrower from entering into agreements or transactions which contemplate or provide for the payment in full of all Obligations and the occurrence of the Lien Termination Date so long as such repayment and occurrence are conditions precedent to the consummation of such agreements or transactions and such conditions precedent are fulfilled (and not waived). 8.03 Distributions. The Borrower shall not ------------- authorize, declare or pay any Distributions or apply to the Bankruptcy Court for the authority to do so. NY1-53665.4 -94- 8.04 Leases. The Borrower will not permit the ------ aggregate annual minimum or base rent payments (excluding (i) any property taxes, insurance costs, maintenance charges or other amounts paid as additional rent or lease payments and (ii) payments arising from capitalized lease obliga- tions), and net of income arising from subleases to third parties entered into or existing in the ordinary course of business to the extent permitted by the Operating Plan, by the Borrower under agreements to rent or lease any real or personal property to exceed 105% of the applicable amount set forth in the Operating Plan for the applicable period set forth therein, provided that in any event the Borrower -------- will not, on or after the Third Amendment Effective Date, enter into any agreement (including, without limitation, any agreement in the nature of an extension or renewal) to rent or lease any aircraft or engines (but excluding any leases entered into in accordance with or pursuant to the Put Agreement or the Kawasaki Put Agreement or any amendment or modification to either thereof which is referred to in Section 5.04) or any real property unless, in each case, the Required Lenders shall have consented thereto in writing; and provided further that in any event the Borrower will -------- ------- not, on or after the Third Amendment Effective Date, enter into any agreement (including, without limitation, any agreement in the nature of an extension or renewal) to rent or lease any personal property (not described in the preceding proviso), whether pursuant to an operating lease, a capitalized lease or otherwise, unless (i) the aggregate amount of all payments required or provided to be made by the Borrower during the term of such agreement does not exceed $500,000, or (ii) the Required Lenders have consented thereto in writing. 8.05 Indebtedness. The Borrower will not ------------ contract, create, incur, assume or suffer to exist any Indebtedness, or apply to the Bankruptcy Court for the authority to do so, except (and the Borrower may apply to the Bankruptcy Court for approval of): (i) Indebtedness of the Borrower incurred pursuant to this Agreement and the other Credit Documents; (ii) Indebtedness of the Borrower incurred prior to, and outstanding on, the Filing Date (including Indebtedness arising from reimbursement obligations for letter of credit drawings occurring after the Filing Date on letters of credit outstanding on the Filing Date) and listed on Schedule 15 hereto ("Existing Debt"), without giving effect to any ------------- extensions, renewals or refinancings thereof; NY1-53665.4 -95- (iii) Indebtedness secured by Liens consisting of (a) capitalized lease obligations outstanding on the Filing Date and (b) capitalized lease obligations permitted under Section 8.07 up to an aggregate principal amount at any one time outstanding of $5 million; (iv) surety bonds and appeal bonds arising in the ordinary course of business or in connection with the enforcement of rights or claims of the Borrower or arising out of any judgment not constituting an Event of Default; (v) Indebtedness consisting of the payment deferrals referred to in Section 5.02(f) and Section 5.04(r); (vi) Indebtedness in an amount of up to $25 million which is (i) incurred at any time prior to the Maturity Date, (ii) secured by the Collateral on a basis which is pari passu with, but not senior to, the ---- ----- Obligations, (iii) entitled to administrative priority under Section 364(c)(1) of the Bankruptcy Code which is pari passu with, but not senior to, the Obligations, ---- ----- (iv) on terms and conditions which are substantially the same as the terms and conditions of this Agreement and the other Credit Documents and (v) governed and secured by the Credit Documents (which shall be amended, supplemented or otherwise modified to provide for such Indebtedness in a manner reasonably satisfactory to all of the Lenders, including, without limitation, an increase in the Investment Account Minimum for each day subsequent to the date of issuance of such Indebtedness to reflect the issuance of such Indebtedness and ensure that the ratio of the Investment Account Minimum to the aggregate principal amount of all Indebtedness secured thereby remains unchanged after the issuance of such Indebtedness); (vii) Indebtedness of the Borrower incurred pursuant to the Kawasaki Credit Agreement; and (viii) Indebtedness consisting of purchase money Indebtedness secured by a Lien permitted under Sections 8.01(v) and otherwise permitted under Section 8.07 up to an aggregate principal amount of $5 million. 8.06 Advances, Investments and Loans. The ------------------------------- Borrower will not lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital NY1-53665.4 -96- contribution to, any other Person, or apply to the Bankruptcy Court for the authority to do any of the fore- going, except that the following shall be permitted (and the Borrower may apply to the Bankruptcy Court for approval thereof): (i) the Borrower may acquire receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (ii) cash and Cash Equivalents to or for the credit of the Concentration Account and the Investment Account; (iii) the loans, advances and other invest- ments made by the Borrower prior to, and outstanding on, the Filing Date and listed on Schedule 16 hereto; (iv) the Borrower may make advances to employees for moving, relocation and travelling expenses, drawing accounts and similar expenditures in the ordinary course of business not to exceed $1,000,000 at any time outstanding; (v) cash and Cash Equivalents held as cash collateral constituting Liens permitted under Section 8.01(i) which are not greater than the amount held on the Filing Date, except in the case of the Lien on cash collateral in favor of First Interstate Bank of Arizona, N.A. as and to the extent provided in Section 8.01(i); and (vi) credit extended by the Borrower (other than by means of cash payment) in the ordinary course of business to employees in connection with share purchases under employee benefit programs applicable to all or substantially all employees. 8.07 Capital Expenditures. The Borrower will not -------------------- make any expenditure for fixed or capital assets (excluding expenditures for the maintenance and repair of aircraft, engines and parts which should be capitalized in accordance with generally accepted accounting principles, but including capitalized lease obligations) (collectively, "Capital ------- Expenditures"), in excess of 105% of the applicable amount ------------ (exclusive of such maintenance and repairs) set forth in the Operating Plan for the applicable period set forth therein, provided that in any event the Borrower will not, on or -------- after the Third Amendment Effective Date, make any Capital Expenditure, or enter into any agreement relating to or NY1-53665.4 -97- providing for the making of a Capital Expenditure, unless (i) the amount of such Capital Expenditure does not exceed $500,000, or (ii) the Required Lenders have consented thereto in writing. 8.08 Limitation on Repayments, etc. Except for ------------------------------ (i) payments in respect of the A320 Leases, the Engine Leases, the Put Agreement and any leases entered into in connection with the Put Agreement or any amendment or modification thereto which is referred to in Section 5.04, (ii) payments in respect of the Kawasaki Leases, the Kawasaki Put Agreement and any leases entered into in connection with the Kawasaki Put Agreement or any amendment or modification thereto which is referred to in Section 5.04, (iii) payments of scheduled lease payments under capitalized and operating leases of the Borrower existing on the Filing Date to the extent such leases are assumed by Borrower pursuant to the Case and in accordance with the Operating Plan and only if the lessors or lenders thereunder have (x) agreed to the deferral described in Section 5.02(f) or such other deferral arrangements as may have been disclosed to and approved by the Required Lenders as provided in Section 5.02(f), and (y) agreed to the rental reductions and deferrals described in Section 5.04(r) or such other arrangements as may have been disclosed to and approved by the Lenders as provided in Section 5.04(r) and, in each case, the same is in full force and effect, provided that, except as expressly set forth on -------- Schedule 19 with respect to a particular lease of particular aircraft, scheduled lease payments shall not include, or be deemed to include, any amounts payable as or constituting or representing termination or other liquidated damage payments, but scheduled lease payments shall include amounts necessary to meet return condition requirements upon termination of leases upon expiration of the stated terms thereof or upon exercise of call rights thereunder in accordance with the terms of such call rights as set forth on Schedule 19, and provided further that scheduled lease payments shall -------- ------- not include payments (or portions thereof) that are deferred as provided in Sections 5.02(f) and 5.04(r) (unless and until such payments (or portions thereof) are payable in accordance with the terms of the deferrals referred to in such Sections), and provided -------- NY1-53665.4 -98- further that scheduled payments with respect to a ------- particular lease of a particular aircraft (determined as aforesaid) may be reduced from those provided for in Schedule 19 and the Operating Plan if (I) such reduction (x) is agreed to in writing by the Borrower and the applicable aircraft lessor, (y) does not involve, require or result in the payment by the Borrower, whether on a particular payment date or over the term of the lease or otherwise, of any amount or amounts in excess of those otherwise provided for in Schedule 19 and the Operating Plan, and (z) does not, cannot and will not result in a Default or an Event of Default, and (II) the agreement relating to such reduction, together with such other documents and information reasonably requested by the Required Lenders, has been reviewed by the Required Lenders and approved by the Required Lenders for purposes of ensuring compliance with the provisions of this Section 8.08(iii) (it being understood and agreed that the approval rights of the Required Lenders shall be limited to such purposes), (iv) payments initially of defaulted amounts owing, and thereafter of amounts when due, under 1110 Indebtedness outstanding on the Filing Date to the extent such Indebtedness has been assumed by Borrower and in accordance with the Operating Plan and then only if lenders thereunder have (x) agreed to the deferral described in Section 5.02(f) or such other deferral arrangements as may have been disclosed to and approved by the Required Lenders as provided in Section 5.02(f), and (y) agreed to the rental reductions and deferrals described in Section 5.04(r) or such other arrangements as may have been disclosed to and approved by the Lenders as provided in Section 5.04(r) and, in each case, the same is in full force and effect, provided -------- that, except as expressly set forth on Schedule 19 with respect to particular 1110 Indebtedness secured by particular aircraft, the foregoing amounts shall not include any amounts payable or accruing after or by reason of the return, redelivery or repossession of the aircraft which secures any 1110 Indebtedness, and provided further that the foregoing amounts shall not -------- ------- include any amounts (or portions thereof) that are deferred as provided in Sections 5.02(f) and 5.04(r) (unless and until such payments (or portions thereof) are payable in accordance with the terms of the deferrals referred to in such Sections), and provided -------- further that the foregoing amounts payable with respect ------- to particular 1110 Indebtedness secured by particular aircraft (determined as aforesaid) may be reduced from NY1-53665.4 -99- those provided for in Schedule 19 and the Operating Plan if (I) such reduction (x) is agreed to in writing by the Borrower and the applicable lender, (y) does not involve, require or result in the payment by the Borrower, whether on a particular payment date or over the term of the 1110 Indebtedness or otherwise, of any amount or amounts in excess of those otherwise provided for in Schedule 19 and the Operating Plan, and (z) does not, cannot and will not result in a Default or an Event of Default, and (II) the agreement relating to such reduction, together with such other documents and information reasonably requested by the Required Lenders, has been reviewed by the Required Lenders and approved by the Required Lenders for purposes of ensuring compliance with the provisions of this Section 8.08(iv) (it being understood and agreed that the approval rights of the Required Lenders shall be limited to such purposes), (v) payments in respect of Existing Secured Debt from the proceeds of Asset Sales to the extent such Asset Sales are permitted in accordance with the terms of this Agreement), (vi) payments in respect of prepetition obligations owing to Persons who because they are not citizens of, or resident in, the United States are not subject to the jurisdiction of the Bankruptcy Court not to exceed $4,800,000 in aggregate amount at any time after the Effective Date and to the extent provided for in the Operating Plan (as defined in the Original Credit Agreement at all times prior to the Amendment Effective Date, the First Amended and Restated Credit Agreement at all times prior to the Second Amendment Effective Date, the Second Amended and Restated Credit Agreement at all times prior to the Third Amendment Effective Date and this Agreement at all times after the Third Amendment Effective Date), (vii) payments of interest and payments of other amounts not exceeding $53,015 per month under Existing Secured Debt with respect to property necessary for the Borrower's operations in accordance with the Operating Plan approved by the Bankruptcy Court for adequate protection required under Sections 362 and 363 of the Bankruptcy Code, (viii) payments not exceeding $2,000,000 in aggregate amount at any time after the Effective Date which are made in accordance with the Operating Plan (as defined in the Original Credit Agreement at all NY1-53665.4 -100- times prior to the Amendment Effective Date, the First Amended and Restated Credit Agreement at all times prior to the Second Amendment Effective Date, the Second Amended and Restated Credit Agreement at all times prior to the Third Amendment Effective Date and this Agreement at all times after the Third Amendment Effective Date) in respect of prepetition obligations (including any such payments required pursuant to order of the Bankruptcy Court and any such payments in respect of the Borrower's leasehold interest in Real Property), and (ix) scheduled payments of principal and interest under Existing Secured Debt not otherwise described in the preceding clauses (i) through (viii) which (A) do not exceed $55,000,000 in principal, plus interest thereon, during 1993, and $21,000,000 in principal, plus interest thereon, during 1994, and (B) are made in accordance with the Operating Plan on a monthly basis without increase in any monthly payment by more than 5% of the monthly payment provided for in the Operating Plan, and, in each case, only so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower will not pay or apply to the Bankruptcy Court for the authority to (w) assume or make any payments (including, without limitation, for settlement payments) in respect of any leases of real or personal property and executory contracts except for leases and executory contracts (1) entered into after the Filing Date or (2) which do not relate to aircraft and have been or will be assumed, and in each case in accordance with the Operating Plan on a monthly basis without increase in any monthly payment by more than 5% of the monthly payment provided for in the Operating Plan, (x) make any payment or prepayment on or redemption or acquisition for value (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) of any Indebtedness of the Borrower incurred or created prior to the Filing Date, (y) pay any interest on any Indebtedness or other obligations of the Borrower incurred or created prior to the Filing Date (whether in cash, in kind securities or otherwise) or (z) pay any amounts with respect to trade or ordinary course of business payables or other obligations (other than payments contemplated under the Operating Plan pursuant to and authorized by the Bankruptcy Court pursuant to its orders styled (A) "Order Authorizing Payment or Honoring of Prepetitions Obligations to America West Ticketholders, Other Airlines With Whom America West Has NY1-53665.4 -101- Interline Arrangements, Travel Agents, Clearing Houses, Tour Service Providers, Foreign Vendors, Fuel Suppliers, and Other Essential Suppliers" dated June 27, 1991; (B) "Order Authorizing Payment of Prepetition Wages, Salaries and Commissions, Employee Business Expense Reimbursement Contributions to Employee Benefit Plans, and other Employee Benefits" dated June 27, 1991; (C) "Order Authorizing Payment on Honoring of Certain Prepetition Claims of Outside Mechanics and Repairmen" dated June 27, 1991; and (D) any amended orders or further orders with respect to the matters addressed in the orders listed above) of the Borrower incurred or created prior to the Filing Date. Nothing in this Section shall prevent the Borrower from paying post- petition trade payables (including required utility deposits and aircraft maintenance) or post-petition accrued expenses arising in the ordinary course of business. 8.09 Transactions with Affiliates. The Borrower ---------------------------- will not, and will not apply to the Bankruptcy Court for the authority to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of the Borrower, other than on terms and conditions substantially as favorable to such Person as would be obtainable by such Person at the time in a comparable arm's-length transaction with a Person other an Affiliate. Nothing in this Section 8.09 shall prohibit any transactions permitted under Sections 8.05 and 8.06. 8.10 Subsidiaries. The Borrower will not ------------ establish, create, permit to exist or acquire any Subsidiary. 8.11 Chapter 11 Claims. Except as expressly ----------------- permitted by Section 8.05(vi), the Borrower will not apply to the Bankruptcy Court for the authority to incur, create, assume, suffer or permit any administrative expense claim under Section 364, 503 or 507 of the Bankruptcy Code, Lien against the Borrower or its property or other assets in the Case to be pari passu with, or senior to, the Obligations ---- ----- and the Liens of the Collateral Agent and Secured Creditors hereunder, except for the Permitted Expenses. 8.12 Final Extension Loan Order. The Borrower -------------------------- shall cause, on or prior to October 8, 1993, the Final Order to have been entered and to be in full force and effect. 8.13 Conversion to Chapter 7. The Borrower shall ----------------------- not without giving the Lenders 10 Business Days prior written notice, apply to the Bankruptcy Court to convert the Case to a case under Chapter 7 of the Bankruptcy Code pursuant to Section 1112(a) of the Bankruptcy Code. After NY1-53665.4 -102- giving the Lenders such notice, the Borrower shall take all actions requested by the Lenders in connection with the protection of the Collateral and the security interests therein securing the Obligations. 8.14 Operation of Specified Aircraft/Engines. --------------------------------------- The Borrower shall not (i) operate any Specified Aircraft and Engines outside the United States, Canada, Mexico or Japan, except for occasional other foreign use on charters where the pilots used are the pilots of the Borrower and all operational control and possession remains with the Borrower and maintenance and insurance continue to be provided by the Borrower, or lease the same to any other Person, or (ii) (except as otherwise agreed in writing by the Required Lenders) allow any Specified Aircraft and Engines to undergo any major maintenance or structural work by any Person other than employees of the Borrower or an FAA certified repair station in the United States the location of which is set forth in Annex B to the Security Agreement (so long as it shall have no Lien rights against any Collateral except for Liens subordinate to the Liens in favor of the Collateral Agent contemplated hereunder to the extent (if any) provided for in the Bankruptcy Code) or (iii) (except as otherwise agreed in writing by the Required Lenders) allow any parts covered by the Aircraft/Engine, Mortgage or other Collateral covered by the Security Agreement to be located any where other than the locations provided for in such Security Document. 8.15 Operating Plan Covenants. The Borrower ------------------------ shall: (a) Aircraft. Not have in its fleet on or after -------- the Third Amendment Effective Date in excess of 86 aircraft (exclusive of aircraft under leases entered into in accordance with or pursuant to the Put Agreement or the Kawasaki Put Agreement or any amendment or modification to either thereof which is referred to in Section 5.04). (b) Operating Profit/Loss. Cause its "operating --------------------- loss" or "operating profit" to be not greater in the case of an operating loss and not less in the case of an operating profit than (i) $7.5 million more in the case of a loss or $7.5 million less in the case of a profit than that projected in the Operating Plan for any calendar month including in any applicable month operating profit for the cumulative number of prior months in such period in excess of that projected for such period on a cumulative basis, and (ii) $15 million more in the case of a loss or $15 million less in the case of a profit than that projected in the Operating Plan for any quarter ending March 31, June 30, NY1-53665.4 -103- September 30 or December 31. Operating profit and operating loss have the same meanings set forth in the Operating Plan and shall be calculated in the same manner as in the Operating Plan. (c) Net Income/Loss. Cause its "net income" or --------------- "net loss" to be not less in the case of income or more in the case of loss by the same applicable variance amount set forth in clause (b) above than the amount projected in the Operating Plan for such monthly or quarterly period described in clause (b) above after, as the case may be, adjusting the projected net losses during each such period by excluding losses resulting from provisions for pre- petition claims made in the Case and other losses and write- offs which result from the Case which do not at any time result in a cash expenditure by the Borrower. Net income and net loss shall have the meanings set forth in the Operating Plan and shall be calculated in the same manner as in the Operating Plan. (d) Cash Balance. Maintain "net available cash" ------------ (which term shall have the same meaning as set forth in the Operating Plan and shall be calculated in the same manner as in the Operating Plan, but shall in any event exclude all deposits, advance payments not enumerated on Schedule 20, holdbacks, reserves, cash collateral and other amounts held by Persons other than the Borrower and all other cash to which the Borrower's access is legally restricted in any way except that cash and Cash Equivalents in or to the credit of the Investment Account shall be included in "net available cash") as of the end of each day occurring after the Third Amendment Effective Date in an amount not less than the sum of (i) $55,000,000, (ii) the aggregate amount of any Net Proceeds of the Slot Collateral (or any part or portion thereof) and/or the Engine Collateral (or any part or portion thereof) theretofore required to be deposited in the Investment Account pursuant to Section 4.02(ii), (iii) or (v), and (iii) if such day is a day other than a day on which the Loans are repaid to the full extent required pursuant to Section 4.02(ii), the aggregate amount of the Net Proceeds of Asset Sales that are required to be applied to the repayment of the Loans pursuant to Section 4.02(ii) but that have not been so applied; and in the event that as of the end of any day occurring after the Third Amendment Effective Date, the amount of "net available cash" exceeds $125,000,000, notify the Lenders as provided in Section 7.01(n) and, if applicable, prepay the Loans as provided in Section 4.02(iv). The amount of "net available cash" required to be maintained pursuant to this Section 8.15(d) on a given day is referred to herein as the "Cash Covenant ------------- Amount" for such day. Notwithstanding anything herein which ------ NY1-53665.4 -104- may be to the contrary and without creating any obligation on the part of any Lender to extend, or to consent to the extension of, the Maturity Date, the Cash Covenant Amount for each day occurring after the Maturity Date shall be determined simultaneously with, or prior to, any extension of the Maturity Date. (e) Investment Account Balance. Maintain cash -------------------------- and Cash Equivalents on deposit in the Investment Account as of the end of each day occurring after the Third Amendment Effective Date in an amount not less than the sum of (i) (a) $36,390,000 if such day is a day occurring on or prior to December 30, 1993, or (b) $41,390,000 if such day is a day occurring after December 30, 1993, (ii) the aggregate amount of any Net Proceeds of the Slot Collateral (or any part or portion thereof) and/or the Engine Collateral (or any part or portion thereof) theretofore required to be deposited in the Investment Account pursuant to Section 4.02(ii), (iii) or (v), (iii) if such day is a day other than a day on which Loans are repaid to the full extent required pursuant to Section 4.02(ii), the aggregate amount of the Net Proceeds of Asset Sales that are required to be applied to the repayment of Loans pursuant to Section 4.02(ii) but that have not been so applied, and (iv) the aggregate amount of all increases in the Investment Account Minimum theretofore required and effective pursuant to Section 4.02(i). The amount of cash and Cash Equivalents required to be on deposit in the Investment Account on a given day pursuant to this Section 8.15(e) is referred to herein as the "Investment Account Minimum" for such day. Notwithstanding -------------------------- anything herein which may be to the contrary and without creating any obligation on the part of any Lender to extend, or to consent to the extension of, the Maturity Date, the Investment Account Minimum for each day occurring after the Maturity Date shall be determined simultaneously with, or prior to, any extension of the Maturity Date. 8.16 Slots and Routes. Except in the case of ---------------- Slots and Routes subject to an Asset Sale permitted in accordance with this Agreement, the Borrower shall not fail to take all actions necessary or, in the reasonable judgment of the Collateral Agent or Required Lenders, advisable in order to maintain the value and utility of its respective Slots and Routes. In addition to any other remedies for a violation of this Section 8.16, if the Borrower does not utilize any Slots in a manner, and with a degree of frequency, needed to assure their continued status as assets of the Borrower, then the Collateral Agent shall be entitled (but shall not be required) to use or contract for the use of such Slots so that same are not forfeited until such time as the Borrower determines to fully utilize same or until NY1-53665.4 -105- same are sold by the Collateral Agent pursuant to the exercise of its rights pursuant to the Security Documents. 8.17 Seizures. The Borrower shall not cause, -------- permit or suffer to occur any seizure or similar restraint of any aircraft or other assets owned or leased by the Borrower intended to be used or operated under and in accordance with the Operating Plan. 8.18 ERISA. The Borrower shall not, and shall ----- not permit any member of the Controlled Group to: (a) engage in any transaction in connection with which the Borrower or any member of the Controlled Group could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code; (b) terminate any employee benefit plan within the meaning of Section 3 of ERISA in a manner, or take any other action, which could result in any liability of the Borrower or any member of the Controlled Group to the PBGC. (c) fail to make full payment when due of all amounts which, under the provisions of any Pension Plan, the Borrower or any member of the Controlled Group is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency, whether or not waived, with respect to any Pension Plan; (d) permit the current value of all vested accrued benefits under all Pension Plans which are subject to Title IV of ERISA to exceed the current value of the assets of such Pension Plans allocable to such vested accrued benefits; or (e) fail to make any payments to any Multiemployer Plan that the Borrower or any member of the Controlled Group may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto. As used in this Section 8.18, the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Code, the term "accrued benefit" has the meaning specified in Section 3 of ERISA and the term "current value" has the meaning specified in Section 4062(b)(1)(A) of ERISA. NY1-53665.4 -106- SECTION 9. EVENTS OF DEFAULT. ----------------- Upon the occurrence of any of the following specified events (each an "Event of Default"): ---------------- 9.01 Payments. The Borrower shall (i) default in -------- the payment when due of any payment of principal of its Loans or Notes or (ii) default, and such default shall continue for at least two Business Days, in any payment of interest on its Loans or any Fees or any other amounts owing by it hereunder or the Credit Documents; or 9.02 Representations, etc. Any representation, --------------------- warranty or statement made by the Borrower herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect when made; or 9.03 Covenants. The Borrower shall (i) default --------- in the due performance or observance by it of any term, covenant or agreement contained in Section 7.01(d)(i), 7.08, 7.10, 7.11 or Section 8 or in any Security Document or (ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Sections 9.01 and 9.02 and clause (i) of this Section 9.03) contained in this Agreement or any other Credit Document and such default shall continue unremedied for a period of 15 days after written notice to the Borrower and each Official Committee by the Administrative Agent or the Required Lenders; or 9.04 The Case, etc. -------------- (a) The Case shall be dismissed or converted to a case under Chapter 7 of the Bankruptcy Code; a Chapter 11 trustee shall be appointed in the Case; or an application shall be filed by the Borrower for the approval of, or there shall arise, (i) any claims for recovery for amounts under Section 506(c) of the Bankruptcy Code arising pursuant to a final, nonappealable order of the Bankruptcy Court from the preservation or disposal of Collateral or (ii) any other administrative expense claim (except for the Permitted Expenses and except as expressly permitted by Section 8.05(vi), having any priority over, or being pari passu ---- ----- with, the administrative expenses priority of the Obligations in the Case; or (b) The Bankruptcy Court shall enter an order granting relief from the automatic stay applicable under Section 362 of the Bankruptcy Code to the holder or holders NY1-53665.4 -107- of any security interest in any assets which constitute Designated Collateral or are otherwise not expressly contemplated to be disposed of or returned by the Borrower under the Operating Plan of the Borrower and allowing such holder or holders to foreclose or otherwise realize upon any such security interests; or (c) An order of the Bankruptcy Court shall be entered in the Case appointing an examiner with powers beyond investigatory powers under Section 1106(b) of the Bankruptcy Code; or (d) An order of the Bankruptcy Court or any other court shall be entered amending, supplementing, staying, vacating or otherwise modifying any of the Orders, provided, -------- that no Event of Default shall occur under this clause (d) to the extent that any such amendment, supplement or other modification is made in compliance with this Agreement and is not adverse, in the sole and absolute judgment of the Required Lenders, to the rights and interests of the Lenders under this Agreement and the other Credit Documents; or 9.05 Credit Documents and Kawasaki Credit ------------------------------------ Agreement. Any Credit Document shall, except in accordance --------- with its terms, cease to be in full force and effect, any Lien purported to be created by any Credit Document or any of the Orders in any of the Collateral purported to be covered thereby shall, for any reason, cease to be valid and perfected with the priority contemplated hereby or the Borrower or any Official Committee shall contest, deny or seek to disaffirm any of the Borrower's obligations under any Credit Document, or, on any date which is prior to the Maturity Date, any principal of or interest on any loan outstanding under the Kawasaki Credit Agreement shall be paid or prepaid without the written consent of the Required Lenders (not including Kawasaki) or any term or provision of Section 7, 8 or 10 of the Kawasaki Credit Agreement (as in effect on the Amendment Effective Date) or of the proviso at the end of Section 9 of the Kawasaki Credit Agreement (as in effect on the Amendment Effective Date) shall be amended without the written consent of the Required Lenders (not including Kawasaki), provided that a good faith dispute -------- regarding the factual existence of an Event of Default shall not be considered to be an Event of Default under this Section 9.05; or 9.06 Judgments. --------- (a) One or more judgments as to a post-petition liability shall be entered against the Borrower in an amount in the aggregate (to the extent not paid or fully covered NY1-53665.4 -108- (subject to a deductible not in excess of 10% of such liability) by insurance) of (i) $2,500,000 or more outstanding at any one time in regard to such liability constituting or giving rise to an administrative expense claim in the Case (not having priority over, or being pari ---- passu with, the administrative expenses priority of the ----- Obligations in the Case), or (ii) $250,000 or more outstanding at any one time in regard to any other such liability, and either (x) enforcement by any creditor upon such judgments occurs or is authorized pursuant to order of the Bankruptcy Court or (y) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgments, by reason of a pending appeal or otherwise, shall not be in effect; or (b) Any non-monetary judgment or order with respect to a post-petition event shall be rendered against the Borrower which could reasonably be expected to (i) cause a material adverse change in the condition (financial or otherwise), business, operations or properties or other assets of the Borrower, (ii) have a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document, or (iii) have a material adverse effect on the Collateral (including, without limitation, the value or transferability thereof) or the rights and remedies of the Administrative Agent, the Collateral Agent or any Lender under any Credit Document, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 9.07 GPA Agreements/Kawasaki Agreements. (i) Any ---------------------------------- of the GPA Agreements or the Kawasaki Agreements is terminated, or purported in writing to be terminated, or otherwise ceases to be in full force and effect other than pursuant to an express termination thereof by the applicable GPA Entity or by Kawasaki, as the case may be (except as a result of the Borrower's breach thereunder or an "Event of Default" thereunder), or an "Event of Default" (other than an "Event of Default" which consists of the existence of the Case) under and as defined in any of the GPA Agreements or the Kawasaki Agreements (other than the Kawasaki Credit Agreement) occurs and continues thereunder; or (ii) an order of the Bankruptcy Court or any other court is entered amending, supplementing, staying, vacating or otherwise modifying the GPA Order or the Kawasaki Order to the extent adverse, in the sole and absolute judgment of the GPA Entities or Kawasaki, as the case may be; or (iii) the Borrower or any Person (including, without limitation, an Official Committee) acting by or on behalf of the Borrower or such Person, shall contest, deny or seek to disaffirm the NY1-53665.4 -109- Borrower's or its obligations under any GPA Agreement or any Kawasaki Agreement; or 9.08 Governance. The By-Laws or the Certificate ---------- of Incorporation of the Borrower shall be amended or modified after the Third Amendment Effective Date without the prior written consent of the Required Lenders (which consent may be withheld in their sole and absolute discretion); or the Borrower or the Board of Directors or the stockholders of the Borrower shall take or authorize any action in contravention of the By-Laws or the Certificate of Incorporation of the Borrower or the Amended and Restated Management Letter Agreement, in any case, without the prior written consent of the Required Lenders (which consent may be withheld in their sole and absolute discretion); or for any reason, without the prior written consent of the Required Lenders (which consent may be withheld in their sole and absolute discretion), the membership of the Board of Directors of the Borrower shall not be in compliance with any term, condition or provision of the second paragraph of the Amended and Restated Management Letter Agreement; or 9.09 Casualties. Any "Event of Loss" as defined ---------- in the Aircraft/Engine Mortgage shall occur with respect to any aircraft or engine or parts covered thereby (without giving effect to the grace periods contained in such definitions) or any other casualty with respect to any other Designated Collateral shall occur and the insurer of such property shall not have paid the claim on such loss in full within 90 days of such Event of Loss; or 9.10 ERISA. Any Pension Plan maintained by the ----- Borrower or any member of the Controlled Group shall be terminated within the meaning of Title IV of ERISA or a trustee shall be appointed by an appropriate United States district court to administer any Pension Plan, or the PBGC shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan if as of the date thereof the Borrower's liability or any member of the Controlled Group's liability (after giving effect to the tax consequences thereof) to the PBGC for unfunded guaranteed vested benefits under the Pension Plans not covered by insurance exceeds the then current value of assets accumulated in such Pension Plan (or in the case of a termination involving the Borrower or any member of the Controlled Group as a "substantial employer" (as defined in Section 4001(a)(2) of ERISA)) the withdrawing employer's proportionate share of such excess; or the Borrower or any member of the Controlled Group as employer under a Multi- employer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the Plan sponsor NY1-53665.4 -110- of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability; or 9.11 Other Indebtedness. Any "event of default" ------------------ under the terms of any Indebtedness permitted by Section 8.05(vi) or Section 8.05(vii), or other similar event or condition which under the terms thereof would permit any holder of such Indebtedness or Trustee on behalf of such holder, to accelerate or require mandatory prepayment of such Indebtedness, occurs and is continuing; or 9.12 Change of Control. The acquisition, whether ----------------- directly or indirectly, by any Person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (other than an employee benefit or stock ownership plan of the Borrower) of more than 30% of the voting stock of the Borrower shall have occurred; THEN, and in any such event, and at any time thereafter if any Event of Default shall then be continuing and without further order of or application to the Bankruptcy Court, the Administrative Agent shall upon the written request of the Required Lenders or, in the case of an Event of Default described in Section 9.01, 9.04 (except clause (c) thereof), 9.05 or 9.07 any Lessor Lender (but in each case, only to the extent the respective Event of Default is adverse with respect to such Lessor Lender or its Obligations), without notice to the Borrower, take any or all of the following actions, without prejudice to any other rights of the Administrative Agent, any Lender or the holder of any Note to enforce its claims against the Borrower hereunder, under the other Credit Documents or at law or in equity: (i) declare the principal of and any accrued interest in respect of any and all Loans and all other Obligations owing hereunder or under any other Credit Document to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower; (ii) instruct the Collateral Agent to exercise any rights or remedies in its capacity as Collateral Agent under the Credit Documents, including, without limitation, to sell Collateral, and to set off and apply any amounts in or to the credit of any account to the Obligations (except for such cash as may be required to pay unpaid Permitted Expenses then outstanding); and (iii) terminate the ability of the Borrower to maintain Loans hereunder, whereupon such ability shall forthwith terminate immediately and the Borrower shall repay all Loans, unpaid accrued interest and other Obligations owing hereunder or under any other Credit NY1-53665.4 -111- Document; provided, however, that prior to taking any action -------- ------- described in the preceding clause (ii), other than any action which precludes the withdrawal by or for the benefit of the Borrower of any funds from the Investment Account, the Concentration Account or any other account referred to in the Initial Cash Management Agreement (but which does not constitute set off against such funds), the Administrative Agent, the Collateral Agent or such Lessor Lender, as the case may be, shall have given to the Borrower and each Official Committee not less than two Business Days' prior written notice thereof; provided further, however, that -------- ------- ------- promptly after taking any action which precludes the withdrawal by or for the benefit of the Borrower of any funds from the Investment Account, the Concentration Account or any other account referred to in the Initial Cash Management Agreement, the Administrative Agent, the Collateral Agent or such Lessor Lender, as the case may be, shall give to the Borrower and each Official Committee written notice thereof; and provided further, however, that -------- ------- ------- the failure to give any of the foregoing notices shall not impair or otherwise affect any action taken pursuant to the preceding clause (ii); and provided further, however, that -------- ------- ------- notwithstanding any provision of this Agreement or the Security Documents which may be to the contrary, the Borrower may, without further order of the Bankruptcy Court or further consent of the Required Lenders, use amounts on deposit in the Concentration Account and/or amounts on deposit in the Investment Account which are in excess of the Section 7.10(c) Amount, during the period of two Business Days after the taking by the Administrative Agent, the Collateral Agent or any Required Lender of any action which (but for this proviso) would preclude the withdrawal by or for the benefit of the Borrower of such amounts, for the purpose of making such payments as (i) are necessary (a) to avoid immediate and irreparable harm to property of or in the possession of the Borrower, and/or (b) to protect the public health and safety, and (ii) do not exceed in the aggregate $2,000,000; and provided further, however, that -------- ------- ------- notwithstanding any provision of this Agreement or the Security Documents which may be to the contrary, the Borrower may, without further order of the Bankruptcy Court or further consent of the Required Lenders, use amounts on deposit in the Concentration Account and/or amounts on deposit in the Investment Account which are in excess of the Section 7.10(c) Amount for the purpose of making such payments as (i) are claimed against the Borrower by (present or former) directors of the Borrower for reimbursement of the costs of defending claims against such directors which are not covered by directors' and officers' liability insurance, and (ii) do not exceed $100,000 in the aggregate; and provided further, however, that the Borrower shall use -------- ------- ------- NY1-53665.4 -112- amounts on deposit in the Concentration Account for the purpose described in the next preceding provisos prior to using amounts on deposit in the Investment Account for such purpose. Nothing contained herein or in any of the Security Documents shall be deemed to impair or restrict the right of the Borrower to apply to the Bankruptcy Court, upon motion, notice and hearing, to use cash collateral, other than the Section 7.10(c) Amount, subject to and in accordance with the applicable provisions of the Bankruptcy Code (it being acknowledged that, pursuant to the Orders, the Borrower is expressly prohibited from seeking to use cash collateral on deposit in the Investment Account which is not in excess of the Section 7.10(c) Amount). If any Lessor Lender directs the Administrative Agent to take the actions described in clause (i) of the preceding sentence, then such Lessor Lender may, except as provided in clause (iii) of the proviso to Section 3.03(b) of the Agency Agreement, instruct the Administrative Agent and the Collateral Agent as to the disposition and other action to be taken in the exercise of remedies pursuant to the Security Documents, provided that -------- the Required Lenders may at any time furnish such instruc- tions with respect thereto (although the Administrative Agent shall follow all instructions received from the respective Lessor Lender until it receives any additional or contrary instructions from the Required Lenders with respect thereto) so long as such instructions by the Required Lenders will not have the effect of materially delaying such disposition or other action, and the Administrative Agent and the Collateral Agent shall not incur any liability from relying on any such instructions of any Lessor Lender or the Required Lenders, as the case may be. SECTION 10. MISCELLANEOUS. ------------- 10.01 Payment of Expenses, etc. The Borrower ------------------------ agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of- pocket costs and expenses of the Lenders party hereto on the Third Amendment Effective Date and the Administrative Agent and the Collateral Agent and their designees, or reimburse each of them therefor, in connection with the preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein, and the ongoing administration thereof (including, without limita- tion, the reasonable fees and disbursements of Paul, Hastings, Janofsky & Walker; Milbank, Tweed, Hadley & McCloy; Snell & Wilmer; and of any local counsel, syndication expenses, the cost of inspections, field examinations and collateral audits, the fees and expenses of Simat, Helliesen & Eichner, Inc. (upon application to the NY1-53665.4 -113- Bankruptcy Court), the costs of the receivables management arrangements described in Section 5.01(p)), the reasonable expenses of Franke & Company, Inc. and the reasonable fees and expenses of financial advisors to each of the Lessor Lenders); (ii) pay all reasonable out-of-pocket costs and expenses of the Lenders party hereto on the Third Amendment Effective Date and the Administrative Agent and the Collateral Agent and their designees in connection with any amendment, waiver or consent relating to the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of Paul, Hastings, Janofsky & Walker; Milbank Tweed, Hadley & McCloy; Snell & Wilmer; and of any local counsel) and of the Administrative Agent and the Collateral Agent and their designees and each of the Lenders in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent and the Collateral Agent and their designees and for each of the Lenders); (iii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; (iv) indemnify the Administrative Agent and the Collateral Agent and their designees and each Lender, and its Affiliates, and each of their officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages, or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investiga- tion, litigation or other proceeding (whether or not any such Person is a party thereto) related to the entering into and/or performance of any Credit Document or the use or proposed use of the proceeds of any Loans hereunder or the transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified); and (v) indemnify Kawasaki and its Affiliates, and each of their officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages, or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, the By-Law Letter NY1-53665.4 -114- Agreement, the Management Letter Agreement, the Amended and Restated Management Letter Agreement or any rights of approval with respect to members of the Board of Directors of the Borrower and the Executive Committee of such Board of Directors granted to, or exercised by, the Lenders at any time party to the Original Credit Agreement, the Credit Agreement, the Amended and Restated Credit Agreement and this Agreement (other than Kawasaki) or any act or omission of any Director of the Borrower approved by any such Lenders. 10.02 Survival. All indemnities set forth herein -------- including, without limitation, in Sections 2.09, 2.10, 2.11 and 10.01 shall survive the execution and delivery of this Agreement and the Notes and the making and repayment of the Loans and the termination of this Agreement. 10.03 Notices. Except as otherwise expressly ------- provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier) and mailed (by certified or registered mail), telegraphed, telexed, telecopied, cabled or delivered, if to the Borrower, at its address specified opposite its signature below or in any Credit Document executed by it; if to any Lender, at its address specified on Annex I attached hereto; and if the Administrative Agent, at its Notice Office; or, as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. All such notices and communications shall, when mailed (by certified or registered mail), telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective upon receipt. 10.04 Benefit of Agreement. -------------------- (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective parties hereto and the successors and assigns of the parties hereto, but no benefits hereunder shall inure to or be enforceable by any other Person; provided however, that the -------- ------- Borrower may not assign or transfer any of its rights and obligations under any Credit Document without the prior written consent of all of the Lenders; and provided further, -------- ------- however, that, although any Lender may grant participations in its rights and obligations hereunder and under the Notes, such Lender shall remain a "Lender" for all purposes hereunder (and may not transfer or assign its Loans NY1-53665.4 -115- hereunder) and the participant shall not constitute a "Lender" hereunder; and provided further, however, that no -------- ------- ------- Lender shall grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement except to the extent such amendment or waiver would (i) extend the final maturity of the Loans in which such participant is participating, or reduce the rate of interest or Fees thereon, or reduce the principal amount thereof, or change the date for payment of any such amounts, or increase such participant's participating interest in any Loan over the amount thereof then in effect, or (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, or (iii) consent to the release of all or substantially all of the Collateral or to the release of any cash Collateral if the effect of such release of such cash Collateral is to cause or permit the amount of cash and Cash Equivalents on deposit in or to the credit of the Investment Account to be reduced below an amount equal to 33-1/3% of the aggregate principal amount of the Loans then outstanding. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto and to be monitored solely by the participant and such Lender) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation. (b) Notwithstanding anything to the contrary in Section 10.04(a), (x) any Lender may assign a portion of its Loans and its rights and obligations to any of its Affiliates or to one or more Lenders or any of their Affiliates, and (y) any Lender may assign a portion, in an amount of at least $1 million of its Loans and its rights and obligations hereunder to another Person (including, without limitation, a leasing company or credit corporation) which is not an "air carrier" certificated under Section 401 of the Aviation Act or any Person of which such "air carrier" is a Subsidiary, each of which assignees agrees to become a party to this Agreement as a Lender prior to or after the date thereof by executing an amendment to this Agreement or by executing a supplemental agreement with the assigning Lender, provided that, in the case of each such assignment, (i) at the time it receives a copy of the aforesaid amendment or agreement, together with the processing fee referred to below, Annex I shall be modified by the Administrative Agent to reflect the Loans of such assignee Lender and of the existing Lenders, (ii) the Administrative Agent shall have received from the parties to NY1-53665.4 -116- such assignment a processing fee of $2,500 and (iii) the Borrower shall, if such assignee Lender so requests, issue new Notes to such assignee Lender and to the assigning Lender in conformity with the requirements of Section 2.05 to the extent needed to reflect the revised Loans of the Lenders. To the extent of any assignment pursuant to this Section 10.04(b), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Loans. 10.05 No Waiver; Remedies Cumulative. No failure ------------------------------ or delay on the part of the Administrative Agent, the Collateral Agent or any Lender or any holder of a Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exer- cise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Administrative Agent, or any Lender or the holder of any Note would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent, the Lenders or the holder of any Note to any other or further action in any circumstances without notice or demand. 10.06 Payments Pro Rata. ----------------- (a) Except as otherwise provided in Sections 2.12 and 4.02, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations of the Borrower here- under or under any Credit Document, it shall distribute such payment to the Lenders pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Except as otherwise provided in Sections 2.12 and 4.02, each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, or Facility Fee, of NY1-53665.4 -117- a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash with- out recourse or warranty from the other Lenders an interest in the Obligations of the Borrower to such Lenders in such amount as shall result in a proportional participation by all the Lenders in such amount; provided that if all or any -------- portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 10.07 Calculations; Computations. -------------------------- (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with generally accepted accounting policies and principles consistently applied throughout the periods involved (except as set forth in the notes thereto). (b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a period of 360 days. 10.08 GOVERNING LAW. THIS AGREEMENT AND THE ------------- OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND THE STATE OF NEW YORK. 10.09 Counterparts. This Agreement may be exe- ------------ cuted in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower, the Administrative Agent and each Lender. 10.10 Headings Descriptive. The headings of the -------------------- several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 10.11 Amendment or Waiver. Neither this Agree- ------------------- ment nor any other Credit Document nor any terms hereof or NY1-53665.4 -118- thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Lenders; provided, however, -------- ------- that no such change, waiver, discharge or termination shall, without the written consent of each Lender affected thereby, (i) extend the Maturity Date or alter the amortization schedule of the Loans, or reduce the rate of interest or Fees thereon, or reduce the principal amount thereof, or change the date for payment of any such amounts, or increase the Loans of any Lender over the amount thereof then in effect, (ii) amend, modify or waive any provision of this Section, or Sections 2, 3, 4 (except as permitted by the following proviso to this sentence), 7.02, 7.06, 8.03, 8.05(vi), 8.11, 10.01, 10.04, 10.06, 10.07(b), 10.14 or 10.17 or any provision in the Credit Documents which provides for a determination by all of the Lenders (including the definitions of terms as used in the Sections and provisions referred to in this clause (ii)), (iii) change the definition of Required Lenders or (iv) con- sent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement; and provided further, however, that no such change, waiver, -------- ------- ------- discharge or termination shall, without the written consent of Lenders the principal amount of whose Loans outstanding at the time exceed 85% of the total principal amount of Loans outstanding at the time, permit or result in (a) the amount of cash and Cash Equivalents on deposit in or to the credit of the Investment Account to be reduced below such amount as equals 33-1/3% of the aggregate principal amount of the Loans then outstanding, or (b) the release to the Borrower or other application for a purpose other than, or in a manner inconsistent with, the repayment of Loans as provided in Sections 4.02(ii) and (v), of any portion of the Net Proceeds of an Asset Sale of Designated Collateral which is in excess of 20% of the amount of such Net Proceeds, or (c) the determination as to whether and to what extent Loans should be prepaid pursuant to Sections 4.02(iv) and (v) by reason of any excess of "net available cash" (as such term is defined in Section 8.15(d)) over $125,000,000; and provided further, however, that (i) each Lessor Lender shall -------- ------- ------- have the exclusive right to waive for itself any Event of Default under Section 9.01, 9.04, 9.05 or 9.07 or its right to exercise remedies in respect of such Event of Default, (ii) the rights of the Lessor Lenders under Section 9 may be amended only with the written consent of each Lessor Lender, and (iii) no provision of Section 9.01, 9.04, 9.05 or 9.07 (or the definitions of terms as used therein) may be amended without the written consent of each Lender. The Borrower shall give each Lender a copy of each report, notice or other information furnished to any other Lender pursuant to an express requirement of this Agreement; and the Borrower NY1-53665.4 -119- shall give each Lender written notice of any amendment or waiver of any provision of this Agreement or the other Credit Documents (which notice shall be accompanied by a copy of such amendment or waiver). The Borrower shall give each Official Committee written notice of any material amendment or waiver of any provision of this Agreement. No amendments of the Agency Agreement, or amendments of the other Credit Documents which increase, change or modify the rights or duties of the Administrative Agent, may be made without the consent of the Administrative Agent. No amend- ments of the Agency Agreement, or amendments of the other Credit Documents which increase, change or modify the duties of the Collateral Agent, may be made without the consent of the Collateral Agent. Notwithstanding anything to the contrary contained herein, the modifications contemplated by Section 10.04, to the extent needed to make new Lenders party to this Agreement, shall be permitted in accordance with the terms thereof. Notwithstanding anything to the contrary contained herein, no change, waiver, amendment or modification of this sentence or of Section 2.12 or clauses (ii), (iii), (iv), and (v) of Section 4.02 shall in any case be effective without the prior written consent of GPA Sub. Notwithstanding anything to the contrary contained herein or in the Kawasaki Credit Agreement, if all Obligations shall not have been paid in full on or prior to the Maturity Date, the priority of the lien on and security interest in the Collateral for the benefit of the lenders under the Kawasaki Credit Agreement shall be subject to the prior written consent of each of the Required Lenders (not including Kawasaki). All amendments effected in compliance with this Section 10.11 shall be effective and enforceable against all parties hereto without further application to, or order of, the Bankruptcy Court. 10.12 Domicile of Loans. Except as otherwise ----------------- provided in Section 2.10(a) or 2.11(a), each Lender may transfer and carry its Loans at, to or for the account of any branch, office, or Affiliate of such Lender. 10.13 Confidentiality. Each Lender shall hold --------------- all non-public information furnished by or on behalf of the Borrower in connection with such Lender's evaluation of whether to become a Lender hereunder or obtained pursuant to the requirements of this Agreement, which has been expressly identified as such by the Borrower by the conspicuous designation thereof as "confidential" (collectively, the "Confidential Material"), in accordance with its customary --------------------- procedure for handling confidential information of this nature and in any event may make disclosure reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Loans or NY1-53665.4 -120- participation therein or to its accountants, professional advisors, lawyers, investment bankers and others as required or requested by any Governmental Authority or representative thereof or pursuant to legal process, provided that, unless -------- specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any Governmental Authority or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information, and provided, -------- further, that in no event shall any Lender be obligated or ------- required to return any materials furnished by or on behalf of the Borrower. Each Lender (including the Administrative Agent) agrees that it will not provide to prospective assignees, transferees or participants any of the Confidential Material unless such Person has executed an agreement to be bound by this Section 10.13. 10.14 Set-Off. The Borrower hereby acknowledges ------- and agrees that any participation referred to in this Agreement will give rise to a direct obligation of the Borrower to the participant. The Borrower hereby authorizes the Collateral Agent, the Administrative Agent, each Lender, and each participant, in case of an Event of Default, at any time and from time to time, without notice or demand, to set off and apply all deposits (general, special, custodial or for safekeeping, time or demand, provisional or final) and other property (including, without limitation, money and securities) at any time held by or in the possession of or to the account of the Administrative Agent, the Collateral Agent (including any lock box accounts, the Concentration Account, the Investment Account and any other account or cash Collateral), such Lender or participant, and other obligations at any time owing by the Administrative Agent, the Collateral Agent, such Lender or such participant to or for the credit or account of the Borrower, in each of which deposits, property and other obligations the Collateral Agent, such Lender or such participant for the ratable benefit of the Administrative Agent, and (except to the extent prohibited by the Orders) each Lender is hereby granted a security interest as security for any and all obligations of the Borrower now or hereafter existing under the Credit Documents (irrespective of whether or not the Administrative Agent, the Collateral Agent, such Lender or participant shall have made any demand for payment and although the Borrower's obligations may be contingent and unmatured). The rights of the Administrative Agent, the Collateral Agent, the Lenders and their participants under this Section are in addition to other rights and remedies (including other rights of set-off) which the Collateral NY1-53665.4 -121- Agent, the Lenders or any such participants may have. Promptly after effecting any such set-off, the Collateral Agent shall give the Borrower notice thereof, but a failure to give such notice shall not impair or otherwise affect the effectiveness of the set-off. Notwithstanding any of the foregoing, the Administrative Agent, the Collateral Agent, the Lenders, or any participant shall not in any event set off amounts such that the amounts remaining in all accounts are not sufficient to cover all of the unpaid Permitted Expenses then outstanding. By acceptance of any interest in the Indebtedness of the Borrower outstanding under this Agreement or any rights under any other Credit Document, a participant agrees to share proceeds obtained by it pursuant to the foregoing sentence in accordance with the provisions of this Agreement. 10.15 WAIVER OF JURY TRIAL. THE BORROWER, THE -------------------- ADMINISTRATIVE AGENT AND EACH LENDER HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. The Administrative Agent, each Lender and the Borrower warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with such legal counsel. THIS WAIVER IS IRREVOCABLE, AND CANNOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LOAN DOCUMENTS. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.16 Time of the Essence. Time is of the ------------------- essence as to each provision herein or in the other Credit Documents in which time is a factor. 10.17 Specified Lien Releases. Each of the ----------------------- Administrative Agent and the Secured Creditors agrees that (i) the Collateral Agent shall release its Lien on Collateral consisting of cash to the extent necessary to pay Permitted Expenses, (ii) to the extent expressly provided in the penultimate sentence of Section 8.02, the Lien of the Collateral Agent on the assets described therein shall be released as provided therein and (iii) the Lien of the Collateral Agent shall be released upon the first date (such NY1-53665.4 -122- date, the "Lien Termination Date") upon which all principal --------------------- of, and interest accrued on, the Loans has been repaid in full and all other Obligations have been repaid in full. In determining whether the test set forth in clause (iii) of the immediately preceding sentence has been met, the Collateral Agent shall be entitled to rely upon the Required Lenders in determining whether such test has been met and shall be entitled to refrain from taking any action until it has received a response to its request from the Required Lenders, and upon receiving such response shall be entitled to rely thereon with no liability hereunder. The occurrence of the Lien Termination Date as provided above shall in no event affect the Borrower's obligation to pay any Obligations which thereafter become due and payable, and shall in no event affect the administrative expense priority granted to the Obligations by the Bankruptcy Court. Nothing contained in this Agreement or in any Security Document shall be construed to secure the obligations of the Borrower under the GPA Agreements or the Kawasaki Agreements by the Collateral. 10.18 Administrative Agent; Collateral Agent. In -------------------------------------- acting pursuant to this Agreement and the other Credit Documents, the Administrative Agent and Collateral Agent shall act in the manner, and shall be subject to the rights and duties, provided in the Agency Agreement, the provisions of which are incorporated by reference herein as fully as if the terms thereof were set forth herein in their entirety. Each Person which becomes a Secured Creditor agrees to such provisions, and to the rights and duties of the Administrative Agent and Collateral Agent as set forth in the Agency Agreement, and to the indemnities contained therein, as fully as if said Secured Creditor were an original party thereto. 10.19 Dating and Effectiveness. Although this ------------------------ Agreement is dated as of the date first written above for convenience, the actual dates of execution hereof by the parties hereto are respectively the dates set forth under the signatures hereto, and this Agreement shall be effective on the Third Amendment Effective Date. 10.20 Participation by Commerce and Economic -------------------------------------- Development Commission. Participation by Commerce and ---------------------- Economic Development Commission in the transactions contemplated by this Agreement and the other Credit Documents is subject to the provisions of Arizona Revised Statutes Section 38-511; and by this reference, each of the other Credit Documents to which Commerce and Economic Development Commission is or becomes a party shall be deemed to include a statement to such effect. NY1-53665.4 -123- 10.21 Covenants Do Not Preclude Negotiation of a ------------------------------------------ Plan of Reorganization. Nothing contained in the covenants ---------------------- of the Borrower set forth in Section 8 of this Agreement (including, without limitation, the covenants in Section 8.08 which restrict payments by the Borrower to aircraft lessors and financiers) shall, or shall be construed to, (i) preclude the Borrower from negotiating any plan of reorganization or any financial or other accommodation in anticipation of any plan or reorganization (including, without limitation, any modification of payments by the Borrower to its aircraft lessors or financiers) so long as, without the prior written consent of the Required Lenders, no breach of any of such covenants and no related Default or Event of Default occurs prior to the occurrence of the Maturity Date and the repayment in full of the Loans and the payment in full of all of the other Obligations, or (ii) preclude the Borrower from entering into agreements or other contractual arrangements evidencing the results of such negotiations so long as, pursuant to express terms, such agreements or other contractual arrangements do not and cannot become effective prior to the confirmation of such plan of reorganization and the repayment in full of the Loans and all other amounts payable under the Credit Documents. 10.22 Certain Consents. The Lenders, in their ---------------- capacities as Lenders hereunder, and lenders under the Second Amended and Restated Credit Agreement, hereby consent to (i) the amendment of the By-Laws of the Borrower to delete therefrom Section 4.16 thereof and replace the same with the word "Reserved", and (ii) the actions taken and resolutions adopted by the Board of Directors of the Borrower to eliminate the Executive Committee of the Board of Directors of the Borrower and, in consequence thereof, to terminate all appointments to such Executive Committee. 10.23 Certain Waivers. The Lenders hereby waive --------------- the condition precedent to the Third Amendment Effective Date contained in clause (iii) of Section 5.05(c) that the Lenders receive an opinion of Winthrop, Stimson, Putnam & Roberts covering the United States citizenship of the Borrower and other matters involving the DOT and the FAA; provided, however, that the Borrower agrees that (i) the -------- ------- Borrower shall cause such opinion (in substantially the same form and with substantially the same content as the opinion delivered by such firm on the Second Amendment Effective Date) to be delivered to the Lenders on or before October 8, 1993, and (ii) breach by the Borrower of the covenant contained in the preceding clause (i) shall constitute an Event of Default (with the same effect as if such covenant were referred to in clause (i) of Section 9.03). NY1-53665.4 -124- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the respective dates set forth below. "Borrower" Notice Address: AMERICA WEST AIRLINES, INC. -------------- 4000 East Sky Harbor Blvd. Phoenix, Arizona 85034 Attention: Senior Vice By: _________________________________ President-Finance Title: ______________________________ Date: _______________________________ "Administrative Agent" Notice Office: BT COMMERCIAL CORP., ------------- 14 Wall Street as Administrative Agent New York, New York 10005 Attention: Albert Fischetti By: _________________________________ Title: ______________________________ Date: _______________________________ "Lenders" GPA LEASING USA I, INC. By: _________________________________ Title: ______________________________ Date: _______________________________ GPA LEASING USA SUB I, INC By: _________________________________ Title: ______________________________ Date: _______________________________ NY1-53665.4 -125- KAWASAKI LEASING INTERNATIONAL INC. By: _________________________________ Title: ______________________________ Date: _______________________________ B&B HOLDINGS, INC. d/b/a PHOENIX CARDINALS By: _________________________________ Title: ______________________________ Date: _______________________________ BANK OF AMERICA ARIZONA By: _________________________________ Title: ______________________________ Date: _______________________________ BANK ONE, ARIZONA, N.A. By: _________________________________ Title: ______________________________ Date: _______________________________ COMMERCE AND ECONOMIC DEVELOPMENT COMMISSION By: _________________________________ Title: ______________________________ Date: _______________________________ NY1-53665.4 -126- THE DIAL CORP. By: _________________________________ Title: ______________________________ Date: _______________________________ DMB HOLDING LIMITED PARTNERSHIP By: _________________________________ Title: ______________________________ Date: _______________________________ EL DORADO INVESTMENT COMPANY By: _________________________________ Title: ______________________________ Date: _______________________________ FIRST INTERSTATE BANK OF ARIZONA, N.A. By: _________________________________ Title: ______________________________ Date: _______________________________ PHELPS DODGE CORPORATION By: _________________________________ Title: ______________________________ Date: _______________________________ NY1-53665.4 -127- PHOENIX NEWSPAPERS, INC. By: _________________________________ Title: ______________________________ Date: _______________________________ PHOENIX SUNS LTD. PARTNERSHIP By: _________________________________ Title: ______________________________ Date: _______________________________ NY1-53665.4 -128- ANNEX I ------- List of Loan Amounts and Addresses ---------------------------------- Outstanding Principal Amount of Loans as of the Third Amendment Effective Date -------------- GPA Leasing USA I, Inc. $9,894,424.48 Address: ------- c/o GPA Capital, Incorporated 9 West 57th Street New York, New York 10019 Attention: General Counsel Telephone: (212) 980-3313 Telecopy: (212) 980-6655 GPA Leasing USA Sub I, Inc $48,002,561.42 Address: ------- c/o GPA Capital, Incorporated 9 West 57th Street New York, New York 10019 Attention: General Counsel Telephone: (212) 980-3313 Telecopy: (212) 980-6655 Kawasaki Leasing International Inc. $19,082,287.16 Address: ------- 65 East 55th Street New York New York 10022 Attention: President Telephone: (212) 223-1800 Telecopy: (212) 223-2199 B&B Holdings, Inc. $207,381.08 d/b/a Phoenix Cardinals Address: ------- 8701 S. Hardy Drive Tempe, Arizona 85284 Attention: Mr. William V. Bidwill Telephone: (602) 379-1804 Telecopy: (602) 379-1819 NY1-53665.4 Bank of America Arizona $829,685.74 Address: ------- 101 North First Avenue 31st Floor Phoenix, Arizona 85003 Attention: Mr. David S. Hanna Telephone: (602) 262-4136 Telecopy: (602) 262-4354 Bank One, Arizona, N.A. $1,078,585.97 Address: ------- 36th Floor 241 North Central Avenue Phoenix, Arizona 85004 Attention: Mr. John T. Byrd Telephone: (602) 221-2173 Telecopy: (602) 221-1535 Commerce and Economic $829,685.74 Development Commission Address: ------- 3800 N. Central Avenue Suite 1500 Phoenix, Arizona 85007 Attention: Mr. Jim Tuvell Telephone: (602) 280-1369 Telecopy: (602) 280-1358 The Dial Corp. $1,078,585.97 Address: ------- Dial Tower Phoenix, Arizona 85077-2348 Attention: Mr. F. Edward Lake Telephone: (602) 207-5657 Telecopy: (602) 207-5100 DMB Holding Limited Partnership $207,381.08 Address: ------- 4201 North 24th Street Phoenix, Arizona 85018 Attention: Mr. Drew Brown Telephone: (602) 956-7877 Telecopy: (602) 956-7961 NY1-53665.4 - 2 - El Dorado Investment Company $207,381.08 Address: ------- 400 E. Van Buren, Suite 650 Phoenix, Arizona 85072-2132 Attention: Mr. Gregory S. Anderson Telephone: (602) 252-1450 Telecopy: (602) 252-3444 First Interstate Bank of $1,078,585.87 Arizona, N.A. Address: ------- 100 West Washington Phoenix, Arizona 85003 Attention: Mr. William S. Randall Telephone: (602) 229-4547 Telecopy: (602) 229-4525 Phelps Dodge Corporation $456,335.30 Address: ------- 2600 North Central Avenue Phoenix, Arizona 85004-3014 Attention: Mr. Thomas M. St. Claire Telephone: (602) 234-8131 Telecopy: (602) 234-8150 Phoenix Newspapers, Inc. $456,335.30 Address: ------- 120 East Van Buren Phoenix, Arizona 85004 Attention: Mr. Louis A. (Chip) Weil, III Telephone: (602) 271-8478 Telecopy: (602) 271-8340 Phoenix Suns Ltd. Partnership $207,381.08 Address: ------- 201 East Jefferson, 4th Floor Phoenix, Arizona 85004 Attention: Mr. Jerry Colangelo Telephone: (602) 379-7999 Telecopy: (602) 379-7990 NY1-53665.4 - 3 - EX-10.N(2) 4 FORM OF AMENDED AND RESTATED MANAGEMENT LETTER AGREEMENT AMERICA WEST AIRLINES, INC. 4000 East Sky Harbor Blvd. Phoenix, Arizona 85034 As of September 30, 1993 AMENDED AND RESTATED MANAGEMENT LETTER AGREEMENT TO THE PARTIES LISTED ON SCHEDULE I HERETO Ladies and Gentlemen: Reference is made to the Third Amended and Restated Credit Agreement, dated as of September 30, 1993 (the "Credit Agreement"), among America West Airlines, Inc. (the "Borrower"), the lenders party thereto (collectively, the "Lenders") and BT Commercial Corp., as agent for the Lenders. Except as otherwise defined herein, capitalized terms used herein shall have the meanings stated or ascribed in the Credit Agreement. The Borrower hereby agrees that, at all times prior to the Lien Termination Date, and notwithstanding anything to the contrary in the Restated Bylaws of the Borrower (the "Bylaws"): 1. The Board of Directors of the Borrower (the "Board") shall have no more than ten (10) members. At all times, the composition of the Board shall comply in all respects with the U.S. citizenship requirements of the Federal Aviation Act of 1958, as amended. 2. There shall be (a) five members of the Board (the "Phoenix Directors") who have been designated by the Second Amendment Lenders other than Ansett Worldwide Aviation, U.S.A. (such lenders being referred to herein as the "Phoenix Lenders") for such membership (it being understood that the Phoenix Directors are neither agents nor employees of the Phoenix Lenders), one of which Phoenix Directors shall be the Chairman of the Board as previously designated by the Phoenix Lenders and who shall continue to serve as NY-54719.2 Chairman of the Board until his resignation from the Board, in which event the Chairman of the Board shall be a Phoenix Director who shall be designated by the Phoenix Lenders to serve as the Chairman of the Board or, in the absence of such designation by the Phoenix Lenders, shall be a member of the Board elected by majority vote of the remaining members of the Board, (b) two members of the Board (the "GPA Directors") who have been designated by GPA Leasing USA I, Inc. and GPA Leasing USA Sub I, Inc (the "GPA Lenders") for such membership, (c) one member of the Board (the "Management Director") who shall be the person serving in accordance with the Bylaws as the President and Chief Executive Officer of the Borrower, and (d) two members of the Board (the "Independent Directors") (A) both of whom (i) hold, and have in the past held, no other position in the Borrower, (ii) are not, and have in the past never been, agents or employees of any Lender, and (iii) have significant airline experience and expertise, and (B) one of whom has not been, at any time prior to the Third Amendment Effective Date, a member of the Board; provided in the event that on the Third ________ Amendment Effective Date a suitable person having the qualifications required by the preceding sub-clauses (A) and (B) of this sub-paragraph 2 for one of the Independent Directors has not been identified and indicated a willingness to serve on the Board in such capacity, the position of such Independent Director may remain vacant until the earlier of December 31, 1993 and the date on which such Independent Director is duly elected and appointed by the Board. In the event of any vacancy on the Board, the remaining directors then in office shall, subject to and in accordance with the Bylaws and this Amended and Restated Management Letter Agreement, fill the resulting vacancy on the Board. Attached hereto as Exhibit A are the resolutions adopted by the Board and in full force and effect electing and appointing a director of the Borrower, which resolutions, together with the written resignations of certain directors of the Borrower (copies of which have been provided separately to the Lenders), cause the NY-54719.2 -2- Borrower to be in compliance with the terms and provisions of this sub-paragraph 2 of this Amended and Restated Management Letter Agreement on and as of the Third Amendment Effective Date. 4. The Borrower hereby agrees to advise each member of the Board elected from time to time that a breach or violation of any term of this Amended and Restated Management Letter Agreement by the Borrower (without the prior written consent of the Required Lenders, which consent may be withheld in the sole and absolute discretion of the Required Lenders) shall constitute an Event of Default under the Credit Agreement. [Signature page follows.] NY-54719.2 -3- Kindly indicate your acceptance of the foregoing by executing this letter in the space provided below, whereupon this letter shall become a binding agreement among us as of the date first set forth above, to be governed and construed in accordance with the laws of the State of New York, and to be amended or waived only with the written consent of the Borrower and each of the undersigned Lenders, and to amend and restate (and thereby supercede in its entirety) the Management Letter Agreement (as such term is defined in the Credit Agreement). AMERICA WEST AIRLINES, INC. By: ______________________________ Title: _____________________ Accepted and approved as of the date first set forth above. GPA LEASING USA I, INC. By: _______________________________ Title: ______________________ GPA LEASING USA SUB I, INC By: _______________________________ Title: ______________________ NY-54719.2 -4- B&B HOLDINGS, INC. d/b/a PHOENIX CARDINALS By: _______________________________ Title: _______________________ BANK OF AMERICA ARIZONA By: ________________________________ Title: _______________________ BANK ONE, ARIZONA, N.A. By: ________________________________ Title: _______________________ COMMERCE AND ECONOMIC DEVELOPMENT COMMISSION By: ________________________________ Title: _______________________ THE DIAL CORP. By: ________________________________ Title: _______________________ DMB HOLDING LIMITED PARTNERSHIP By: ________________________________ Title: _______________________ NY-54719.2 -5- EL DORADO INVESTMENT COMPANY By: ________________________________ Title: _______________________ FIRST INTERSTATE BANK OF ARIZONA, N.A. By: ________________________________ Title: _______________________ PHELPS DODGE CORPORATION By: ________________________________ Title: _______________________ PHOENIX NEWSPAPERS, INC. By: ________________________________ Title: _______________________ PHOENIX SUNS LTD. PARTNERSHIP By: ________________________________ Title: _______________________ NY-54719.2 -6- SCHEDULE I GPA Leasing USA I, Inc. c/o GPA Capital, Incorporated 9 West 57th Street New York, New York 10019 GPA Leasing USA Sub I, Inc c/o GPA Capital, Incorporated 9 West 57th Street New York, New York 10019 B&B Holdings, Inc. d/b/a Phoenix Cardinals 8701 S. Hardy Drive Tempe, Arizona 85284 Bank of America Arizona 101 North First Avenue 31st Floor Phoenix, Arizona 85003 Bank One, Arizona, N.A. 36th Floor 241 North Central Avenue Phoenix, Arizona 85004 Commerce and Economic Development Commission 3800 N. Central Avenue Suite 1500 Phoenix, Arizona 85007 The Dial Corp. Dial Tower Phoenix, Arizona 85077-2348 DMB Holding Limited Partnership 4201 North 24th Street Phoenix, Arizona 85018 NY-54719.2 El Dorado Investment Company 400 E. Van Buren, Suite 650 Phoenix, Arizona 85072-2132 First Interstate Bank of Arizona, N.A. 100 West Washington Phoenix, Arizona 85003 Phelps Dodge Corporation 2600 North Central Avenue Phoenix, Arizona 85004-3014 Phoenix Newspapers, Inc. 120 East Van Buren Phoenix, Arizona 85004 Phoenix Suns Ltd. Partnership 201 East Jefferson, 4th Floor Phoenix, Arizona 85004 NY-54719.2 EXHIBIT A AMERICA WEST AIRLINES, INC. BOARD OF DIRECTORS RESOLUTIONS ELECTION OF A DIRECTOR (Adopted September 28, 1993) WHEREAS, as a condition precedent to the extension of the maturity of the Corporation's debtor-in-possession financing pursuant to the Third Amended and Restated Credit Agreement, dated as of September 30, 1993 (the "Extended Credit Agreement"), among the Corporation, the lenders party thereto (the "Lenders") and BT Commercial Corporation, as Administrative Agent, the Corporation is entering into and agreeing to the terms and provisions of an Amended and Restated Management Letter Agreement, dated as of September 30, 1993 (the "Amended and Restated Management Letter Agreement"), among the Corporation and certain of the Lenders; WHEREAS, in connection with the Extended Credit Agreement and the Amended and Restated Management Letter Agreement, there will arise two vacancies on the Board of Directors of the Corporation; and WHEREAS, the directors of the Corporation desire to fill one of the vacancies on the Board of Directors of the Corporation, effective upon the arising of such vacancy; NOW, THEREFORE, BE IT RESOLVED, that, effective upon the arising of a vacancy on the Board of Directors of the Corporation (by reason of the effectiveness of the resignation of Tibor Sallay), James C. Clarke be, and hereby is, elected to the Board of Directors of the Corporation (and shall serve until such time as his successor shall be duly elected and qualified), with the result that the membership of the Board of Directors of the Corporation and the class and the status for purposes of the Amended and Restated Management Letter Agreement of each member of the Board of Directors of the Corporation shall be as follows: NY-54719.2
Management Name Class Letter Status ---- ----- ------------- John R. Norton 1992 Phoenix Director Samuel L. Eichenfield 1992 Phoenix Director Fred Bradley 1992 Independent Director James M. King 1993 GPA Director O. Mark De Michelle 1993 Phoenix Director Richard C. Kraemer 1993 Phoenix Director William A. Franke 1994 Phoenix Director Michael J. Conway 1994 Management Director James C. Clarke 1994 GPA Director
NY-54719.2 -2- EX-10.N(3) 5 FORM OF AMENDMENT-AMENDED AND RESTATED MANAGEMENT LETTER AGREEMENT AMERICA WEST AIRLINES, INC. 4000 East Sky Harbor Blvd. Phoenix, Arizona 85034 February 8, 1994 TO THE PARTIES LISTED ON SCHEDULE I HERETO Re: Amendment to Amended and Restated Management Letter Agreement; Consent to Amendment of Bylaws Ladies and Gentlemen: Reference is made to the Amended and Restated Management Letter Agreement, dated as of September 30, 1993 (the "Management Letter Agreement"), among America West Airlines, Inc. ("America West") and the parties listed on Schedule I hereto (collectively, the "Management Letter Agreement Lenders"). Except as otherwise defined herein, all capitalized terms used herein shall have the respective meanings stated or ascribed in the Management Letter Agreement. America West desires that clause (a) of the first sentence of paragraph 2 of the Management Letter Agreement be amended, effective as of December 31, 1993, by causing the final sub-clause thereof which begins with the words "in which event" to read as follows: in which event the Chairman of the Board shall be a member of the Board elected by the vote of at least two-thirds (2/3) of the remaining members of the Board America West further desires that clause (c) of the first sentence of paragraph 2 of the Management Letter Agreement be amended, effective as of December 31, 1993, to read in its entirety as follows: NY-66576.3 (c) one member of the Board (the "Management Director") who (i) at all times prior to February 1, 1994 shall be the person then serving in accordance with the Bylaws as the President and Chief Executive Officer of the Borrower or, if no person shall then be serving as the President and Chief Executive Officer of the Borrower, the person most recently having served as the President and Chief Executive Officer of the Borrower, and (ii) at all times on and after February 1, 1994 shall be the person then serving in accordance with the Bylaws as the Chief Operating Officer of the Borrower; provided, -------- however, that there may be a vacancy in the ------- position of the Management Director during the period between February 1, 1994 and February 8, 1994. The amendments to the Management Letter Agreement set forth in the preceding paragraphs of this letter are referred to herein, collectively, as the "Management Letter Agreement Amendments". In addition, America West requests the consent of the Management Letter Agreement Lenders, acting as Required Lenders under the Credit Agreement, to the amendment of the Bylaws, effective as of December 31, 1993, to read in their entirety as set forth in Exhibit A attached hereto (such amendment of the Bylaws being referred to herein as the "Bylaw Amendment"). Each Management Letter Agreement Lender is requested to indicate its agreement with the Management Letter Agreement Amendments and its consent to the Bylaw Amendment by signing this letter in the space provided below (which signature may be in any number of counterparts and by different Management Letter Agreement Lenders on separate counterparts, each of which counterparts, when signed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument). Upon signature by all of the Management Letter Agreement Lenders, (i) the Management Letter Agreement Amendments shall be deemed effective as of December 31, 1993, (ii) except as specifically amended by the Management Letter Agreement Amendments, the Management Letter Agreement shall remain in full force and effect as in existence on December 31, 1993 and shall be deemed to be ratified and confirmed in all respects by America West and the Management Letter Agreement Lenders, and (iii) the NY-66576.3 -2- Management Letter Agreement Lenders, acting as Required Lenders under the Credit Agreement, shall be deemed to have consented to the Bylaw Amendment effective as of December 31, 1993. Very truly yours, AMERICA WEST AIRLINES, INC. By: ___________________________ Title: ____________________ Agreed and consented as of the dates set forth above. GPA LEASING USA I, INC. By: ________________________ Title: _________________ GPA LEASING USA SUB I, INC By: ________________________ Title: _________________ B&B HOLDINGS, INC. d/b/a PHOENIX CARDINALS By: ________________________ Title: _________________ BANK OF AMERICA ARIZONA By: ________________________ Title: _________________ NY-66576.3 -3- BANK ONE, ARIZONA, N.A. By: ________________________ Title: _________________ COMMERCE AND ECONOMIC DEVELOPMENT COMMISSION By: ________________________ Title: _________________ THE DIAL CORP. By: ________________________ Title: _________________ DMB HOLDING LIMITED PARTNERSHIP By: ________________________ Title: _________________ EL DORADO INVESTMENT COMPANY By: ________________________ Title: _________________ FIRST INTERSTATE BANK OF ARIZONA, N.A. By: ________________________ Title: _________________ NY-66576.3 -4- PHELPS DODGE CORPORATION By: ________________________ Title: _________________ PHOENIX NEWSPAPERS, INC. By: ________________________ Title: _________________ PHOENIX SUNS LTD. PARTNERSHIP By: ________________________ Title: _________________ NY-66576.3 -5- SCHEDULE I GPA Leasing USA I, Inc. c/o GPA Corporation Lee Farm Corporate Park 83 Wooster Heights Road Danbury, Connecticut 06810 GPA Leasing USA Sub I, Inc c/o GPA Corporation Lee Farm Corporate Park 83 Wooster Heights Road Danbury, Connecticut 06810 B&B Holdings, Inc. d/b/a Phoenix Cardinals 8701 S. Hardy Drive Tempe, Arizona 85284 Bank of America Arizona 101 North First Avenue 31st Floor Phoenix, Arizona 85003 Bank One, Arizona, N.A. 36th Floor 241 North Central Avenue Phoenix, Arizona 85004 Commerce and Economic Development Commission 3800 N. Central Avenue Suite 1500 Phoenix, Arizona 85007 The Dial Corp. Dial Tower Phoenix, Arizona 85077-2348 NY-66576.3 DMB Holding Limited Partnership 4201 North 24th Street Phoenix, Arizona 85018 El Dorado Investment Company 400 E. Van Buren, Suite 650 Phoenix, Arizona 85072-2132 First Interstate Bank of Arizona, N.A. 100 West Washington Phoenix, Arizona 85003 Phelps Dodge Corporation 2600 North Central Avenue Phoenix, Arizona 85004-3014 Phoenix Newspapers, Inc. 120 East Van Buren Phoenix, Arizona 85004 Phoenix Suns Ltd. Partnership 201 East Jefferson, 4th Floor Phoenix, Arizona 85004 NY-66576.3 EX-10.U 6 FORM OF REVISED INTERIM PROCEDURES AGREEMENT REVISED INTERIM PROCEDURES AGREEMENT THIS REVISED INTERIM PROCEDURES AGREEMENT, entered into and dated as of March 11, 1994 (this "Agreement"), between --------- America West Airlines, Inc., a Delaware corporation (including, on or after the effective date of the Plan, as hereinafter defined, its successors, as reorganized pursuant to Chapter 11 of the Bankruptcy Code, as hereinafter defined) (hereinafter, the "Company"), operating as debtor-in-possession under Chapter 11 of ------- the United States Bankruptcy Code, 11 U.S.C. Sections 101-1330 (the "Bankruptcy Code") and AmWest Partners, L.P., a Texas ---------------- limited partnership (hereinafter the "Investor"). All capitalized -------- terms used in this Agreement without definition shall have the meanings assigned to them in the Investment Agreement between the Company and Investor dated as of the date hereof (the "Investment ---------- Agreement"). --------- W I T N E S S E T H: ------------------- WHEREAS, the Company has filed a case seeking relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy ---------- Court"), and is operating its business as debtor-in-possession; ----- WHEREAS, on December 8, 1993, the Bankruptcy Court entered an Order on Motion to Establish Procedures for Submission of Investment Proposals (the "Procedures Order"); ---------------- WHEREAS, in accordance with the Procedures Order, Investor submitted on February 22, 1994 a proposal for making an investment in the Company (the "Investment") which, subject to ---------- certain changes requested by the Company and the Equity Committee, is set forth in the Investment Agreement; WHEREAS, pursuant to the Procedures Order, the Company has selected the Investment Agreement as the Lead Plan Proposal (as defined in the Procedures Order) and has provided appropriate notification of such selection to all persons entitled to receive such notification; and WHEREAS, the Investment Agreement contemplates, among other things, the consummation of a plan of reorganization (the "Plan") that would, subject to the terms and conditions set forth ---- in the Investment Agreement, provide for (i) a recapitalization of the Company, (ii) the execution and delivery of the Alliance Agreements, the intended effect of which would be to improve the financial performance of the Company and (iii) the execution and delivery of the Governance Agreements; NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company hereby agrees with Investor as follows: SECTION 1. No Solicitation, etc. (a) Prior to the --------------------- termination of this Agreement, the Company shall not directly, or indirectly through any of its officers, directors, employees, agents or otherwise, initiate or solicit any offer or proposal providing for or in furtherance of any Prohibited Transaction. The term "Prohibited Transaction" shall mean (i) any transaction ---------------------- or transactions (A) similar to or in substitution for the Investment contemplated by the Investment Agreement or (B) similar to or in substitution for the issuance and sale by the Company of any of the Contemplated Securities (as defined below); (ii) the designation as a Lead Plan Proposal of any other proposal made by a party other than Investor; or (iii) the execution of a contract with another airline or affiliate thereof which would interfere with full implementation of the Alliance Agreements, it being understood that normal course of business arrangements between and among carriers that are either terminable on not more than 60 days' notice or entered into or continued with the consent of Investor (which consent shall not be unreasonably withheld) shall not constitute Prohibited Transactions. The "Prohibited Transactions," as defined above, shall also include, without limitation, (1) any merger or consolidation of the Company, (2) any issuance or sale of equity or debt securities of the Company, and (3) any sale, encumbrance, lease or other disposition of material assets of the Company or interest therein outside the ordinary and normal course of the Company's business. Notwithstanding the foregoing, Prohibited Transactions shall not include any Permitted Transaction (as hereinafter defined). (b) Nothing in this Agreement shall be construed to prohibit the Company from soliciting proposals or entering negotiations for a Prohibited Transaction if, at any time after the date hereof and prior to the Effective Date, Investor or any of its partners shall (1) initiate proceedings in bankruptcy or receivership or, voluntarily or involuntarily, be or become subject to proceedings for protection from its creditors or (2) shall suffer an adverse change in its condition (financial or otherwise), business assets, properties or prospects that, in the reasonable judgment of the Company's board of directors, materially impairs (A) the ability of Investor or such partner, as the case may be, to perform its obligations under this Agreement, the Investment Agreement or the Related Agreements or (B) the Company's ability to realize (1) the intended benefits and value of this Agreement, the Investment Agreement or, the Related Agreements (other than the Alliance Agreements) and (2) an increase in the Company's pretax income of not less than $40 million per year from the Alliance Agreements as contemplated by Section 9(g) of the Investment Agreement; provided, however, that in no event shall the Company be entitled under this paragraph (b) to solicit proposals for a Prohibited Transaction until after the Company shall have given Investor not less than one business day's advance written notice of the Company's intention to do so. (c) If both of the following conditions are satisfied: (i) the Company receives a proposal for a Prohibited Transaction (the "Alternate Proposal"); and ------------------ (ii) the Company's board of directors (A) determines in good faith, based on advice from the Company's independent financial advisor, that the Alternate Proposal satisfies the criteria for qualification as an Overbid (as set forth below) and (B) desires to accept the Alternate Proposal as being in the best interests of the Company and its constituents, then the Company shall promptly disclose the Alternate Proposal to Investor and within two business days submit to Investor copies of all documents or written information received by the Company from or on behalf of the party making such proposal setting forth the terms of such Alternate Proposal (the "Related Documentation"). In making --------------------- the determination required in clause (ii)(B) above, the Company's board of directors shall consider all relevant considerations and factors, including, without limitation, the form and value of consideration, the extent to which the economic benefits of the Alternate Proposal, taken as a whole, differ from the economic benefits to the Company contemplated to be provided by the Investment Agreement, taken as a whole, the likelihood that the party making the Alternate Proposal is able to obtain financing to consummate the Alternate Proposal, the proposed closing date, the certainty of consummation, competitive issues and closing conditions. If within seven business days of receipt by Investor of all Related Documentation and notice that the Company deems such seven-day period to have started, Investor offers amendments to the Investment Agreement and/or the Alliance Agreements that, taken as a whole, satisfy the criteria for qualification as an Overbid in respect of the Alternate Proposal, then Investor's offer will continue as the Lead Plan Proposal and all the terms of this Agreement and the Investment Agreement, as so amended, will continue in full force and effect. If (A) Investor offers no such amendments within such seven business days or (B) in the event the Company disagrees with Investor's characterization of its offer as an Overbid and the Bankruptcy Court determines, upon petition by the Company, that Investor's amended offer does not qualify as an Overbid or (C) in the event Investor disagrees with the Company's determination referred to in clause (ii) above and the Bankruptcy Court determines, upon petition by Investor, that the Alternate Proposal does qualify as an Overbid, then the Company may terminate this Agreement in accordance with Section 20(a)(v), provided that the Fee and Expenses have been paid to Investor as provided in Section 3. (d) For purposes of paragraph (c) above, the term "Overbid" shall mean a proposal or offer that is presented to the ------- Company entirely in writing from one or more parties reasonably believed by the Company to be financially capable of performing in full the provisions of its proposal, which proposal: (A) must provide overall economic benefits to the Company and its constituents which (i) in the case of a proposal or offer made by a third party, are materially greater, in the Company's reasonable judgment, than the overall economic benefits to be provided under this Agreement, the Investment Agreement and the Related Agreements, taken as a whole, and (ii) in the case of a proposal or offer made by Investor, are not less, in the Company's reasonable judgment, than the overall economic benefits to be provided under the Alternate Proposal; (B) is otherwise on terms and conditions that, taken as a whole, are (i) in the case of a proposal or offer made by a third party, more favorable to the Company than those contained in this Agreement, the Investment Agreement and the Related Agreements, taken as a whole, and (ii) in the case of a proposal or offer made by Investor, are at least as favorable to the Company as those contained in the Alternate Proposal; and (C) is not subject to any due diligence, litigation, environmental or regulatory approval condition that (i) in the case of a proposal or offer made by a third party, is more favorable to the proponent than those contained in this Agreement, the Investment Agreement and the Related Agreements, taken as a whole, and (ii) in the case of a proposal or offer made by Investor, is no more favorable to Investor than those contained in the Alternate Proposal. (e) Nothing in this Agreement shall prohibit the Company from consummating any Permitted Transaction (as defined in Section 4.2). SECTION 2. Expenses. Following the entry of the order -------- referred to in Section 16, the Company shall, immediately upon request and upon receipt of an accounting reasonably acceptable to the Company, reimburse Investor for all reasonable out-of-pocket or third-party expenses actually paid by Investor or its partners in connection with efforts to consummate the Investment, including the negotiation and preparation of documents necessary or appropriate to consummate the Investment, and including, without limitation, legal, investment banking, appraisal, accounting and other similar professional fees (collectively, the "Expenses"). Notwithstanding the preceding -------- sentence, the aggregate of the Expenses reimbursable in full to Investor and its partners pursuant to this Agreement shall not exceed (i) $550,000 for the period prior to March 1, 1994, (ii) $250,000 for any calendar month commencing on or after March 1, 1994; provided, that any unused portion of such $250,000 amount for any month shall accumulate and be carried forward and be available in any subsequent month to reimburse any Expenses, and (iii) $3 million for all periods commencing on or after March 1, 1994. SECTION 3. Effect of Termination and Consummation. -------------------------------------- (a) Fee and Expenses. (i) In the event this Agreement ----------------- is terminated by the Company pursuant to Section 20(a)(v), the Company shall pay to Investor, within 15 days of such termination, a single cash fee (the "Fee") in the amount of (i) --- $4 million if the date on which this Agreement is so terminated occurs prior to the entry by the Bankruptcy Court of an order approving a disclosure statement with respect to the Plan (the "Disclosure Statement Order") or (ii) $8 million if the date on -------------------------- which this Agreement is so terminated occurs after the entry of the Disclosure Statement Order by the Bankruptcy Court. (ii) In the event this Agreement is terminated by Investor pursuant to Section 20(a)(iii) on account of the Company's willful breach, deliberate misconduct or bad faith, the Company shall, if requested by Investor, pay Investor the Fee and, upon payment of the Fee and Expenses to Investor, the Company shall have no further liability to Investor or any other Person on account of such willful breach, deliberate misconduct or bad faith. If Investor does not demand payment of the Fee pursuant to this clause (ii) within seven days after the termination date, Investor shall retain the right, as Investor's sole remedy for any such breach, to seek to obtain specific performance by the Company of its obligations under this Agreement and the Investment Agreement. If Investor elects to pursue such a specific performance remedy and it is denied by unstayed or final order of the Bankruptcy Court, the Company shall, within 15 days of such denial, pay the Fee to Investor. (iii) In the event this Agreement terminates pursuant to Section 20(c), the Company shall pay the Fee to Investor within 15 days of such termination; provided, however, that, for purposes of this clause (iii), the Fee shall be $4,000,000 and, provided further, that in no event shall Investor be entitled to payment of the Fee under this clause (iii) if, at the time of confirmation of the plan of reorganization giving rise to such termination, either (1) Investor (or any of its Affiliates) was in material breach of any of its representations, warranties, covenants or obligations under this Agreement, the Investment Agreement or any Related Agreement, which breach was not earlier waived in writing by the Company or (2) Investor shall have previously exercised any termination right granted to it under Section 20. (iv) In the event this Agreement is terminated pursuant to Section 20(a) or (c) for any reason, the Company shall pay to Investor, within 15 days of such termination, all Expenses not previously reimbursed under Section 2 subject only to the limitations set forth in the second sentence of Section 2. (b) Expenses Paid Upon Consummation. Upon the Effective -------------------------------- Date, the Company shall pay to Investor all Expenses not previously reimbursed under Section 2 subject only to the limitations set forth in clauses (i) and (iii) of the second sentence of Section 2. (c) Expenses and Fee Not Subject to Offset. Except to ---------------------------------------- the extent otherwise provided herein, the Fee and Expenses payable under this Agreement by the Company shall not be subject to any offset, return, recoupment or counterclaim and shall be an allowed administrative expense under Section 507(a)(1) of the Bankruptcy Code. (d) Appropriateness of Payment of Fee and Reimbursement ----------------------------------------------------- of Expenses. The Company and Investor agree that the Fee and ------------ Expenses payable hereunder are commercially reasonable and necessary to induce Investor to continue pursuing and to attempt to consummate the transactions contemplated by the Investment Agreement. (e) Rights. The payment of the Fee to Investor as ------ required hereunder and the payment to Investor of any Expenses payable hereunder shall be in full satisfaction of any and all claims (other than for indemnification under Section 9) that Investor shall have against the Company. The termination of the Investment Agreement and this Agreement by the Company pursuant to Section 20 shall not constitute a breach of such Agreements by the Company. SECTION 4. Interim Period. The Company covenants as --------------- follows with respect to the period prior to the earlier of (a) the Effective Date and (b) the termination of this Agreement: 4.1. The Company shall use all commercially reasonable efforts and shall take all actions reasonably necessary or appropriate to preserve the value of the business, assets and goodwill of the Company and to operate the business of the Company in the ordinary and normal course consistent in all material respects with prior practices. 4.2. Except as expressly permitted hereunder or with the written consent of Investor (which consent shall not be unreasonably withheld or delayed), the Company (a) shall not implement any material changes to the operation of its business (such as material route deletions, transfers of international route authorities, material changes in marketing or advertising, or abandoning material franchises); (b) shall not enter into any new material contracts (such as labor union contracts and employment contracts) or amend, modify or terminate any such contracts, or waive any of its material rights thereunder; and (c) shall not modify its business plans or budgets in any material respect; provided, however, that nothing in this Agreement shall be construed to prohibit the Company from taking any of the following actions (collectively, the "Permitted --------- Transactions"), none of which will be deemed to be a Prohibited ------------ Transaction: (i) entering into any material modification of any existing leases, loan agreements and/or security agreements provided that the Company will obtain the approval of Investor (which approval shall not be unreasonably withheld or delayed) before entering into any such modification; (ii) renewing or extending existing contracts for products and services, or entering into replacement contracts for such products and services, in the ordinary course of business and upon terms and conditions available in the market place in arms'-length transactions with non-affiliates; (iii) entering into agreements with respect to 11 leased aircraft which provide in August 1994 for reset of lease rentals (as heretofore stipulated in the Bankruptcy Court and as described in Plan R-2) to the higher of the current rate and fair market rental value; (iv) entering into a 3-year lease agreement, on terms currently available, for a Boeing 757-200 aircraft in replacement of an A-320 aircraft to be returned in April 1994; (v) selling to AVSA, S.A.R.L. or its affiliates surplus A-320 parts for approximately $1.3 million, with the proceeds thereof to be applied against amounts due to AVSA, S.A.R.L. or its affiliates under existing spare parts agreements with the Company; (vi) entering into a $12.8 million settlement with the Internal Revenue Service relating to certain priority tax claims for pre-petition transportation taxes, with approximately $1 million of the settlement amount payable prior to the Effective Date and the balance payable after the Effective Date in accordance with the provisions of the Bankruptcy Code; (vii) entering into one or more settlement agreements with taxing authorities relating to certain priority tax claims for prepetition ad valorem taxes as contemplated by Plan R-2, provided that the Company will not be permitted to enter into settlement agreements pursuant to this clause (vii) for more than $11.5 million without the prior consent of Investor; (viii) extending the Company's existing approximately 83.6 debtor-in-possession loan ("Present DIP Financing") ---------------------- through December 31, 1994, provided that at no time will the principal amount of the Present DIP Financing, together with any other loan for similar purposes, including any renewal, extension, modification or replacement thereof, exceed $83.6 million; (ix) extending the terms of the existing leases between the Company and Canadian Airlines covering three Boeing 737-200 aircraft as contemplated by Plan R-2 but in no event at rentals greater than as currently provided for in such leases; (x) entering into an employment contract with the individual to be hired by the Company to fill the vacancy created by the resignation of the Company's Senior Vice President - Operations; (xi) entering into a settlement agreement or stipulation with International Aero Engines relating to the terms under which the Company will exercise its existing purchase option for one aircraft engine currently held by the Company under lease, provided that the Company will consult with Investor before entering into any such settlement agreement or stipulation; (xii) consummating the "Real Property Consolidation Project" initiated in 1993 with the approval of the Bankruptcy Court; (xiii) making the capital expenditures contemplated by Plan R-2, provided that the Company shall consult with Investor before making any such capital expenditure in excess of $250,000; (xiv) selling or otherwise disposing of surplus assets within the limits specified in the Present DIP Financing; (xv) implementing increases in employee compensation through 1995 as contemplated by Plan R-2, provided that the Company will consult with Investor before implementing any such increases; (xvi) issuing common stock of the Company upon the exercise of options or conversion rights under securities of the Company currently outstanding; (xvii) paying and/or compromising administrative claims as contemplated by Plan R-2; or (xviii) negotiating a collective bargaining agreement with the International Air Line Pilots Association on behalf of the Company's flight deck crew members prusuant to the Railway Labor Act, as amended, provided that the terms, conditions and provisions of such collective bargaining agreement shall be subject to the approval of Investor (which approval shall not be unreasonably withheld or delayed). 4.3. The Company shall provide Investor and its Representatives (as hereinafter defined) with full access to all the Company data reasonably requested by them, with reasonable access to the Company officers and with full opportunity to complete an investigation of the Company's business and assets and shall keep Investor fully informed in reasonable detail and with all reasonable promptness regarding (i) negotiations with its creditors, employees, labor unions and other interested parties in the Company's bankruptcy case; (ii) the nature of, and any material changes to, its condition (financial or other), business, assets, liabilities (including contingencies), properties, prospects (including forecasts and projections), net worth, working capital, results of operations and cash flows; and (iii) the nature of any material actions to be taken or omitted by the Company with respect to any environmental claim or threatened claim, proceedings or notifications and all known material instances of noncompliance with environmental laws. 4.4. The Company shall provide Investor with reports that include a comparison of actual operating performance with the Projections and Monthly Targets, in form and substance reasonably satisfactory to Investor, on a monthly basis no later than 30 days after the end of each month or daily basis not less than the end of the business day following each day, as appropriate. 4.5. The Company will promptly advise Investor, and (other than with respect to actions respecting environmental concerns and actions which are disclosed in Plan R-2) will afford Investor with reasonable and timely opportunities to consult (as deemed appropriate by Investor), regarding any material actions to be taken or omitted by the Company with respect to the proceedings in the Bankruptcy Court or with respect to any material changes in its charter or bylaws, material capital commitments, material capital expenditures, material financing transactions (including renegotiations or other modifications to existing material debt, credit or lease liabilities or arrangements, material purchases or sales of assets, material contracts or material litigation); provided, however, that, notwithstanding anything else in this Agreement, ultimate control of the business of the Company shall remain exclusively with the Company until the Effective Date. 4.6. As soon as practicable, the Company and Investor will make, and cooperate in making, all filings, applications, requests for consents or similar authorizations for Regulatory Approvals; provided that the Company and Investor each agrees to make such filings and request any such Regulatory Approvals required on its part by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or from the United States Department of Transportation no later than April 15, 1994. SECTION 5. Cooperation. The Company shall use all ----------- commercially reasonable efforts and endeavor in good faith and without unreasonable delay (a) to develop with Investor and jointly file a Plan consistent with the provisions of the Investment Agreement, (b) to obtain the order described in Section 16, (c) to obtain the Disclosure Statement Order, (d) to obtain the Confirmation Order and (e) subject to the entry of the Confirmation Order, to consummate the transactions contemplated by the Investment Agreement and the Related Agreements, all within the respective time periods set forth in the Investment Agreement. Investor agrees to cooperate in good faith as reasonably requested by the Company in performing the obligations in the preceding sentence. The Company shall consult and coordinate with Investor with respect to all material filings, hearings and other proceedings in the Bankruptcy Court, including, without limitation, those that are pertinent (x) to the Company's performance of its obligations under the Investment Agreement, this Agreement and the Related Agreements, or to the satisfaction of the conditions to the consummation of the transactions contemplated hereby or thereby or (y) to the entry of the orders described above. Such consultation and coordination shall include providing Investor with reasonable opportunity to review and comment on all significant drafts of the Plan and the disclosure statement accompanying the Plan (the "Disclosure Statement"). -------------------- SECTION 6. Public Announcements. Unless otherwise --------------------- mutually agreed, neither party hereto shall make or authorize any public release of information regarding the matters contemplated by this Agreement, the Investment Agreement and any Related Agreement except (i) that a press release or press releases in mutually agreed-upon form shall be issued by the parties as promptly as is practicable following the execution of this Agreement, (ii) that the parties may communicate with employees, creditors and other parties in interest in the Company's bankruptcy case, customers, suppliers, stockholders, bondholders, lenders, lessors, regulatory authorities, analysts, stock exchanges and other particular groups including prospective lenders and investor groups, as may be necessary or appropriate and not inconsistent with the provisions of Section 1 and the prompt consummation of the transactions contemplated by this Agreement, the Investment Agreement and any Related Agreement, it being understood that each party hereto will keep the other reasonably informed with respect to such communications which are material and not confidential and (iii) as either party on advice of legal counsel shall reasonably deem necessary in complying with applicable law. SECTION 7. Confidentiality. (a) Neither party (the --------------- "Recipient") will in any manner, directly or indirectly, disclose --------- in whole or in part, any confidential or proprietary information (including, without limitation, information concerning the Alliance Agreements) of the other party (the "Protected Party") --------------- that comes, or has come, into the possession of the Recipient in connection with the transactions contemplated hereby (the "Confidential Information") to any Person or use such -------------------------- Confidential Information for commercial gain or competitive advantages or in any way detrimental to the Protected Party; provided, however, that Confidential Information may be disclosed to Representatives (as defined below) of the Recipient, to any prospective investor in the Contemplated Securities or to any prospective lender to Investor or the Company who needs to know the Confidential Information for purposes of participating in or financing the transactions contemplated hereby, it being understood that all such Representatives will be advised by the Recipient of the confidential nature of such Confidential Information and that, by receiving such Confidential Information, they are agreeing to be bound by this Section. The Company and Investor shall use their commercially reasonable efforts to assure that their respective Representatives adhere to the terms of this Section. (b) As used herein with respect to any Person, the term "Representative" shall include (i) any and all officers, -------------- directors, employees, affiliates, agents, partners and representatives of such Person, (ii) all lawyers, financial advisers, appraisers, accountants, other professionals or consultants (and their respective officers, directors, employees, affiliates, agents, partners and representatives) engaged by such Person and (iii) any prospective purchaser of any Contemplated Securities and any prospective lender that is considering making a loan to the Company or Investor to assist in the consummation of the transactions contemplated hereby, by the Investment Agreement or by the Related Agreements and their respective lawyers, financial advisers, appraisers, accountants, other professionals or consultants (and their respective officers, directors, employees, affiliates, agents, partners and representatives) engaged by such prospective purchaser or lender. (c) The Recipient shall not be obligated to maintain any Confidential Information in confidence to the extent that (i) the Confidential Information is or becomes public knowledge other than through the breach by the Recipient of this Section or any other similar agreement binding on the Recipient, (ii) the Confidential Information is or becomes available on an unrestricted basis to the Recipient from a source other than the Protected Party (or its Representatives), or (iii) the Confidential Information is required to be disclosed pursuant to court order or government action. (d) Upon termination of this Agreement (i) if requested by the Company, and if no dispute between Investor and the Company or any other Person is pending or in the reasonable judgment of Investor foreseeable, Investor will destroy all Confidential Information (including any analyses or reports that incorporate any Confidential Information) in its possession relating to the Company and shall certify such destruction and (ii) if requested by Investor, and if no dispute between Investor or any other Person and the Company is pending or in the reasonable judgment of the Company foreseeable, the Company will destroy all Confidential Information (including any analyses or reports that incorporate any Confidential Information) in its possession relating to Investor and shall certify such destruction. (e) The foregoing provisions of this Section shall not apply to any partner of Investor if and to the extent such provisions are inconsistent with any written agreement relating to the subject matter of this Section between the Company and such partner. (f) The Company shall, upon the request of the Creditors' Committee or Equity Committee, provide such Committee with copies of the Confidential Information which is provided to and/or by Investor pursuant to the provisions of this Agreement, the Investment Agreement and the Related Agreements following receipt from such Committee and each of its Representatives who will have access to such Confidential Information of a written confidentiality agreement which contains provisions which provide the Company and Investor protection for such Confidential Information at least equivalent, in all material respects, to that provided pursuant to this Section 7 and which contains other terms and conditions which are reasonably required by the Company and Investor. (g) This Section shall survive termination of this Agreement. SECTION 8. Liability. Notwithstanding any provision --------- hereof or in the Investment Agreement (or any implication of such provision) to the contrary, it is expressly agreed that: 8.1. Investor (including any affiliate, partner, agent, advisor or Representative thereof) shall not have nor be under any liability of any nature whatsoever to the Company, the estate of the Company, any trustee, any committee of creditors or of equity security holders or any party in interest in the bankruptcy case concerning the Company, nor to any other Person whatsoever, arising out of or in any manner connected with this Agreement, the Investment Agreement or any Related Agreement, or any actions, inactions or omissions in any manner relating hereto or thereto or to any actions or transactions contemplated hereby or thereby, whether occurring prior to or after the date hereof, except to the extent that Investor is liable to the Company for damages which are found in a final judgment by a court of competent jurisdiction to have resulted from (i) any material breach by Investor of an express obligation or undertaking contained in this Agreement, the Investment Agreement or any Related Agreement or any material breach (as of the date made) by Investor of an express representation or warranty contained in this Agreement, the Investment Agreement or any Related Agreement or for any act of bad faith or willful or deliberate wrongdoing by Investor, which bad faith, breach or wrongdoing is not discontinued or remedied promptly (and in any event within seven days) after written notice thereof specifying the same in reasonable detail from the Company or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Disclosure Statement or in any offering document pursuant to which any or all of the securities of the Company in connection with and as part of the transactions contemplated by the Agreements (the "Contemplated Securities") may be placed or offered or the ------------------------ omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such offering document in reliance upon and in conformity with written information furnished by Investor specifically for inclusion therein or (iii) any action or inaction in respect of which the Company is entitled to indemnification under Section 9. 8.2. The Company (including any affiliate, stockholder, director, officer, agent, advisor or Representative thereof) shall not have nor be under any liability of any nature whatsoever to Investor or any of its partners or affiliates, nor to any other Person whatsoever, arising out of or in any manner connected with this Agreement, the Investment Agreement or any Related Agreement, or any actions, inactions or omissions in any manner relating hereto or thereto or to any actions or transactions contemplated hereby or thereby, whether occurring prior to or after the date hereof, except to the extent that the Company is liable to Investor for damages which are found in a final judgment by a court of competent jurisdiction to have resulted from (i) any material breach by the Company of an express obligation or undertaking contained in this Agreement, the Investment Agreement or any Related Agreement or any material breach (as of the date made) by the Company of an express representation or warranty contained in this Agreement, the Investment Agreement or any Related Agreement or for any act of bad faith or willful or deliberate wrongdoing by the Company, which bad faith, breach or wrongdoing is not discontinued or remedied promptly (and in any event within seven days) after written notice thereof specifying the same in reasonable detail from Investor or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Disclosure Statement or in any offering document pursuant to which any or all of the Contemplated Securities may be placed or offered or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such offering document in reliance upon and in conformity with written information furnished by Investor or any of its partners specifically for inclusion therein or (iii) any action or inaction in respect of which Investor is entitled to indemnification under Section 9. 8.3. No partner of the Investor shall have or be under any liability by reason of any negligence or asserted negligence or any material breach or willful or deliberate wrongdoing of any other partner of Investor. 8.4. No consequential, exemplary or punitive damages shall under any circumstances be recoverable against Investor, the Company or any other Indemnified Party (as defined in Section 9) in respect of any claim relating to this Agreement or the Investment Agreement or in connection with the consummation of or any failure to consummate the transactions contemplated hereby or thereby. SECTION 9. Indemnity. --------- 9.1. As used herein: (a) "Losses" means (i) in the case of any Investor ------ Indemnified Party, any and all losses, claims, damages, liabilities, fines, fees, penalties, deficiencies and expenses (including, but not limited to, interest, court costs, fees and expenses of attorneys, accountants, and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment) incurred by such Investor Indemnified Party as a result of any third party claim asserted against such Investor Indemnified Party on account of any breach of any representation or warranty of the Company contained in this Agreement, the Investment Agreement or any Related Agreement, or any breach or alleged breach of any of the Company's covenants or obligations contained herein or therein and (ii) in the case of any Company Indemnified Party, any and all losses, claims, damages, liabilities, fines, fees, penalties, deficiencies and expenses (including, but not limited to, interest, court costs, fees and expenses of attorneys, accountants, and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment) incurred by such Company Indemnified Party as a result of any third party claim asserted against such Company Indemnified Party on account of any any breach or alleged breach of any representation or warranty of Investor contained in this Agreement, the Investment Agreement or any Related Agreement, or any breach or alleged breach of any of Investor s covenants or obligations contained herein or therein. (b) "Investor Indemnified Party" means Investor or --------------------------- any of its partners, affiliates, controlling persons or employees. (c) "Company Indemnified Party" means the Company -------------------------- or any of its partners, affiliates, controlling persons, directors or employees. (d) "Indemnified Party" means a Company Indemnified ----------------- Party or an Investor Indemnified Party, as the case may be. (e) "Indemnifying Party" means the Company or ------------------- Investor, as the case may be. 9.2. Subject to Section 9.4 and to Section 3(e), the Company agrees to indemnify each Investor Indemnified Party from and against any and all Losses incurred by such Investor Indemnified Party, whether prior to or after the date hereof. 9.3.Subject to Section 9.5, Investor agrees to indemnify each Company Indemnified Party from and against any and all Losses incurred by such Company Indemnified Party, whether prior to or after the date hereof. . 9.4. The Company will not be liable under this Section 9 for Losses which consist of Expenses covered by Section 2 (which Expenses shall only be payable in the manner and subject to the limitations set forth in Sections 2 and 3), nor shall the Company be liable to any Investor Indemnified Party to the extent that any Loss is found in a final judgment by a court of competent jurisdiction to have resulted from (i) any breach by such Investor Indemnified Party of an express obligation or undertaking pursuant to this Agreement, the Investment Agreement or any of the Related Agreements or any act of bad faith or willful or deliberate wrongdoing by such Investor Indemnified Party, which bad faith, breach or wrongdoing is not discontinued or remedied promptly (and in any event within seven days) after written notice thereof specifying the same in reasonable detail from the Company or (ii) any untrue statement or alleged untrue statement of a material fact contained in any offering document pursuant to which any or all of the Contemplated Securities may be placed or offered or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if, and to the extent that, such untrue statement or alleged untrue statement or omission or alleged omission was made in such offering document in reliance upon and in strict conformity with written information furnished by such Investor Indemnified Party specifically for inclusion therein, or (iii) investment losses in respect of the Contemplated Securities incurred by such Investor Indemnified Party. 9.5. Investor will not be liable under this Section 9 to any Company Indemnified Party to the extent that any Loss is found in a final judgment by a court of competent jurisdiction to have resulted from (i) any breach by such Company Indemnified Party of an express obligation or undertaking pursuant to this Agreement, the Investment Agreement or any of the Related Agreements or any act of bad faith or willful or deliberate wrongdoing by such Company Indemnified Party, which bad faith, breach or wrongdoing is not discontinued or remedied promptly (and in any event within seven days) after written notice thereof specifying the same in reasonable detail from Investor or (ii) any untrue statement or alleged untrue statement of a material fact contained in any offering document pursuant to which any or all of the Contemplated Securities may be placed or offered or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such offering document in reliance upon and in strict conformity with written information furnished by such Investor Indemnified Party specifically for inclusion therein or (iii) investment losses in respect of the Contemplated Securities incurred by such Company Indemnified Party. 9.6. If the indemnification of an Indemnified Party provided for in this Section 9 is for any reason held unenforceable, the Indemnifying Party agrees to contribute to the Losses for which such indemnification is held unenforceable (x) in such proportion as is appropriate to reflect the relative benefits or proposed benefits to the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, of the Agreements (whether or not the Agreements are entered into and whether or not any transaction or action pursuant thereto is consummated) or (y) if (but only if) the allocation provided for in clause (x) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (x) but also the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, as well as any other relevant equitable considerations. The Indemnifying Party agrees that for the purposes of this paragraph, the relative benefits or proposed benefits to the Indemnifying Party and such Indemnified Party of the Agreements shall be deemed to be in the same proportion that the total value paid or issued to, or to be paid or issued to, the Indemnifying Party, its creditors or its security holders, as the case may be, as a result of or in connection with the Agreements bears to the amount received by such Indemnified Party pursuant to the Agreements (whether in the form of fees paid to such Indemnified Party or the reimbursement of expenses provided by the Indemnified Party to such Party). 9.7. Without the Indemnified Party's prior written consent (which consent shall not be unreasonably withheld), no Indemnifying Party will settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could reasonably be expected to be sought against such Indemnifying Party by such Indemnified Party under this Section 9 (whether or not such Indemnified Party is an actual party to such claims, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of such Indemnified Party from all liability arising out of such claim, action or proceeding. 9.8. The provisions herein in respect of any Indemnified Party shall not be affected, or the obligations of the Indemnifying Party hereunder as to any Indemnified Party in any manner reduced or limited, by any action, inaction, omission, breach or default of any Person (other than of such Indemnified Party and its officers, directors, employees, agents, advisors, Representatives and controlling Persons), but then only to the extent provided hereby. 9.9. Without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld), no Indemnified Party shall settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification from the Indemnifying Party could reasonably be expected to be sought by such Indemnified Party under this Section 9 unless such Indemnified Party unconditionally releases the Indemnifying Party from any and all indemnification obligations to it arising out of such claim, action or proceeding. 9.10. Promptly after any Indemnified Party becomes aware of the existence of facts or other information which could reasonably be expected to give rise to a claim by such Indemnified Party for indemnification under this Section 9, such Indemnified Party will provide written notice thereof to the Indemnifying Party describing such facts and other information in reasonable detail. The failure of an Indemnified Party to give notice in the manner and at the time provided herein shall not relieve the Indemnifying Party of its obligations under this Section 9, except to the extent that the Indemnifying Party actually is prejudiced in any material respect by such failure to give notice. Any notice given the Indemnifying Party pursuant to this Section 9.10 shall contain a statement to the effect that the Indemnified Party giving such notice is making or may in the future make a claim pursuant to and a formal demand for indemnification under this Section 9. 9.11. Upon the commencement of any claim, action or proceeding in respect of which indemnification could be sought by an Indemnified Party under this Section 9, the Indemnifying Party shall have the right, with counsel selected by it (which counsel shall be reasonably satisfactory to the Indemnified Party), to assume the defense of such claim, action or proceeding and the Indemnified Party shall cooperate with the Indemnifying Party, at the sole cost and expense of the Indemnifying Party, in connection with such defense. In the event that the Indemnifying Party selects counsel to defend any claim, action or proceeding in respect of which indemnification could be sought by any Indemnified Party under this Section 9 and such counsel determines (or such Indemnified Party reasonably determines) that issues exist with respect to such claim, action or proceeding which give rise to a conflict between the interests of the Indemnifying Party and such Indemnified Party, then such Indemnified Party shall be entitled, at the Company's expense, to retain separate counsel regarding such issues. SECTION 10. Assignment of this Agreement. This ------------------------------ Agreement shall be binding upon and shall inure to the benefit of the parties to this Agreement and their successors and permitted assigns without limitation. Neither this Agreement nor any of the rights and obligations of any party to this Agreement may be assigned without the consent of the other party hereto; provided, however, that Investor may assign any or all of its rights under this Agreement to any partner, affiliate, related party, or representative of Investor or to any fund or account managed or advised by Fidelity Management Trust Company. No such assignment shall relieve either party hereto of any obligations hereunder, under the Investment Agreement or under any Related Agreement. SECTION 11. Notices. All notices required to be given ------- under this Agreement shall be in writing (including telecommunication transmission), shall be effective when received and shall be addressed as follows: If to the Company: America West Airlines, Inc. 4000 East Sky Harbor Boulevard Phoenix, Arizona 85034 Attention: W. A. Franke and Martin J. Whalen Fax Number: (602) 693-5904 with a copy to: LeBoeuf, Lamb, Greene & MacRae 633 17th Street, Suite 2800 Denver, Colorado 80202 Attention: Carl A. Eklund Fax Number: (303) 297-0422 and a copy to: Andrews & Kurth, L.L.P. 4200 Texas Commerce Tower Houston, Texas 77002 Attention: David G. Elkins Fax Number: (713) 220-4285 and a copy to: Lord, Bissell and Brook 115 South LaSalle Street Chicago, Illinois 60603 Attention: Benjamin Waisbren Fax Number: (312) 443-0336 and a copy to: Murphy, Weir & Butler 101 California Street, 39th Floor San Francisco, California 94111 Attention: Patrick A. Murphy Fax Number: (415) 421-7879 If to Investor: AmWest Partners, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attention: James G. Coulter Fax Number: (817) 338-2064 with a copy to: Arnold & Porter 1200 New Hampshire Ave., N.W. Washington, D.C. 20036 Attention: Richard P. Schifter Fax Number: (202) 872-6720 and a copy to: Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Attention: Lyle G. Ganske Fax Number: (216) 586-7864 and a copy to: Lord Bissell and Brook 115 South LaSalle Street Chicago, IL 60603 Attention: Benjamin Waisbren Fax Number: (312) 443-0336 and a copy to: Murphy, Weir & Butler 101 California Street, 39th Floor San Francisco, California 94111 Attention: Patrick A. Murphy Fax Number: (415) 421-7879 or to such other address as either party hereto may designate to the other party to this Agreement in accordance with this Section. SECTION 12. Counterparts. This Agreement may be ------------ executed in one or more counterparts and by telecopy, each of which shall be deemed to constitute an original and all of which shall be considered one and the same instrument. With respect to signatures transmitted by telecopy, upon request by either party to the other party, an original signature of such other party shall promptly be substituted for its facsimile. SECTION 13. Entire Agreement. This Agreement sets ----------------- forth the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and, except as otherwise set forth herein, supersedes all prior agreements and understandings with respect to the subject matter thereof (including, without limitation, the Expense Reimbursement Agreement previously entered into by the Company and Investor but excluding any existing confidentiality agreement between the Company and any Affiliate of Investor). This Agreement may only be amended, supplemented or modified by a written instrument signed by authorized representatives of each of the parties hereto. SECTION 14. Governing Law, etc. Except to the extent ------------------ inconsistent with the Bankruptcy Code, this Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without reference to principles of choice or conflicts of laws under which the law of any other jurisdiction would apply. SECTION 15. Invalid Provisions. If any provision of ------------------- this Agreement is held to be illegal, invalid or unenforceable under any present or future laws, rules or regulations, and if the rights or obligations of Investor and the Company under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms of such illegal, invalid or unenforceable provision as may be possible. If the rights and obligations of Investor or the Company will be materially and adversely affected by any such provision held to be illegal, invalid or unenforceable, then unless such provision is waived in writing by the affected party in its sole discretion, this Agreement shall be null and void. SECTION 16. Bankruptcy Court Approval. This Agreement ------------------------- shall not become effective for any purpose unless and until the Bankruptcy Court shall have entered an order approving this Agreement. SECTION 17. Jurisdiction of Bankruptcy Court. The ----------------------------------- parties agree that the Bankruptcy Court shall have and retain jurisdiction to enforce and construe the provisions of this Agreement. SECTION 18. No Third Party Beneficiary. This -------------------------------- Agreement and the Investment Agreement are made solely for the benefit of the Company and Investor, and no other Person (including, without limitation, employees, shareholders and creditors of the Company) shall have any right, claim or cause of action under or by virtue of this Agreement or the Investment Agreement, except to the extent such Person is entitled to expense reimbursement pursuant to this Agreement or may assert a claim for indemnity pursuant to this Agreement. SECTION 19. Interpretation. In this Agreement, unless -------------- a contrary intention appears, (i) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision and (ii) reference to any Section means such Section hereof. The Section headings herein are for convenience only and shall not affect the construction hereof. No provision of this Agreement shall be interpreted or construed against either party solely because such party or its legal representative drafted such provision. SECTION 20. Termination. (a) Anything herein or ----------- elsewhere to the contrary notwithstanding, this Agreement and the Investment Agreement may be terminated at any time prior to the Effective Date: (i) by mutual consent of Investor and the Company; (ii) by either Investor or the Company if a domestic court of competent jurisdiction or a domestic Regulatory Authority of competent jurisdiction shall have issued an order, decree or ruling or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting the Investment, and such order, decree or ruling or other action shall have become final and non-appealable; provided, however, that in no event shall Investor be entitled to terminate this Agreement or the Investment Agreement pursuant to this clause (ii) on account of the issuance of any order, decree or ruling or the taking of any other action relating to antitrust laws or regulations; (iii) by Investor if: (A) any of the conditions specified in Section 8(a), 8(g), 8(n), 8(p), 8(r) or 8(s) of the Investment Agreement has not been satisfied by the respective deadlines (as extended from time to time) set forth with respect thereto in such clauses for any reason other than (1) a material breach by Investor of any of its representations, warranties, covenants or obligations under this Agreement, the Investment Agreement or any Related Agreement or (2) the issuance of any order, decree or ruling or the taking of any other action relating to antitrust laws or regulations; (B) any of the other conditions precedent set forth in Section 8 of the Investment Agreement has not been or, in the reasonable good faith determination of Investor, will not be able to be satisfied by the Outside Date for any reason other than (1) a material breach by Investor of any of its representations, warranties, covenants or obligations under this Agreement, the Investment Agreement or any Related Agreement or (2) the issuance of any order, decree or ruling or the taking of any other action relating to antitrust laws or regulations; or (C) any of the Company's representations or warranties made herein, in the Investment Agreement or in any Related Agreement prove to have been inaccurate in any material respect when made; provided, however, that Investor shall not be entitled to terminate this Agreement pursuant to this clause (iii) at a time when Investor (or its Affiliates) shall be in material breach of any of its representations, warranties, covenants or obligations under this Agreement, the Investment Agreement or any Related Agreement; and, provided further, however, that upon Investor becoming aware of any breach by the Company of any of its representations, warranties, covenants or obligations hereunder or under the Investment Agreement or any of the Related Agreements, or the occurrence or nonoccurrence of any other event, in any such case which would give Investor the ability to terminate this Agreement pursuant to the provisions of this clause (iii), Investor promptly shall notify the Company, the Equity Committee and the Creditors' Committee of the existence of such breach and provide the Company seven business days to cure such breach or remedy such occurrence or nonoccurrence before exercising the termination right granted hereunder; (iv) by the Company if: (A) any of the conditions specified in Section 9 of the Investment Agreement has not been or, in the reasonable good faith determination of the Company, will not be able to be satisfied by the Outside Date for any reason other than a material breach by the Company of any of its representations, warranties, covenants or obligations under this Agreement, the Investment Agreement or any Related Agreement; or (B) any of the Investor's representations or warranties made herein, in the Investment Agreement or in any Related Agreement prove to have been inaccurate in any material respect when made; provided, however, that the Company shall not be entitled to terminate this Agreement pursuant to this clause (iv) at a time when the Company shall be in material breach of any of its representations, warranties, covenants or obligations under this Agreement, the Investment Agreement or any Related Agreement; and, provided further, however, that upon the Company becoming aware of any breach by Investor of any of its representations, warranties, covenants or obligations hereunder or under the Investment Agreement or any of the Related Agreements, or the occurrence or nonoccurrence of any other event, in any such case which would give the Company the ability to terminate this Agreement pursuant to the provisions of this clause (iv), the Company promptly shall notify Investor, the Equity Committee and the Creditors' Committee of the existence of such breach and provide Investor seven business days to cure such breach or remedy such occurrence or nonoccurrence before exercising the termination right granted hereunder; (v) by the Company as contemplated by Section 1(c); or (vi) by either the Company or the Investor if the Effective Date has not occurred by December 31, 1994. (b) In the event of the termination of this Agreement by either party pursuant to paragraph (a) above, written notice thereof shall be promptly given to the other party and, subject to paragraph (d) below, this Agreement and the Investment Agreement shall terminate and the transactions contemplated hereby and thereby shall be abandoned without further action by Investor or the Company. (c) This Agreement shall automatically terminate upon confirmation of a plan of reorganization (other than the Plan) prior to the Outside Date (as defined in the Investment Agreement). (d) In the event of the termination of this Agreement as provided in paragraph (a) or (c) above, (i) this Agreement, the Investment Agreement and the Related Agreements shall forthwith become null and void, and there shall be no liability on the part of any Investor or the Company or any of their respective partners, officers, directors, employees, agents or stockholders, except for fraud or for willful breach of this Agreement, the Investment Agreement (but only if the Confirmation Order is entered) or the Related Agreements and except that the parties shall continue to be obligated as set forth in Sections 2, 3, 7, 8, 9, 17 and 18 of this Agreement and in Sections 28(b) and 30 of the Investment Agreement, all of which Sections shall survive the termination of this Agreement. The termination of this Agreement and the Investment Agreement pursuant to paragraph (a) above shall become effective when (y) in the case of a termination pursuant to clause (i) of paragraph (a) above, the required consent is executed and (z) in the case of a termination pursuant to any other clause of paragraph (a) above, the required notice is given by the terminating party. No termination of this Agreement pursuant to this Section 20 shall constitute a breach of this Agreement. The termination of this Agreement and the Investment Agreement shall not cause or constitute a termination of any existing confidentiality agreement between the Company and one or more Affiliates of Investor. SECTION 21. Privileged Communication. The parties ------------------------- hereto anticipate that, being similarly situated and having a common interest in the Company's bankruptcy case with respect to the Plan, and in anticipation of potential litigation with other constituents of the Company, they may share certain documents, information, factual materials, mental impressions, memoranda, reports, and attorney-client communications that may be privileged from disclosure to adverse or other parties as a result of the attorney-client privilege, the attorney work product privilege, or other applicable privileges. The parties hereto agree that the sharing of such information or materials shall not diminish in any way the confidentiality of such information or materials and shall not constitute a waiver of any applicable privilege. IN WITNESS WHEREOF, the Company and Investor, by their respective officers thereunto duly authorized, have executed this Agreement as of the date first above written. AMERICA WEST AIRLINES, INC. as Debtor and Debtor-in-Possession By: _______________________________ Title: ____________________________ AMWEST PARTNERS, L.P. By: AmWest Genpar, Inc., its General Partner By: _______________________________ Title: ____________________________ EX-10.V 7 FORM OF REVISED INVESTMENT AGREEMENT REVISED INVESTMENT AGREEMENT ---------------------------- March 11, 1994 America West Airlines, Inc. 4000 East Sky Harbor Boulevard Phoenix, AZ 85034 Attention: William A. Franke Chairman of the Board Gentlemen: This letter agreement (this "Agreement") sets forth the --------- agreement between America West Airlines, Inc., a Delaware corporation (including, on or after the effective date of the Plan, as defined herein, its successors, as reorganized pursuant to the Bankruptcy Code, as defined herein) (the "Company"), and ------- AmWest Partners, L.P., a Texas limited partnership ("Investor"). -------- The Company will issue and sell to Investor, and Investor hereby agrees and commits to purchase from the Company, a package of securities of the Company for $220 million in cash (subject to adjustment as herein provided), consisting of (i) shares of Class A Common Stock of the Company ("Class A Common"), -------------- (ii) shares of Class B Common Stock of the Company ("Class B ------- Common" and, together with the Class A Common, "Common Stock"), ------ ------------- (iii) senior unsecured notes of the Company ("Notes") and (iv) ----- warrants to purchase shares of Class B Common ("Warrants") , all -------- on the terms and subject to the terms and conditions hereinafter set forth. Investor s purchase of the securities referred to above (the "Investment") will be made in connection with and as part of ---------- the transactions to be consummated pursuant to a joint Plan of Reorganization of the Company (the "Plan") and an order (the ---- "Confirmation Order") confirming the Plan issued by the ------------------- Bankruptcy Court, as defined herein. The Plan will contain provisions called for by, or otherwise consistent with, this Agreement. In consideration of the agreements of Investor hereunder, and as a precondition and inducement to the execution of this Agreement by Investor, the Company has entered into the Interim Procedures Agreement with Investor, dated the date hereof (the "Procedures Agreement"). -------------------- SECTION 1. Definitions. For purposes of this ----------- Agreement, except as expressly provided herein or unless the context otherwise requires, the following terms shall have the following respective meanings: "Affiliate" shall mean (i) when used with reference to --------- any partnership, any Person that, directly or indirectly, owns or controls 10% or more of either the capital or profit interests of such partnership or is a partner of such partnership or is a Person in which such partnership has a 10% or greater direct or indirect equity interest and (ii) when used with reference to any corporation, any Person that, directly or indirectly, owns or controls 10% or more of the outstanding voting securities of such corporation or is a Person in which such corporation has a 10% or greater direct or indirect equity interest. In addition, the term "Affiliate," when used with reference to any Person, shall also mean any other Person that, directly or indirectly, controls or is controlled by or is under common control with such Person. As used in the preceding sentence, (A) the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity referred to, whether through ownership of voting securities, by contract or otherwise and (B) the terms "controlling" and "controls" shall have meanings correlative to the foregoing. Notwithstanding the foregoing, the Company will be deemed not to be an Affiliate of Investor or any of its partners. "Alliance Agreements" shall have the meaning specified -------------------- in Section 5. "Approvals" shall have the meaning specified in Section --------- 8(b). "Average Closing Price" shall have the meaning specified --------------------- in Section 4(a)(2)(v)(B). "Bankruptcy Code" shall mean Chapter 11 of the United ---------------- States Bankruptcy Code. "Bankruptcy Court" shall mean the United States ------------------ Bankruptcy Court for the District of Arizona. "Business Combination" means: -------------------- (i) any merger or consolidation of the Company with or into Investor or any Affiliate of Investor; (ii) any sale, lease, exchange, transfer or other disposition of all or any substantial part of the assets of the Company to Investor or any Affiliate of Investor; (iii) any transaction with or involving the Company as a result of which Investor or any of Investor s Affiliates will, as a result of issuances of voting securities by the Company (or any other securities convertible into or exchangeable for such voting securities) acquire an increased percentage ownership of such voting securities, except pursuant to a transaction open on a pro rata basis to all holders of Class B Common; or (iv) any related series or combination of transactions having or which will have, directly or indirectly, the same effect as any of the foregoing. "Class A Common" shall have the meaning specified in the -------------- second paragraph of this Agreement. "Class B Common" shall have the meaning specified in the --------------- second paragraph of this Agreement. "Common Stock" shall have the meaning specified in the ------------ second paragraph of this Agreement. "Company" shall have the meaning specified in the first ------- paragraph of this Agreement. "Confirmation Date" shall mean the date on which the ----------------- Confirmation Order is entered by the Bankruptcy Court. "Confirmation Order" shall have the meaning specified in ------------------ the third paragraph of this Agreement. "Continental" shall mean Continental Airlines, Inc. ----------- "Creditors Committee" shall mean the Official Committee -------------------- of the Unsecured Creditors of America West Airlines, Inc. appointed in the Company's Chapter 11 case pending in the Bankruptcy Court. "Disclosure Statement" shall mean a disclosure statement -------------------- with respect to the Plan. "Effective Date" shall mean the effective date of the --------------- Plan; provided, that in no event shall the Effective Date be (a) earlier than 11 days after the Bankruptcy Court approves and enters the Confirmation Order providing for the confirmation of the Plan or (b) before all material Approvals are obtained. "Electing Party" shall have the meaning specified in --------------- Section 4(a)(2)(ii). "Equity Committee" shall mean the Official Committee of ---------------- Equity Holders of America West Airlines, Inc. appointed in the Company's Chapter 11 case pending in the Bankruptcy Court. "Equity Holders" shall mean the Company's equity ---------------- security holders (including holders of common stock and preferred stock) of record as of the applicable record date fixed by the Bankruptcy Court. "Escrow Shares" shall have the meaning specified in -------------- Section 4(a)(2)(v). "Governance Agreements" shall have the meaning specified --------------------- in Section 6. "GPA" shall mean GPA Group plc or, if applicable, any --- direct or indirect subsidiary thereof. "GPA Put Agreement" shall have the meaning specified in ----------------- Section 7(j). "Independent Directors" shall have the meaning specified --------------------- in Section 6(a)(ii). "Initial Order" shall have the meaning specified in ------------- Section 8(a). "Investment" shall have the meaning specified in the ---------- third paragraph of this Agreement. "Investor" shall have the meaning specified in the first -------- paragraph of this Agreement. "Mesa" shall mean Mesa Airlines, Inc. ---- "Monthly Targets" shall mean the amounts specified in ---------------- the Monthly Targets Schedule. "Monthly Targets Schedule" shall mean the letter --------------------------- agreement between the Company and Investor dated the date hereof. "Non-Contingent Shares" shall have the meaning specified --------------------- in Section 4(a)(2)(v)(A). "Notes" shall have the meaning specified in the second ----- paragraph of this Agreement. "Outside Date" shall mean August 15, 1994; provided that ------------ Investor shall have the right from time to time to irrevocably extend the Outside Date to a date not later than November 30, 1994, but only if Investor gives the Company prior written notice of its election to extend the then current Outside Date (which notice shall specify the new Outside Date) and then only if, at the time of the giving of such notice, Investor is not in breach of any of its representations, warranties, covenants or obligations under this Agreement, the Procedures Agreement or any Related Agreement (excluding any breach by Investor which is not willful or intentional and which is capable of being cured on or before the new Outside Date). Unless waived by the Company, any notice given pursuant to this definition shall be delivered to the Company not less than 15 days prior to the then current Outside Date except that, in the event the Effective Date has not occurred for any reason arising within such 15-day period not due to a breach by Investor of any of its representations, warranties, covenants or agreements hereunder, such notice shall be given as soon as practicable but in no event later than the then current Outside Date. "Person" means a natural person, a corporation, a ------ partnership, a trust, a joint venture, any Regulatory Authority or any other entity or organization. "Plan" shall have the meaning specified in the third ---- paragraph of this Agreement. "Plan 9" means the Company's Plan Revision No. 9 which ------ consists of the Summary Pro Forma Financial Statements: June 1993 Through December 1994, dated July 15, 1993. "Plan R-2" shall mean the Company's Summary Pro Forma --------- Financial Statements, 5 Year Plan: 1994 Through 1998, Plan No. R-2, dated January 13, 1994. "Prepetition Claims" shall mean, as of any date, the ------------------ aggregate amount of the allowed or allowable prepetition unsecured claims without priority of the Unsecured Creditors (other than the Electing Parties) under Section 502 of the Bankruptcy Code as of such date as determined by a final order of the Bankruptcy Court, provided that the first such determination shall be made at an estimation hearing to be held on or before the date of the hearing on the Confirmation Order. "Procedures Agreement" shall have the meaning specified -------------------- in the fourth paragraph of this Agreement. "Projections" shall mean the projections set forth in ----------- Plan 9 on pages 15 and 18 of Tab E and pages 7 and 8 of Tab F. "Purchase Price" shall have the meaning specified in -------------- Section 2. "Regulatory Approvals" shall mean all approvals, ---------------------- permits, authorizations, consents, licenses, rulings, exemptions and agreements required to be obtained from, or notices to or registrations or filings with, any Regulatory Authority (including the expiration of all applicable waiting periods, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) that are necessary or reasonably appropriate to permit the Investment and the other transactions contemplated hereby and by the Related Agreements and to permit the Company to carry on its business after the Investment in a manner consistent in all material respects with the manner in which it was carried on prior to the Effective Date or proposed to be carried on by the reorganized Company. "Regulatory Authority" shall mean any authority, agency, -------------------- commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision. "Related Agreements" shall have the meaning specified in ------------------ Section 3. "Securities" shall mean the securities of the Company ---------- issued to the Unsecured Parties, Investor and GPA under this Agreement. The Securities are described in Section 4. "Shortfall" shall mean, as of any date, the amount by --------- which (i) the aggregate amount determined by the Bankruptcy Court as required for full recovery as of the Effective Date for the holders of the Prepetition Claims exceeds (ii) the value of the Non-Contingent Shares as of the date of such determination. "Unsecured Creditors" shall mean, as of any date, the -------------------- Persons holding of record as of such date the allowed or allowable prepetition unsecured claims without priority of the Company. "Unsecured Parties" shall mean the Equity Holders and ------------------ the Unsecured Creditors. "Warrants" shall have the meaning specified in the -------- second paragraph of this Agreement. SECTION 2. Commitment to Make Investment. Subject to ------------------------------ the terms and conditions of this Agreement and the Procedures Agreement, on the Effective Date, the Company shall issue and sell and Investor shall purchase Securities in accordance with this Agreement and the Plan. Such Securities shall be issued, sold and delivered to Investor, its designees and/or one or more third party investors, and the $220 million purchase price therefor, as such purchase price may be adjusted pursuant hereto (the "Purchase Price"), shall be paid by wire transfer of --------------- immediately available funds on the Effective Date. SECTION 3. Related Agreements. The agreements necessary ------------------ to effect the Investment (the "Related Agreements", such term ------------------ to include the Alliance Agreements and the Governance Agreements) shall be in form and substance reasonably satisfactory to Investor and the Company, and shall contain terms and provisions, including representations, warranties, covenants, warranty termination periods, materiality exceptions, cure opportunities, conditions precedent, anti-dilution provisions (as appropriate), and indemnities, as are in form and substance reasonably satisfactory to such parties; provided, however, that the Related Agreements shall contain provisions called for by, or otherwise consistent with, this Agreement. SECTION 4. Capitalization. (a) Upon consummation of -------------- the Plan, the capitalization of the Company shall be as follows: (1) Class A Common. There shall be 1,200,000 shares of --------------- Class A Common, all of which shares shall, in accordance with the Plan, be issued to Investor. Investor shall pay $7,964,444 for the Class A Common. At the option of the holders thereof, shares of Class A Common shall be convertible into shares of Class B Common on a share for share basis. (2) Class B Common. There shall be 43,800,000 shares of --------------- Class B Common, all of which shares shall, in accordance with the Plan, be issued as follows: (i) Investor. Investor shall be issued 15,675,000 -------- shares plus the number of shares (if any) to be acquired by Investor pursuant to clause (ii) below minus the number of shares, if any, issued to the Equity Holders pursuant to clause (iii) below. For each share of Class B Common issued to it, Investor shall pay $7.147; provided that (A) for each share acquired by Investor pursuant to clause (ii) below, Investor shall pay $8.889 and (B) for each share not purchased by the Equity Holders pursuant to clause (iii) below, Investor shall pay $8.296. (ii) Unsecured Creditors. The Unsecured --------------------- Creditors (or a trust created for their benefit) shall be issued 20,250,000 shares. Notwithstanding the foregoing, each Unsecured Creditor shall have the right to elect to receive cash equal to 8.889 for each share of Class B Common otherwise allocable to it under this clause (ii). The election of each such Person (the "Electing Party") must be made on or before the date -------------- fixed by the Bankruptcy Court for voting with respect to the Plan; provided, however, that in the event that such elections of all Electing Parties aggregate to more than $100 million, then (A) the amount of cash so paid shall be limited to $100 million and (B) the Electing Parties shall each receive proportionate amounts of cash and Class B Common in accordance with the Plan. Subject to the foregoing proviso, Investor shall increase the Investment by the amount necessary to pay all Electing Parties the cash amounts payable to them under this clause (ii) in respect of the shares of Class B Common specified in their elections and, upon payment of such amounts, such shares shall be issued to Investor without further consideration. Notwithstanding the foregoing, Investor s acquisition of shares of Class B Common pursuant to this clause (ii) shall, if permitted by applicable securities and other laws, be consummated immediately after the issuance of such shares to the Electing Parties on the Effective Date. If such shares are not so acquired post-consummation of the Plan, all shares of Class B Common acquired by Investor pursuant to this clause (ii) shall, for all purposes hereof, be deemed to be part of the Securities acquired by Investor hereunder. (iii) Equity Holders. The Equity Holders shall --------------- have the right to purchase up to 1,808,036 shares allocable to Investor pursuant to clause (i) above at $8.296 per share. Such election must be made by each Equity Holder on or before the date fixed by the Bankruptcy Court for voting with respect to the Plan. The Plan shall set forth the terms and conditions on which the foregoing rights may be exercised. (iv) GPA. 3,375,000 shares shall be issued to --- GPA. (v) Escrow Shares. 4,500,000 shares (the "Escrow -------------- ------ Shares") shall be issued to the Unsecured Parties as ------ follows: (A) All of the Escrow Shares shall be issued to the Equity Holders if the Bankruptcy Court determines on the Confirmation Date that the Non Contingent Shares will provide a full recovery, as of the Effective Date, for the holders of Prepetition Claims. As used herein, "Non-Contingent -------------- Shares" means the 20,250,000 shares of Class B ------ Common issuable to the Unsecured Creditors pursuant to clause (ii) above less the number of such shares to be acquired by Investor pursuant to the provisions of such clause. (B) If, however, the Bankruptcy Court determines on the Confirmation Date that the value of the Non-Contingent Shares does not, as of the Effective Date, provide a full recovery for the holders of the Prepetition Claims, then the Escrow Shares will be placed in escrow with a bank or trust company reasonably acceptable to the Creditors' Committee and the Equity Committee (the "Escrow Agent") for a ------------ period of one year ending on the first anniversary of the Effective Date ("First Anniversary"). If, on ------------------ any date prior to the First Anniversary, the Closing Price of the Non-Contingent Shares for any ten out of 15 consecutive trading days ending on or before such date is equal to or exceeds the Closing Price at which the Bankruptcy Court determines the holders of the Prepetition Claims shall have received a full recovery as of the Effective Date, the Escrow Agent shall terminate the escrow and release the Escrow Shares therefrom for distribution to the Equity Holders. As used herein, "Closing Price" for any ------------- trading day means (i) if shares of Class B Common are traded on the New York Stock Exchange or the American Stock Exchange, the closing price of Class B Common for such trading day or (ii) if shares of Class B Common are traded on NASDAQ or otherwise in the over the counter markets, the final bid price of the Class B Common for such trading day. If the escrow is not terminated early as aforesaid, then (x) the value of the Non-Contingent Shares shall be determined on the First Anniversary based on the average of the Closing Prices for the 20 consecutive trading days prior to the First Anniversary (the "Average Closing Price"), (y) the Unsecured ------------------------- Creditors shall be distributed such number of the Escrow Shares as shall equal the quotient determined by dividing (aa) the amount of the Shortfall as of the First Anniversary (if any) by (bb) the Average Closing Price and (z) the remaining Escrow Shares, if any, shall be distributed to the Equity Holders. (3) Warrants. There shall be Warrants to purchase -------- 6,428,572 shares of Class B Common at the exercise price as specified in and subject to the terms of Exhibit A hereto, ---------- and such Warrants shall, in accordance with the Plan, be issued as follows: (i) Warrants to purchase up to 2,571,429 shares of Class B Common shall be issued to Investor; and (ii) Warrants to purchase up to 2,571,429 shares of Class B Common shall be issued to the Equity Holders or a trust or trusts created for their benefit; and (iii) Warrants to purchase up to 1,285,714 shares of Class B Common shall be issued to GPA. (4) Senior Unsecured Notes. There shall be issued $103 ----------------------- million principal amount of Notes on the terms set forth in and subject to the terms of Exhibit B hereto, and such Notes --------- shall, in accordance with the Plan, be issued (i) 100 million principal amount to Investor against payment in cash of not less than 99% of the principal amount thereof and (ii) $3 million principal amount to GPA. (b) Holders of the Class A Common shall have fifty votes per share. Holders of Class B Common shall have one vote per share. Holders of Class A Common and holders of Class B Common shall vote together as a single class except as otherwise required by law or the provisions of this Agreement. Investor may elect, with respect to any shares of Class B Common held by it, to suspend the voting rights relating to such shares by giving prior written notice to the Company, which notice shall describe such shares in reasonable detail and state whether or not the voting suspension is permanent or temporary and, if temporary, specify the period thereof. All Escrow Shares shall be counted for purposes of determining a quorum at any meeting of the Company's stockholders. In the case of each matter submitted for a vote by the holders of Class B Common, the Escrow Agent shall vote all of the Escrow Shares in the same proportion as all other shares of Class B Common are voted with respect to such matter. SECTION 5. Business Alliance Agreements. Continental ----------------------------- and the Company shall enter into mutually acceptable business alliance agreements on the Effective Date, which agreements may include, but shall not be limited to, agreements to share ticket counter space, ground handling agreements, agreements to link frequent flier programs, and combined purchasing agreements, and schedule coordination and code sharing agreements. On the Effective Date, Mesa shall enter into agreements with the Company extending the existing contractual arrangements between the Company and Mesa for five years from the Effective Date and modifying the termination provisions thereof consistent with such extension. Such agreements with Continental and Mesa are herein collectively referred to as the "Alliance Agreements". ------------------- SECTION 6. Governance Agreements. On the Effective ---------------------- Date, the Company, Investor and Investor s partners (other than any such partner holding shares of Class B Common the voting rights with respect to which have been suspended as contemplated by Section 4(b)) shall enter into one or more written agreements (the "Governance Agreements") effectively providing as follows: --------------------- (a) At all times during the three-year period commencing on the Effective Date, the Company's board of directors shall consist of 15 members designated as follows: (i) nine members (at least 8 of whom are U.S. citizens) shall be designated by Investor, with certain of the partners of Investor having the right to designate certain of Investor s designated directors; (ii) four members (the "Independent Directors") ---------------------- (at least two of whom are U.S. citizens) shall be designated by a majority of the Stockholder Representatives; provided that each such member shall be reasonably acceptable to Investor at the time of his or her initial designation; and (iii) two members shall be designated by GPA for so long as GPA shall own at least 4% of the voting equity securities of the Company; provided that each such member shall be reasonably acceptable to Investor at the time of his or her initial designation. As used herein, "Stockholder Representatives" shall mean, ---------------------------- collectively, (A) three individuals who, on the date hereof, are serving as directors of the Company, (B) one individual who, on the date hereof, is serving as a member of the Creditors' Committee and (C) one individual who, on the date hereof, is serving as a member of the Equity Committee. The initial Stockholder Representatives shall be selected on or before the Effective Date (x) by the Company's board of directors in the case of the three individuals referred to in clause (A) above, (y) by the Creditors' Committee in the case of the individual referred to in clause (B) above and (z) by the Equity Committee in the case of the individual referred to in clause (C) above. In the case of the death, resignation, removal or disability of a Stockholder Representative after the Effective Date, his or her successor shall be designated by a majority of the remaining Stockholder Representatives. (b) Until the third anniversary of the Effective Date, Investor will vote and cause to be voted all shares of Common Stock (other than those the voting rights of which have been suspended) owned by Investor or any of its partners or by the assignees or transferees of all or substantially all of the Common Stock owned by Investor or any of its partners (other than a Person who acquires such stock pursuant to a tender or exchange offer open to all stockholders of the Company) in favor of the election as directors of any and all individuals designated for such election as contemplated by clauses (ii) and (iii) of paragraph (a) above. (c) No director nominated by Investor shall be an officer or employee of Continental. All Company directors, if any, who are selected by, or who are directors of, Continental shall recuse themselves from voting on, or otherwise receiving any confidential Company information regarding, matters in connection with negotiations between Continental and the Company (including, without limitation, those relating to the Alliance Agreements) and matters in connection with any action involving direct competition between Continental and the Company. All Company directors, if any, who are selected by, or who are directors, officers or employees of, Mesa shall recuse themselves from voting on, or otherwise receiving any confidential Company information regarding, matters in connection with negotiations between Mesa and the Company (including, without limitation, those relating to the Alliance Agreements) and matters in connection with any action involving direct competition between Mesa and the Company. (d) During the three-year period commencing on the Effective Date, the Company will not consummate any Business Combination unless such transaction shall be approved in advance by at least three Independent Directors or by a majority of the stock voted at the meeting held to consider such transaction which is owned by stockholders of the Company other than Investor or any of its Affiliates; provided, however, that neither Mesa nor any Fidelity Fund (or any of their non-Affiliated transferees) will be deemed an Affiliate of Investor for purposes of voting on any Business Combination involving Continental. SECTION 7. Plan of Reorganization. The Plan shall (i) ---------------------- be proposed jointly by the Company and Investor, (ii) contain terms and conditions reasonably satisfactory to Investor and the Company, and (iii) include the following provisions; provided that Investor and the Company may, by mutual agreement, modify the Plan or otherwise restructure the Investment in a manner consistent with the contemplated economic consequences to the Company, Investor, the Unsecured Parties and GPA in order to enable the Company, as reorganized, to more fully utilize its existing tax attributes: (a) Debtor-in-Possession Financing. The Company's --------------------------------- debtor-in-possession financing shall be repaid in full in cash on the Effective Date. (b) Administrative Claims. All allowed administrative ---------------------- claims shall be paid as required pursuant to Section 1129(a) of the Bankruptcy Code, provided that such claims do not exceed the amount set forth in Plan R-2 plus $15 million, and provided further that payment of such claims in excess of those set forth in Plan R-2 would not, if payment was to be made in the month immediately preceding the Effective Date, cause the Company to fail to meet any of the Monthly Targets for such month. (c) Tax Claims. All priority tax claims shall be paid ---------- over the maximum term permitted by the Bankruptcy Code, as determined by the Bankruptcy Court, with interest accruing at a rate determined by the Bankruptcy Court, provided that such claims do not exceed the amounts set forth in Plan R-2 plus $8.5 million, and provided further that payment of such claims in excess of those set forth in Plan R-2 would not, if payment was to be made in the month immediately preceding the Effective Date, cause the Company to fail to meet any of the Monthly Targets for such month . (d) Nontax Priority Claims. All nontax priority claims ----------------------- shall be paid as required pursuant to Section 507 of the Bankruptcy Code, provided that such claims do not exceed the amounts set forth in Plan R-2. (e) Secured Claims. Secured debt claims shall be --------------- treated as provided in Plan R-2 subject to (i) modification based on updated appraisals of collateral values to be conducted by the Company and consistent with the applicable provisions of the Bankruptcy Code, or (ii) such other terms as shall be reasonably satisfactory to the Company and Investor. (f) Unsecured Creditors. In consideration for (A) the ------------------- shares and cash issued or paid, as the case may be, to the Unsecured Creditors pursuant to Section 4(a)(2)(ii), and (B) the shares, if any, issued to the Unsecured Creditors pursuant to Section 4(a)(2)(v)(B), the unsecured claims of the Unsecured Creditors shall be cancelled as specified in the Plan. (g) Equity Holders. In consideration for (A) the right --------------- to purchase shares pursuant to Section 4(a)(2)(iii), (B) the shares, if any, issued to the Equity Holders pursuant to Section 4(a)(2)(v), and (C) the Warrants issued to the Equity Holders pursuant to Section 4(a)(3)(ii), the equity interests of the Equity Holders shall be cancelled as specified in the Plan. (h) Leases. All aircraft leases which have been assumed ------ prior to the date hereof will be honored by the Company in accordance with their terms and without reduction of rentals thereunder, provided that with the consent of the Company, Investor and any applicable lessor, any such lease may be amended to reduce the rentals payable thereunder, it being understood that, in consideration of any such amendment and with the consent of the Creditors' Committee, securities of the Company may be issued to such lessors from securities otherwise allocable to the Unsecured Parties to the extent consistent with any agreement in writing entered into by Investor and the Equity Committee on or before the date hereof. (i) Kawasaki. The contractual right of Kawasaki Leasing -------- International Inc. ("Kawasaki") to require the Company to -------- lease certain aircraft and aircraft engines shall be modified on terms satisfactory to the Company, Investor and Kawasaki or, in the absence of such modification, honored. (j) GPA. In consideration for (A) the shares to be --- issued to GPA pursuant to Section 4(a)(2)(iv), (B) the Warrants to be issued to GPA pursuant to Section 4(a)(3)(iii), (C) the Notes to be issued to GPA pursuant to Section 4(a)(4) and (D) the granting to GPA on the Effective Date of the right (the "New GPA Put") to require the Company ----------- to lease from GPA on or prior to June 30, 1999, up to eight aircraft of types consistent with the fleet currently operated by the Company, GPA shall, as specified in the Plan, cancel and waive all rights to put any aircraft to the Company which it may have pursuant to the Put Agreement between GPA and the Company, dated as of June 25, 1991 (the "GPA Put Agreement") and/or the related Agreement Regarding ------------------ Rights of First Refusal for A320 Aircraft, dated as of September 1, 1992 (the "First Refusal Agreement") and all ------------------------ other claims of any kind or nature arising out of or in connection with the GPA Put Agreement and/or the First Refusal Agreement (other than claims for reimbursement of expenses incurred by GPA in connection therewith). Each such lease shall provide for the payment by the Company of a fair market rental (determined at or about the time of delivery of the related aircraft to the Company on the basis of rentals then prevailing in the marketplace for comparable leases of comparable aircraft to lessees of comparable creditworthiness); and each such lease shall have such other terms and provisions and be in such form as is agreed upon by the Company and GPA with the approval of Investor (which approval shall not be unreasonably withheld or delayed) and attached to the agreement pursuant to which GPA is granted the New GPA Put. (k) Prepetition Aircraft Purchase Contracts. The -------------------------------------------- prepetition contract for the purchase of aircraft between the Company and The Boeing Company shall either be modified on terms satisfactory to Investor, the Company and The Boeing Company or, in the absence of such agreement, rejected. The Company's aircraft purchase contract with AVSA, S.A.R.L. ("Airbus") shall be amended on terms ------ consistent with the provisions of the AmWest - A320 Term Sheet, dated as of February 23, 1994 by and between Investor and Airbus. (l) Employees. The Company shall have the right to --------- release employees from all currently existing obligations to the Company in respect of shares of Company stock purchased by such employees pursuant to the Company's stock purchase plan, such release to be in consideration for the cancellation of such shares. (m) Exculpation. The Plan will contain customary ------------ exculpation provisions for the benefit of the Creditors' Committee and the Equity Committee and their respective professionals. SECTION 8. Conditions to Investor's Obligations -------------------------------------------- Relating to the Investment. The obligations of Investor to ---------------------------- consummate the Investment and the other transactions contemplated herein shall be subject to the satisfaction, or the written waiver by Investor, of the following conditions: (a) an initial order approving the Procedures Agreement, which order shall be in form and substance reasonably satisfactory to Investor (the "Initial Order"), shall have ------------- been entered by the Bankruptcy Court on or prior to March 31, 1994 and, once entered, shall be in effect and shall not be modified in any material respect or stayed; (b) subject to Section 10(b), the Company and Investor, as applicable, shall have received all Regulatory Approvals, which shall have become final and nonappealable or any period of objection by Regulatory Authorities shall have expired, as applicable, and all other material approvals, permits, authorizations, consents, licenses and agreements from other third parties that are necessary or appropriate to permit the Investment and the other transactions contemplated hereby and by the Related Agreements and to permit the Company to carry on its business after the Effective Date in a manner consistent in all material respects with the manner in which it was carried on prior to the Effective Date (collectively with Regulatory Approvals, the "Approvals"), which Approvals shall not contain any --------- condition or restriction that, in Investor's reasonable judgment, materially impairs the Company's ability to carry on its business in a manner consistent in all material respects with prior practice or as proposed to be carried on by the reorganized Company; (c) the certificate of incorporation and bylaws of the Company shall contain the terms contemplated by this Agreement and shall otherwise be reasonably satisfactory to Investor; (d) there shall be in effect no injunction, stay, restraining order or decree issued by any court of competent jurisdiction, whether foreign or domestic, staying the effectiveness of any of the Approvals, the Initial Order or the Confirmation Order, and there shall not be pending any request or motion for any such injunction, stay, restraining order or decree; provided, however, that the foregoing condition shall not apply to any such injunction, stay, order or decree requested, initiated or supported by Investor or any of its partners or other Affiliates or to any such request or motion made, initiated or supported by Investor or any its partners or other Affiliates; (e) there shall not be threatened or pending any suit, action, investigation, inquiry or other proceeding (collectively, "Proceedings") by or before any court of ----------- competent jurisdiction or Regulatory Authority (excluding the Company's bankruptcy case, but including adversary proceedings and contested matters in such bankruptcy case, and excluding any such Proceedings fully and accurately disclosed by the Company in Schedule I hereto), or any ----------- adverse development occurring since December 31, 1993 in any such Proceedings, which Proceedings or development, singly or in the aggregate, in the good faith judgment of Investor, are reasonably likely to have a material adverse effect on the Company's ability to carry on its business in a manner consistent in all material respects with prior practices or are reasonably likely to impair in any material respect Investor's ability to realize the intended benefits and value of this Agreement, the Procedures Agreement or any Related Agreement; provided, however, that the foregoing condition shall not apply to any such Proceeding or development requested, initiated or supported by Investor or any of its partners or other Affiliates; (f) the Company shall have delivered to Investor appropriate closing documents, including the instruments evidencing the Securities being issued to Investor, certifications of the Company officers (including, but not limited to, incumbency certificates, and certificates as to the truth and correctness of statements made in the Disclosure Statement or any other offering document distributed in connection with any securities issued in respect of this Agreement or the Related Agreements) and opinions of legal counsel, all of which shall be reasonably satisfactory to Investor; (g) by no later than March 31, 1994, the Company shall have delivered to Investor audited financial statements as of December 31, 1993, and for the year then ended, which statements shall reflect a financial performance and a financial position of the Company consistent in all material respects with the unaudited results previously announced by the Company for such year, and, if requested by Investor, the Company shall have discussed such financial statements with Investor and provided an opportunity for Investor to discuss such financial statements with the Company's auditors; (h) since December 31, 1993, except for the matters disclosed in Schedule I hereto, no material adverse change ----------- in the Company's condition (financial or otherwise), business, assets, properties, operations or relations with employees or labor unions shall have occurred and no matter (except for the matters disclosed in Schedule I hereto) ---------- shall have occurred or come to the attention of Investor that, in the reasonable judgment of Investor, is likely to have any such material adverse effect; (i) the following shall be true in all material respects (in each case based on the Company's actual monthly or daily financial statements, which shall be prepared by the Company in a manner consistent in all material respects with its historical monthly and daily financial statements previously furnished to Investor): (A) the Company's actual monthly Operating Cash Flow (as defined on the Monthly Targets Schedule) shall not, in any month, be less than the minimum amount therefor established as part of the Monthly Targets, (B) the Company's actual 4 month Rolling Cash Flow (as defined on the Monthly Targets Schedule) shall not be less, as of the end of any four calendar month period, than the minimum amount therefor established as part of the Monthly Targets, (C) the Company's actual end of month Reported Cash Balance (as defined in the Monthly Targets Schedule) shall not, as of the end of any calendar month, be less than the minimum amount therefor established as part of the Monthly Targets, (D) the Company's actual five-day average Minimum Cash Balance (as defined in the Monthly Targets Schedule) shall not be, as of the end of any five day period, less than the minimum amount therefor established as part of the Monthly Targets; (E) the Company shall not have taken any actions which the Company knew or reasonably should have known would likely impair or hinder in any material respect the Company's ability to achieve the Projections; (F) the amount and nature of the obligations and liabilities (including, without limitation, tax liabilities and administrative expense claims) required to be paid by the Company on the Effective Date or to be paid by the Company following the Effective Date pursuant to obligations assumed by the Company during the course of its bankruptcy proceedings shall not be in excess of the amounts reflected in Plan R-2 plus any additional allowances provided in Section 7 (as reduced by any repayments of the existing debtor-in-possession loan made on or prior to the Effective Date) and shall not be materially different in nature than those specified in Plan R-2 (except with respect to administrative claims not known to the Company when Plan R-2 was developed); and (G) the Company shall have paid all fees and expenses due Investor under the Procedures Agreement; (j) since the date hereof, there shall have occurred no outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions or other adverse change in the financial markets that impairs (or could reasonably be expected to impair) in any material respect the Company's ability to carry on its business in a manner consistent in all material respects with prior practice or impairs (or could reasonably be expected to impair) in any material respect Investor s ability to realize the intended benefits and value of this Agreement or any Related Agreement; (k) the Related Agreements, including all Alliance Agreements, to be executed by the Company shall have been executed by the Company on or before the Effective Date and, once executed, shall not have been modified without the consent of Investor, shall be in effect and shall not have been stayed; (l) the Company shall have performed in all material respects all obligations on its part required to be performed on or before the Effective Date under this Agreement, the Procedures Agreement and the Related Agreements and all orders of the Bankruptcy Court in respect thereof that are consistent with the provisions of such intruments; (m) all representations and warranties of the Company under this Agreement, the Procedures Agreement and the Related Agreements shall be true in all material respects as of the Effective Date; (n) the Plan and Disclosure Statement each shall have been filed by the Company on or prior to May 1, 1994, and, once filed, shall have been served by the Company on all appropriate parties and, once served, shall not have been modified in any material respect without the prior consent of Investor (which consent shall not be unreasonably withheld), withdrawn by the Company or dismissed; (o) the Disclosure Statement (in the form approved by the Bankruptcy Court and as amended or supplemented, if applicable) shall have been true and correct in all material respects as of the date first mailed to Unsecured Parties and as of the date fixed by the Bankruptcy Court for voting on the Plan and such Disclosure Statement shall not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein (taken as a whole), in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing condition shall not apply to statements or other information furnished or provided by Investor or any of its Affiliates for use in the Disclosure Statement; (p) the order approving the Disclosure Statement shall have been entered by the Bankruptcy Court on or prior to June 15, 1994, and, once entered, shall not have been modified in any material respect, shall be in effect and shall not have been stayed; (q) the Plan (including all securities of the Company to be issued pursuant thereto and all contracts, instruments, agreements and other documents to be entered into in connection therewith), the Disclosure Statement and the Confirmation Order shall be consistent with the terms of this Agreement and otherwise reasonably satisfactory in form and substance to Investor; (r) the Confirmation Order shall have been entered by the Bankruptcy Court in form reasonably satisfactory to Investor on or before August 1, 1994, and, once entered, shall not have been modified in any material respect, shall be in effect and shall not have been stayed and shall not be subject to any appeal; (s) the Effective Date shall have occurred on or prior to the Outside Date unless the reason therefor shall be attributable to the breach by Investor or its Affiliates of any of their respective representations, warranties, covenants or obligations contained herein or in the Procedures Agreement or any Related Agreement;. (t) either pursuant to the Confirmation Order or otherwise, the Bankruptcy Court shall have established one or more bar dates for administrative expense claims pursuant to an order reasonably acceptable to Investor, which bar date or dates shall occur on or before dates reasonably acceptable to Investor; and (u) the Securities and Exchange Commission shall have declared effective a shelf registration statement with respect to the Securities issuable to Investor. In the event any of the conditions set forth in clause (a) (n), (p) or (r) is not satisfied by the date specified in such clause (the "Deadline"), then, on the 15th day following the then current Deadline, the Deadline shall be automatically extended on a day-to-day basis unless the Company and Investor otherwise agree in writing or unless Investor gives a notice of termination to the Company pursuant to Section 20(b) of the Procedures Agreement within such 15-day period. If any Deadline is automatically extended as aforesaid, Investor may thereafter establish a new Deadline by giving notice to the Company specifying the new Deadline, provided that the new Deadline may not be sooner than 30 days after the date of such notice. SECTION 9. Conditions to Company's Obligations Relating --------------------------------------------- to Investment. The Company's obligations to consummate or to -------------- cause the consummation of the issuance and sale of the Securities and the other transactions contemplated by this Agreement shall be subject to the satisfaction, or to the effective written waiver by the Company, of the condition described in Section 8(b) and the following additional conditions: (a) payment of the Purchase Price; (b) Investor shall have delivered to the Company appropriate closing documents, including, but not limited to, executed counterparts of the Related Agreements and certifications of officers, and opinions of legal counsel, all of which shall be reasonably satisfactory to the Company; (c) there shall be in effect no injunction, stay, restraining order or decree issued by any court of competent jurisdiction, whether foreign or domestic, staying the effectiveness of any of the Approvals, the Initial Order or the Confirmation Order, and there shall not be pending any request or motion for any such injunction, stay, restraining order or decree; provided, however, that the foregoing condition shall not apply to any such injunction, stay, order or decree requested, initiated or supported by the Company or to any such request or motion made, initiated or supported by the Company; (d) the Related Agreements to be executed by Investor or any of its partners shall have been executed by such parties on or before the Effective Date and, once executed, shall not have been modified without the consent of the Company, shall be in effect and shall not have been stayed; (e) Investor, Continental and Mesa shall have performed in all material respects all obligations on their part required to be performed on or before the Effective Date under this Agreement, the Procedures Agreement and the Related Agreements and all orders of the Bankruptcy Court in respect thereof that are consistent with the provisions of such instruments; (f) all representations and warranties of Investor, Continental and Mesa under this Agreement, the Procedures Agreement and the Related Agreements shall be true and correct in all material respects as of the Effective Date; (g) the Company shall be reasonably satisfied that the Alliance Agreements, when fully implemented, shall result in an increase to the Company's pretax income of not less than $40 million per year; (h) since the date hereof, there shall have occurred (A) no outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions or other adverse change in the financial markets or (B) any adverse change in the condition (financial or otherwise), business, assets, properties or prospects of Continental or Mesa, in each case that materially impairs the ability of either Continental or Mesa to perform its obligations under the Alliance Agreements or the Company's ability to realize the intended benefits and value of this Agreement, the Alliance Agreements (as contemplated by clause (g) above) or the other Related Agreements; (i) since the time of their initial filing by the Company, neither the Plan nor the Disclosure Statement shall have been modified in any material respect without the prior consent of the Company (which consent shall not be unreasonably withheld or delayed), withdrawn by Investor or dismissed; (j) the certificate of incorporation and bylaws of the Company shall contain the terms contemplated by this Agreement and shall otherwise be reasonably satisfactory to the Company; (k) the Plan (including all Securities to be issued pursuant thereto and all contracts, instruments, agreements and other documents to be entered into in connection therewith), the Disclosure Statement and the Confirmation Order shall be consistent with the terms of this Agreement and otherwise reasonably satisfactory in form and substance to the Company; (l) the Confirmation Order shall have been entered by the Bankruptcy Court in form reasonably acceptable to the Company and, once entered, shall not have been modified in any material respect, shall be in effect and shall not have been stayed and shall not be subject to any appeal; and (m) the Effective Date shall have occurred on or prior to the Outside Date unless the reason therefor shall be attributable to the breach by the Company of any of its representations, warranties, covenants or obligations contained herein or in the Procedures Agreement or any Related Agreement. SECTION 10. Cooperation. ----------- (a) The Company and Investor will cooperate in a commercially reasonable manner, and will use their respective commercially reasonable efforts, to consummate the transactions contemplated hereby, including all commercially reasonable efforts to satisfy the conditions specified in this Agreement. The Company will use commercially reasonable efforts, and Investor will cooperate in a commercially reasonable manner in seeking, to obtain all Approvals. (b) Notwithstanding anything in Section 8 or 9 to the contrary, if prior to the Outside Date, the Department of Justice or any other Regulatory Authority raises any antitrust objection to the consummation of the Investment or the implementation of any Alliance Agreement, which objection has not been resolved on or before the Outside Date, Investor nevertheless shall be required to consummate the Investment and, to that end, agrees to timely make such adjustment to the composition of its partnership and to the Alliance Agreements as required to resolve such antitrust objection; provided, however, that nothing in this paragraph (b) shall affect the rights of the Company under Section 9(g) or obligate the Company to enter into or approve any adjustment or modification of the Alliance Agreements which, in the Company's reasonable judgment, is prejudicial to the Company or the Unsecured Parties in any material respect and which, if entered into or approved, would materially impair the Company's ability to realize the reasonably anticipated benefits of such Alliance Agreements. SECTION 11. Registration Rights Agreement. Investor ------------------------------ and the Company will enter into a registration rights agreement on terms acceptable to Investor and the Company. The registration rights agreement will reflect the understanding of the parties with respect to their registration rights and obligations and will provide that Investor, its partners and any assignees and transferees, shall have the right to cause the Company to (i) include the Securities issuable to Investor pursuant to the Plan (including any such Securities issued or issuable in respect of the Warrants or by way of any stock dividend or stock split or in connection with any combination of shares, merger, consolidation or similar transaction), on customary terms, in "piggyback" underwritings and registrations and (ii) to effect, on customary terms, one demand registration under the Securities Act for the public offering and sale of the Securities issued to Investor under the Plan at any time after the third anniversary of the Effective Date. SECTION 12. Applicable Provisions of Law and ----------------------------------------- Regulations. It is understood and agreed that this Agreement ----------- shall not create any obligation of, or restriction upon, the Company or Investor or the partners of Investor that would violate applicable provisions of law or regulation relating to ownership or control of a U.S. air carrier. At all times after the Effective Date, the certificate of incorporation of the Company shall provide that, in the event persons who are not U.S. citizens shall own (beneficially or of record) or have voting control over shares of Common Stock, the voting rights of such persons shall be subject to automatic suspension as required to ensure that the Company is in compliance with applicable provisions of law or regulation relating to ownership or control of a U.S. air carrier. SECTION 13. Representations and Warranties of the ------------------------------------------ Company. The Company represents and warrants to Investor as ------- follows: (a) The Company has complied in all material respects with the terms of all orders of the Bankruptcy Court in respect of the Investment, this Agreement and the Procedures Agreement. (b) The Company has delivered to Investor copies of the audited balance sheets of the Company as of December 31, 1992 and the statements of income, stockholders' equity and cash flows for the years then ended, together with the notes thereto. Such financial statements, and when delivered to Investor the financial statements of the Company referred to in Section 8(g) will, present fairly, in accordance with generally accepted accounting principles (applied on a consistent basis except as disclosed in the footnotes thereto), the financial position and results of operations of the Company as of the dates and for the periods therein set forth. (c) When delivered to Investor, the unaudited financial statements of the Company referred to in Section 15(b)(ii) will (i) present fairly, in accordance with generally accepted accounting principles (applied on a consistent basis except as disclosed therein and subject to normal year-end audit adjustments), the financial position and results of operations of the Company as of the date and for the period therein set forth, it being understood and agreed, however, that the foregoing representation relating to conformity with generally accepted accounting principles is being made only to the extent such principles are applicable to interim unaudited reports and (ii) reflect a financial position and results of operations not materially worse than those set forth in the pro forma financial statements contained in Plan 9. (d) The Projections and the Monthly Targets were prepared in good faith on a reasonable basis, and when prepared represented the Company's best judgment as to the matters set forth therein, taking into account all relevant facts and circumstances known to the Company. Nothing has come to the Company's attention since the dates on which the Projections and the Monthly Targets, respectively, were prepared which causes the Company to believe that any of the projections and other information contained therein were misleading or inaccurate in any material respect as of such dates. It is specifically understood and agreed that the delivery of the Projections and the Monthly Targets shall not be regarded as a representation, warranty or guarantee that the particular results reflected therein will in fact be achieved or are likely to be achieved. (e) No written statement, memorandum, certificate, schedule or other written information provided (or to be provided) to Investor or any of its representatives by or on behalf of the Company in connection with the transactions contemplated hereby, when viewed together with all other written statements and information provided to Investor and its representatives by or on behalf of the Company, in light of the circumstances under which they were made, (i) contains or will contain any materially misleading statement or (ii) omits or will omit to state any material fact necessary to make the statements therein not misleading. (f) The board of directors of the Company has approved the Investment and Investor's acquisition of Securities hereunder for purposes of, and in accordance with the provisions and requirements of, Section 203(a)(1) of the General Corporation Law of the State of Delaware and, as a consequence, Investor will not be subject to the provisions of such Section with respect to any business combination between Investor and the Company (as such term is defined in said Section 203). SECTION 14. Representations and Warranties of ---------------------------------------- Investor. Investor represents and warrants to the Company as -------- follows: (a) The general and limited partners of Investor (other than one such partner which will elect to suspend the voting rights of its Securities as contemplated by Section 4(b)) are U.S. citizens within the meaning of Section 101(16) of the Federal Aviation Act of 1958, as amended. (b) Investor has, or has commitments for, sufficient funds to pay the Purchase Price and otherwise perform its obligations under this Agreement. (c) No written statement, memorandum, certificate, schedule or other written information provided (or to be provided) to the Company or any of its representatives by or on behalf of Investor in connection with the transactions contemplated by the Alliance Agreements, when viewed together with all other written statements and information provided to the Company and its representatives by or on behalf of Investor, in light of the circumstances under which they were made, (i) contains or will contain any materially misleading statement or (ii) omits or will omit to state any material fact necessary to make the statements therein not misleading. SECTION 15. Covenants. --------- (a) Investor covenants (i) to support, subject to management's recommendation, increases in employee compensation through 1995 at least equal to those set forth in Plan R-2 and (ii) after the Effective Date, to cause the board of directors of the Company to consider implementation of a broad based employee incentive compensation plan and a management stock incentive plan. (b) The Company covenants (i) to use commercially reasonable efforts to cause the shelf registration statement referred to in Section 8(u) to remain effective for three years following its effective date and (ii) as soon as available, to deliver to Investor a copy of the unaudited balance sheet of the Company as of the end of each fiscal quarter of the Company prior to the Effective Date and the unaudited statements of income and cash flows for the periods then ended. SECTION 16. Certain Taxes. The Company shall bear and ------------- pay all transfer, stamp or other similar taxes (if any are not exempted under Section 1146 of the Bankruptcy Code) imposed in connection with the issuance and sale of the Securities. SECTION 17. Administrative Expense. All amounts owed ----------------------- to Investor by the Company under this Agreement, the Related Agreements, the Procedures Agreement and all orders of the Bankruptcy Court in respect thereof shall be treated as an allowed administrative expense priority claim under Section 507(a)(1) of the Bankruptcy Code. SECTION 18. Incorporation by Reference. The ------------------------------ provisions set forth in the Procedures Agreement, including, but not limited to, the provisions regarding confidentiality, liability indemnity and termination, are hereby incorporated by reference and such provisions shall have the same force and effect herein as if they were expressly set forth herein in full. SECTION 19. Notices. All notices, requests and other ------- communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) or by prepaid express courier to the parties at the following addresses or facsimile numbers: If to the Company: America West Airlines, Inc. 4000 East Sky Harbor Boulevard Phoenix, Arizona 85034 Attention: William A. Franke and Martin J. Whalen Fax Number: (602) 693-5904 with a copy to: LeBoeuf, Lamb, Greene & MacRae 633 17th Street, Suite 2800 Denver, Colorado 80202 Attention: Carl A. Eklund Fax Number: (303) 297-0422 and a copy to: Andrews & Kurth L.L.P. 4200 Texas Commerce Tower Houston, Texas 77002 Attention: David G. Elkins Fax Number: (713) 220-4285 and a copy to: Murphy, Weir & Butler 101 California Street, 39th Floor San Francisco, California 94111 Attention: Patrick A. Murphy Fax Number: (415) 421-7879 and a copy to: Lord, Bissell and Brook 115 South LaSalle Street Chicago, IL 60603 Attention: Benjamin Waisbren Fax Number: (312) 443-0336 If to Investor: AmWest Partners, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attention: James G. Coulter Fax Number: (817) 871-4010 with a copy to: Arnold & Porter 1200 New Hampshire Ave., N.W. Washington, D.C. 20036 Attention: Richard P. Schifter Fax Number: (202) 872-6720 and a copy to: Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Attention: Lyle G. Ganske Fax Number: (216) 586-7864 and a copy to: Murphy, Weir & Butler 101 California Street, 39th Floor San Francisco, California 94111 Attention: Patrick A. Murphy Fax Number: (415) 421-7879 and a copy to: Lord, Bissell and Brook 115 South LaSalle Street Chicago, IL 60603 Attention: Benjamin Waisbren Fax Number: (312) 443-0336 All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail or by express courier in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Either party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto. SECTION 20. Governing Law. Except to the extent -------------- inconsistent with the Bankruptcy Code, this Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Arizona, without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply. SECTION 21. Amendment. This Agreement may only be --------- amended, waived, supplemented or modified by a written instrument signed by authorized representatives of Investor and the Company. Investor may extend the time for satisfaction of the conditions set forth in Section 8 (prior to or after the relevant date) by notifying the Company in writing. The Company may extend the time for satisfaction of the conditions set forth in Section 9 (prior to or after the relevant date) by notifying Investor in writing. SECTION 22. No Third Party Beneficiary. This -------------------------------- Agreement and the Procedures Agreement are made solely for the benefit of the Company and Investor, and no other Person (including, without limitation, employees, stockholders and creditors of the Company) shall have any right, claim or cause of action under or by virtue of this Agreement or the Procedures Agreement, except to the extent such Person is entitled to protection as contemplated by Section 28(b) or to expense reimbursement pursuant to the Procedures Agreement or may assert a claim for indemnity pursuant to the Procedures Agreement. SECTION 23. Assignment. Except as otherwise provided ---------- herein, Investor may assign all or part of its rights under this Agreement to any of its partners (each of whom may assign all or part to its Affiliates) or to any fund or account managed or advised by Fidelity Management Trust Company and may assign any Securities (or the right to purchase any Securities) to any lawfully qualified Person or Persons, and the Company may assign this Agreement to any Person with which it may be merged or consolidated or to whom substantially all of its assets may be transferred in facilitation of the consummation of the Plan and the effectuation of the issuance and sale of the Securities as contemplated hereby or by the Related Agreements. None of such assignments shall relieve the Company or Investor of any obligations hereunder, under the Procedures Agreement or under the Related Agreements. SECTION 24. Counterparts. This Agreement may be ------------ executed by the parties hereto in counterparts and by telecopy, each of which shall be deemed to constitute an original and all of which together shall constitute one and the same instrument. With respect to signatures transmitted by telecopy, upon request by either party to the other party, an original signature of such other party shall promptly be substituted for its facsimile. SECTION 25. Invalid Provisions. If any provision of ------------------ this Agreement is held to be illegal, invalid or unenforceable under any present or future laws, rules or regulations, and if the rights or obligations of Investor and the Company under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible. If the rights and obligations of Investor or the Company will be materially and adversely affected by any such provision held to be illegal, invalid or unenforceable, then unless such provision is waived in writing by the affected party in its sole discretion, this Agreement shall be null and void. SECTION 26. Tagalong Rights. On the Effective Date, ---------------- Investor shall enter into a written agreement for the benefit of all holders of Class B Common (other than Investor and its Affiliates) whereby Investor shall agree, for a period of three years after the Effective Date, not to sell, in a single transaction or related series of transactions, shares of Common Stock representing 51% or more of the combined voting power of all shares of Common Stock then outstanding unless such holders shall have been given a reasonable opportunity to participate therein on a pro rata basis and at the same price per share and on the same economic terms and conditions applicable to Investor; provided, however, that such obligation of Investor shall not apply to any sale of shares of Common Stock made by Investor (i) to any Affiliate of Investor, (ii) to any Affiliate of Investor s partners, (iii) pursuant to a bankruptcy or insolvency proceeding, (iv) pursuant to judicial order, legal process, execution or attachment, (v) in a widespread distribution registered under the Securities Act of 1933, as amended ("Securities Act") or (vi) in compliance with the volume --------------- limitations of Rule 144 (or any successor to such Rule) under the Securities Act. SECTION 27. Stock Legend. All Notes issued to Investor ------------ pursuant to the Plan and all certificates representing shares of Common Stock issued to Investor pursuant to the Plan shall be conspicuously endorsed with an appropriate legend to the effect that such Notes or shares may not be sold, transferred or otherwise disposed of except in compliance with (i) Section 26 and (ii) applicable securities laws. SECTION 28. Directors' Liability and Indemnification. ------------------------------------------ (a) Upon, and at all times after, consummation of the Plan, the certificate of incorporation of the Company shall contain provisions which (i) eliminate the personal liability of the Company's former, present and future directors for monetary damages resulting from breaches of their fiduciary duties to the fullest extent permitted by applicable law and (ii) require the Company, subject to appropriate procedures, to indemnify the Company's former, present and future directors and executive officers to the fullest extent permitted by applicable law. In addition, upon consummation of the Plan, the Company shall enter into written agreements with each person who is a director or executive officer of the Company on the date hereof providing for similar indemnification of such person and providing that no recourse or liability whatsoever with respect to this Agreement, the Procedures Agreement, the Related Agreements, the Plan or the consummation of the transactions contemplated hereby or thereby shall be had, directly or indirectly, by or in the right of the Company against such person. Notwithstanding anything contained herein to the contrary, the provisions of this Section 28(a) shall not be applicable to any person who ceased being a director of the Company at any time prior to March 1, 1994. (b) Investor agrees, on behalf of itself and its partners, that no recourse or liability whatsoever (except as provided by applicable law for intentional fraud, bad faith or willful misconduct) shall be had, directly or indirectly, against any person who is a director or executive officer of the Company on the date hereof with respect to this Agreement, the Procedures Agreement, the Related Agreements, the Plan or the consummation of the transactions contemplated hereby or thereby, such recourse and liability, if any, being expressly waived and released by Investor and its partners as a condition of, and in consideration for, the execution and delivery of this Agreement. SECTION 29. Bankruptcy Court Approval. This Agreement -------------------------- shall not become effective for any purpose unless and until the Bankruptcy Court shall have entered the Confirmation Order. SECTION 30. Jurisdiction of Bankruptcy Court. The ----------------------------------- parties agree that the Bankruptcy Court shall have and retain exclusive jurisdiction to enforce and construe the provisions of this Agreement. SECTION 31. Interpretation. In this Agreement, unless -------------- a contrary intention appears, (i) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision and (ii) reference to any Section means such Section hereof. The Section headings herein are for convenience only and shall not affect the construction hereof. No provision of this Agreement shall be interpreted or construed against either party solely because such party or its legal representative drafted such provision. SECTION 32. Termination. This Agreement shall ----------- terminate concurrently with the termination of the Procedures Agreement. AMWEST PARTNERS, L.P. By: AmWest Genpar, Inc., its General Partner By: _______________________________ Title: ____________________________ Accepted and Agreed to this 11th day of March, 1994. AMERICA WEST AIRLINES, INC. as Debtor and Debtor-in-Possession By: _______________________________ Title: ____________________________ SCHEDULE I TO INVESTMENT AGREEMENT 1. On October 26, 1993, the National Mediation board certified the Airline Pilots Association as collective bargaining agent for the Company's flight deck crew members in NMB Case No. R-6213. As of March 3, 1994, the union remained in a process of internal organization consisting of a membership drive and election of local union officers. No proposals for a collective bargaining agreement have yet been tendered. The Company anticipates a formal exchange of opening proposals as contemplated by the Railway Labor Act to occur in mid-April. 2. On February 15, 1989 in NMB Case No. R-5817, the Association of Flight Attendants lost an election to determine whether the Association would be the bargaining agent for certain of the Company's Customer Service Representatives. The NMB has ordered a rerun election and a determination of eligibility to vote in such a rerun election is on-going. No date for a rerun election has yet been set by the NMB. 3. The Company is subject to an informal inquiry by a governmental agency as described in the letter, dated February 22, 1994, from Martin J. Whalen, Sr. Vice President and General Counsel of the Company, to Richard P. Schifter, counsel for Investor. Exhibit A --------- Stock Purchase Warrants Indicative Summary of Key Terms and Conditions Issuer America West (the "Company"). ------- Issue Stock Purchase Warrants (the "Warrants"). -------- Number Warrants to purchase 6,428,572 shares of the Company's Class B Common Stock ("Common Stock"). ------------ Exercise Price The Exercise Price for the Warrants will be determined by the Bankruptcy Court based on a per share price for the Common Stock which assumes that all holders of Prepetition Claims have received full recovery in respect thereof as of the Effective Date. Expiration The Warrants will be exercisable by the holders thereof at any time on or prior to the fifth anniversary of the Effective Date. Redemption The Warrants will not be redeemable. Anti-Dillution Adjustments The number of shares of Common Stock purchasable upon exercise of each Warrant will be adjusted upon (i) payment of a dividend payable in, or other distribution of, Common Stock to all of the then current holders of Common Stock, (ii) a combination, subdivision or reclassification of Common Stock, and (iii) rights issuances. Common Stock When delivered, the Common Stock purchased upon exercise of the Warrants will be fully paid and nonassessable. Voting Rights The holders of the Warrants will not have any voting rights in respect thereof. Merger The holders of the Warrants will be protected in the case of a merger or other similar transaction involving the Company. Exhibit B --------- Senior Unsecured Notes Indicative Summary of Key Terms and Conditions Issuer (Reorganized) America West Airlines, Inc. (the "Company"). ------- Issue Senior Unsecured Notes (the "Notes"). ----- Principal Amount $103,000,000. Maturity Seven years from issuance. Interest Rate The Notes will bear interest, payable semiannually, in arrears at a fixed rate equal to 10% per annum. Ranking The Notes will rank pari passu with all existing and future senior unsecured indebtedness of the Company. Operational Redemption The Notes will not be redeemable during the first three years except that the Company may redeem up to $30 million in principal amount of the Notes issued to Investor and up to 1 million in principal amount of the Notes issued to GPA, in each case from the Net Proceeds of any underwritten offering of primary shares of the Company's Class B Common Stock at a purchase price equal to 108% of principal plus accrued interest as of the date of redemption. Thereafter, the Notes are redeemable at the Company's option, in whole or in part, after 30 days notice. The redemption price will be equal to the following percentage of the principal amount redeemed in each of the following years plus accrued interest: Year 4: 108% Year 5: 105.3% Year 6: 102.7% Year 7: 100.1% Mandatory Redemption None. Covenants and Other Provisions Purchasers will negotiate in good faith standard covenants and provisions, including, but not limited to, limitations on additional indebtedness, liens, restricted payments, investments, mergers, asset sales, transactions with affiliates, and the like. EX-11 8 COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (in thousands of dollars except per share amount) Years ended December 31, ------------------------------------------------------------------ 1993 1992 1991 1990 1989 ----------- ----------- ----------- ----------- ----------- PRIMARY EARNINGS PER SHARE Computation for Statements of Operation: Income (loss) before extraordinary item. . . . . . . . $ 37,165 $ (131,761) $ (222,016) $ (76,695) $ 12,803 Adjustment for interest on debt reduction . . . . . . . . 4,210 - - - 1,414 Preferred stock dividend requirement . . . . . . . . . . . - (1,672) (1,673) (1,673) (1,673) ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item. . . . . . . . 41,375 (133,433) (223,689) (78,368) 12,544 Extraordinary item, tax benefit . . . . . . . . . . . . . - - - - 795 Extraordinary item, net . . . . . . - - - 2,024 7,215 ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock . . . . . . . . . $ 41,375 $ (133,433) $ (223,689) $ (76,344) $ 20,554 =========== =========== =========== =========== =========== Weighted average number of common shares outstanding . . . . . . . . . . . 24,480,487 23,914,298 21,533,992 18,395,970 16,761,622 Assumed exercise of stock options and warrants (a). . . . . . . . . . . 3,044,504 - - - 3,864,273 ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted . . . . . 27,524,991 23,914,298 21,533,992 18,395,970 20,625,895 =========== =========== =========== =========== =========== Primary earnings per common share: Income (loss) before extraordinary item. . . . . . . . $ 1.50 $ (5.58) $ (10.39) $ (4.26) $ 0.61 Extraordinary item. . . . . . . . . - - - 0.11 0.39 ----------- ----------- ----------- ----------- ----------- Net income (loss) . . . . . . . . . $ 1.50 $ (5.58) $ (10.39) $ (4.15) $ 1.00 =========== =========== =========== =========== =========== Loss before extraordinary item. . . $ (131,761) $ (222,016) $ (76,695) Preferred stock dividend requirement . . . . . . . . . . . (1,672) (1,673) (1,673) Interest adj net of taxes . . . . . 4,964 4,408 2,818 ----------- ----------- ----------- Loss applicable to common stock before extraordinary item . . . . (128,469) (219,281) (75,550) Extraordinary item, tax benefit . . 2,756 2,448 1,490 Extraordinary item, net . . . . . . - - 2,024 ----------- ----------- ----------- Loss applicable to common stock . . $ (125,713) $ (216,833) $ (72,036) =========== =========== =========== Weighted average number of common shares outstanding. . . . 23,914,298 21,533,992 18,395,970 Assumes exercise of stock options and warrants. . . . . . . . . . . . 7,383,922 6,704,746 4,922,120 ----------- ----------- ----------- Weighted average number of common shares as adjusted. . . . . . . . . 31,298,220 28,238,738 23,318,090 =========== =========== =========== Primary earnings per common share: Loss before extraordinary item. . . $ (4.10) $ (7.77) $ (3.24) Extraordinary item. . . . . . . . . 0.09 0.09 0.15 ----------- ----------- ----------- Net loss (c). . . . . . . . . . . . $ (4.01) $ (7.68) $ (3.09) =========== =========== ===========
AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (in thousands of dollars except per share amount)
Years ended December 31, ------------------------------------------------------------------- FULLY DILUTED EARNINGS PER SHARE 1993 1992 1991 1990 1989 ----------- ------------ ------------ ------------ ------------ Computation for Statements of Operations: Income (loss) before extraordinary items. . . . . . . . . $ 37,165 $ (131,761) $ (222,016) $ (76,695) $ 12,803 Adjustment for interest on debt reduction. . . . . . . . . . 5,812 - - - 1,219 Preferred stock dividend requirement. . . . . . . . . . . . . - (1,672) (1,673) (1,673) (1,673) ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary items. . . . . . . . . 42,977 (133,433) (223,689) (78,368) 12,349 Extraordinary items, tax benefit. . . . . . . . . . . . . - - - 2,024 7,902 ----------- ----------- ----------- ----------- ----------- Net income (loss). . . . . . . . . . . $ 42,977 $ (133,433) $ (223,689) $ (76,344) $ 20,251 =========== =========== =========== =========== =========== Weighted average number of common shares outstanding. . . . . . 24,480,487 23,914,298 21,533,992 18,395,970 16,761,622 Assumed exercise of stock options and warrants (a) . . . . . . 4,240,761 - - - 3,864,273 ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted . . . 28,721,248 23,914,298 21,533,992 18,395,970 20,625,895 =========== =========== =========== =========== =========== Fully diluted income (loss) per common share: Income (loss) before extraordinary items. . . . . . . . . $ 1.50 $ (5.58) $ (10.39) $ (4.26) $ 0.60 Extraordinary items. . . . . . . . . . - - - 0.11 0.38 ----------- ----------- ----------- ----------- ----------- Net income (loss) (b). . . . . . . . . $ 1.50 $ (5.58) $ (10.39) $ (4.15) $ 0.98 =========== =========== =========== =========== =========== Additional Fully Diluted Computation: Additional adjustment to net income (loss) as adjusted per fully diluted computation above Income (loss) before extraordinary items as adjusted per fully diluted computation above. . . . . . . . . $ 37,165 $ (131,761) $ (222,016) $ (76,695) $ 12,803 Add - Interest on 7.75% subordinated debenture, net of taxes . . . . . . . . . . . - - 869 1,829 1,853 Add - Interest on 7.5% subordinated debenture, net of taxes . . . . . . . . . . . - - 806 1,712 1,735 Add - Interest on 11.5% subordinated debenture, net of taxes . . . . . . . . . . . - - 3,506 7,629 6,948 Add interest on debt reduction, net of taxes. . . . . . 5,812 4,964 4,352 2,777 1,219 ----------- ----------- ----------- --------- ----------- Income (loss) before extraordinary items as adjusted. . . . . . . . . . . . 42,977 (126,797) (212,483) (62,748) 24,558 Extraordinary items. . . . . . . . . - 2,756 5,293 9,399 13,828 ----------- ----------- ----------- --------- ----------- Net income (loss). . . . . . . . . . $ 42,977 $ (124,041) $ (207,190) $ (53,349) $ 38,386 =========== =========== =========== ========= =========== Additional adjustment to weighted average number of shares outstanding Weighted average number of shares outstanding as adjusted per fully diluted computation above . . . . . . . . . 28,721,248 23,914,298 21,533,992 18,395,970 20,625,895 Additional dilutive effect of outstanding options and warrants. . - 7,383,922 6,704,746 5,266,266 - Additional dilutive effect of assumed conversion of preferred stock: Series B 10.5%. . . . . . . . . . 851,294 1,164,596 1,164,596 1,164,596 1,164,596 Series C 9.75%. . . . . . . . . . 73,099 73,099 73,099 73,099 73,099 Additional dilutive effect of assumed conversion of 7.75% subordinated debenture. . . . . . 2,263,007 2,278,151 2,483,528 2,735,200 2,767,111 Additional dilutive effect of assumed conversion of 7.5% subordinated debenture. . . . . . 2,272,548 2,291,607 2,347,604 2,551,060 2,582,357 Additional dilutive effect of assumed conversion of 11.5% subordinated debenture. . . . . . 7,328,201 7,486,391 9,081,162 9,866,509 8,995,021 ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted . . . . . . . . . . . 41,509,397 44,592,064 43,388,727 40,052,700 36,208,079 =========== =========== =========== =========== =========== Fully diluted income (loss) per common share: Income (loss) before extraordinary items . . . . . . . . $ 1.04 $ (2.84) $ (4.90) $ (1.57) $ 0.68 Extraordinary items . . . . . . . . . - 0.06 0.12 0.23 0.39 ----------- ----------- ----------- ----------- ----------- Net income (loss) (c) . . . . . . . . $ 1.04 $ (2.78) $ (4.78) $ (1.34) $ 1.07 =========== =========== =========== =========== =========== - ---------------------- (a) The stock options and warrants are included only in the periods in which they are dilutive. (b) The calculation is submitted in accordance with Regulation S-K Item 601 (b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. (c) The calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result.
EX-12 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AMERICA WEST AIRLINES, INC. Computation of Ratio of Earnings to Fixed Charges
Years ended December 31, - -------------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- - -------- (in thousands except ratio of earnings to fixed charges) Computation of Earnings: Income (loss) before income taxes and extraordinary item $ 37,924 $(131,761) $(222,016) $(76,695) $ 20,040 Add: Interest expense including amortization of debt expense 54,252 55,886 63,991 61,239 43,934 Interest portion of rent expense 81,795 102,314 106,414 77,537 58,759 --------- --------- --------- -------- - -------- Income (loss), as adjusted $ 173,971 $ 26,439 $ (51,611) $ 62,081 $122,733 ========= ========= ========= ======== ======== Computation of Fixed Charges: Interest expense including amortization of debt expense $ 54,252 $ 55,886 $ 63,991 $ 61,239 $ 43,934 Interest portion of rent expense 81,795 102,314 106,414 77,537 58,759 Capitalized interest - - 6,664 6,375 7,250 --------- --------- --------- -------- - -------- Fixed charges $ 136,047 $ 158,200 $ 177,069 $145,151 $109,943 ========= ========= ========= ======== ======== Ratio of earnings to fixed charges 1.28 (*) (*) (*) 1.12 - --------------------- (*) For the purpose of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before income taxes and extraordinary item plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt expense, one-third of rent expense, which is deemed to be representative of an interest factor, and capitalized interest. For the years ended December 31, 1992, 1991, and 1990 earnings were insufficient to cover fixed charges by $131,761,000, $228,680,000, and $83,070,000 respectively.
EX-23 10 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS The Board of Directors America West Airlines, Inc., D.I.P.: We consent to incorporation by reference in the registration statement nos. 2-84022, 2-84023, 2-89485, 2-92118, 2-95934, 33-1755, 33-1756, 33-5461, 33-5462, 33-5463, 33-14325, 33-14326, 33-14327, 33- 19888, 33-21763, 33-21764, 33-24600, 33-28481, 33-28478, 33-28480, 33- 35221, 33-35155, 33-35150, 33-35164, 33-40938 and 33-40939 on Forms S-8 of America West Airlines, Inc., D.I.P. of our report dated March 18, 1994, relating to the balance sheets of America West Airlines, Inc., D.I.P. as of December 31, 1993 and 1992, and the related statements of operations, cash flows and stockholders' equity (deficiency) and related financial statement schedules for each of the years in the three-year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of America West Airlines, Inc., D.I.P. Our report dated March 18, 1994, contains an explanatory paragraph that describes events and circumstances that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements and financial statement schedules do not include any adjustments that might result from the outcome of that uncertainty. In addition, our report refers to the adoption of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, January 1, 1993. KPMG PEAT MARWICK Phoenix, Arizona March 25, 1994 -----END PRIVACY-ENHANCED MESSAGE-----