-----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, iS/tCowXUpQW3YSiFoI+bczQUvEF+6iPthzfq7mqtvDoUtmqmFmypdU8M4sx83K9 429zW7LDrhOejxTXc4U7kg== 0000950153-94-000158.txt : 19940816 0000950153-94-000158.hdr.sgml : 19940816 ACCESSION NUMBER: 0000950153-94-000158 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19940815 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: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-54243 FILM NUMBER: 94543888 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 S-1/A 1 AMENDMENT NO. 3 TO FORM S-1 FOR AMERICA WEST 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1994 REGISTRATION NO. 33-54243 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AMERICA WEST AIRLINES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4512 86-0418245 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) MARTIN J. WHALEN SENIOR VICE PRESIDENT AMERICA WEST AIRLINES, INC. 4000 EAST SKY HARBOR BOULEVARD 4000 EAST SKY HARBOR BOULEVARD PHOENIX, ARIZONA 85034 PHOENIX, ARIZONA 85034 (602) 693-0800 (602) 693-0800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER, EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------ With Copies to: DAVID J. GRAHAM ANDREWS & KURTH L.L.P. 4200 TEXAS COMMERCE TOWER 600 TRAVIS STREET HOUSTON, TEXAS 77002 (713) 220-4200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective, which time is to be determined by the Selling Securityholders. All of the Securities offered hereby are offered for the account of the Selling Securityholders. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF SECURITIES TO BE REGISTERED AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED PER SECURITY(1) PRICE(1) FEE - ---------------------------------------------------------------------------------------------------------------------- Class A Common Stock, par value $.01 per share.... 1,200,000 Shares $7.47 $ 8,964,000 $ 3,091(2) - ---------------------------------------------------------------------------------------------------------------------- Class B Common Stock, par value $.01 per share.... 14,775,000 Shares $7.63 $112,733,752 $ -- (3) - ---------------------------------------------------------------------------------------------------------------------- Class B Common Stock, par value $.01 per share(3)........................................ 4,153,846 Shares $7.63 $ 31,693,845 $ -- (3) - ---------------------------------------------------------------------------------------------------------------------- Warrants to purchase Class B Common Stock......... 4,153,846 Warrants $ -- $ -- $ -- (3) - ---------------------------------------------------------------------------------------------------------------------- % Senior Unsecured Notes due 2001............. $100,000,000 100% $100,000,000 $ -- (3) - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. (2) Since there has been no prior market for these securities, the registration fee has been calculated based on the price at which such securities were acquired by the Selling Securityholders using the methodology of Rule 457(e). (3) Registration fee previously paid. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AMERICA WEST AIRLINES, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS - ------------------------------------------- ----------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus......................... Forepart of Registration Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............................ Prospectus Summary; Investment Considerations 4. Use of Proceeds...................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price...... Plan of Distribution 6. Selling Securityholders.............. Principal Stockholders; Selling Securityholders 7. Plan of Distribution................. Outside Front Cover Page of Prospectus; Plan of Distribution 8. Description of Securities to be Registered......................... Outside Front Cover Page of Prospectus; Description of Capital Stock; Description of the Senior Notes; Description of Warrants; Shares Eligible for Future Sale 9. Interests of Named Experts and Counsel............................ Legal Matters; Experts 10. Information with Respect to the Registrant......................... Outside Front Cover Page of Prospectus; Prospectus Summary; Investment Considerations; The Company; Use of Proceeds; Dividend Policy; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Description of Capital Stock; Description of the Senior Notes; Description of Warrants; Shares Eligible for Future Sale; Financial Statements 11. Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................ Not Applicable
3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED AUGUST 15, 1994 AMERICA WEST AIRLINES, INC. 1,200,000 SHARES CLASS A COMMON STOCK 14,265,473 SHARES CLASS B COMMON STOCK $100,000,000 % SENIOR UNSECURED NOTES DUE 2001 4,153,846 CLASS B COMMON STOCK WARRANTS ------------------------ This Prospectus relates to (i) 1,200,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock") of America West Airlines, Inc. (the "Company"), (ii) 14,265,473 shares of Class B Common Stock, par value $.01 per share of the Company, ("Class B Common Stock", and together with the Class A Common Stock, the "Common Stock"), (iii) $100 million principal amount of % Senior Unsecured Notes due 2001 of the Company (the "Senior Notes"), and (iv) 4,153,846 warrants, each entitling the holder thereof to purchase one share of Class B Common Stock for $ at any time prior to the fifth anniversary of the date of issuance (the "Warrants," and together with the Common Stock and the Senior Notes, the "Securities"). The Securities may be offered by the Selling Securityholders (as defined herein) from time to time in transactions in the over-the-counter market, on a national securities exchange or otherwise at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Securities to or through underwriters, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders or the purchasers of the Securities for whom such underwriters, dealers or agents may act. The Company will not receive any of the proceeds from the sale of any of the Securities by the Selling Securityholders. Holders of Class B Common Stock are entitled to one vote per share, and holders of Class A Common Stock are entitled to 50 votes per share on all matters submitted to a vote of common stockholders, except that voting rights of holders who are not United States citizens are limited as described herein. The Senior Notes bear interest payable semiannually in arrears. The Senior Notes may be redeemed at the option of the Company (i) prior to September 1, 1997, at any time, at a redemption price equal to 105% of the principal amount or from time to time in part from the net proceeds from a public offering of its capital stock at a redemption price equal to 105% of the principal amount, in each case plus accrued and unpaid interest, if any, to the redemption date; and (ii) on or after September 1, 1997 at any time in whole or from time to time in part, at redemption prices described herein. In addition, Senior Notes may be subject to mandatory redemption, at a redemption price of 104% of the aggregate principal amount of Senior Notes so redeemed, plus accrued and unpaid interest thereon, under certain circumstances following the consummation of a public offering of the Company's capital stock. The Senior Notes will be effectively subordinated to $480.9 million of secured indebtedness incurred by the Company to acquire aircraft and other assets (the "Secured Debt"). Holders of the Secured Debt will be senior to the holders of the Senior Notes with respect to the collateral securing such indebtedness. See "Description of the Senior Notes." Prior to this registration, there has been no public market for any of the Securities. Application has been made to list the Class B Common Stock and the Warrants on the New York Stock Exchange. The Company does not intend to file an application to have either the Class A Common Stock or the Senior Notes listed on a national exchange and does not expect an active trading market to develop for either the Class A Common Stock or the Senior Notes. The Selling Securityholders and any underwriters, dealers or agents participating in the distribution of the Securities may be deemed to be "underwriters" within the meaning of the Securities Act of 1933 as amended (the "Securities Act"), and any profit on the sale of the Securities by the Selling Securityholders and any commissions received by any such underwriters, brokers, dealers or agents may be deemed to be underwriting commissions or discounts under the Securities Act. Pursuant to the terms of the Registration Rights Agreement (as hereinafter defined) the Company has agreed to indemnify the Selling Securityholders against certain liabilities, including liabilities under the Securities Act. Underwriters, brokers, dealers or agents effecting transactions in the Securities should confirm the registration thereof under the securities laws of the state in which such transactions will occur, or the existence of any exemption from registration. SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is , 1994 4 AVAILABLE INFORMATION America West Airlines, Inc. ("America West" or the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports and other information concerning America West can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. America West has filed with the Commission a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to America West and the Securities offered hereby, reference is made to the Registration Statement, including the exhibits and schedules thereto. The Registration Statement can be inspected at the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company is a Delaware corporation. Its executive offices are located at 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034, and its telephone number is (602) 693-0800. 2 5 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus, which should be read in its entirety. Prospective investors should carefully consider matters discussed under the caption "Investment Considerations." THE COMPANY America West Airlines, Inc. ("America West" or the "Company") is a major United States air carrier providing passenger, cargo and mail service with its primary markets in the western and southwestern regions of the United States. The Company operates its route system through two principal hubs, Phoenix, Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio. As of July 31, 1994, America West operated a fleet of 85 jet aircraft and provided service to 45 destinations. Through alliance agreements with Mesa Airlines, Inc. ("Mesa"), the Company provides connecting service to an additional 18 destinations. The Company also has formed an alliance with Continental Airlines, Inc. ("Continental") to serve additional destinations. The Company filed a voluntary petition for protection under Chapter 11 of the federal bankruptcy code on June 27, 1991. The Company's plan of reorganization (the "Plan") was confirmed by the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") on August 10, 1994. The Plan will become effective on the date (the "Effective Date") on which certain conditions specified in the Plan are satisfied or waived, which the Company expects to occur on or about August , 1994. In connection with its reorganization in bankruptcy and related operational restructuring (the "Reorganization"), the Company took significant steps to improve its operations, including (i) reducing its fleet size from 123 aircraft in July 1991 to 85 at July 31, 1994, facilitating a better matching of capacity to demand through elimination of nonproductive routes; (ii) reducing the aircraft types operated from five to three, resulting in reduced operating costs; (iii) implementing certain enhancements to its revenue management system to optimize the level of passenger revenues generated on each flight; (iv) eliminating Company operated commuter service and introducing code sharing agreements to expand the scope of service and attract a broader passenger base; and (v) implementing numerous cost reduction programs, including a Company-wide pay reduction in August 1991 and the reduction of aircraft lease rentals to fair market rates in the fall of 1992. As a result of these measures as well as a gradually improving economic climate and a more stable environment relative to fare competition within the airline industry, America West was one of only two major airlines to report a profit in each quarter of 1993, realizing net income for 1993 of $37.2 million and operating income of $121.1 million on revenues of $1.33 billion. America West currently operates with one of the lowest cost structures among major U.S. airlines, based on reported 1993 results. America West's operating cost per available seat mile for 1993 was 7.01 cents, which was approximately 25% lower than the average operating cost per available seat mile of the nine largest other domestic airlines and was comparable to the costs incurred by Southwest Airlines, Inc. ("Southwest Airlines"). The Company's business strategy is to continue to offer competitive fares while maintaining an incrementally higher level of service relative to low cost carriers generally. These services include assigned seating, participation in computerized reservation systems, interline ticketing, first class cabins on certain flights, baggage transfer and various other services. Management believes that its principal hub locations in Phoenix and Las Vegas not only provide a low cost environment for a substantial portion of the Company's operations, but also position the Company to benefit from an expanding market for leisure travel. As a part of the Reorganization, the Company entered into certain agreements (the "Alliance Agreements") with Continental and Mesa. With Continental, the Company will implement certain code-sharing arrangements, coordinate certain flight schedules, share ticket counter space, link frequent flyer programs, and coordinate ground handling operations. With Mesa, America West modified and extended two code-sharing agreements that establish Mesa as a feeder carrier for the Company at its hubs in Phoenix and Columbus. The code-sharing agreements provide for coordinated flight schedules, passenger handling and computer reservations under the America West flight designator code, thereby allowing passengers to 3 6 purchase one air fare for their entire trip. Mesa connects 13 cities to the Company's Phoenix hub, operates under the name "America West Express" and has begun to incorporate the color scheme and commercial logo of America West on certain aircraft utilized on these routes. Mesa serves five destinations from the Company's Columbus mini-hub operations. Management believes the Alliance Agreements will contribute significantly to the Company's passenger revenue and operating results. Pursuant to the Reorganization, the Company will substantially reduce its outstanding debt and increase its liquidity through the infusion of new capital. In addition, the Company has reached agreements with certain key suppliers of aircraft. At June 30, 1994, prior to the Reorganization, the Company's long-term debt including current maturities and estimated liabilities subject to Chapter 11 proceedings aggregated approximately $880 million. Such liabilities at June 30, 1994, adjusted to give pro forma effect to the consummation of the Plan, would aggregate approximately $638 million. Pursuant to the Reorganization, pre-existing equity interests of the Company will be cancelled, the Company's obligations to other prepetition creditors will be restructured and general unsecured nonpriority prepetition creditors ("Prepetition Creditors") will receive, in full satisfaction of their claims, 25,669,348 shares of Class B Common Stock and $9,828,145 cash. Holders of the Company's pre-existing common equity interests will receive, on a pro rata basis, 2,250,000 shares of Class B Common Stock and Warrants to purchase 6,230,769 shares of Class B Common Stock. In addition, pursuant to the exercise of subscription rights, holders of pre-existing equity interests will receive 1,615,179 shares of Class B Common Stock for an aggregate purchase price of $14,357,326 ($8.889 per share), including holders of pre-existing preferred equity interests who will receive 250,000 shares of Class B Common Stock for an aggregate purchase price of $2,222,250. Also pursuant to the Reorganization, the Company will receive approximately $214.9 million in cash upon the issuance to AmWest Partners, L.P. ("AmWest"), and to certain assignees of AmWest (as described below), of (i) 1,200,000 shares of Class A Common Stock, (ii) 13,365,473 shares of Class B Common Stock, (iii) Warrants to purchase 2,769,231 shares of Class B Common Stock and (iv) $100 million of Senior Notes. Certain funds managed or advised by Fidelity Management Trust Company and its affiliates (collectively, "Fidelity") and Lehman Brothers Inc. ("Lehman") will purchase a portion of the Securities that otherwise would be issued to AmWest pursuant to assignments by AmWest to those parties. Pursuant to these assignments, Lehman will acquire shares of Class B Common Stock and Warrants to purchase additional shares of Class B Common Stock in consideration of payment to the Company of approximately $7.7 million, and Fidelity will acquire shares of Class B Common Stock, Warrants to purchase additional shares of Class B Common Stock and $100 million of Senior Notes. AmWest is a Texas limited partnership including as investors Mesa, Continental and TPG Partners, L.P. ("TPG"). TPG is a Delaware limited partnership which is acquiring aggregate beneficial ownership of % of the voting securities of America West. The general partner of AmWest is AmWest GenPar, Inc., a Texas corporation. The controlling persons of AmWest GenPar also control TPG. See "Investment Considerations -- Concentration of Voting Power; Influence of AmWest or its Partners" and "Principal Stockholders." AmWest has advised the Company that it expects to distribute to its partners the securities acquired by it pursuant to the Reorganization. Pursuant to the Reorganization, Lehman, Fidelity and TPG will receive additional shares of Class B Common Stock for their existing claims and interests. These shares are not subject to the Registration Statement of which this Prospectus is a part. 4 7 THE OFFERING The principal terms of the Common Stock, Senior Notes and Warrants are summarized below. For a more complete description, see "Description of Capital Stock," "Description of the Senior Notes" and "Description of Warrants," respectively. The Selling Securityholders will receive all of the proceeds from the sale of the Securities offered hereby, and the Company will not receive any proceeds from the Offering. Common Stock: Securities Offered............... 1,200,000 shares of Class A Common Stock 14,775,000 shares of Class B Common Stock Common Stock outstanding(1)...... 1,200,000 shares of Class A Common Stock 43,800,000 shares of Class B Common Stock Total.................. 45,000,000 shares of Common Stock Voting Rights.................... Class A and Class B Common Stock have identical economic rights and privileges and rank equally, share ratably, and are identical in all respects as to all matters other than voting rights. The Class A Common Stock votes together with the Class B Common Stock on all matters except as otherwise required by law. Each share of Class B Common Stock has one vote; each share of Class A Common Stock has 50 votes. Listing.......................... The Company has made application to list the Class B Common Stock on the New York Stock Exchange. The Company does not intend to apply for listing of the Class A Common Stock on any securities exchange or authorization quotation on the NASDAQ System. The Company does not expect that an active trading market for the Class A Common Stock will develop. Trading Symbol for Class B Common Stock "AWA" - --------------- (1) Excluding 10,384,615 shares of Class B Common Stock reserved for issuance upon exercise of outstanding Warrants and 125,000 shares of Class B Common Stock to be issued in connection with a reorganization success bonus. Senior Notes: Securities Offered............... $100,000,000 aggregate principal amount of Senior Notes Maturity......................... The seventh anniversary of the date of issuance Interest Rate.................... The Senior Notes will bear interest at a rate of % per annum. Interest will accrue from the date of issuance thereof and will be payable semi-annually in arrears on each March 1 and September 1, commencing March 1, 1995. Ranking.......................... The Senior Notes will rank senior in right of payment to all existing and future subordinated Indebtedness (defined in the Indenture) of the Company and will rank pari passu in right of payment with all other Indebtedness of the Company. Certain Indebtedness, however, including the Secured Debt, will be effectively senior in right of payment to the Senior Notes with respect to assets that constitute collateral securing such other Indebtedness. Optional Redemption.............. The Senior Notes offered hereby may be redeemed at the option of the Company (i) prior to September 1, 1997, (A) at any time at a redemption price of 105% of the principal amount of the Senior Notes plus accrued and 5 8 unpaid interest, if any, to the redemption date or (B) from time to time in part from the net proceeds of a public offering of its capital stock at a redemption price equal to 105% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date except for amounts mandatorily redeemed; and (ii) on or after September 1, 1997 at any time in whole or from time to time in part, at a redemption price equal to the following percentage of the principal amount redeemed, plus accrued and unpaid interest to the date of redemption, if redeemed during the 12-month period beginning on the anniversary of the date of issuance falling within the years indicated below: 1997.. 105.0% 1998.. 103.3% 1999.. 101.7% 2000.. 100.0%
Mandatory Redemption............. In the event that, prior to , 1997, the Company consummates a Public Offering Sale and immediately prior to such consummation the Company has cash and cash equivalents, not subject to any restriction on disposition, of at least $100,000,000, then the Company shall redeem Senior Notes at a redemption price equal to 104% of the aggregate principal amount of the Senior Notes so redeemed, plus accrued and unpaid interest to the redemption date. The aggregate redemption price and accrued and unpaid interest of the Senior Notes to be so redeemed shall equal the lesser of (a) 50% of the net offering proceeds of such Public Offering Sale and (b) the excess, if any, of (i) $20,000,000 over (ii) the amount of any net offering proceeds of any prior Public Offering Sale received prior to , 1997 and applied to so redeem Senior Notes. Principal Covenants.............. The Indenture contains numerous covenants including covenants governing the disposition of the proceeds of certain underwritten public offerings of Common Stock of the Company, limiting certain Restricted Payments, limiting certain transactions with Affiliates, limiting certain sales of assets, limiting certain investments and allowing a Holder repurchase rights upon a change of control. Listing.......................... The Company does not intend to apply for listing of the Senior Notes on any securities exchange or authorization for quotation on the NASDAQ system. The Company does not expect that an active trading market will develop for the Senior Notes. Warrants: Securities Offered............... 4,153,846 Warrants, each entitling the holder to purchase one share of Class B Common Stock at a price (the "Exercise Price") of $ per share. Warrants to be Outstanding after the Offering..................... 10,384,615 Warrants Expiration....................... The Warrants are exercisable by the holders at any time on or prior to the fifth anniversary of the Effective Date. Redemption....................... The Warrants are not redeemable. 6 9 Anti-Dilution.................... The number of shares of Class B Common Stock purchasable upon exercise of each Warrant will be adjusted upon, among other things, (i) issuance of a dividend in or other distribution of Common Stock to holders of Common Stock; (ii) a combination, subdivision or reclassification of the Class B Common Stock; and (iii) rights issuances. Voting Rights.................... Warrant holders have no voting rights. Trading Symbol................... "AWAws" 7 10 SUMMARY FINANCIAL DATA The summary financial data set forth below presents historical and pro forma financial information of the Company. The financial information at June 30, 1994 and 1993 and for the six months then ended has been derived from the unaudited condensed financial statements of the Company which, in the opinion of management, include all adjustments, consisting only of normal adjustments, necessary for a fair presentation of the results for the periods. The results for the six months ended June 30, 1994 are not necessarily indicative of the results to be expected for the full year. The summary information should be read in conjunction with the financial statements and related notes thereto appearing elsewhere in this Prospectus, "Unaudited Pro Forma Condensed Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, --------------------------------------------------- -------------------------------- 1993 1994 ------------------------- --------------------- PRO PRO 1991 1992 HISTORICAL FORMA(A) 1993 HISTORICAL FORMA(A) ---------- ---------- ---------- ------------ -------- ---------- -------- (IN THOUSANDS, EXCEPT RATIO AND PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Operating revenues................... $1,413,925 $1,294,140 $1,325,364 $1,325,364 $641,515 $708,615 $708,615 Operating expenses................... 1,518,582 1,368,952 1,204,310 1,206,240 599,168 626,719 629,799 Operating income (loss).............. (104,657) (74,812) 121,054 119,124 42,347 81,896 78,816 Income (loss) before income taxes.... (222,016) (131,761) 37,924 54,147 12,647 36,782 50,001 Income tax expense................... -- -- 759 34,323 253 1,471 26,010 Net income (loss).................... (222,016) (131,761) 37,165 19,824 12,394 35,311 23,991 Earnings (loss) per share: Primary.......................... (10.39) (5.58) 1.50 0.44 0.52 1.30 0.53 Fully diluted.................... (10.39) (5.58) 1.04 0.44 0.36 0.92 0.53 Shares used for computation: Primary.......................... 21,534 23,914 27,525 45,125 29,669 28,704 45,125 Fully diluted.................... 21,534 23,914 41,509 45,125 42,804 40,607 45,125 Ratio of earnings to fixed charges(b)......................... -- -- 1.28 1.37 1.18 1.56 1.71
SIX MONTHS ENDED JUNE 30, 1994 YEAR ENDED ------------------------- DECEMBER 31, PRO 1993 HISTORICAL FORMA(A) ------------ ---------- ---------- BALANCE SHEET DATA: Working capital (deficiency)............................................... $ (124,375) $ (106,760) $ 38,514 Total assets............................................................... 1,016,743 1,100,541 1,703,739 Long-term debt, less current maturities.................................... 620,992 604,420 578,922 Total stockholders' equity (deficiency).................................... (254,262) (215,338) 587,500
- --------------- (a) Pro Forma information gives effect to the consummation of the Plan, including adjustments for fresh start reporting. Pro forma statement of operations data for the year ended December 31, 1993 and the six-month period ended June 30, 1994 is presented as if the Plan were consummated on January 1, 1993; balance sheet data at June 30, 1994 is presented as if the Plan were consummated on such date. See "Unaudited Pro Forma Condensed Financial Information." These amounts are presented for informational purposes only and do not purport to represent what the Company's financial position or results of operations would have been if consummation of the Plan had occurred on such dates. (b) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt issuance costs, capitalized interest and a portion of rent expense which is deemed to be representative of an interest factor. For the years ended December 31, 1992 and 1991, earnings were insufficient to cover fixed charges by $131,761,000 and $228,680,000, respectively. 8 11 INVESTMENT CONSIDERATIONS HISTORY OF LOSSES The Company experienced significant operating losses in each year of the three year period ended December 31, 1992, and the Company operated as a debtor-in-possession under Chapter 11 of the federal bankruptcy code from June 27, 1991 to the Effective Date. Although the Company's results of operations improved in 1993, the airline industry has been extremely competitive and generally unprofitable in recent years. In the long term, the Company's viability is dependent upon its ability to sustain profitable results of operations, and there can be no assurance that such results can be sustained. ADVERSE INDUSTRY CONDITIONS AND COMPETITION The airline industry is highly competitive. Overall industry profit margins have traditionally been low and, in each year of the three year period ended December 31, 1992, were substantially negative. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and other services. Many of America West's competitors are carriers with substantially greater financial resources. The airline industry is susceptible to price discounting, which involves the offering of discount or promotional fares to passengers. Any such fares offered by one airline are normally matched by competing airlines, which results in lower industry yields. In 1992 American Airlines introduced a new fare structure followed by a deeply discounted summer sale. These steps were generally matched by other U.S. airlines, including America West, and resulted in substantially depressed industry yields and significant 1992 losses for 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 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 markets, including those in New York City, Texas, Southern California, Washington, D.C., Chicago and Las Vegas, are served by larger 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. In some cases, new entrants have initiated or triggered further price discounting. The entry of additional new carriers on many of the Company's routes (as well as increased competition from established carriers) could negatively impact America West's results of operations. INCREASES IN FUEL PRICES Fuel costs constituted approximately 14% of America West's total operating expenses during 1993. 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. Accordingly, either a substantial increase in fuel prices or the lack of adequate fuel supplies in the future would likely have a material adverse effect on the operations of the Company. Moreover, fuel price increases or supply shortages, such as those that occurred during the Persian Gulf war, can occur at any time as a result of, among other things, geopolitical developments. 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 currently 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 9 12 1993 fuel consumption levels. There can be no assurance that the U.S. government will not impose additional taxes on fuel in the future or that such taxes will not materially affect the Company's results of operations. LEVERAGE Although the Reorganization will improve the Company's financial position, the Company will be highly leveraged after the Effective Date. This high degree of leverage will pose substantial risks to holders of the Securities and could have a material adverse effect on the marketability, price and future value of such Securities. This high degree of leverage will increase the reorganized Company's vulnerability to adverse general economic and airline industry conditions and to increased competitive pressures. CONCENTRATION OF VOTING POWER; INFLUENCE OF AMWEST AND ITS PARTNERS At the Effective Date, it is anticipated that AmWest and its partners will own approximately 30.5% of the shares of Class B Common Stock to be outstanding immediately after the Effective Date and 100% of the Class A Common Stock, and thereby will control approximately 70.6% of the voting power of America West (71.4% assuming the exercise of Warrants issued to such holders). As a result, AmWest or its partners will be able to elect a majority of its designees to the Board of Directors and otherwise to control the Company by, among other things, taking or approving actions to (i) amend the America West charter or effect a merger, sale of assets or other major corporate transaction; (ii) defeat any takeover attempt; (iii) determine the amount of dividends, if any, paid to itself and the other holders of Common Stock; and (iv) otherwise control the outcome of virtually all matters submitted for a vote of the stockholders of the Company. Two of the partners of AmWest, Mesa and Continental, are engaged in the airline industry and are parties to certain agreements with the Company. In addition, the control persons of AmWest GenPar, Inc., the general partner of AmWest, also control both Air Partners L.P., a special purpose partnership formed in 1992 to participate in the funding of the reorganization of Continental and a significant shareholder in Continental, and TPG, a Delaware limited partnership which is acquiring aggregate beneficial ownership of % of the combined voting securities of America West. See "Principal Stockholders." As a result, there can be no assurance that the interests of Continental, Mesa or TPG will not differ from the interests of the Company or that either party will not seek to influence the Company in a manner that serves its interests. Pursuant to the terms of the Stockholders' Agreement among the Company, AmWest and certain other stockholders or their representatives, AmWest has agreed to certain limitations on its ability to control the Company, including, that for a three-year period beginning with the Effective Date, the Company shall have a 15-member Board of Directors, six members of which may be designated by parties other than AmWest or its partners (including three Creditors' Committee Directors, one Equity Committee Director, one Independent Company Director and one GPA Director, as such terms are defined in the Stockholders' Agreement). The Stockholders' Agreement also contains other restrictions on AmWest's ability to effect certain transactions involving the Company. See "Principal Stockholders -- Stockholders' Agreements." LIMITED TRADING MARKET; SHARES ELIGIBLE FOR FUTURE SALE There has been no trading market in the Securities prior to the Effective Date. There can be no assurance regarding the development of an active market for these Securities. Accordingly, there is no assurance that a holder of such Securities will be able to sell such Securities in the future or as to the price at which any such sale may occur. If a market should develop, it is anticipated that such market may be volatile, at least for an initial period of time after the Effective Date, and that certain of the recipients of the Securities in the Reorganization may prefer to liquidate their investments rather than to hold their investments on a long-term basis. Substantially all of the 43,800,000 outstanding shares of Class B Common Stock and (assuming no exercise of the outstanding warrants) will be freely tradeable, subject to certain restrictions with respect to shares held by AmWest or its partners or assignees. These shares include 14,265,473 shares of Class B Common Stock to be issued to the Selling Securityholders that are covered by the Registration Statement of which this Prospectus is a part, 25,669,348 shares of Class B Common Stock to be distributed to prepetition creditors and 2,250,000 shares of Class B Common Stock to be issued to pre-existing common equity holders. In addition, at the Effective Date, the Company will issue Warrants to purchase 10,384,615 shares of Class B 10 13 Common Stock. The Warrants will be immediately exercisable, and the Company believes that substantially all of the shares of Class B Common Stock issuable upon such exercise will be freely tradeable. LIMITATION ON VOTING BY FOREIGN OWNERS The Company's Restated Certificate of Incorporation provides that no more than 25% of the voting interest of the Company may be owned or controlled by persons who are not U.S. citizens and that the voting rights of such persons are subject to automatic suspension to the extent required to ensure that the Company is in compliance with applicable laws relating to ownership or control of a U.S. carrier. United States law currently requires that no more than 25% of the voting stock of the Company (or any other domestic airline) may be owned directly or indirectly by persons who are not citizens of the United States. See "Description of Capital Stock -- Limitation on Voting by Foreign Owners." LABOR NEGOTIATIONS The Company historically has operated without collective bargaining agreements covering any of its employees. In October 1993, however, the Air Line Pilots Association ("ALPA") was certified as the bargaining representative of the Company's flight deck crew members, and formal negotiations of a collective bargaining agreement have commenced. In addition, elections will be held during September, 1994 on a proposal by the Association of Flight Attendants ("AFA") to represent the Company's customer service representatives and the Company anticipates that an election will be held during 1994 with respect to a proposal by the Transportation Workers Union ("TWU") to represent the Company's fleet service personnel. On August 1, 1994 the International Brotherhood of Teamsters (the "Teamsters") filed an application to represent the Company's mechanics and related personnel. The Company cannot predict whether either the AFA, TWU or the Teamsters will be certified to represent any of the Company's employees. Furthermore, there can be no assurance that a future collective bargaining agreement with any of the ALPA, AFA or TWU will not contain wage increases, work rules or other provisions that could materially affect the Company's operations or financial performance. See "Business -- Employees." GOVERNMENT REGULATION The Company is subject to the Federal Aviation Act of 1958, as amended (the "Aviation Act"), under which the Department of Transportation (the "DOT") and the Federal Aviation Administration (the "FAA") exercise regulatory authority. This regulatory authority includes (i) the determination and periodic review of the fitness (including financial fitness) of air carriers; (ii) the certification and regulation of the flight equipment; (iii) the approval of personnel who may engage in flight, maintenance and operations activities; and (iv) 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 review by the President of the United States, and has jurisdiction over consumer protection policies, computer reservation system issues and unfair trade practices. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, retirement of older aircraft, collision avoidance system, airborne windshear avoidance systems, noise abatement and increased inspections and maintenance procedures to be conducted on older aircraft. Additional laws and regulations have been proposed from time to time which could significantly increase the cost of airline operations by imposing additional requirements or restrictions on operations. Laws and regulations have been considered from time to time that would prohibit or restrict the ownership and transfer of airline routes or slots. There is no assurance that laws and regulations currently enacted or enacted in the future will not adversely affect the Company's ability to maintain its current level of operating results. See "Business -- Government Regulations." 11 14 FUTURE CAPITAL REQUIREMENTS After giving effect to the Reorganization on a pro forma basis, as of June 30, 1994, America West had $638.4 million of long-term indebtedness (including current maturities) and $587.5 million of stockholders' equity. As of such date, the Company had $284.9 million of cash and cash equivalents on a pro forma basis. America West does not have available lines of credit or significant unencumbered assets. America West is more leveraged and has significantly less liquidity than certain of its competitors, several of whom have available lines of credit or significant unencumbered assets. Accordingly, the Company may be less able than certain of its competitors to withstand a prolonged economic recession. As of June 30, 1994, the Company had significant capital commitments, including firm commitments and options for a substantial number of new aircraft with a cost aggregating approximately $2.7 billion, a total which is subject to change pending the outcome of current negotiations. Upon the Effective Date, the Company will have an obligation to lease up to eight aircraft pursuant to put rights held by a third party. The Company will require substantial capital from external sources to meet these financial commitments. The Company has no current financing arrangements for most of its aircraft purchase commitments and intends to seek additional financing (which may include public debt financing or private financing) in the future when and as appropriate. There can be no assurance that sufficient financing will be obtained for all aircraft and other capital requirements. A default by the Company under any such commitment could have a material adverse effect on the Company. INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS The reports of the Company's independent certified public accountants covering the December 31, 1993 financial statements and schedules contain an explanatory paragraph that states that the Company's Chapter 11 proceeding, significant losses, accumulated deficit and highly leveraged capital structure raise substantial doubt about its ability to continue as a going concern. The financial statements and schedules do not include any adjustments that might result from the outcome of these uncertainities. These reports do not cover the pro forma financial statements included elsewhere in this Prospectus and, accordingly, do not address the impact of consummation of the Plan on the Company. 12 15 THE COMPANY GENERAL America West is a major United States air carrier providing passenger, cargo and mail service, with its primary markets in the western and southwestern regions of the United States. The Company operates its route system through two principal hubs, Phoenix, Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio. As of July 31, 1994, America West operated a fleet of 85 jet aircraft and provided service to 45 destinations. Through alliances with Mesa, the Company provides connecting service to an additional 18 destinations. The Company also has formed an alliance with Continental to serve additional destinations. America West currently operates with one of the lowest cost structures among the major U.S. airlines, based on reported 1993 results. America West's operating cost per available seat mile for 1993 was 7.01 cents, which was approximately 25% lower than the average operating cost per available seat mile of the nine largest other domestic airlines and was comparable to the costs incurred by Southwest Airlines. The Company's business strategy is to continue to offer competitive fares while maintaining an incrementally higher level of service relative to low cost carriers generally. These services include assigned seating, participation in computerized reservation systems, interline ticketing, first class cabins on certain flights, baggage transfer and various other services. Management believes that its principal hub locations in Phoenix and Las Vegas not only provide a low cost environment for a substantial portion of the Company's operations, but also position the Company to benefit from an expanding market for leisure travel. The Company's principal offices are located at 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034. The Company's telephone number is (602) 693-0800. BACKGROUND TO THE REORGANIZATION America West commenced operations in 1983 with three aircraft serving four destinations from Phoenix, Arizona. America West's original route structure consisted primarily of shorter-haul routes in the southwestern market, which brought it into direct competition with certain low fare airlines, particularly Southwest Airlines. Throughout the 1980s, America West financed rapid expansion of its fleet, with corresponding significant increases in debt and lease obligations. In addition, in the late 1980s, the Company entered the long-haul and, on a very limited basis, international markets. The Company introduced several aircraft types into its fleet in order to pursue this strategy. By July 1991, the Company operated a fleet of 123 aircraft serving 54 destinations in the continental United States, Hawaii, Canada and Japan. The Company experienced a significant net loss for the last six months of 1990, as revenues were lower than anticipated and fuel costs were higher than anticipated. The Persian Gulf conflict, which began in August of 1990, the fear of terrorism and the deepening national recession produced depressed traffic levels, higher fuel prices and fierce price competition in the airline industry. Beginning in February 1991, the Company undertook a series of actions designed to improve its cash position and reduce costs, including significant fare promotions and pay reductions. In June 1991, however, the Company faced a severe liquidity crisis and filed for protection under Chapter 11 of the United States Bankruptcy Code. During the bankruptcy case, the Company operated as a debtor-in-possession and implemented an operational restructuring pursuant to which it has: - Reduced its fleet size from 123 aircraft in July 1991 to 85 at July 31, 1994, facilitating a better matching of capacity to demand through elimination of nonproductive routes. - Reduced the aircraft types operated from five to three, resulting in reduced operating costs, including those related to maintenance, training and parts inventories. - Implemented certain enhancements to its revenue management system to optimize the level of passenger revenues generated on each flight. - Eliminated Company operated commuter service and introduced code-sharing agreements to expand the Company's scope of service and attract a broader passenger base. 13 16 - Implemented numerous cost reduction programs, including a Company-wide pay reduction in August 1991 and reduction of aircraft lease rentals to fair market rates in the summer of 1992. These programs, combined with a gradually improving economic climate and a more stable environment relative to fare competition within the airline industry, enabled the Company to realize operating income of $121.1 million in 1993, compared to operating losses of $74.8 million and $104.7 million for 1992 and 1991, respectively. THE PLAN OF REORGANIZATION On August 10, 1994, the order of the Bankruptcy Court confirming the Plan became final. The Plan will be consummated on the Effective Date when certain conditions specified in the Plan are satisfied or waived. The Company expects that the Effective Date will occur on or about August , 1994. Pursuant to the Plan, after giving effect to various elections made by general unsecured creditors and the exercise of certain subscription rights by certain holders of pre-existing equity interests, the following will occur upon the Effective Date: - AmWest (together with Lehman and Fidelity, as assignees of AmWest) will invest $214.9 million in consideration for the issuance of securities by the Company, consisting of (i) 1,200,000 shares of Class A Common Stock at a price of $7.467 per share; (ii) 13,365,473 shares of Class B Common Stock, including 12,259,821 shares at a price of $7.467 per share and 1,105,652 shares at $8.889 per share (representing shares acquired as a result of cash elections made by unsecured creditors as described below); (iii) 2,769,231 Warrants to purchase shares of Class B Common Stock; and (iv) $100 million principal amount of Senior Notes. - The general unsecured creditors of the Company will be issued an aggregate of 25,669,348 shares of Class B Common Stock and cash aggregating $9,828,145 (such cash representing $8.889 per share paid to unsecured creditors electing to receive cash in lieu shares of Class B Common Stock). - Holders of preferred equity interests of the Company prior to the Reorganization will receive their pro rata share of (i) $500,000 and (ii) 250,000 shares of Class B Common Stock (representing shares acquired pursuant to certain subscription rights at a price of $8.889 per share). - Holders of common equity interests in the Company prior to the Reorganization will be issued 3,615,179 shares of Class B Common Stock (1,365,179 of which shares are to be issued in exchange for cash, aggregating $12,135,076, provided by such equity holders upon the exercise of rights to subscribe for such shares at a price of $8.889 per share), and will receive 6,230,769 Warrants to purchase shares of Class B Common Stock. - 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 specified rates, GPA, or certain affiliates thereof, will receive (i) 900,000 shares of Class B Common Stock; (ii) 1,384,615 Warrants; (iii) a cash payment of approximately $30.5 million; (iv) the right to require the Company to lease up to eight aircraft of types operated by the Company on terms that the Company believes to be more favorable than those currently applicable to the put aircraft, which right must be exercised prior to June 30, 1999; and (v) the right to designate one director of the Company. - Approximately $77.6 million of debtor-in-possession ("D.I.P.") financing will be repaid in full in cash. - Continental, Mesa and America West will enter into certain Alliance Agreements relating to code-sharing, schedule coordination and certain other relationships and agreements. - The Company's Board of Directors will be reconstituted to include 15 members, of which nine shall be designated by AmWest, three shall be designated by the Official Committee of Unsecured Creditors (the "Creditors' Committee") and one shall be designated by each of the Official Committee of Equity Security Holders (the "Equity Committee"), GPA and the pre-Reorganization Board of Directors. 14 17 - The Plan also provides for many other matters, including the satisfaction of certain other prepetition claims in accordance with negotiated settlement agreements, 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 foregoing is a summary of the material aspects of the Plan. A complete copy of the Plan has been filed as an exhibit to the Registration Statement. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Securities by the Selling Securityholders. DIVIDEND POLICY The Company does not anticipate paying cash dividends in the foreseeable future. The Company expects that it will retain all available earnings generated by the Company's operations for the development and growth of its business. Any future determination as to the payment of dividends will be made in the discretion of the Board of Directors of the Company and will depend upon the Company's operating results, financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. The Company expects that certain loan agreements including the Indenture covering the Senior Notes will restrict the payment of cash dividends on the Common Stock under certain circumstances. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 15 18 CAPITALIZATION The following table sets forth the unaudited capitalization of the Company at June 30, 1994, and as adjusted to give pro forma effect to the consummation of the Plan at that date. The presentation does not purport to represent what the Company's actual capitalization would have been had such transactions in fact been consummated on such date. The table should be read in conjunction with the Company's financial statements and the related notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Unaudited Pro Forma Condensed Financial Information" included elsewhere in this Prospectus.
JUNE 30, 1994 ------------------------- PRO HISTORICAL FORMA ---------- ---------- (IN THOUSANDS) Long-term debt, including current maturities: Estimated liabilities subject to Chapter 11 proceedings........... $ 379,814 $ --(2) Long-term debt, including current maturities...................... 500,018 538,371(3) % Senior Unsecured Notes due 2001............................... -- 100,000(4) ---------- ---------- Total long-term debt, including current maturities........ 879,832 638,371 Stockholders' equity (deficiency)(1): Preferred stock................................................... 18 -- Common stock...................................................... 6,424 -- NewAWA Class A Common Stock....................................... -- 12(4) NewAWA Class B Common Stock....................................... -- 438(4) Additional paid in capital........................................ 200,013 587,050(4) Accumulated deficit............................................... (403,315) -- ---------- ---------- (196,860) 587,500 Less deferred compensation and notes receivable -- employee stock purchase plans........................................... 18,478 --(5) ---------- ---------- Total stockholders' equity (deficiency)................... (215,338) 587,500 ---------- ---------- Total capitalization................................................ $ 664,494 $1,225,871 ========= =========
- --------------- (1) Does not include 10,384,615 shares of Class B Common Stock reserved for issuance upon exercise of the Warrants. (2) Reflects cancellation of liabilities subject to Chapter 11 proceedings. (3) Reflects additional long-term debt issued in connection with settlement of claims. (4) Reflects issuance of % Senior Notes due 2001, excluding estimated fees and issuance costs, issuance of Class A and Class B Common Stock, the settlement of claims and recording of equity value of the reorganized Company. (5) Reflects forgiveness of employee notes receivable and the write-off of related deferred compensation under employee stock purchase plans. 16 19 SELECTED FINANCIAL DATA The selected data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 1993, are derived from the financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick, independent certified public accountants. The financial statements as of December 31, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1993, and the report thereon, are included elsewhere in this Prospectus. The selected data should be read in conjunction with the financial statements for the five-year period ended December 31, 1993, the related notes and the independent auditors' report, which contains an explanatory paragraph that states that the Company's Chapter 11 proceeding, significant losses, accumulated deficit and highly leveraged capital structure raise substantial doubt about its ability to continue as a going concern, appearing elsewhere in this Prospectus. The financial statements and the selected data do not include any adjustments that might result from the outcome of these uncertainties. As a result of the Company filing a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code on June 27, 1991 and operating as a debtor-in-possession thereafter, the selected financial data for periods prior to June 27, 1991 are not comparable to periods subsequent to such date. The selected data presented below for the six-month periods ended June 30, 1994 and 1993 and as of June 30, 1994 are derived from the unaudited condensed financial statements of the Company included elsewhere in this Prospectus.
UNAUDITED SIX MONTHS YEARS ENDED DECEMBER 31, ENDED JUNE 30, -------------------------------------------------------------------- ------------------------- 1989 1990 1991 1992 1993 1993 1994 -------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS) STATEMENT OF OPERATIONS DATA: Operating revenues......... $993,409 $1,315,804 $1,413,925 $1,294,140 $1,325,364 $ 641,515 $ 708,615 Operating expenses......... 945,293 1,347,435 1,518,582 1,368,952 1,204,310 599,168 626,719 Operating income (loss).... 48,116 (31,631) (104,657) (74,812) 121,054 42,347 81,896 Income (loss) before income taxes and extraordinary items.................... 20,040 (76,695) (222,016) (131,761) 37,924 12,647 36,782 Income tax expense......... 7,237 -- -- -- 759 253 1,471 Income (loss) before extraordinary items...... 12,803 (76,695) (222,016) (131,761) 37,165 12,394 35,311 Extraordinary items(a)..... 7,215 2,024 -- -- -- -- -- Net income (loss).......... 20,018 (74,671) (222,016) (131,761) 37,165 12,394 35,311 Earnings (loss) per share: Primary: Before extraordinary items................ 0.61 (4.26) (10.39) (5.58) 1.50 0.52 1.30 Extraordinary items(a)............. 0.39 0.11 -- -- -- -- -- Net earnings (loss).... 1.00 (4.15) (10.39) (5.58) 1.50 0.52 1.30 Fully diluted............ 1.00 (4.15) (10.39) (5.58) 1.04 0.36 0.92 Shares used for computation: Primary.................. 20,626 18,396 21,534 23,914 27,525 29,669 28,704 Fully diluted............ 20,626 18,396 21,534 23,914 41,509 42,804 40,607 Ratio of earnings to fixed charges(b)............... 1.12 -- -- -- 1.28 1.18 1.56 BALANCE SHEET DATA: Working capital deficiency............... $(18,884) $ (94,671) $ (51,158) $ (201,567) $ (124,375) $ (188,171) $ (106,760) Total assets............... 835,885 1,165,256 1,111,144 1,036,441 1,016,743 1,031,371 1,100,541 Long-term debt, less current maturities....... 474,908 620,701 726,514 647,015 620,992 634,435 604,420 Total stockholders' equity (deficiency)............. 87,203 21,141 (166,510) (294,613) (254,262) (279,626) (215,338)
- --------------- (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 issuance cost, capitalized interest and a portion 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. 17 20 UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION The following unaudited pro forma condensed balance sheet and unaudited pro forma condensed statement of operations are based on the statements of America West included elsewhere in this Prospectus, as adjusted to give effect to the consummation of the Plan. The unaudited pro forma condensed statements of operations have been prepared as if the Reorganization had occurred on January 1, 1993. The unaudited pro forma condensed balance sheet has been prepared assuming the consummation of the Plan had occurred on June 30, 1994. The unaudited pro forma condensed financial information and accompanying notes should be read in conjunction with the Company's financial statements and the notes thereto appearing elsewhere in this Prospectus. The Unaudited Pro Forma Condensed Financial Information is presented for informational purposes only and does not purport to represent what the Company's financial position or results of operations would actually have been if the consummation of the Plan had occurred on such date or at the beginning of the period indicated, or to project the Company's financial position or results of operations at any future date or for any future period. 18 21 AMERICA WEST AIRLINES, INC. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET JUNE 30, 1994 (IN THOUSANDS)
JUNE 30, PRO FORMA ADJUSTMENTS JUNE 30, 1994 --------------------------- 1994 (HISTORICAL) DEBIT CREDIT (PRO FORMA) ------------ ---------- ---------- ----------- ASSETS Current Assets: Cash and cash equivalents......................... $ 176,922 $ 99,000(1e) $ 77,561(1b) $ 284,927 114,857(1d) 63,891(1a) 35,600(2) Accounts receivable, net.......................... 78,207 -- 4,400(2) 73,807 Expendable spare parts and supplies, net.......... 28,622 -- 4,425(3a) 24,197 Prepaid expenses.................................. 32,888 -- -- 32,888 ------------ ---------- ---------- ----------- Total current assets....................... 316,639 249,457 150,277 415,819 ------------ ---------- ---------- ----------- Property and equipment, net, and equipment purchase deposits.......................................... 709,154 -- 145,654(3a) 546,595 16,905(1a) Restricted cash..................................... 50,468 -- 31,200(2) 19,268 Other assets........................................ 24,280 1,000(1e) 501(3a) 24,779 Reorganization value in excess of amounts allocable to identifiable assets............................ -- 697,278(3c) -- 697,278 ------------ ---------- ---------- ----------- $1,100,541 $ 947,735 $ 344,537 $1,703,739 =========== ========== ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current Liabilities: Current maturities of long-term debt.............. $ 118,621 $ 77,561(1b) $ 18,389(1a) $ 59,449 Accounts payable.................................. 71,463 10,215(1a) 10,000(1a) 71,248 Air traffic liability............................. 166,383.... -- -- 166,383 Accrued compensation and vacation benefits........ 12,525 -- -- 12,525 Accrued interest.................................. 7,812 -- -- 7,812 Accrued taxes..................................... 27,304 -- -- 27,304 Other accrued liabilities......................... 19,291 674(1a) 13,967(3b) 32,584 ------------ ---------- ---------- ----------- Total current liabilities.................. 423,399 88,450 42,356 377,305 ------------ ---------- ---------- ----------- Estimated liabilities subject to Chapter 11 proceedings....................................... 379,814 472,870(1a) 93,056(1a) -- Long-term debt, less current maturities............. 381,397 -- 100,000(1e) 578,922 97,525(1a) Manufacturers' and other deferred credits........... 71,366 71,366(3a) 132,859(3b) 132,859 Other liabilities................................... 59,903 32,750(3a) -- 27,153 Stockholders' equity (deficiency): Preferred stock................................... 18 18(1f) -- -- Common stock...................................... 6,424 6,424(1f) -- -- NewAWA class A common stock....................... -- -- 12(1d) 12 NewAWA class B common stock....................... -- -- 438(1d) 438 Additional paid in capital........................ 200,013 200,013(1f) 587,050(1d) 587,050 Retained earnings (deficit)....................... (403,315) -- 403,315(1f) -- ------------ ---------- ---------- ----------- (196,860) 206,455 990,815 587,500 ------------ ---------- ---------- ----------- Less deferred compensation and notes receivable -- employee stock purchase plans................... 18,478 -- 18,478(1c) -- ------------ ---------- ---------- ----------- (215,338) 206,455 1,009,293 587,500 ------------ ---------- ---------- ----------- $1,100,541 $ 871,891 $1,475,089 $1,703,739 =========== ========== ========== ============
See accompanying notes to unaudited pro forma condensed financial statements. 19 22 AMERICA WEST AIRLINES, INC. UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED PRO FORMA YEAR ENDED DECEMBER 31, ADJUSTMENTS DECEMBER 31, 1993 -------------------- 1993 (HISTORICAL) DEBIT CREDIT (PRO FORMA) ------------ ------- ------- ------------ Operating revenues: Passenger................................. $1,246,564 $ -- $ -- $1,246,564 Cargo..................................... 40,161 -- -- 40,161 Other..................................... 38,639 -- -- 38,639 ------------ ------- ------- ------------ Total operating revenues.......... 1,325,364 -- -- 1,325,364 ------------ ------- ------- ------------ Operating expenses: Salaries and related costs................ 305,429 -- -- 305,429 Rentals and landing fees.................. 274,708 -- 2,487(6) 272,221 Aircraft fuel............................. 166,313 -- -- 166,313 Agency commissions........................ 106,368 -- -- 106,368 Aircraft maintenance materials and repairs................................ 31,000 -- -- 31,000 Depreciation and amortization............. 81,894 34,864(7a) 29,973(7b) 86,785 Other..................................... 238,598 -- 474(6) 238,124 ------------ ------- ------- ------------ Total operating expenses.......... 1,204,310 34,864 32,934 1,206,240 ------------ ------- ------- ------------ Operating income.................. 121,054 34,864 32,934 119,124 ------------ ------- ------- ------------ Nonoperating income (expense): Interest income........................... 728 -- 4,629(8) 5,357 Interest expense.......................... (54,192) 11,408(5) -- (65,600) Loss on disposition of property and equipment.............................. (4,562) -- -- (4,562) Reorganization expense, net............... (25,015) -- 25,015(4) -- Other, net................................ (89) 83(5) -- (172) ------------ ------- ------- ------------ Total nonoperating expenses, net............................. (83,130) 11,491 29,644 (64,977) ------------ ------- ------- ------------ Income before income taxes........ 37,924 46,355 62,578 54,147 ------------ ------- ------- ------------ Income tax expense.......................... 759 33,564(9) -- 34,323 ------------ ------- ------- ------------ Net income.................................. $ 37,165 $79,919 $62,578 $ 19,824 ========== ======= ======= ========== Earnings per share: Primary................................... $ 1.50 $ 0.44 ========== ========== Fully diluted............................. $ 1.04 $ 0.44 ========== ========== Shares used for computation: Primary................................... 27,525 45,125 ========== ========== Fully diluted............................. 41,509 45,125 ========== ==========
See accompanying notes to unaudited pro forma condensed financial statements. 20 23 AMERICA WEST AIRLINES, INC. UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS SIX MONTHS ENDED ENDED PRO FORMA JUNE 30, JUNE 30, ADJUSTMENTS 1994 1994 -------------------- (PRO (HISTORICAL) DEBIT CREDIT FORMA) ---------- ------- ------- ---------- Operating revenues: Passenger.................................. $665,044 $ -- $ -- $665,044 Cargo...................................... 21,489 -- -- 21,489 Other...................................... 22,082 -- -- 22,082 ---------- ------- ------- ---------- Total operating revenues.............. 708,615 -- -- 708,615 ---------- ------- ------- ---------- Operating expenses: Salaries and related costs................. 162,484 -- -- 162,484 Rentals and landing fees................... 132,835 -- 1,230(6) 131,605 Aircraft fuel.............................. 75,794 -- -- 75,794 Agency commissions......................... 59,931 -- -- 59,931 Aircraft maintenance materials and repairs.................................. 18,902 -- -- 18,902 Depreciation and amortization.............. 43,198 17,452(7a) 12,194(7b) 48,456 Other...................................... 133,575 -- 948(6) 132,627 ---------- ------- ------- ---------- Total operating expenses.............. 626,719 17,452 14,372 629,799 ---------- ------- ------- ---------- Operating income...................... 81,896 17,452 14,372 78,816 ---------- ------- ------- ---------- Nonoperating income (expense): Interest income............................ 344 -- 3,436(8) 3,780 Interest expense........................... (26,068) 5,354(5) -- (31,422) Loss on disposition of property and equipment................................ (1,270) -- -- (1,270) Reorganization expense, net................ (18,258) -- 18,258(4) -- Other, net................................. 138 41(5) -- 97 ---------- ------- ------- ---------- Total nonoperating expenses, net...... (45,114) 5,395 21,694 (28,815) ---------- ------- ------- ---------- Income before income taxes............ 36,782 22,847 36,066 50,001 ---------- ------- ------- ---------- Income tax expense.............................. 1,471 24,539(9) -- 26,010 ---------- ------- ------- ---------- Net income...................................... $ 35,311 $47,386 $36,066 $ 23,991 =========== ======= ======= =========== Earnings per share: Primary.................................... $ 1.30 $ 0.53 =========== =========== Fully diluted.............................. $ 0.92 $ 0.53 =========== =========== Shares used for computation: Primary.................................... 28,704 45,125 =========== =========== Fully diluted.............................. 40,607 45,125 =========== ===========
See accompanying notes to unaudited pro forma condensed financial statements. 21 24 AMERICA WEST AIRLINES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS The following notes set forth the explanations and assumptions used and adjustments made in preparing the unaudited pro forma condensed balance sheet as of June 30, 1994, and the unaudited pro forma condensed statements of operations for the year ended December 31, 1993 and for the six months ended June 30, 1994. The unaudited pro forma condensed financial statements reflect the adjustments described under "Pro Forma Adjustments" below, which are based on the assumptions and preliminary estimates described therein, which are subject to change. These statements do not purport to be indicative of the financial position and results of operations of America West as of such dates or for such periods, nor are they indicative of future results. Furthermore, these unaudited pro forma condensed financial statements do not reflect anticipated changes which may occur as the result of activities before and after the Effective Date of the Plan and other matters. (For the purposes of the pro forma financial statements, the "Effective Date" is assumed to be June 30, 1994 for the pro forma balance sheet, and January 1, 1993 for the pro forma statements of operations.) The unaudited pro forma condensed financial statements should be read in conjunction with the financial statements and the notes thereto included elsewhere in this Prospectus. PRO FORMA ADJUSTMENTS The unaudited pro forma condensed balance sheet and unaudited pro forma condensed statements of operations reflect the following pro forma adjustments based on the assumptions described below: Balance Sheet Pro Forma Adjustments 1. To record the effects of the consummation of the Plan: a. Estimated additional liabilities from settlement of certain claims; payment of certain claims; issuance of new debt to settle claims; cancellation of liabilities subject to Chapter 11 proceedings; and accrual and payment for reorganization expenses including success bonuses; b. Repayment of the debtor-in-possession loan; c. Forgiveness of employee notes receivable and the write-off of related deferred compensation under employee stock purchase plans. d. Issuance of Class A and Class B Common Stock to AmWest and its assignees for gross proceeds of $114.9 million and to settle claims; and record equity value of the reorganized Company; e. Issuance of $100 million of % Senior Notes, including estimated fees and issuance costs of $1 million; and f. Cancellation of all pre-existing ownership interests and elimination of the accumulated deficit. 2. To record the release of restricted cash and holdbacks related to credit card transactions. 3. To record estimated "fresh start" adjustments pursuant to Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"), issued by the American Institute of Certified Public Accountants: a. Adjusting assets and liabilities to fair market value. Such fair market values were estimated by America West's management based on its reviews of various appraisals performed on certain of its owned facilities, aircraft, rotable spare parts (including spare engines) and flight simulators; and on management's estimates as to the fair values for other of its fixed assets such as ground support, maintenance and other equipment. Additionally, such estimated market values (including the fair market lease rates for leased aircraft) are deemed to reflect the fair market values of those assets, and certain other intangible 22 25 AMERICA WEST AIRLINES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) assets and liabilities (i.e., deferred heavy aircraft maintenance and other aircraft-related maintenance accruals, leasehold improvements, deferred manufacturers' and other credits, and rent leveling provisions) are assumed to be written off at the Effective Date. America West has engaged independent parties to prepare valuations of certain of its fixed assets and leased aircraft rental rates. Based on the results of these valuations, these fair market values and lease rates will be adjusted accordingly. b. Adjusting operating leases (principally aircraft operating leases) to fair market lease rates; and c. Recording reorganization value in excess of amounts allocable to identifiable assets ("Excess Reorganization Value"). The reorganization value of America West at the Effective Date is based on a valuation analysis prepared by an independent third party. This valuation is, in turn, based on, among other considerations: historical financial results of America West, financial projections of America West through 1997 prepared by management, multiples based on a comparison of qualitative and quantitative data for selected publicly-traded companies engaged in businesses comparable to the business of America West, certain economic and industry information relevant to the business of America West and discussions with management regarding the current operations and prospects of America West. Many of the analytical assumptions upon which this valuation is based are beyond the control of America West and there may be material variations between such assumptions and the actual facts. Statements of Operations Pro Forma Adjustments 4. To eliminate reorganization expense, net. Reorganization costs incurred subsequent to the Effective Date and not accrued at the Effective Date will be reflected as reorganization expenses in the statement of operations in the succeeding period. 5. To record interest expense and amortize debt issuance costs for the Senior Notes, assuming an interest rate of 11.5%, and to adjust interest expense for the payoff of the D.I.P. loan and the amortization of certain debt, given that all such transactions began at the Effective Date. 6. To adjust lease rent expense (principally aircraft operating leases) to fair market rents. 7. To adjust depreciation and amortization to be reflective of pro forma balance sheet amounts: a. Amortization of Excess Reorganization Value of approximately $697 million on a straight-line basis over a period of 20 years, and subject to certain adjustments as discussed at note 9 below; and b. Reduced depreciation and amortization primarily due to the write-down of fixed assets to fair value. 8. To reclass interest income recorded previously as offsets to Reorganization expenses and record interest income on additional cash and cash equivalents due to the consummation of the Plan. 9. To adjust income tax expense for the effects of the consummation of the Plan, including limitations on the uses of net operating loss carryforwards due to a statutory ownership change. Pro forma tax expense exceeds the U.S. statutory tax rate of 35% primarily as a result of amortization of Excess Reorganization Value and state and local taxes. It is estimated that the Company will have available at the consummation of the Plan net future deductible temporary differences, primarily net operating loss carryforwards. These deferred tax benefits have not been reflected in the accompanying pro forma balance sheet. The realization of these benefits on a pro forma basis are reported as a reduction in Excess Reorganization Value rather than as a reduction in the tax provision in the statements of operations. 23 26 AMERICA WEST AIRLINES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) The analysis of the impact of the consummation of the Plan on the provision for income taxes has not been finalized. When such analysis is completed, the actual results could differ from the estimates included in the pro forma financial statements. 10. Pro forma earnings per share have been computed based on the estimated weighted average number of common shares outstanding during the applicable period assuming that the Plan was effective on January 1, 1993. However, since the exercise price of the Warrants will not be determined until a later date, the earnings per share computation is presented without the effect of the exercise of the Warrants for both primary and fully diluted earnings per share. 24 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On August 10, 1994, the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") confirmed the Company's Plan of Reorganization (the "Plan"). The Company currently anticipates that the Plan will be effective after expiration of the Bankruptcy Code 10-day appeal period, on or about August 23, 1994 (the "Effective Date"). In connection with the confirmation hearing on August 10, 1994, the Company filed certain motions with the Bankruptcy Court to secure approval to pay the following confirmation bonuses or success fees: -- $9.3 million to be paid based upon length of service to non-officer employees. -- $1.2 million to be paid to officers and other members of management. -- 125,000 shares of stock in the reorganized Company to be issued to the Company's Chairman and Chief Executive Officer. A hearing on these motions has been scheduled for August 24, 1994. 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 operated as a debtor-in-possession ("D.I.P.") under the supervision of the Bankruptcy Court until the Effective Date of the Plan. Due to the bankruptcy case, 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 have affected the Company's operations in the past and might adversely impact the Company's future operations are (i) general economic conditions; (ii) changes in the cost of fuel, labor, capital and other operating items; (iii) increased level of competition resulting in significant discounting of fares; and (iv) changes in capacity, load factors and yields or reduced levels of passenger traffic due to war or terrorist activities. On the Effective Date of the Plan, America West will adopt fresh start reporting in accordance with SOP 90-7, resulting in adjustment of the Company's common stockholders' equity and the carrying values of assets and liabilities. Accordingly, the Company's post-reorganization balance sheet and statement of operations will not be prepared on a consistent basis of accounting with the pre-reorganization balance sheet and statements of operations. In connection with the Reorganization, the Company will receive a significant capital infusion, a substantial amount of prepetition liabilities will be converted to equity or otherwise discharged and significant adjustments will be made to reflect the resolution of or provision for certain contingent liabilities. IMPACT OF FRESH START REPORTING ON RESULTS OF OPERATIONS The fresh start reporting adjustments, primarily related to the adjustment of the Company's assets and liabilities to fair market values, will have a significant effect on the Company's future operating results. The more significant adjustments relate to decreased depreciation expense, increased amortization expense relating to reorganization value in excess of amounts allocable to identifiable assets, reduced aircraft rent expense and increased interest expense. RESULTS OF OPERATIONS For the Six Months Ended June 30, 1994 as Compared to the Six Months Ended June 30, 1993 For the six months ended June 30, 1994, the Company realized a net income of $35.3 million ($1.30 per common share on a primary basis) compared to $12.4 million ($.52 per common share on a primary basis) for 25 28 the comparable period of 1993. The results for the six months include Reorganization expenses of $18.3 million and $1.9 million for 1994 and 1993, respectively. The continuation of the positive trend in operating results, which commenced during the fourth quarter of 1992, is attributable to several factors which include improved economic and competitive fare conditions, the stabilization of fuel prices as well as the benefits derived from the reduction in fleet size from 104 aircraft to 85 aircraft, the implementation of numerous cost reduction and revenue enhancement programs, the elimination of the Company's commuter operation and the introduction of code sharing agreements. Passenger revenues for the six months ended June 30, 1994 increased 10.1% to $665.0 million compared to the 1993 period. Although average passenger yield declined by 4.6% during the period, RPMs increased by 15.3% more than offsetting the decline in yield. Passenger revenues per ASM increased 5.9% to 7.55 cents for the six months of 1994 on the strength of the increase in revenue passenger miles. Revenues from sources other than passenger fares increased during the first six months of 1994 to $43.6 million compared to $37.7 million for 1993. This improvement of 16% was due primarily to increases in freight and mail revenues. The following table details certain key operating statistics for the six month periods ended June 30, 1994 and 1993.
SIX MONTHS ENDED JUNE 30, ---------------------------------------------- PERCENTAGE 1994 1993 INCREASE OR (DECREASE) ----- ----- ---------------------- Number of Aircraft (end of period)........... 85 85 -- ASMs (millions).............................. 8,804 8,467 4.0 RPMs (millions).............................. 6,139 5,324 15.3 Load Factor (percent)........................ 69.7 62.9 10.8 Yield (cents/RPM)............................ 10.82 11.34 (4.6) Revenue Per ASM (cents): Passenger.................................. 7.55 7.13 5.9 Total...................................... 8.05 7.58 6.2
Operating expense per ASM increased to 7.12 cents for the first six months of 1994 compared to 7.08 cents for the same period of the prior year. The table below sets forth the major categories of operating expense per ASM for the applicable periods.
SIX MONTHS ENDED JUNE 30, --------------- 1994 1993 ---- ---- (IN CENTS/ASM) Salaries and Related Costs........................................... 1.85 1.77 Rentals and Landing Fees............................................. 1.51 1.66 Aircraft Fuel........................................................ .86 .99 Agency Commissions................................................... .68 .62 Aircraft Maintenance Materials and Repairs........................... .21 .17 Depreciation and Amortization........................................ .49 .47 Other................................................................ 1.52 1.40 ---- ---- 7.12 7.08 ==== ====
The changes in the components of operating expense per ASM between 1994 and 1993 are explained as follows: -- For the six month period of 1994 salaries and related costs have increased primarily due to performance and employment award distributions under the transition pay program which was instituted in the second quarter of 1993 and the new pay program instituted in the second quarter of 1994. -- Rentals and landing fees decreased due to the reduction in airport rent expense at New York's JFK and Phoenix's Sky Harbor International and the return of certain administrative office space, as part 26 29 of the Company's facilities consolidation program. In addition, rentals and landing fees have decreased for the first six months of 1994 compared to the 1993 period due to the return of a wet leased aircraft that serviced the Hawaii market through March 31, 1993. -- Aircraft fuel expense decreased due to the decline in the average price per gallon to 53.66 cents in 1994 from 62.87 cents for 1993. -- The increase in the level of agency commission expense is primarily due to the significant increase in passenger revenue per ASM from 7.13 cents for 1993 to 7.55 cents for 1994. -- The level of aircraft maintenance materials and repairs expense has increased primarily as a result of higher aircraft utilization. Average daily utilization of the aircraft fleet has increased from 10.7 hours per day for 1993 to 11.1 hours per day for 1994. This higher level of utilization has resulted in increases to engine and engine component repair expense and to increases in line maintenance materials usage. -- The increase in depreciation and amortization expense is primarily attributable to increased heavy engine overhauls on a scheduled basis. -- The increase in other operating expenses of 13% is primarily due to increased media advertising costs as well as expenses related to increased traffic such as credit card discount fees, booking fees, telephone charges, catering expenses and single/multiple use supplies. Non-operating expenses (net of non-operating income) amounted to $45.1 million and $29.7 million for 1994 and 1993, respectively. Interest expense for 1994 was $26.1 million, slightly below the $27.6 million for the same period of 1993. In conformity with SOP 90-7, the Company has ceased accruing and paying interest on unsecured pre-petition long-term debt. Interest expense for 1994 would have been $33.9 million, if the Company had continued to accrue interest on such debt. During the first six months, the Company incurred expenses of $18.3 million in 1994 and $1.9 million in 1993 in connection with the Reorganization. Such expenses for 1994 include increased professional fees and charges of $7.5 million related to the termination of the Kawasaki Put Agreement and the settlement of an administrative claim. Reorganization related expenses are expected to significantly affect future results. 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 method, prior year financial statements have not been restated. For the Years Ended December 31, 1993, 1992 and 1991 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. 27 30 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) ---------------------------------------------------- 1ST 2ND 3RD 4TH YEAR ------ ------ ------ ------ -------- (IN MILLIONS) 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. -- 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% compared to the prior year and 6.3% 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 and the percentage change in such statistics from 1991 and 1992, respectively, to 1993.
PERCENT CHANGE ------------------ 1992 1991 1993 1992 1991 TO 1993 TO 1993 ---------- ---------- ---------- ------- ------- Aircraft (end of period)............... 85 87 101 (2.3) (15.8) ASMs (in thousands).................... 17,190,489 19,271,353 20,627,472 (10.8) (16.7) RPMs (in thousands).................... 11,220,753 11,780,568 13,030,279 (4.8) (13.9) Load Factor (percent).................. 65.3 61.1 63.2 6.9 3.3 Passenger Enplanements (in thousands)........................... 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 (cents/RPM)...................... 11.11 10.31 10.22 7.8 8.7 Revenue Per ASM (cents): Passenger............................ 7.25 6.30 6.46 15.1 12.2 Total................................ 7.71 6.72 6.85 14.7 12.6
28 31 In spite of the significant decline in capacity in 1993 compared to the two previous years, passenger revenues per ASM 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. 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%, or $40.2 million, of other revenues for 1993. This represents a decrease of 4.6% 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 for protection under Chapter 11, operating expense per ASM 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 ASM for 1993, 1992 and 1991 and the percentage change in such expenses from 1991 and 1992, respectively, to 1993:
PERCENT CHANGE ----------------- 1992 TO 1991 TO 1993 1992 1991 1993 1993 ---- ---- ---- ------- ------- (IN CENTS) 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 and Amortization.................... .48 .45 .47 6.7 2.1 Restructuring Charges............................ -- .16 -- (100.0 ) -- 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 ASM should be considered in relation to the decline in available seat miles of 10.8% and 16.7% from 1992 and 1991, respectively, and are explained as follows: -- The 6.0% 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% wage reduction that was effected Company-wide on August 1, 1991 (officers and other management personnel received wage reductions of 10% to 25% commencing in February 1991). The program, which was in effect for four fiscal quarters, provided for the following payments on a quarterly basis to all active employees during the quarter. 29 32 a. Commencing the second quarter of 1993, performance award distributions were 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 were made based on the greater of .5 percent of an employee's annual base wage, or $125, whichever 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 rates 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 ASM 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 no longer in service......................................................... 12.7 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. -- The increase in depreciation and amortization is primarily attributable to increased heavy engine overhauls. -- Other operating expenses decreased 7.1 percent compared to 1992 and was lower by 18.9% compared to 1991. The decrease compared to the prior year is primarily attributable to the 10.8% 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 Financial Statements and Supplementary Data -- Notes 3a and 4 of Notes to Financial Statements. 30 33 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. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1994, the Company had a working capital deficiency of $106.8 million, which declined from $124.4 million at December 31, 1993, primarily due to an increase in cash and receivables resulting from improved operating results. At June 30, 1994, cash and cash equivalents were $176.9 million, compared to $99.6 million at December 31, 1993. On the Effective Date (estimated currently to be August 23, 1994), the Company expects unrestricted and restricted cash balances to be approximately $287 million and $21 million, respectively (compared to $25 million and $41 million, respectively, prior to the Chapter 11 filing). The estimates of unrestricted cash include approximately $214.9 million relating to the issuance of the Class A Common Stock, the Class B Common Stock and the Senior Notes. Such projected cash balances are also net of estimated Plan confirmation payments of approximately $141 million, including approximately $78 million of outstanding D.I.P. financing. Upon implementation of the Plan, the Company's total estimated long-term debt (including related current maturities and liabilities subject to compromise) will be reduced from approximately $957 million to approximately $634 million. On the Effective Date, stockholders' equity is expected to be $587.5 million. Accordingly, on a pro forma basis, the Company's ratio of debt to equity is anticipated to be 1.08 to 1. After the Effective Date, the Company will be substantially less leveraged and will possess significantly greater liquidity than during the several years prior to filing its Chapter 11 petition. It is anticipated that such projected financial condition in conjunction with its current low cost structure will enable the Company to better withstand future negative events, such as an economic downturn, escalating fuel prices and intense fare competition, as well as gain access to traditional market sources for its future financing requirements. Substantial obligations relating to long-term aircraft and airport terminal facilities leases will continue to exist. During 1993, the Company incurred capital expenditures of $54.3 million, primarily relating to aircraft modifications and heavy airframe and engine overhauls. The Company anticipates capital expenditures for 1994 to aggregate $82 million primarily for rotable spare parts, aircraft modifications and major overhauls. The Company expects to fund these capital expenditures with cash provided by operations. At June 30, 1994, the Company had on order a total of 49 aircraft of the types the Company currently operates, of which 29 are firm orders and 20 are option orders. The current estimated aggregate cost for the acquisition of the 49 aircraft is approximately $2.7 billion (which amount may change as a result of current negotiations and does not reflect any deliveries the Company may take pursuant to put arrangements more fully discussed below). All of these aircraft are to be purchased from Boeing or AVSA. For a more complete description of the Company's rights and obligations with respect to the purchase of aircraft, see "Business -- Aircraft." With respect to the agreements with Boeing, the B737-300 purchase contract has been affirmed in the Company's bankruptcy proceedings. With timely notice to the manufacturer, all or some of these deliveries may be converted to B737-400 aircraft. Existing purchase agreements for B757-200 and B747-400 aircraft have neither been affirmed nor rejected. All Boeing purchase agreements require a 24-month reconfirmation notice for the delivery of each aircraft. As of June 30, 1994, ten B737-300 and nine B757-200 delivery positions have expired due to the lack of reconfirmation by the Company, leaving 14 and 11 delivery positions 31 34 for B737-300s and B757-200s, respectively. The failure to reconfirm such delivery positions exposes the Company to loss of pre-delivery deposits and other claims which may be asserted in the bankruptcy proceeding. The Company also has a pre-petition executory contract under which the Company holds delivery positions for four B747-400 aircraft under firm order and four B747-400 aircraft under option order. This executory contract allows the Company, with the giving of adequate notice, to substitute B737-400 aircraft for those delivery positions. The Company is currently renegotiating all of its aircraft purchase agreements with Boeing to finalize the details of this amendment. With respect to the purchase of aircraft from AVSA, a single executory contract for the purchase of 24 A320 aircraft has neither been affirmed nor rejected by the Company. As part of the investment by AmWest, the A320 purchase agreement was amended to provide the Company with greater flexibility and reduced pricing. Under the modified terms, delivery dates of the aircraft will fall in the years 1998 through 2000 with an option to further defer deliveries. In addition, if new A320 aircraft are delivered as a result of the renegotiated put agreement (see discussion below), the Company will have the right to cancel on a one-for-one basis up to a maximum of eight non-consecutive aircraft deliveries, subject to certain conditions. Negotiations are currently continuing between AVSA and the Company. 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. One Airbus A320 aircraft was returned to the lessor and was replaced by a Boeing 757 aircraft which has been leased for a term of three years. In June 1994, the Company renegotiated a put agreement for ten A320 aircraft. The new agreement reduced the number of put aircraft from ten to eight and rescheduled the deliveries to start not earlier than June 30, 1995 and end on June 30, 1999. Under the new agreement, new or used A320 aircraft, B737-300 or B757-200 aircraft may be put to the Company but at a rate of no more than two in 1995 and with respect to each ensuing year during the put period, of no more than three. In addition, no more than five used aircraft may be put to the Company and for every new A320 aircraft put to the Company, the Company has the right to reduce the AVSA A320 purchase contract on a one-for-one basis. During each January of the put period, the Company will negotiate the type and delivery dates of the put aircraft for that year. The puts will require 150-day notice and will be leased at fair market rates, for terms ranging from three to 18 years, depending on the type and condition of the aircraft. As part of the renegotiated agreement, certain financial concessions were granted to the put holder. Following the implementation of the Plan, the net operating loss carryforwards (and other tax attributes) of the Company may be subject to the limitations imposed by section 382 of the Internal Revenue Code ("Section 382"). Under Section 382, if a corporation undergoes an ownership change, the amount of its pre-change losses that may be utilized to offset future taxable income generally will be subject to an annual limitation. The issuance of Class B Common Stock pursuant to the Plan will constitute an ownership change of the Company. Subject to certain exceptions, the Senior Note Indenture limits the declaration or payment of dividends and certain other transactions (defined in the Indenture as Restricted Payments). Such Restricted Payments are not permitted if a Default or an Event of Default has occurred and is continuing, and otherwise such payments are limited generally to 50% (or 75% if the Senior Notes receive certain investment grade ratings) of Adjusted Consolidated Net Income, as defined in the Indenture, plus proceeds of certain capital stock issuances plus $25 million. At December 31, 1993, on a pro forma basis, the Company would have had available approximately $37 million for dividends or other Restricted Payments under such test (assuming the Effective Date was January 1, 1993, the 50% test were applicable, no capital stock was issued for any reason and there was no default under the Indenture). For a more detailed description of these restrictions, see "Description of the Senior Notes -- Certain Covenants." 32 35 BUSINESS America West is a major United States air carrier providing passenger, cargo and mail service, with its primary markets in the western and southwestern regions of the United States. The Company operates its route system through two principal hubs, Phoenix, Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio. As of July 31, 1994 America West operated a fleet of 85 jet aircraft and provided service to 45 destinations. Through alliances with Mesa, the Company provides connecting service to an additional 18 destinations. The Company has also formed an alliance with Continental to serve additional destinations. The Company filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code on June 27, 1991. The Company's plan of reorganization (the "Plan") was confirmed by the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") on August 10, 1994. The Plan will become effective on the date (the "Effective Date") on which certain conditions specified in the Plan are satisfied or waived, which the Company expects to occur on or about August , 1994. In connection with its reorganization in bankruptcy and related operational restructuring (the "Reorganization"), the Company took significant steps to improve its operations, including (i) reducing its fleet size from 123 aircraft in July 1991 to 85 in May 1994, facilitating a better matching of capacity to demand through elimination of nonproductive routes; (ii) reducing the aircraft types operated from five to three to reduce operating costs; (iii) implementing certain enhancements to its revenue management system to optimize the level of passenger revenues operated on each flight; (iv) eliminating Company operated commuter service and introducing code- sharing agreements to expand the scope of service and attract a broader passenger base; and (v) implementing numerous cost reduction programs, including a Company-wide pay reduction in August 1991 and the reduction of aircraft lease rentals to fair market rates in the fall of 1992. As a result of these measures as well as a gradually improving economic climate and a more stable environment relative to fare competition within the airline industry, America West was one of only two major airlines to report a profit in each quarter of 1993, realizing net income for 1993 of $37.2 million and operating income of $121.1 million on revenues of $1.33 billion. BUSINESS STRATEGY The Company's business strategy is to continue to offer competitive fares while providing an incrementally higher level of service relative to low cost carriers generally. The principal features of the Company's business strategy are as follows. Maintain Competitive Pricing While Providing Differentiated Service. America West currently operates with one of the lowest cost structures among the major U.S. airlines, based on reported 1993 results. The Company's operating cost per ASM for 1993 was 7.01 cents, which was approximately 25% less than the average operating cost per ASM of the nine largest other domestic airlines and was comparable to the cost structure of Southwest Airlines, which operates in the Company's principal market areas. Management believes that the Company can continue to offer fares that are competitive with those offered by low cost carriers in the Company's markets, while providing a differentiated level of service generally. Passenger services provided by America West include assigned seating, participation in computerized reservation systems, interline ticketing, first class cabins on certain flights, baggage transfer and various other services. The Company believes that these features distinguish America West from certain low cost carriers in the Company's markets, including Southwest Airlines, and enable the Company to attract passengers without competing solely on the basis of fares. Achieve Growth in Revenue Passenger Miles. Management believes the Company's pricing and service strategies, together with a gradual improvement of general economic activity, will enable the Company to achieve growth in revenue passenger miles in its existing markets and to expand into certain other North American markets. Management believes that growth in existing markets will be achieved in part due to the location of the Company's principal hubs. Both Phoenix and Las Vegas are experiencing population growth in excess of national averages, and these hubs are well situated to benefit from an expanding market for leisure travel. 33 36 Expand Service through Alliances. As a part of the Reorganization, the Company entered into Alliance Agreements with Continental and Mesa. With Continental, the Company agreed to implement certain code-sharing arrangements, coordinate certain flight schedules to maximize connections between the two airlines, share ticket counter space, link frequent flyer programs, and coordinate ground handling operations. With Mesa, America West has entered into two code-sharing agreements that establish Mesa as a feeder carrier for the Company at its hubs in Phoenix and Columbus. The code-sharing agreements provide for coordinated flight schedules, passenger handling and computer reservations under the America West flight designator code, thereby allowing passengers to purchase one air fare for their entire trip. Mesa connects 13 cities to the Company's Phoenix hub, operates under the name "America West Express" and has begun to incorporate the color scheme and commercial logo of America West on certain aircraft utilized on these routes. Mesa serves five destinations from the Company's Columbus mini-hub operations. Management believes the Alliance Agreements will contribute significantly to the Company's growth in revenue passenger miles and operating results. Maintain a Cost Effective Fleet. In connection with its Reorganization, the Company substantially reduced its aircraft fleet to the current level, reduced the aircraft types from five to three and renegotiated lease rates for certain aircraft to fair market rates. As of June 30, 1994, the Company's fleet consisted of 56 Boeing 737s, 17 Airbus 320s and 12 Boeing 757s, with an average age of approximately 8.6 years. The fleet enables the Company to achieve low fuel costs compared to industry averages and to enjoy operational efficiencies due to the limited number of aircraft types. Current plans provide for an increase in the Company's fleet from 85 to 105 aircraft by 1997 through the acquisition of additional aircraft of the types currently operated by the Company. OPERATIONS Hub Operations. The Company operates primarily through hub airports in Phoenix and Las Vegas and, to a lesser extent, through its mini-hub in Columbus, Ohio. 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. The hub system allows the Company to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly. The Company is the leading airline serving Phoenix Sky Harbor International Airport with approximately 40% of all enplanements and an average of 149 daily departures during 1993. In Las Vegas, the Company is the second largest carrier with approximately 26% of all enplanements during 1993. In both markets the Company's principal competitor is Southwest Airlines, which handled approximately 30% and 29% of enplanements in Phoenix and Las Vegas, respectively, in 1993. America West offers fares comparable to or below those of its competitors on most routes. America West is able to use pricing as a part of its strategy because of its ability to provide service generally comparable to the full service airlines while maintaining a lower cost structure than these competitors. In selected markets, America West has chosen not to match Southwest Airlines' fares, but differentiates itself from Southwest Airlines in these and other markets by providing assigned seating, interline ticketing, baggage transfer and various other services typically offered by a full service carrier. The Company established a mini-hub at Columbus, Ohio in December 1991. As of July 31, 1994, the Company provided non-stop jet service to 11 destinations from Columbus. During 1993, the Company enplaned approximately 18% of the Columbus traffic compared to approximately 21% and 12% for USAir and Delta, respectively. The success of the Company's hub system 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 believes that several factors have contributed to the success of its operations in Phoenix and Las Vegas. First, the rate of population growth in these two cities has exceeded the national average in recent periods. Second, Phoenix and Las Vegas are popular vacation destinations and, therefore, benefit from the fact that a growing percentage of airline travelers are leisure or non-business travelers. Third, the Company believes that certain costs of operating in Phoenix and Las Vegas are less than in certain other geographic regions. Finally, these hub operations allow the Company to serve a number of relatively high density routes 34 37 that involve short-and medium-haul service without competing directly in the more intensely competitive long-haul markets against larger carriers. Hub operations involve certain inefficiencies that are primarily associated with the need to maintain terminal resources adequate to deal with periods of peak demand when numerous aircraft converge at the hub, even though this demand occurs only a few times per day. As a result, certain carriers have emphasized or announced intentions to initiate "point-to-point" flights not integrated with hub operations that can potentially serve specific routes at lower cost than comparable hub operations. Although the Company continually evaluates its operating strategy in light of changing market conditions, the Company's current strategy is to increase utilization of its existing hub facilities by increasing frequency of service on existing routes served by its hub operations and identifying selected markets into which the Company can expand utilizing its existing hub operations. An important part of the Company's strategy involves code-sharing arrangements with regional carriers that serve its hub airports and alliances with major carriers that complement the Company's operations. Regional/Commuter Service. A number of passengers served by the Company's operations arrive at its hub airports via regional or commuter service airlines that serve the surrounding areas. These airlines typically utilize turboprop rather than jet aircraft and focus on flights less than 200 miles in length and 90 minutes in duration. In order to maximize the number of enplanements of passengers from these commuter airlines, America West has entered into two code-sharing agreements with Mesa designed to establish Mesa as a feeder carrier for the Company at its hubs in Phoenix and Columbus. The code-sharing agreements provide for coordinated flight schedules, passenger handling and computer reservations under the America West flight designator code, thereby allowing passengers to purchase one air fare for their entire trip. Mesa connects 13 cities to the Company's Phoenix hub, operates under the name "America West Express" and has begun to incorporate the color scheme and commercial logo of America West on aircraft utilized on these routes. Mesa services five destinations from the Company's Columbus mini-hub operation. In connection with the Reorganization, the Company and Mesa agreed to extend the terms of these code-sharing agreements until 1999. Alliance Agreements. In connection with its Reorganization, the Company agreed to form an alliance with Continental pursuant to which the Company and Continental agreed to implement certain code-sharing arrangements, coordinate certain flight schedules, share ticket counter space, link frequent flyer programs, and coordinate ground handling operations for mutual benefit. These arrangements will be implemented in phases, commencing in the third quarter of 1994. The Company believes that it will realize substantial benefits from such agreements, which are intended to increase the number of America West enplanements of Continental passengers and vice versa. In addition, the Company will be able to offer its existing customers connections to a greater number of destinations served by Continental, which may permit the Company to further increase its market share in its hub markets. COMPETITION AND MARKETING The airline industry is highly competitive and susceptible to price discounting, and America West must compete with carriers that are much larger and have substantially greater resources. See "Investment Considerations -- Adverse Industry Conditions and Competition." Generally, the passenger carrier industry is segmented into markets based on the length of trip and level of service, including long-haul domestic and international routes, medium-haul (two to three hours) and short-haul (less than two hours) routes serviced by jet aircraft, and commuter routes served by turboprop aircraft. America West services primarily short-haul and medium-haul routes connected to its hub operations, engages only to a limited extent in long-haul flights, which are dominated by larger carriers, and does not engage in regional commuter flights, which are primarily served by smaller non-jet carriers. America West competes primarily with Southwest Airlines at its Phoenix and Las Vegas hub operations and with USAir and Delta at its Columbus mini-hub. As is the case with other carriers, most tickets for travel on America West are sold by travel agents through computer reservation systems that have been developed and are controlled by other airlines. Travel agents generally receive commissions based on the price of tickets sold. Accordingly, airlines compete not only 35 38 with respect to the price of tickets sold but also with respect to the amount of commissions paid. Airlines often pay additional commissions in connection with special revenue programs. Federal regulations have been promulgated that are intended to diminish preferential schedule displays and other practices with respect to the reservation systems that place the Company and other similarly situated users at a competitive disadvantage to the airlines controlling the systems. The Company has implemented certain measures to increase leisure travel utilizing America West flights. In 1987 the Company developed America West Vacations, which is a tour packaging division that arranges vacation packages that include hotel accommodations, air fare and ground transportation in certain markets. During 1993, this division sold approximately 500,000 room nights and over 315,000 round trip tickets and generated approximately $126 million in gross revenues. In 1993, the Company became the preferred commercial air carrier of the MGM Grand Hotel Casino and Theme Park ("MGM") in Las Vegas. Pursuant to an agreement with MGM, America West will develop joint marketing programs that target travel agents and consumers, which management believes will enhance America West's presence in the Las Vegas market. The Company also has an exclusive arrangement with the Phoenix Suns professional basketball team pursuant to which the arena in which the team plays is named "America West Arena," and the Company's name and logo appear throughout the facility, including on the basketball court. As a result of this association, the Company receives media exposure at no additional expense during national and local telecasts of Phoenix Suns basketball games, as well as during other events at the arena. FLIGHTFUND All major airlines have established frequent flyer programs to encourage travel on that particular carrier. America West offers the FlightFund program that allows members to earn mileage credits by flying America West and certain other carriers and by using the 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 that allow members to earn additional free travel awards or mileage credits. When a FlightFund member accumulates mileage credits of 20,000 miles, the Company issues mileage award certificates that 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. Mileage award certificates automatically expire after two years if issued prior to April 1, 1993 and after three years for certificates issued after that date. 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 hotels and rental car agencies that permit the Company to award discounts at such hotels and rental agencies to FlightFund members 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 had 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. 36 39 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%, 3.0% and 3.0% 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. AIRCRAFT In connection with its restructuring, the Company reduced the size of its fleet from 123 in 1991 to 85 in 1993. The Company also reduced the different types of aircraft in the fleet from five to three. At June 30, 1994, the Company operated a fleet of 56 Boeing 737s, 17 Airbus A320s and 12 Boeing 757s. The table below sets forth certain information regarding the Company's aircraft fleet at June 30, 1994:
AVERAGE REMAINING NUMBER OF AVERAGE LEASE AIRCRAFT TYPE STATUS AIRCRAFT AGE (YRS.) TERM (YRS.) - -------------- ------ --------- ---------- ----------- B737-100 Owned 1 24.8 -- B737-200 Owned 5 15.3 -- B737-200 Leased 17 14.5 6.2 B737-300 Leased 22 7.1 8.5 B737-300 Owned 11 5.7 -- B757-200 Leased 10 8.1 10.0 B757-200 Owned 2 4.8 -- A320 Leased 17 4.5 17.1 -- TOTAL 85 8.6 10.3 ========
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. From 1994 through 1997, leases are scheduled to terminate on six aircraft (four Boeing 737-200s and two Boeing 757-200s). In addition, leases for two Airbus A320-200s were scheduled to terminate during 1994; however, the Company extended one such lease for an additional twelve months. The other Airbus A320 aircraft was returned to the lessor in May 1994 and was 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. The Company does not believe that such call rights, which were granted in exchange for concessions on payment terms relating to such aircraft, will materially affect the Company's operations. At June 30, 1994, the Company had on order a total of 49 aircraft of the types the Company currently operates, of which 29 are firm orders and 20 are optional orders. The table below details such deliveries.
FIRM ORDERS ---------------------------------------------- OPTION 1994 1995 1996 1997 THEREAFTER TOTAL ORDERS TOTAL ---- ---- ---- ---- ---------- ----- ------ ----- Boeing: 737-300........................ -- -- 2 2 -- 4 10 14 757-200........................ -- -- 1 -- -- 1 10 11 Airbus: A320-200....................... -- -- -- -- 24 24 -- 24 ---- ---- ---- ---- ------- ----- ----- ---- TOTAL..................... -- -- 3 2 24 29 20 49 ==== ==== ==== ==== ======= ==== ===== ====
37 40 At June 30, 1994 the estimated aggregate cost for delivery positions under the existing contracts for the acquisition of B737s, B757s and A320 aircraft from manufacturers listed in the above table is approximately $2.7 billion. The table does not include any deliveries under put arrangements more fully discussed below nor does it include orders for B747-400 aircraft. With respect to various contracts with Boeing presented in the table above, a purchase agreement to acquire B737-300 aircraft has been affirmed in the Company's bankruptcy proceedings. With timely notice to the manufacturer, all or some of these deliveries may be converted to B737-400 aircraft. Existing purchase agreements for B757-200 and B747-400 aircraft have neither been affirmed nor rejected. Boeing purchase agreements carry a 24-month reconfirmation notice for the delivery of each aircraft. As of June 30, 1994, ten B737-300 and nine B757-200 delivery positions have expired due to the lack of reconfirmation by the Company, leaving 14 and 11 delivery positions as reflected in the table above. The failure to reconfirm such delivery positions exposes the Company to loss of pre-delivery deposits and other claims which may be asserted in the bankruptcy proceeding. The Company also has a pre-petition executory contract under which the Company holds delivery positions for four B747-400 aircraft under firm order and four B747-400 aircraft under option order. This executory contract allows the Company, with the giving of adequate notice, to substitute B737-400 aircraft for those delivery positions. The Company is currently renegotiating all of its aircraft purchase agreements with Boeing. With respect to the purchase of aircraft from AVSA presented in the table above, a single executory contract for the purchase of 24 A320 aircraft has neither been affirmed nor rejected by the Company. As part of the investment by AmWest, the A320 purchase agreement was amended to provide the Company with greater flexibility and reduced pricing. Under the modified terms, delivery dates of the aircraft will fall in the years 1998 through 2000 with an option to further defer deliveries. In addition, if new A320 aircraft are delivered as a result of the renegotiated put agreement (see discussion below), the Company will have the right to cancel on a one-for-one basis up to a maximum of eight non-consecutive aircraft deliveries subject to certain conditions. Negotiations are currently continuing between AVSA and the Company to finalize the details of this amendment. In June 1994, the Company renegotiated a put agreement for ten A320 aircraft. The new put agreement reduced the number of aircraft from ten to eight and rescheduled the deliveries to start not earlier than June 30, 1995 and end on June 30, 1999. Under the new agreement, new or used A320 aircraft, B737-300 or B757-200 aircraft may be put to the Company but at a rate of no more than two in 1995 and with respect to each ensuing year during the put period, of no more than three. In addition, no more than five used aircraft may be put to the Company and for every new A320 aircraft put to the Company, the Company has the right to reduce the AVSA A320 purchase contract on a one-for-one basis. During each January of the put period, the Company will negotiate the type and delivery dates of the put aircraft for that year. The puts will require 150-day notice and will be leased at fair market rates, for terms ranging from three to 18 years, depending on the type and condition of the aircraft. As part of the renegotiated agreement, certain cash payments will be made and certain securities will be issued to the put holder pursuant to the Plan. In connection with the Company's $78 million D.I.P. financing agreement, the Company in December 1991, terminated its agreement with a D.I.P. lender to lease 24 aircraft and replaced it with a put agreement to lease up to ten of the aircraft. In September 1992, the put agreement was amended and the number of put aircraft was reduced from ten to four with the aircraft scheduled for delivery in 1994. In June 1994, the Company reached a settlement for the cancellation of the right to "put" four aircraft to the Company for $4.5 million of which $2.5 million was paid in June 1994 and $2.0 million will be paid on the Effective Date. FACILITIES America West's principal facilities are associated with its hub operations in Phoenix, Las Vegas and Columbus. The Company operates from Terminal 4 of Phoenix Sky Harbor International Airport pursuant to a lease agreement that included 28 gates and approximately 258,200 square feet at December 31, 1993. The Company also leases approximately 25,000 square feet of additional space at the airport for administrative offices and pilot training. Since 1988, the Company has owned a 660,000 square foot maintenance and 38 41 technical support facility that includes four hangar bays, hangar shops, two flight simulator bays, and warehouse and commissary facilities. In Las Vegas, the Company leases approximately 80,000 square feet of space at McCarran International Airport, which includes seven gates and adjoining holding room areas. At the Company's Columbus, Ohio mini-hub, the Company leases 30,000 square feet and two gates 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 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. The Company owns the 68,000 square foot America West Corporate Center at 222 South Mill Avenue in Tempe, Arizona. The Company currently leases approximately 500,000 square feet of general office and other space in Phoenix and Tempe, Arizona. EMPLOYEES Management believes that the Company's dedicated labor force has contributed significantly to its successful reorganization. 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 equivalent employees at year end. The Company's payroll and related costs, which amounted to 1.78 cents per available seat mile for the year ended December 31, 1993, is below the industry average. On October 26, 1993, the Air Line Pilots Association ("ALPA") was certified by the National Mediation Board as the bargaining representative of the Company's flight deck crew members. Formal negotiations commenced in April 1994 and are continuing. Both sides have exchanged preliminary proposals. In February 1989, the Association of Flight Attendants ("AFA") lost an election to represent the Company's customer service representatives ("CSRs"). In June, 1994, the National Mediation Board accepted AFA's new petition to represent the Company's CSRs and ballots are scheduled to be mailed to all eligible flight attendants in August 1994. The ballot count will be held September 15, 1994. In April 1994, the Transportation Workers Union ("TWU") filed a petition to represent the Company's fleet service personnel. The Company anticipates that elections with respect to the proposals will be held during 1994. The International Brotherhood of Teamsters (the "Teamsters") filed an application to represent the Company's mechanics and related personnel on August 1, 1994. As of August 12, 1994 the National Mediation Board had not determined whether it will order an election. The Company cannot predict whether either the AFA, TWU or the Teamsters will be certified to represent any of the Company's employees or the effect, if any, that a future collective bargaining agreement with any of the ALPA, AFA or TWU will have on the Company's operations or financial performance. 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. GOVERNMENT REGULATIONS 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, which is the FAA designation for the quietest commercial jets. These regulations will require carriers to gradually phase out their noisier jets (such as the Boeing 737-200), 39 42 either replacing them with quieter Stage 3 jets or equipping them with hush kits to comply with noise abatement regulations, over a five-year period commencing December 31, 1994. As of December 31, 1993, 73 percent of America West's fleet was in compliance with the FAA noise abatement regulations, and the Company expects that it will meet the thresholds imposed by such regulations through scheduled retirement of its older aircraft. Numerous airports, including those serving Boston, Denver, Los Angeles, Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange County, Washington, D.C., Burbank and Long Beach have imposed restrictions such as curfews, limits on aircraft noise levels, mandatory flight paths, runway restrictions and limits on number of average daily departures, which limit the ability of air carriers to provide service to or 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. 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 believes that it is in substantial compliance with applicable environmental regulations. 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 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. Only one of the Company's 85 aircraft is currently affected by these aging aircraft ADs. The Company constantly monitors its 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 Safety 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. 40 43 On January 1, 1993, the FAA implemented new slot use standards that require that all slots must be used on 80% of the dates during each two-month reporting period. Previously, slots were required to be used at a 65% use rate. Failure to satisfy the 80% 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 at 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 right to utilize such slots will be renewed. The average utilization rates by the Company of all the foregoing slots range from 86% to 100%. CRAF Program. In time of war or during a national emergency, United States air carriers may be required to provide airlift services to the Military Airlift Command under the Civil Reserve Air Fleet Program (the "CRAF Program"). During the Middle East conflict in 1990-91, two of America West's aircraft participated in the CRAF Program. 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 the United States Bankruptcy Code. The Company's plan of reorganization was confirmed on August 10, 1994, and will become effective on the Effective Date, which the Company anticipates will be on or about August , 1994. The Bankruptcy Court retains jurisdiction over the Company for limited purposes. In August 1991, the Securities and Exchange Commission informally requested that the Company provide the Commission with certain information and documentation underlying disclosures made by the Company in annual and quarterly reports filed with the Commission by the Company in 1991. The Company has cooperated with the Commission'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 Exchange Act. The Company was advised on May 6, 1994 that the Commission agreed to accept the Company's offer of settlement. In order to implement the settlement, on May 12, 1994 the Commission issued an "Order Instituting Proceedings Pursuant to Section 21C of the Exchange Act and Opinion and Order of the Commission" (the "Order") finding the Company's Form 10-K for the year ending December 31, 1990, violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, and that the Company's Form 10-Q for the first quarter of 1991 violated Section 13(a) of the Exchange Act and Rule 13a-13 thereunder, and ordering that the Company cease and desist from violating Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 promulgated under the Exchange Act. The Order provides that the Company neither admits nor denies any violation of the securities laws. 41 44 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS 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 July 1, 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 Board and Chief 1992 1994 Executive Officer A. Maurice Myers.................. 54 President, Chief Operating Officer 1994 1994 and Director Thomas P. Burns................... 52 Senior Vice President -- Sales and N/A N/A Marketing Programs Thomas F. Derieg.................. 54 Senior Vice President -- Operations N/A N/A Martin J. Whalen.................. 53 Senior Vice N/A N/A President -- Administration and General Counsel Raymond T. Nakano................. 49 Vice President and Controller N/A N/A 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)............. 50 Director 1992 1993 James T. McMillan(1)(2)........... 68 Director 1993 1993 John R. Norton III(1)............. 65 Director 1992 1992 John F. Tierney(1)................ 49 Director 1993 1993 Declan Treacy(2).................. 38 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 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. William A. Franke was named Chairman of the Board of Directors in September 1992. On December 31, 1993, Mr. Franke was also elected to 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 Corporation'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 Directors 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 42 45 Aloha Airlines and Aloha Island Air. 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. Thomas F. Derieg has been Senior Vice President -- Operations since joining the Company in June 1994. For the preceding seven years, Mr. Derieg served as Senior Vice President -- Operations at Aloha Airlines, Inc. in Honolulu, Hawaii. Mr. Derieg served in the U.S. Air Force from 1963 to 1969, and from 1970 to 1987 held a variety of positions in areas of operations and maintenance in the air transportation industry. 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. Raymond T. Nakano has served as Vice President and Controller since April of 1985. Prior to joining America West, Mr. Nakano was employed by Continental Airlines, Inc. for eight years in various accounting positions, most recently as Senior Director, General Accounting. 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 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 concern. Mr. Norton is also a 43 46 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 such capacity since 1981. See "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions." Declan Treacy has served as a member of the Board of Directors since December 1993. Mr. Treacy is the General Manager -- Corporate Finance of GPA Group plc, an Irish aircraft leasing concern, and has served GPA Group plc in such capacity since 1988. See "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions." Since September 1992, certain of the debtor-in-possession lenders have had the right to appoint and approve the membership of the Company's Board of Directors pursuant to a management letter agreement, as amended and restated, between the Company and such lenders. Under the terms of such letter agreement, GPA has the right to appoint two members to the Board of Directors and 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. In connection with the Reorganization, the Company, AmWest, GPA and certain stockholders' representatives entered into a Stockholders' Agreement with respect to certain matters involving the Company, including the election of directors. See "Principal Stockholders -- Stockholders' Agreements." During the year ended December 31, 1993, the Board of Directors of the Company met on 29 occasions. During the period in which he served as director, each of the directors attended 75% or more of the meetings of the Board of Directors and of the meetings held by committees of the Board on which he served. COMMITTEES OF THE BOARD OF DIRECTORS 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. See "Principal Stockholders -- Stockholders' Agreements." 44 47 EXECUTIVE COMPENSATION The following table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company 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 Company. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------ ALL OTHER NAME YEAR SALARY(2) COMPENSATION(3) - ----- ----- ------------ --------------- William A. Franke(1)..................................... 1993 $450,000 $ -0- Chairman of the Board and 1992 $131,250 -0- Chief Executive Officer 1991 N/A N/A Thomas P. Burns.......................................... 1993 $127,204 $2,182 Senior Vice President -- Sales and Marketing 1992 $123,200 $2,182 1991 $125,767 N/A Alphonse E. Frei(4)...................................... 1993 $161,896 $2,182 Senior Vice President -- Finance and 1992 $156,800 $2,182 Chief Financial Officer 1991 $160,067 N/A Don Monteath(5).......................................... 1993 $161,896 $2,182 Senior Vice President -- Operations 1992 $156,800 $2,182 1991 $160,067 N/A Martin J. Whalen......................................... 1993 $138,368 $2,016 Senior Vice President -- Administration and 1992 $134,000 $2,016 General Counsel 1991 $137,200 N/A Michael J. Conway(6)..................................... 1993 $440,250 $2,182 Former Chief Executive Officer and President 1992 $432,000 $2,182 1991 $444,000 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) Includes amounts 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. Frei retired effective July 1, 1994. (5) Mr. Monteath resigned from the Company in February 1994. (6) Mr. Conway was replaced as the President and Chief Executive Officer on December 31, 1993. OPTION PLAN INFORMATION The following table sets forth with respect to the executive officers named in the Summary Compensation Table the unexercised options held as of the end of 1993 pursuant to the Company's then existing Restated Nonstatutory Stock Option Plan ("NSOP") and Incentive Stock Option Plan ("ISO"). 45 48 AGGREGATE OPTIONS AND OPTION VALUES AT DECEMBER 31, 1993
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD NAME 1993 FISCAL YEAR-END AT 1993 FISCAL YEAR-END(1) - ---- -------------------- ------------------------- EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ------------------------- ------------------------- William A. Franke....................... NSOP 0/0 $0 ISO 0/0 Thomas P. Burns......................... NSOP 109,640/0 $0 ISO 17,300/0 Alphonse E. Frei........................ NSOP 191,560/0 $0 ISO 20,000/0 Don Monteath............................ NSOP 206,560/0 $0 ISO 21,000/0 Martin J. Whalen........................ NSOP 143,480/0 $0 ISO 12,033/0 Michael J. Conway....................... NSOP 717,400/0 $0 ISO 28,000/0
- --------------- (1) All of the outstanding options held by the executive officers in the table above had a fair market value lower than their exercise price at December 31, 1993. During the fiscal year ended December 31, 1993, none of the Named Officers exercised any options. All options held by the Named Officers immediately prior to the Effective Date had exercise prices greater than the fair market value of the Common Stock at such time and were cancelled for no additional consideration in connection with the Reorganization. TERMINATION OF EMPLOYMENT ARRANGEMENTS The Company has made certain employment termination arrangements in keeping with its practice under its July 21, 1991 termination of employment guidelines ("Guidelines"), as amended. The Guidelines provide for severance payments based on three-weeks' pay for each year of full-time service with the Company for up to one year, continued group medical coverage through the allowance period and travel privileges on Company flights during the allowance period. Each of the executives named in the table above is eligible for the benefits under the Guidelines. 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 approximately $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. 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. No personal travel by directors was reported to the Company in 1993. 46 49 OTHER ARRANGEMENTS 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 in exchange for which Franke & Co. provides Mr. Franke's secretarial and administrative support. 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 loaned Mr. Myers approximately $320,000 to exercise options to acquire stock of Aloha Airlines, Inc. The loan is secured by the stock purchased by Mr. Myers but is otherwise nonrecourse to Mr. Myers. The loan bears interest at a rate based on the rate of imputed interest under the Internal Revenue Code. The loan matures within a specified period following expiration of the employment agreement or other termination of employment or, if earlier, on the date that is 180 days after the first date on which the pledged stock becomes eligible for sale by Mr. Myers on a national securities exchange or automated quotation system. In addition, the Company has agreed to assist Mr. Myers in purchasing a residence in Phoenix, Arizona with a nonrecourse loan of up to $200,000 secured by such residence. In connection with the confirmation of the Plan, the Company has submitted for Bankruptcy Court approval a payment to Mr. Myers of a reorganization success bonus in the amount of $400,000. 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. During 1993, the Company paid approximately $47,000 for consulting services to Juan O'Callaghan, a former director of the Company. The Company and Mr. Franke entered into a Key Employee Protection Agreement on June 27, 1994 pursuant to which the Company agreed to pay to Mr. Franke a Severance Payment (as defined in the agreement) if a Change of Control (as defined in the agreement) occurs in connection with a plan of reorganization and if for any reason (including voluntary resignation or involuntary removal, but excluding death) Mr. Franke ceases to serve as Chairman of the Company at any time within 180 days after the date of confirmation of such a plan of reorganization. A Change of Control (as defined in the agreement) would occur, generally, (i) if individuals who constitute the Board of Directors of the Company immediately prior to confirmation of a plan of reorganization cease to constitute a majority of the Board (except that any individual who becomes a director after the date of the agreement whose election or nomination was approved by a majority of directors then comprising the incumbent Board is to be considered as though he were a member of the incumbent Board), or (ii) if an individual, entity or group (within the meaning of the Securities Exchange Act of 1934, as amended) acquires beneficial ownership of 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. Under the agreement, the Severance Payment would be a lump sum amount equal to 200% of the sum of Mr. Franke's annual base salary in effect immediately prior to the date of termination and the administrative expense allowance then in effect. The Key Employee Protection Agreement also provides for certain other benefits, including medical and life insurance, accrued vacation pay for a 12 month period and certain travel privileges consistent with the Company's policy for retired executives. In connection with the confirmation of the Plan, the Company filed certain motions with the Bankruptcy Court to secure approval to pay the reorganization success bonuses of (i) $9.2 million to be paid to non-officer employees; (ii) $1.2 million to be paid to officers and other members of management; and (iii) 125,000 shares of stock in the reorganized Company to be issued to William A. Franke. A hearing on these motions has been scheduled for August 24, 1994. 47 50 PROPOSED SLATE OF DIRECTORS Following the Effective Date, the Company's Board of Directors will be elected in accordance with the provisions of a stockholders' agreement. See "Principal Stockholders -- Stockholders' Agreements." In connection with the confirmation of the Plan, the Company submitted to the Bankruptcy Court the names and certain information with respect to the following persons who are expected to serve on the post-Reorganization Board of Directors. DIRECTOR NOMINATED BY THE COMPANY'S BOARD William A. Franke who currently serves as Chairman of the Board of Directors and Chief Executive Officer of America West. DIRECTORS NOMINATED BY AMWEST Julia Chang Bloch is the group executive vice president, corporate relations of BankAmerica Corporation and has held that position since June 1993. Ms. Bloch served as the U.S. Ambassador to Nepal from September 1989 through May 1993. Ms. Bloch is a board member of the American Refugee Committee and the Himalaya Foundation, and serves as a trustee of the Asian Art Museum and the Asia Society. Frederick W. Bradley, Jr. has been a member of America West's 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 was a senior vice president of Citibank/Citicorp's Global Airline and Aerospace business. Mr. Bradley joined Citibank/Citicorp in 1958. In addition, Mr. Bradley is a member of the board of directors of Shuttle, Inc. (USAir Shuttle) and the Institute of Air Transport, Paris, France. Mr. Bradley also is chairman of the board of directors of Aircraft Lease Portfolio Securitization 92-1 Ltd. and is president of IATA's International Airline Training Fund of the United States. James G. Coulter is the managing director of Air Partners, L.P., and a partner and director of Colony Advisors, Inc. He has held those positions since September 1992. Since 1993, Mr. Coulter has also been a managing director of TPG Partners, L.P. (a private investment firm). From April 1993 through August 1994, Mr. Coulter was a member of the board of directors of Continental Airlines, Inc. From 1986 to August 1992, Mr. Coulter was vice president of Keystone, Inc. (formerly Robert M. Bass Group, Inc., a private investment firm based in Fort Worth, Texas). John F. Fraser is the chairman of the board of Federal Industries Ltd. Mr. Fraser was chairman and chief executive officer of Federal Industries Ltd. from March 1991 to May 1992, and president and chief executive officer of Federal Industries Ltd. May 1978 - March 1991. Mr. Fraser was a member of the Board of Directors of Continental Airlines, Inc. from August 1993 through August 1994. Mr. Fraser is a director of Air Canada, Montreal, Bank of Montreal, Coca-Cola Beverages Limited, Ford Motor Company of Canada, Limited, Inter-City Products Corporation, Investors Group Inc., Shell Canada Limited, and The Thomson Corporation. John L. Goolsby has been the president of The Hughes Corporation and the Summa Corporation (the principal operating companies of the Howard Hughes Estate) since 1988, and has been the chief executive officer of those companies since 1990. In addition to serving on the board of directors of the Hughes and Summa Corporations, Mr. Goolsby serves as a director of Nevada Power Company, Bank of America Nevada, Las Vegas Chamber of Commerce, and the Boulder Dam Area Council of the Boy Scouts of America, and serves as a trustee of The Donald W. Reynolds Foundation and the UNLV Foundation. Richard C. Kraemer has been a member of America West's board of directors since September 1992 and is president, chief executive officer and chief operating officer of UDC Homes, Inc. Mr. Kraemer is also a member of the board of directors of UDC Homes, Inc. Prior to joining UDC Homes, Inc. in 1975, Mr. Kraemer held a variety of positions at American Cyanamid Company. A. Maurice Myers who currently serves as President and Chief Operating Officer of America West and is a member of the current Board of Directors. 48 51 Larry L. Risley has been the president, chief executive officer and chairman of the board of directors of Mesa Airlines, Inc. since the founding of the company in 1983. From 1979 to 1982, Mr. Risley was president of Mesa Aviation Services, Inc. Richard P. Schifter has been a managing director of TPG Partners, L.P. (a private investment firm) since July 1994. Mr. Schifter is of counsel to the Washington D.C. based law firm of Arnold & Porter, where he was an associate from 1979 to 1986, and a partner from 1986 to July 1994. DIRECTOR NOMINATED BY GPA John F. Tierney who is currently a member of America West's Board of Directors. DIRECTOR NOMINATED BY THE EQUITY COMMITTEE Adam M. Aron is president and chief executive officer of Kloster Cruise Limited, and is also president of Norwegian Cruise Line and Royal Cruise Line, two divisions of Kloster. Prior to his current positions, Mr. Aron was senior vice president for marketing for United Airlines. Mr. Aron is a member of The Council on Foreign Relations and serves as a trustee of Chicago's Goodman Theatre and on the Steering Committee for the Summit of the Americas Conference. DIRECTORS NOMINATED BY THE CREDITORS' COMMITTEE Harrison J. Goldin is a senior partner with Goldin Associates, a law firm. A graduate of Yale Law School, he is a former New York state senator and controller. Raymond Troubh is a financial consultant. A graduate of Yale Law School, he was a law clerk to the U.S. Supreme Court. Stephen Bollenbach is president and chief executive of Host Marriott Corp., one of the country's leading hospitality companies. 49 52 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Company's Board of Directors reviews all aspects of compensation of executive officers of the Company and makes recommendations on such matters to the full Board of Directors. The Compensation Committee also 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. During 1993, Frederick W. Bradley, Jr., Richard C. Kraemer, James T. McMillan, John R. Norton, III and John F. Tierney served on the Compensation Committee. Both Mr. Tierney and Declan Treacy were elected to the Board of Directors pursuant to a certain management letter agreement, as amended and restated, between the Company and its debtor-in-possession lenders, including GPA. See "Management -- Directors and Executive Officers". Both Mr. Tierney and Mr. Treacy are executives of GPA. The management letter agreement will terminate as of the Effective Date and GPA's representation on the Company's Board will be determined pursuant to the Stockholders' Agreement and a voting agreement to be entered between GPA and AmWest which collectively provide that GPA shall be allocated one seat on the Company's Board of Directors for so long as it owns at least 2% of the voting equity securities of the Company determined on a fully-diluted basis. GPA has been and will continue to be a major supplier of leased aircraft and engines to the Company and has provided financing for the Company prior to and during the bankruptcy proceedings. In September 1990, GPA and the Company entered into an agreement (the "Aircraft Finance Agreement") pursuant to which (i) GPA provided a cash advance to the Company of $60.2 million and (ii) the Company agreed to sublease 16 A320-200's and three spare engines and committed to lease 10 additional A320-200's. Under the Aircraft Finance Agreement, the monthly rental rates for each of the initial 12 aircraft is approximately $307,000 (including adjustments in connection with certain security arrangements and repayment of certain advances) and the monthly rental rates for each of the remaining four aircraft averages approximately $345,000. The Company's obligations under the Aircraft Finance Agreement are secured by a $17.6 million letter of credit. In June of 1991, GPA and the Company restructured the Aircraft Finance Agreement by eliminating the Company's obligations with respect to the 10 additional A320-200 aircraft, increasing the payments on the initial 12 aircraft to repay advances on the cancelled aircraft as reflected above, and entering into a put agreement (the "1991 Put Agreement"). Under the 1991 Put Agreement, GPA is entitled to put 10 A320 aircraft to the Company over a three-year period. Specified lease terms range from 18 to 23 years for a leveraged lease and seven to 18 years for a single investor lease. Applicable rental rates are based on a rental factor (.925% per month for a leveraged lease and 1.14% per month for a single investor lease) multiplied by the cost of the aircraft to GPA. Rental factors are subject to a 10-year reset provision based on changes in Treasury rates in the case of leveraged leases and six-month adjustments based on LIBOR rates in the case of single investor leases. In September 1991, after commencement of the Company's bankruptcy proceedings, affiliates of GPA provided the Company $35 million of D.I.P. financing. An additional $35 million was provided in September 1992. As of June 30, 1994, the aggregate outstanding principal balance of D.I.P. financing provided by GPA was $54.4 million. The D.I.P. financing provided by GPA bears interest at 350 basis points over the 90-day LIBOR rate and, along with the other debtor-in-possession financing, is secured by substantially all of the assets of the Company. Pursuant to the Plan and in accordance with a settlement agreement to be entered into as of the Effective Date (the "Settlement Agreement"), the Company will repay to GPA the outstanding balance under the D.I.P. loan. In addition, GPA will receive 900,000 shares of Class B Common Stock, 1,384,615 Warrants and a cash payment of $30.525 million, and the 1991 Put Agreement will be replaced with a new put agreement. The new put agreement will reduce the number of aircraft from 10 to eight and reschedule the deliveries to start not earlier than June 30, 1995 and to end on June 30, 1999, unless otherwise agreed to by the Company. Under the new agreement, A320 aircraft with A-5 engines, B737-300 aircraft or B757-200 aircraft may be put to the Company, but at a rate of no more than two in 1995 and no more than three in each ensuing year during the put period. No more than five used aircraft may be put to the Company, 50 53 and for every A320 aircraft (which may only be new aircraft) put to the Company, the Company has the right to reduce the AVSA A320 purchase contract delivery on a one-for-one basis. During each January of the put period, the Company and GPA will negotiate the type and delivery dates of the put aircraft for that year. The puts will require 150-day notice and will be leased at fair market rates, for terms ranging from three to 18 years, depending on the type and condition of the aircraft. Lease payments from America West to GPA under the Aircraft Finance Agreement and the 1991 Put Agreement totaled $20,784,669 in 1991, $63,812,425 in 1992 and $63,073,184 in 1993. As of December 31, 1993, the Company was obligated to pay approximately $1.136 billion over the terms of the 16 aircraft leases under the Aircraft Finance Agreement. Payments by the Company to GPA under the D.I.P. financing totalled $1,026,000 in 1991, $3,328,608 in 1992 and $16,298,189 in 1993. CERTAIN TRANSACTIONS In September 1993, in connection with an extension of its debtor-in-possession financing, the Company repaid $8.3 million of indebtedness to Ansett Worldwide Aviation U.S.A., an affiliate of Transpacific Enterprises, Inc., which was then a substantial stockholder of the Company. As of December 31, 1993, the Company leased or subleased 11 Boeing 737 aircraft from affiliates of Transpacific Enterprises, Inc. and was obligated to pay $232 million over the remaining terms of the leases. As part of the Reorganization, the Company entered into Alliance Agreements with Continental and Mesa. See "Business -- Business Strategy" and "Business -- Operations." Each of the transactions described above were the result of significant negotiation among the parties thereto and were concluded on what the Company believes to be terms no less favorable than would have been obtained had the transactions been entered into with non-affiliated third parties. For a description of certain transactions or arrangements between the Company and its officers or directors, see "Management -- Other Arrangements." 51 54 PRINCIPAL STOCKHOLDERS The following table sets forth the beneficial ownership of the outstanding Class A Common Stock and Class B Common Stock of the Company by (i) each person who is known to the Company to beneficially own more than 5% of the outstanding common stock of America West, (ii) each director of America West, (iii) each of the executive officers of America West named in the Summary Compensation Table and (iv) all executive officers and directors of America West as a group, in each case as of the Effective Date.
CLASS A CLASS B ------------------------ ------------------------ CLASS A AND B --------------------- SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED COMBINED VOTING POWER ------------------------ ------------------------ --------------------- BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE - ------------------------------ --------- ---------- ---------- ---------- --------------------- AmWest Partners, L.P. 201 Main Street Suite 2420 Fort Worth, Texas 76102..... 1,200,000 100% (1) % % TPG Partners, L.P.(2)(3)(4) 201 Main Street Suite 2420 Fort Worth, Texas 76102..... 774,495 64.5% 7,075,303(5) 15.5% 43.3% Continental Airlines, Inc.(2) 2929 Allen Parkway Houston, Texas 77019........ 325,505 27.1% 2,320,820(6) 5.2% 17.8% Mesa Airlines, Inc.(2) 2525 30th Street Farmington, New Mexico 87401....................... 100,000 8.3% 2,993,982(7) 6.7% 7.6% Lehman Brothers Inc. 200 Vessey Street American Express Tower World Financial Center New York, NY 10285-1800.................. -- -- (8) FMR Corp. 82 Devonshire St. Boston, MA 02109............ -- -- (9) William A. Franke............. -- -- -- -- A. Maurice Myers.............. -- -- -- -- Thomas P. Burns............... -- -- (10) * Thomas F. Derieg.............. -- -- -- -- Martin J. Whalen.............. -- -- (11) * Raymond T. Nakano............. -- -- -- -- Frederick W. Bradley, Jr...... -- -- -- -- Michael J. Conway(10)......... -- -- (12) * O. Mark De Michele............ -- -- (13) * Samuel L. Eichenfield......... -- -- -- -- Richard C. Kraemer............ -- -- -- -- James T. McMillan............. -- -- -- -- John R. Norton, III........... -- -- -- -- John F. Tierney............... -- -- -- -- Declan Treacy................. -- -- -- -- All executive officers and directors as a group (17 persons).................... -- -- 42,998(14) *
- --------------- * Less than 1%. (1) Includes 2,769,231 shares of Class B Common Stock that may be acquired upon exercise of Warrants. For a more complete description of AmWest Partners, L.P., please see "Summary" and "Risk Factors -- Concentration of Voting Power; Influence of AmWest and its Partners." 52 55 (2) Represents shares allocated to investors upon the dissolution of AmWest. (3) TPG is a Delaware limited partnership whose general partner is TPG GenPar, L.P., a Delaware limited partnership. The general partner of TPG GenPar, L.P. is TPG Advisors, Inc., a Delaware corporation. The executive officers and directors of TPG Advisors are: David Bonderman (director and President), James Coulter (director and Vice President), William Price (director and Vice President) and James O'Brien (Vice President, Treasurer and Secretary). No other persons control TPG, TPG GenPar or TPG Advisors. (4) Mr. Bonderman is also Director and Chairman of the Board of Continental. Mr. Bonderman and Mr. Coulter, through their control positions in Air Partners, L.P., a special purpose partnership formed in 1992 to participate in the funding of the reorganization of Continental and a significant shareholder in Continental, may be deemed to beneficially own a significant percentage of Continental's common stock. (5) Includes 1,922,135 shares of Class B Common Stock that may be acquired upon the exercise of Warrants. (6) Includes 807,836 shares of Class B Common Stock that may be acquired upon the exercise of Warrants. (7) Includes 804,724 shares of Class B Common Stock that may be acquired upon the exercise of Warrants. (8) Includes shares of Class B Common Stock that may be acquired upon the exercise of Warrants. (9) Includes shares of Class B Common Stock that may be acquired upon the exercise of Warrants. All shares are owned directly by Fidelity Copernicus Fund, L.P. ("Copernicus"), Belmont Capital Partners II, L.P. ("Belmont II") or Belmont Fund, L.P. ("Belmont I"), each of which is a private investment limited partnership. Fidelity Management Trust Company ("FMTC") serves as investment adviser to Belmont I and Belmont II and Fidelity Management & Research Company ("FMRC") serves as investment adviser to Copernicus. Each of FMTC and FMRC is a wholly owned subsidiary of FMR Corp. ("FMR"). Through shared voting and dispositive power over the shares held by Belmont I and Belmont II, FMTC may be deemed to beneficially own the shares held by such entities. Through shared voting and dispositive power over the shares held by Copernicus, FMRC may be deemed to beneficially own the shares held by such entity. In addition, FMR, as controlling person of FMTC, FMRC and certain general partners of Belmont I, Belmont II and Copernicus, may be deemed to beneficially own the shares held by each of Belmont I, Belmont II and Copernicus. FMR disclaims beneficial ownership of such shares. Edward C. Johnson III, through his controlling interest in FMR, may be deemed to beneficially own the shares held by each of Belmont I, Belmont II and Copernicus. Mr. Johnson disclaims beneficial ownership of such shares. (10) Includes shares of Class B Common Stock that may be acquired upon exercise of Warrants. (11) Includes shares of Class B Common Stock that may be acquired upon exercise of Warrants. (12) 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. (13) Includes shares of Class B Common Stock that may be acquired upon exercise of Warrants. (14) Includes shares of Class B Common Stock that may be acquired upon exercise of Warrants. 53 56 STOCKHOLDERS' AGREEMENTS As of the Effective Date, the Company, AmWest, GPA and certain designated stockholder representatives will enter into an agreement (the "Stockholders' Agreement") with respect to certain matters involving the Company. The material provisions of the Stockholders' Agreement are summarized below. The following description, however, is only a summary and is qualified in its entirety by reference to the Stockholders' Agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Stockholders' Agreement provides that for a period lasting until the first annual meeting after the third anniversary of the Effective Date (the "Third Annual Meeting"), America West's Board of Directors will consist of 15 members including (i) nine members designated by AmWest; (ii) one member designated by GPA for as long as GPA retains at least two percent of the voting equity securities of the Company; and (iii) five independent directors (the "Independent Directors") initially including (a) three designated by the Creditors' Committee, (b) one member designated by the Equity Committee, and (c) one director designated by the pre-Reorganization Board of Directors from among the executive officers of the Company. Until the Third Annual Meeting, AmWest and GPA will vote all shares of the Common Stock owned by them in favor of the reelection of the initially designated Independent Directors for as long as such Independent Directors continue to serve. In addition to the voting and other provisions of the Stockholders' Agreement, AmWest and GPA have agreed that (i) AmWest will vote in favor of GPA's nominee to the Company's Board of Directors, and (ii) GPA will vote in favor of AmWest's nine nominees to the Company's Board of Directors for so long as (a) AmWest owns at least 5% of the voting equity securities of the Company, and (b) GPA owns at least 2% of the voting equity securities of the Company. The Stockholders' Agreement also provides that no director nominated by AmWest will be an employee or officer of Continental. All directors who are selected by or who are directors of Continental or Mesa and all directors who are employees or officers of Mesa shall recuse themselves from voting on or receiving information on any matters involving negotiations or direct competition between Mesa and America West or Continental and America West, whichever the applicable case may be. Until the Third Annual Meeting, approval by at least the three Independent Directors or the affirmative vote of the holders of a majority of the voting power of each class of Common Stock (excluding those shares owned by AmWest or any of its Affiliates, as defined in the Stockholders' Agreement, but not, however, excluding any shares owned, controlled or voted by Mesa or any of its transferees that are not otherwise Affiliates of AmWest) is required to approve (i) any merger or consolidation of the Company with or into AmWest or any of its Affiliates; (ii) certain transactions involving issuances of voting securities by the Company that result in AmWest or any of its Affiliates acquiring an increased percentage ownership of such voting securities; and (iii) any transaction or series of transactions having the same effect as (i) or (ii) above. Under the terms of the Stockholders' Agreement, neither AmWest nor any partner or Affiliate of AmWest or of any partner of AmWest may sell or otherwise transfer any Common Stock (other than to an Affiliate of the transferor) if, after giving effect thereto or to any related transaction, the total number of shares of Class B Common Stock beneficially owned by the transferor is less than twice the number of shares of Class A Common Stock beneficially owned by the transferor, except in certain circumstances. In addition, the Stockholders' Agreement provides that for a period of three years after the Effective Date, AmWest shall not sell, in a single transaction or related series of transactions, shares of Common Stock representing 51% or more of the combined voting power of shares of Common Stock then outstanding other than (i) pursuant to or in connection with a tender or exchange offer for all shares of Common Stock and for the benefit of all holders of Class B Common Stock on a pro rata basis at the same price per share and on the same economic terms, (ii) to any Affiliate of AmWest, (iii) to any Affiliate of AmWest's partners, (iv) pursuant to a bankruptcy or insolvency proceeding, (v) pursuant to judicial order, legal process, execution or attachment or (vi) in a Public Offering as defined in the Stockholders' Agreement. 54 57 SELLING SECURITYHOLDERS The Selling Securityholders are the partners of AmWest, GPA and Fidelity. AmWest is a limited partnership including Mesa and Continental. Pursuant to partial assignments of the Investment Agreement by AmWest, Fidelity and Lehman also purchased Securities from the Company through subscription agreements between AmWest and those parties. Pursuant to the Reorganization Plan, AmWest and such parties invested $214.9 million into the Company in exchange for the Securities offered hereby. It is contemplated that prior to, on, or after the Effective Date AmWest will distribute the Securities held by it to its partners, and such Securities will be held directly by the partners of AmWest. The following table sets forth the name of each Selling Securityholder, assuming the distribution of the Securities held by AmWest to its partners, and the amount of the Securities (other than the Senior Notes) owned by each such Selling Securityholder which are subject to being offered hereby. In addition, Fidelity holds $100 million principal amount of the Senior Notes all of which may be offered and sold pursuant to this Prospectus.
SHARES OF SHARES OF CLASS A CLASS B NUMBER OF COMMON STOCK COMMON STOCK(1) WARRANTS ------------ --------------- --------- TPG Partners, L.P.(2)............................. 733,333 Continental Airlines, Inc......................... 366,667 Mesa Airlines, Inc................................ 100,000 GPA Group plc..................................... 0 2,284,615 1,384,615 Fidelity Copernicus Fund, L.P.(2)................. 0 Belmont Capital Partners II, L.P.(2).............. 0 Belmont Fund, L.P.(2)............................. 0 Lehman Brothers Inc............................... 0 ------------ --------------- --------- TOTAL................................... 1,200,000 18,419,319 4,153,846
- --------------- (1) Includes in each case a number of shares that may be acquired upon exercise of Warrants equal to the number of Warrants held by such person and offered pursuant to this Prospectus. (2) Does not include shares issued pursuant to the Plan of Reorganization for preexisting claims and interests. SHARES ELIGIBLE FOR FUTURE SALE At the Effective Date, assuming no exercise of outstanding warrants to purchase Common Stock, America West will have 45,000,000 shares of Common Stock outstanding, including 1,200,000 shares of Class A Common Stock and 43,800,000 shares of Class B Common Stock; the offer and sale of 15,975,000 of such shares of Common Stock is registered under the Securities Act pursuant to the Registration Statement of which this Prospectus forms a part. In addition, at the Effective Date, America West will have 10,384,615 shares of Class B Common Stock reserved for issuance upon the exercise of Warrants; the offer and sale of 4,153,846 of such shares is registered pursuant to the Registration Statement of which this Prospectus forms a part. At the Effective Date, substantially all of the outstanding shares of Common Stock and shares of Common Stock issuable upon exercise of the Warrants (except to the extent such shares may have been acquired by an underwriter) will be freely tradeable without restriction or further registration under the Securities Act, either because such shares were issued or are issuable pursuant to the exemption provided by Section 1145 of the Bankruptcy Code and such shares are not "restricted securities" as defined in Rule 144 under the Securities Act or because the offer and resale of such shares is registered pursuant to the Registration Statement of which this Prospectus forms a part. To the extent shares of Common Stock are owned or purchased by "affiliates" of the Company as such term is defined in Rule 144 and are not registered 55 58 pursuant to the Registration Statement of which this Prospectus forms a part, such restricted shares may generally be sold in compliance with Rule 144. In general under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including persons deemed to be affiliates, whose restricted securities have been fully paid for and held for at least two years from the later of the date of acquisition from America West or an affiliate thereof, may sell such securities in brokers' transactions or directly to market makers, provided the number of shares sold in any three-month period does not exceed the greater of 1% of the then outstanding shares of the Common Stock or the average weekly trading volume in the public market during the four calendar weeks immediately preceding the filing of the seller's Form 144. Sales under Rule 144 are also subject to certain notice requirements and availability of current public information concerning America West. Pursuant to Rule 144(k), after three years have elapsed from the later of the acquisition of the restricted securities from America West or an affiliate thereof, such shares may be sold without limitation by persons who have not been affiliates of America West for at least three months. AmWest, Fidelity, Lehman and GPA have certain rights pursuant to agreements with the Company to have the offering and sale of Securities held by them registered with the Commission under the Securities Act. Under such agreements, the Company may be required to effect such registration for a period of years from the Effective Date. Prior to this offering, there has been no market for the Common Stock of America West. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. DESCRIPTION OF THE SENIOR NOTES The Senior Notes will be issued under an Indenture dated as of , 1994 (the "Indenture") between the Company and American Bank National Association, as trustee (the "Trustee"). The material provisions of the Senior Notes and the Indenture are summarized below. The statements under this caption relating to the Senior Notes and the Indenture are summaries only, however, and do not purport to be complete. Such summaries make use of terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture, which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. All section references under this heading are references to sections of the Indenture. GENERAL Each Senior Note will mature on September 1, 2001, and will bear interest at the rate per annum stated on the cover page hereof from the date of issuance, payable semiannually in arrears on March 1 and September 1 of each year, commencing March 1,1995, to the person in whose name the Senior Note is registered at the close of business on the record date next preceding such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company will pay the principal on the Senior Notes to each Holder who surrenders such Senior Notes to a Paying Agent on or after September 1, 2001 or, in the event of a redemption of the Senior Notes, on or after the Redemption Date, as described below. The Company will pay principal and interest in U.S. legal tender by Federal funds bank wire transfer or (in the case of payment of interest) by check to the persons who are registered Holders at the close of business on the Record Date next preceding the applicable interest payment date. The aggregate principal amount of the Senior Notes that may be issued will be limited to $100,000,000. The Senior Notes will be transferable and exchangeable at the office of the Registrar and any co-registrar and will be issued in fully registered form, without coupons, in denominations of $1,000 and any whole multiple thereof; provided, however, that any Global Security representing all or a portion of the Senior Notes may not be transferred except as a whole by the Depository in certain circumstances unless and until it is exchanged in whole or in part for Senior Notes in a non-global form. The Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection with certain transfers and exchanges. 56 59 RANKING The Senior Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with the Company's existing and future senior unsecured obligations. OPTIONAL REDEMPTION The Company, at its option on notice to the Holders, may redeem the Senior Notes (i) prior to September 1, 1997 (A) at any time in whole but not in part, at a Redemption Price equal to 105% of the aggregate principal amount of the Senior Notes, plus accrued and unpaid interest thereon to the Redemption Date, or (B) from time to time in part from the Net Offering Proceeds received by the Company prior to , 1997 from a Public Offering Sale at a Redemption Price equal to 105% of the aggregate principal amount of the Senior Notes so redeemed, plus accrued and unpaid interest thereon to the Redemption Date; and (ii) on and after September 1, 1997 at any time in whole or from time to time in part, at a Redemption Price equal to the applicable percentage of the aggregate principal amount of the Senior Notes so to be redeemed, set forth below, plus accrued and unpaid interest thereon to the Redemption Date if redeemed during the 12 calendar months beginning on of the years indicated below: 1997: 105.0% 1998: 103.3% 1999: 101.7% 2000: 100.0% MANDATORY REDEMPTION If the Company shall consummate a Public Offering Sale at any time or from time to time prior to , 1997, it shall, promptly after each Public Offering Sale so consummated at a time when, immediately prior to such consummation, the Company shall have on hand cash and Cash Equivalents, not subject to any restriction on disposition, of at least $100,000,000, then the Company shall redeem Senior Notes at a redemption price equal to 104% of the aggregate principal amount of the Senior Notes so redeemed, plus accrued and unpaid interest to the redemption date. The aggregate redemption price and accrued and unpaid interest of the Senior Notes to be redeemed shall equal the lesser of (x) 50% of such Net Offering Proceeds or (y) the excess, if any, of $20,000,000 over (ii) the amount of any Net Offering Proceeds of any prior Public Offering Sale received prior to , 1997, and applied to redeem Senior Notes as described therein. The Senior Notes will not be entitled to the benefit of any sinking fund or other mandatory redemption provisions. CERTAIN COVENANTS Limitations on Restricted Payments. Under the terms of the Indenture, neither the Company nor any subsidiary shall: (i) declare or pay any dividends on or make any distributions in respect of Capital Stock of the Company (other than dividends or distributions payable solely in shares of Capital Stock (other than redeemable stock) or in options, warrants or other rights to purchase Capital Stock (other than Redeemable Stock)) to holders of Capital Stock of the Company, (ii) purchase, redeem or otherwise acquire or retire for value (other than through the issuance solely of Capital Stock (other than Redeemable Stock)) or warrants, rights or options to acquire Capital Stock other than Redeemable Stock; (iii) redeem, repurchase, defease (including, but not limited to, in substance or legal defeasance), or otherwise acquire or retire for value (other than through the issuance solely of Capital Stock (other than Redeemable Stock) or warrants, rights or options to acquire Capital Stock (other than Redeemable Stock)) (collectively, a "prepayment"), directly or indirectly (including by way of amendment of the terms of any Indebtedness in connection with any retirement or acquisition of such Indebtedness) other than at scheduled maturity thereof or by any scheduled repayment or scheduled sinking fund payment, any indebtedness of the Company which is subordinated in right of payment to the Senior Notes or which matures after the maturity date of the Senior Notes except out of the proceeds of Refinancing Indebtedness); if, at the time of such transaction described in clause (i), (ii) or (iii) (such transactions being hereinafter collectively referred to as "Restricted Payments") and after giving 57 60 effect thereto, either the aggregate amount expended by the Company and its Subsidiaries for all Restricted Payments (the amount of any Restricted Payment if other than cash to be the fair market value of the property included in such payment as determined in good faith by the Board of Directors as evidenced by a Board Resolution) from and after the Closing Date shall exceed the sum of (A) 50% (or if the Senior Notes at the time of the proposed Restricted Payment are rated Investment Grade by at least one rating agency of recognized standing selected by the Company, 75%) of the aggregate Adjusted Consolidated Net Income (or if such Adjusted Consolidated Net Income is a loss, minus 100% of such loss) of the Company and its Subsidiaries for the period from the Closing Date and through the day immediately prior to the day on which the Restricted Payment occurs, calculated on a cumulative basis as if such period were a single accounting period; (B) the aggregate net proceeds received by the Company after the Closing Date (including the fair market value of non-cash proceeds as determined in good faith by the Board of Directors as evidenced by a Board Resolution) from any Person other than a Subsidiary, as a result of the issuance of (or contribution to capital on) Capital Stock (other than any Redeemable Stock) or warrants, rights or options to acquire Capital Stock (other than any Redeemable Stock); (C) the aggregate net proceeds received by the Company after the Closing Date from any Person other than a Subsidiary as a result of the issuance of Capital Stock (other than Redeemable Stock) upon conversion or exchange of Indebtedness or upon exercise of options, warrants or other rights to acquire such Capital Stock and (D) $25,000,000. For purposes of any calculation that is required to be made in respect of, or after the declaration of a dividend by the Company, such dividend shall be deemed to be paid at the date of declaration and shall be included in determining the aggregate amount of Restricted Payments, and the subsequent payment of such dividend shall not be treated as an additional payment. For the purposes of the preceding covenant, the net proceeds from the issuance of shares of Capital Stock of the Company upon conversion of debt securities shall be deemed to be an amount equal to the net book value of such debt securities (plus the additional amount required to be paid upon such conversion, if any), less any cash payment on account of fractional shares; the "net book value" of a security shall be the net amount received by the Company on the issuance of such security, as adjusted on the books of the Company to the date of conversion. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred or be continuing at the time the Indenture shall not prohibit (i) the purchase, redemption or other acquisition or retirement for value of any shares of the Company's Capital Stock or the prepayment of any indebtedness of the Company which is subordinated in right of payment to the Senior Notes or which matures after the maturity date of the Senior Notes by any exchange for, or out of and to the extent the Company has received cash proceeds from the substantially concurrent sale or issuance (other than to a Subsidiary) of, shares of Capital Stock (other than any Redeemable Stock of the Company) or warrants, rights or options to acquire Capital Stock (other than any Redeemable Stock); or (ii) the purchase or redemption of shares of Capital Stock of the Company (including options on any such shares or related stock appreciation rights or similar securities) held by officers or employees of the Company or its Subsidiaries (or their estates or beneficiaries under their estates) upon death, disability, retirement, termination of employment or pursuant to the terms of any Plan or any other agreement under which such shares of stock or related rights were issued, provided that the aggregate amount of such purchases or redemptions of such Capital Stock shall not exceed $3,000,000 in any one fiscal year of the Company. Limitation on Transactions with Affiliates. Neither the Company nor any Subsidiary of the Company shall, directly or indirectly (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Holder of 5% or more of any class of Capital Stock (and any Affiliate of such Holder) of the Company (an "Affiliate Transaction"), other than (x) certain permitted Affiliate Transactions and (y) Affiliate Transactions (including lease transactions) which are on fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, as those as might reasonably have been obtainable at such time from an unaffiliated party; provided that if an Affiliate Transaction or series of related Affiliate Transactions involves or has a value in excess of $10 million, the Company or such Subsidiary, as the case may be, shall not enter into such Affiliate Transaction or series of related Affiliate Transactions unless a majority of the disinterested members of the 58 61 Board of Directors of the Company or such Subsidiary shall reasonably and in good faith determine that such Affiliate Transaction is fair to the Company or such Subsidiary, as the case may be, or is on terms no less favorable to the Company or such Subsidiary, as the case may be, than those as might reasonably have been obtainable at such time from an unaffiliated party. (b) The preceding paragraph shall not apply to (i) any agreement as in effect as of the Closing Date, or any amendment thereto (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect or any transaction contemplated thereby (including pursuant to any amendment thereto); (ii) any transaction between the Company and any Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith; (iv) any Restricted Payments not prohibited in Section 4.13; (v) any payments or other transactions pursuant to any tax sharing agreement between the Company and any other Person with which the Company is required or permitted to file a consolidated tax return or with which the Company is or could be part of a consolidated group for tax purposes; and (vi) transactions with Continental, Mesa and their respective Affiliates as contemplated by Alliance Agreements. Limitation on Asset Sales. Subject to certain provisions of the Indenture, in the event and to the extent that on any date the Company or any of its Subsidiaries shall receive Net Cash Proceeds from one or more Asset Sales (other than Asset Sales by the Company or any Subsidiary to the Company or another Subsidiary) then the Company shall, or shall cause such Subsidiary to, within 12 months after such date apply an amount equal to such Net Cash Proceeds (A) and to repay Indebtedness of the Company or Indebtedness of any Subsidiary, in each case owing to a Person other than the Company or any of its Subsidiaries, and/or (B) as an investment (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in property or assets of a nature or type or that are used in a business (or in a Person having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Subsidiaries existing on the date thereof (as determined in good faith by the Board of Directors of the Company or such Subsidiary, as the case may be, whose determination shall be conclusive and evidenced by a Board Resolution). The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period as set forth in clause (A) or (B) of the preceding sentence shall constitute "Excess Proceeds." If on the first Business Day following any 12-month period referred to in the preceding paragraph, the aggregate amount of Excess Proceeds from all Asset Sales subject to application but not previously applied during such 12-month period as provided in clause (A) or (B) of the preceding paragraph, exceeds $15,000,000, the Company, within 10 Business Days thereafter, shall make an offer to purchase on a pro rata basis from all Holders (an "Excess Proceeds Offer"), and shall purchase from Holders accepting such Excess Proceeds Offer, the maximum principal amount (expressed as an integral multiple of $1,000) of Senior Notes that may be purchased from funds in an amount equal to all such outstanding Excess Proceeds at a purchase price equal to 100% of the principal amount of the Senior Notes so purchased plus accrued and unpaid interest thereon to the date of purchase ("Excess Proceeds Payment"). Upon completion of an Excess Proceeds Offer (or upon termination of such offer if no repurchases are required), the amount of such Excess Proceeds relating thereto shall be equal to zero. Change of Control. Upon a Change of Control, each Holder shall have the right to require the Company to repurchase all or any part of such Holder's Senior Notes at a repurchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or any part of such Holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (ii) the circumstances and relevant facts regarding such Change of Control; (iii) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; and (iv) the instructions that the Company determines that a Holder 59 62 must follow to have its Senior Notes repurchased. Holders electing to have a Senior Note purchased will be required to surrender the Senior Note, with an appropriate form duly completed, to the Company at the address specified in the notice at least 10 business days prior to the purchase date. Holders will be entitled to withdraw their election as specified in the notice. Limitation on Investments. The Company shall not, and shall not permit any Subsidiary to make any Investment other than (i) Investments consisting of non-cash proceeds from Asset Sales as contemplated by the Indenture; (ii) Investments consisting of cash equivalents; (iii) accounts receivable if credited or acquired in the ordinary course of business; (iv) payroll advances and advances for business and travel expenses in the ordinary course of business; (v) Investments by the Company in its Subsidiaries in the ordinary course of its business; (vi) Investments by any Subsidiary of the Company in the Company or in any Subsidiary; (vii) Investments by the Company for the purpose of acquiring businesses reasonably related to the business of the Company, in an aggregate amount not exceeding $5 million in any fiscal year; (viii) Investments made by way of endorsement of negotiable instruments received by the Company or any Subsidiary in the ordinary course of business; (ix) stock, obligations or securities received in settlement of debts created in the ordinary course of business owing to the Company or any Subsidiary; (x) Investments by the Company for the purpose of receivables financing; and (xi) in addition to any other permitted investments, any other Investments by the Company in an aggregate amount not exceeding $1 million at any time. LIMITATIONS ON MERGERS AND CONSOLIDATION The Indenture provides that the Company will not consolidate with or merge into any other corporation, or transfer, lease or convey its properties and assets substantially as an entirety (the "Properties") to any Person, unless: (i) the corporation formed by such consolidation or merger or the Person that acquires by transfer, lease or conveyance the Properties (collectively, the "Successor"), is a corporation organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee the Company's obligation for the due and punctual payment of the principal of and interest on all the Senior Notes according to their tenor and the performance of every covenant of the Indenture on the part of the Company to be performed or observed; and (ii) immediately before and after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, lease or transfer and such Supplemental Indenture comply with Article Six of the Indenture and that all conditions precedent set forth in the Indenture relating to such transaction have been complied with. CERTAIN DEFINITIONS The following is a summary of certain defined terms to be used in the Indenture. Reference is made to the Indenture for the full definition of all such terms and for the definitions of other capitalized terms used herein and not defined below. "Adjusted Consolidated Net Income" means, for any Person for any period, the aggregate net income (or loss) of such Person and its consolidated Subsidiaries for such period determined in occurrence with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income (or loss) of any Person (other than a Subsidiary of such first Person) in which any other Person (other than such first Person or any of its Subsidiaries) has a joint or shared interest, except to the extent of the amount of dividends or other distributions actually paid to and received by such first Person or any of its Subsidiaries during such period out of funds legally available therefor, (ii) the net income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of such first Person or any of its Subsidiaries or all or substantially all of the property and assets of such Person are acquired by such first Person or any of its Subsidiaries, (iii) the net income (or loss) of any Subsidiary of such Person that is subject to a Payment Restriction, except to the extent of the amount of cash dividends or other distributions actually paid to, and received by, such person or any of its Subsidiaries during such period from such Subsidiary out of funds legally available therefor, (iv) any gains or losses (on an after-tax basis) attributable to Asset Sales, and (v) all extraordinary gains and extraordinary losses. 60 63 "Affiliates" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries of (i) all or any of the Capital Stock of any Subsidiary of the Company, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Subsidiaries or (iii) any other property and assets of the Company or any of its Subsidiaries outside the ordinary course of business of the Company or such Subsidiary and, in each case, that is not governed by the provisions of Article Six of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; provided that none of (A) sales or other dispositions of inventory, receivables and other current assets, (B) sale or other dispositions of surplus equipment, spare parts, expandable inventories, furniture or fixtures in an aggregate amount not to exceed $10,000,000 in any fiscal year of the Company, (C) sale leasebacks of aircraft and engines passenger loading bridges or other flight or ground equipment, flight simulators, or the Company's reservation facility located at 222 South Mill Avenue, Tempe, Arizona; or (D) $20,000,000 of other sales in any fiscal year of the Company shall be included within the meaning of "Asset Sale". "Change of Control" means (i) the acquisition at any time by any Person (other than one or more Permitted Holders), of "beneficial ownership" (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) in excess of 50% of the total voting power of the voting stock of the Company; (ii) the sale, lease, transfer or other disposition, of all or substantially all of the assets of the Company to any Person (other than one or more Permitted Holders) as an entirety or substantially as an entirety in one transaction or a series of related transactions; (iii) the merger or consolidation of the Company, with or into another corporation, or the merger of another corporation into the Company, or any other transaction, with the effect that a Person (other than one or more Permitted Holders), has "beneficial ownership" (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) in excess of 50% of the voting stock of the Company, or such other corporation, as the case may be (including indirect ownership through another Person other than one or more Permitted Holders); or (iv) the liquidation or dissolution of the Company. For purposes of this definition, the term Person includes a "person" within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. "Commodity Agreement" means any agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in the prices of commodities used by the Company or any of its Subsidiaries in the ordinary course of its business. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, Senior Notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables, (v) all obligations of such Person to the extent capitalized on the balance sheet of such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of 61 64 determination and (B) the stated principal amount of such Indebtedness, (vii) all Indebtedness of other Persons guaranteed by such Person to the extent such Indebtedness is guaranteed by such Person, (viii) to the extent not otherwise included in this definition, obligations under Currency Agreements, Interest Risk Agreement and Commodity Agreements. The amount of Indebtedness of any Person of any date shall be the outstanding balance on such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness of such time as determined in conformity with GAAP. "Investment" means, with respect to any Person, any direct or indirect advance, loan (other than advances to customers in the ordinary course of business consistent with past practices that are recorded as accounts receivable on the balance sheet of such Person or its Subsidiaries) or other extension of credit or capital contribution by such Person to any other Person (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others; provided, that any transfer of aircraft to a limited partnership or other entity in connection with the transaction in which the aircraft are leased to the Company shall not be an Investment), or any purchase or acquisition by such person of Capital Stock, bonds, notes, debentures or other similar instruments issued by any other Person. "Interest Rate Agreement" means any interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Investment Grade" means a rating of BBB- or higher by S&P or BaaB or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other rating agency, the equivalent of such ratings by such rating agency shall be used. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest); provided that in no event shall a true operating lease be deemed to constitute a Lien hereunder. "Material Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the dtae hereof) or (b) material to the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such Asset Sale other than pursuant to this Agreement, and (iv) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP. 62 65 "Payment Restriction" means, with respect to a Subsidiary of any Person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such Subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such Person or any other Subsidiary of such Person, (b) make loans or Advances to such Person or any other Subsidiary of such Person, or (c) transfer any of its property or assets to such Person or any other Subsidiary of such Person, or (ii) such Person or other Subsidiary of such Person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) property or assets. "Permitted Holders" means AmWest Partners, L.P., TPG Partners L.P., Continental Airlines, Inc., Mesa Airlines, Inc., funds or accounts managed or advised by Fidelity Management Trust Company and its affiliates, and their respective successors and affiliates. "Public Offering Sale" means an underwritten public offering of Capital Stock of the Company pursuant to which the Company agreed to issue and sell and the Purchasers named in such agreement agreed to purchase, an aggregate of $100,000,000 in principal amount of Securities. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise (i) is required to be redeemed prior to the Stated Maturity of the Securities, (ii) may be required to be redeemed at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Securities or (iii) is convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or indebtedness having a scheduled maturity prior to the Stated Maturity of the Securities; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof offering holders thereof the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" occurring prior to the Stated Maturity of the Securities shall not constitute Redeemable Stock if the asset sale provisions contained in such Capital Stock specifically provide that in respect of any particular asset sale proceeds, the Company will not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Company's repurchase of such Securities as are required to be repurchased from Holders accepting an Excess Proceeds Offer pursuant to the provisions of Section 4.15. "Refinancing Indebtedness" means any Indebtedness of the Company or any Subsidiary issued in exchange for, or the net proceeds of which are applied entirely to substantially concurrently repay, refinance, refund or replace, outstanding Indebtedness of the Company or any of its Subsidiaries (the "Refinanced Indebtedness"), to the extent such Indebtedness (a) is issued in a principal amount (or if such Indebtedness is issued at an original issue discount, is issued at an original issue price) not exceeding the outstanding principal amount (or, if such Refinanced Indebtedness was issued at an original issue discount, not exceeding the outstanding accreted principal amount) of such Refinanced Indebtedness, and (b) if the Refinanced Indebtedness is Indebtedness of the Company and ranks by its terms junior in right of payment to the Securities, (i) does not have a final scheduled maturity and is not subject to any principal payments, including but not limited to payments upon mandatory or optional redemption, prior to the dates of analogous payments under the Refinanced Indebtedness, and (ii) has subordination provisions effective to subordinate such Indebtedness to the Securities at least to the extent that such Refinanced Indebtedness is subordinated to the Securities, and (c) if the Refinanced Indebtedness is Indebtedness of the Company and ranks by its terms pari passu in right of payment with the Securities, (i) is pari passu or subordinated in right of payment to the Securities, (ii) does not have a final scheduled maturity and is not subject to any principal payments, including but not limited to payments upon mandatory or optional redemption, prior to the dates of analogous payments under the Refinanced Indebtedness, and (iii) is not secured by any Lien on any property of the Company or any Subsidiary in addition to Liens securing the Refinanced Indebtedness. 63 66 EVENTS OF DEFAULT An Event of Default, with respect to the Senior Notes, means any one of the following events shall have occurred and be continuing: (i) default by the Company for 30 days in payment of any interest on the Senior Notes; (ii) default by the Company in any payment of principal of or premium, if any, on the Senior Notes when such payment becomes due and payable; (iii) default by the Company in performance of any other covenant or agreement in the Indenture or under the Senior Notes, which shall not have been remedied within 30 days after receipt of written notice from the Trustee or from the holders of at least 25% in principal amount of the Senior Notes then outstanding; (iv) upon an event of default resulting in the acceleration of the maturity of any issue or issues of Indebtedness of the Company and/or one or more Subsidiaries of any principal amount of $10 million or more in the aggregate, and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, discharging the Indebtedness or effecting a cure of such default; (v) a judgment or order not covered by insurance for the payment of money in excess of $10 million having been rendered against the Company or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days; or (vi) certain events involving bankruptcy, insolvency or reorganization of the Company or any Material Subsidiary; (vii) failure by the Company to make at the final (but not any interim) fixed maturity of one or more issues of Indebtedness a principal payment or principal payments aggregating 10 million or more, which failure shall not have been remedied within 30 days of the payment default that causes the aggregate amount of such indebtedness to exceed $10 million, or (viii) the cessation of the full force and effect of the Indenture, except as permitted therein. The Trustee may withhold notice to the holders of the Senior Notes of any default or Event of Default (except in payment of principal of, or premium, if any, or interest on the Notes) if the Trustee considers it in the interest of the holders of the Senior Notes to do so. If an Event of Default occurs and is continuing with respect to the Indenture, the Trustee or the Holders of not less than 25% in principal amount of the Senior Notes outstanding may, and at the request of the Holders, the Trustee shall declare the principal of and premium, if any, and accrued but unpaid interest on all the Senior Notes to be due and payable. Upon such a declaration, such principal, premium, if any, and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company or any Material Subsidiary occurs and is continuing, the principal of and premium, if any, and interest on all the Senior Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of the Senior Notes. If an Event of Default relating to item (iv) in the preceding paragraph occurs, such acceleration will be automatically rescinded if the Event of Default is cured by the Company or waived by the holders of the relevant Indebtedness within 30 days after the occurrence of the Event of Default. Under certain circumstances, the holders of a majority in principal amount of the outstanding Senior Notes may rescind any such acceleration with respect to the Senior Notes and its consequences. The Indenture provides that no Holder may pursue any remedy under the Indenture unless (i) the Trustee shall have received written notice from the Holder of a continuing Event of Default, (ii) the Trustee shall have received a request from holders of at least 25% in principal amount of the Senior Notes to pursue such remedy, (iii) the Trustee shall have been offered indemnity reasonably satisfactory to it, (iv) the Trustee shall have failed to act for a period of 60 days after receipt of such notice and offer of indemnity, and (v) during such 60-day period, a majority of the Holders do not give the Trustee directions inconsistent with the initial request; however, such provision does not affect the right of a holder of a Note to sue for enforcement of any overdue payment thereon. The holders of a majority in principal amount of the Senior Notes then outstanding have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee under the Indenture, subject to certain limitations specified in the Indenture. The Indenture will require the annual filing by the Company with the Trustee of a written statement as to compliance with the covenants contained in the Indenture. 64 67 MODIFICATION AND WAIVER The Indenture provides that supplements and amendments to the Indenture or the Senior Notes may be made by the Company, and the Trustee with the written consent of the Holders of at least a majority in aggregate principal amount of the Senior Notes then outstanding; provided that no such amendment or waiver may, without the consent of each Holder affected, (i) reduce the principal amount of Senior Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Senior Note, or alter the provisions with respect to the redemption of the Senior Notes in a manner adverse to the Holders, (iii) reduce the rate of or change the time for payment of interest on any Senior Note, (iv) make any Senior Note payable in money other than U.S. Legal Tender, (v) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of, or premium, if any, or interest on, the Senior Notes, (vi) waive a redemption payment with respect to any Senior Notes, or (vii) make any change in certain sections of the Indenture. The Indenture provides that supplements and amendments to the Indenture may be made by the Company and the Trustee without the consent of any Holder to: (i) cure any ambiguity, correct or supplement any provision therein which may be inconsistent with any other provision therein, or to make any other provisions with respect to matters or questions arising under the Indenture which shall not be inconsistent with the provisions of the Indenture, provided that such amendment does not adversely affect the rights of the Holders, (ii) evidence the succession of another corporation to the Company, and provide for the assumption by such successor of the Company's obligations to the Holders under the Indenture and the Senior Notes, (iii) to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes, (iv) make any change that would provide additional rights or benefits to holders, or not adversely affect the legal rights of the Holder under the Indenture or (v) comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act of 1939. The Indenture provides that the holders of a majority in aggregate principal amount of the Senior Notes then outstanding may waive any existing Default or Event of Default under the Indenture or the Senior Notes, except a default or Event of Default in the payment of principal, or premium, if any, or interest. DISCHARGE AND TERMINATION The Indenture provides that the Indenture shall cease to be of further effect (subject to certain exceptions) when (i) all outstanding Senior Notes theretofore authenticated and delivered (other than destroyed, lost or stolen Senior Notes that have been replaced or paid) have been delivered to the Trustee for cancellation or (ii) (A) the Senior Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders, money or U.S. Government Obligations sufficient to pay principal and interest on the Senior Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it under the Indenture or the Senior Notes, (C) no Event of Default with respect to the Senior Notes shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which either is bound and (E) the Company has delivered to the Trustee any required Officers' Certificate and Opinion of Counsel. GOVERNING LAW The Indenture and each Senior Note are governed by, and construed in accordance with, the laws of the State of New York, except as may otherwise be required by mandatory provisions at law, but without giving effect to principles of conflicts of law. 65 68 THE TRUSTEE American Bank National Association will be the Trustee under the Indenture. Its address is 101 East 5th Street, St. Paul, MN 55101. The Indenture contains certain limitations on the right of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust Indenture Act of 1939), it must eliminate such conflict or resign. The Indenture provides that in case an Event of Default shall occur (and be continuing), the Trustee will be required to use the degree of care and skill of a prudent man in the conduct of his own affairs. The Trustee will be under no obligation to exercise any of its powers under the Indenture at the request of any of the holders of the Senior Notes, unless such holders shall have offered the Trustee indemnity reasonably satisfactory to it. AUTHENTICATION Two officers of the Company will sign each Senior Note on behalf of the Company, in each case by manual or facsimile signature. The Company's seal will be reproduced on each Senior Note and may be in facsimile form. A Senior Note will not be valid until the Trustee or an Authenticating Agent manually signs the certificate of authentication on the Senior Note. Each Senior Note will be dated the date of its authentication. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 1,200,000 shares of Class A Common Stock, $.01 par value (the "Class A Common Stock "), 100,000,000 shares of Class B Common Stock, $.01 par value (the "Class B Common Stock"), (such classes of Common Stock referred to collectively as the "Common Stock") and 48,800,000 shares of preferred stock, $.01 par value (the "Preferred Stock"). As of the Effective Date, there were 1,200,000 outstanding shares of Class A Common Stock and 43,800,000 outstanding shares of Class B Common Stock. The material terms of the Company's capital stock are summarized below. The following description is a summary only, however, and is not intended to be complete and is qualified by reference to the provisions of the Company's Restated Certificate of Incorporation (the "Certificate of Incorporation") and bylaws and the agreements referred to in this summary description, copies of each of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. As used in this section, except as otherwise stated or required by context, each reference to AmWest includes any successor by merger, liquidation, consolidation or similar transaction and any wholly owned subsidiary of such entity or such successor. COMMON STOCK -- ALL CLASSES Holders of Common Stock of all classes participate equally as to any dividends or distributions on the Common Stock, except that dividends payable in shares of Common Stock, or securities to acquire Common Stock, are paid in Common Stock, or securities to acquire Common Stock, of the same class as that held by the recipient of the dividend. Upon any liquidation, dissolution or winding up of the Company, holders of Common Stock of all outstanding classes are entitled, subject to the rights of preferred Stockholders, if any, to receive pro rata all of the assets of the Company available for distribution to the stockholders. Holders of Common Stock have no preemptive, subscription, conversion or redemption rights (other than conversion rights of AmWest and GPA described below), and are not subject to further calls or assessments. Holders of Common Stock have no right to cumulate their votes in the election of directors. The Common Stock votes together as a single class, subject to the right to a separate class vote in certain instances required by law. 66 69 CLASS B COMMON STOCK AND CLASS A COMMON STOCK The holders of Class B Common Stock are entitled to one vote per share, and the holders of Class A Common Stock are entitled to fifty votes per share, on all matters submitted to a vote of common stockholders, except that voting rights of non-U.S. citizens are limited as set forth below under "-- Limitation on Voting by Foreign Owners." As set forth under the heading "Principal Stockholders," AmWest currently owns in the aggregate 100% of the outstanding Class A Common Stock and % of the outstanding Class B Common Stock, which collectively represent approximately % of the total voting power of the outstanding Common Stock. In addition, AmWest holds Warrants to acquire an additional 2,769,231 shares of Class B Common Stock that, if exercised, would increase AmWest's voting control to %. See "Principal Stockholders -- Stockholders' Agreement" below for a discussion of arrangements regarding the composition of the Board of Directors of the Company. Holders of Class A Common Stock may at any time elect to convert such shares into an equal number of shares of Class B Common Stock. Class B Common Stock is not convertible into Class A Common Stock. PREFERRED STOCK Pursuant to the Company's Certificate of Incorporation, the Company is authorized to issue 48,800,000 shares of Preferred Stock. The Company's Board of Directors by resolution may authorize the issuance of the Preferred Stock as a class, in one or more series, having the number of shares, designations, relative voting rights, dividend rights, liquidation and other rights preferences, and limitations that the Board of Directors fixes without any stockholder approval. No shares of Preferred Stock have been issued. LIMITATION ON VOTING BY FOREIGN OWNERS The Certificate of Incorporation defines "Foreign Ownership Restrictions" as "applicable statutory, regulatory and interpretive restrictions regarding foreign ownership or control of U.S. air carriers (as amended or modified from time to time)." Such restrictions currently require that no more than 25% of the voting stock of the Company be owned or controlled, directly or indirectly, by persons who are not U.S. citizens ("Foreigners") for purposes of the Foreign Ownership Restrictions, and that the Company's president and at least two-thirds of its directors be U.S. citizens. The Certificate of Incorporation provides that no shares of capital stock may be voted by or at the direction of Foreigners, unless such shares are registered on a separate stock record (the "Foreign Stock Record"). The Company's bylaws further provide that no shares will be registered on the Foreign Stock Record if the amount so registered would exceed the Foreign Ownership Restrictions. Registration on the Foreign Stock Record is made in chronological order based on the date the Company receives a written request for registration. LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION The Company's Certificate of Incorporation and Restated Bylaws (collectively, the "Charter Documents") provide, to the fullest extent permitted by Delaware law as it may from time to time be amended, that no director shall be liable to the Company or any stockholder for monetary damages for breach of fiduciary duty as a director. Delaware law currently provides that such waiver may not apply to liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (governing distributions to stockholders), or (iv) for any transaction from which the director derived any improper personal benefit. The Charter Documents further provide that the Company will indemnify each of its directors and officers to the full extent permitted by Delaware law and may indemnify certain other persons as authorized by law. Additionally, America West has entered into written agreements with each person who served as a director or executive officer of America West as of the date of the Investment Agreement providing for similar indemnification of such person and that no recourse or liability whatsoever with respect to the Investment 67 70 Agreement, the Plan or consummation of the transactions contemplated thereby shall be had by or in the right of America West against such person. DELAWARE BUSINESS COMBINATION STATUTE Pursuant to the Plan, the Company has elected not to be governed by Section 203 of the Delaware General Corporation Law ("DGCL"). In general, Section 203 of the DGCL prohibits a Delaware corporation from entering into a "business combination" with an "interested stockholder" for a period of three years unless certain exceptions are applicable. Pursuant to the statute, the Company's election not to be governed by Section 203 will not become effective until the first anniversary date of the Effective Date. By opting out of Section 203, America West may be foregoing certain "anti-takeover" protections that may otherwise be available to it under Section 203 in the event of an unsolicited takeover offer from a party other than AmWest. However, given the limited protections provided by Section 203, the significant holdings of Common Stock by AmWest after the Effective Date and certain other factors, the Company does not believe that the protections afforded by Section 203 are very significant or that an unsolicited takeover offer is likely to occur. With respect to a possible "business combination" or takeover attempt by AmWest or its affiliates involving the Company, the protective provisions of Section 203 would not apply to such a transaction because the Board of Directors of the Company has previously approved of the transactions contemplated by the Investment Agreement and otherwise described herein prior to the date such agreement was entered into and prior to the date that AmWest acquired any shares of Common Stock. However, pursuant to the Stockholders' Agreement, AmWest will be precluded from consummating any "Business Combination" (as defined in the Stockholders Agreement) with the Company for a three-year period commencing on the Effective Date, unless such transaction is recommended or approved in advance by at least three Independent Directors or a majority of the Common Stock of the Company not held by AmWest and its affiliates. DESCRIPTION OF WARRANTS GENERAL The Warrants will be issued under a Warrant Agreement dated on or about August , 1994 (the "Warrant Agreement") between the Company and First Interstate of California, N.A. as warrant agent (the "Warrant Agent"). The material terms of the Warrants and the Warrant Agreement are summarized below. The statements under this caption relating to the Warrants and the Warrant Agreement are summaries only, however, and do not purport to be complete. Such summaries make use of terms defined in the Warrant Agreement and are qualified in their entirety by express reference to the Warrant Agreement, which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. All section references under this heading are references to sections of the Warrant Agreement. Each of the 4,153,846 Warrants offered hereby entitles the registered holder to purchase from the Company one share of Class B Common Stock for $ , subject to adjustment as provided in the Warrant Agreement, at any time after the Effective Date and before the fifth anniversary of the Effective Date (the "Expiration Date"). (Section 3.01) CERTAIN TERMS OF THE WARRANTS Exercise of Warrants. Warrants may be exercised by surrendering the Warrant Certificate evidencing such Warrants at the Warrant Agent's Office with the Election to Exercise form duly completed and executed. Surrendered Warrant Certificates must be accompanied by payment in full to the Warrant Agent for the account of the Company (i) in cash, (ii) by certified or official bank check or (iii) by any combination of (i) or (ii) the Warrant Price for each share of Class B Common Stock as to which Warrants are exercised and any applicable taxes that the Company is not required to pay as set forth in Sections 4.08 or 6.01. (Section 3.02(a)). 68 71 The Company will not be required to issue fractional shares of Class B Common Stock upon the exercise of the Warrants. In lieu thereof, the Company, at its option, may purchase the fraction for an amount in cash equal to the then-current market value of the fraction (as defined in Section 4.01(d)) or issue scrip of the Company that is non-dividend bearing and non-voting and exchangeable in combination with other similar scrip for the number of full shares of Class B Common Stock represented thereby. (Section 3.03) The Company has the right, except as limited by law or other agreement, to purchase or otherwise acquire Warrants at such times, in such manner and for such consideration as it may deem appropriate. (Section 3.04) The Company will, at all times, reserve and keep available free of preemptive rights out of its authorized and unissued Class B Common Stock, the full number of shares of Class B Common Stock, if any, issuable if all outstanding Warrants then exercisable were to be exercised. Any shares of Class B Common Stock issued upon a Warrant holder's exercise of any Warrant shall be validly authorized and issued, fully paid, non-assessable, free of preemptive rights and free from all taxes (other than those required to be paid by the holder or its transferees) liens, charges, security interests and claims created or incurred by the Company in respect of the issuance thereof. (Sections 3.02(b); 4.06) Adjustment of Warrant Price. The Warrant Price and the number of shares of Class B Common Stock purchasable upon exercise of each Warrant are subject to adjustment in certain events, including (a) the payment of a dividend in Common Stock or certain combinations, subdivisions, or reclassifications of the Common Stock, (b) the issuance to holders of Common Stock (without any charge to such holders) of rights, options or warrants entitling the holders thereof to purchase Common Stock (or securities convertible into Common Stock) at a price per share less than the then-current market price per share, and (c) certain distributions by the Company to holders of Common Stock of evidences of its indebtedness or assets (excluding any cash dividend or distribution out of retained earnings), all as described in the Warrant Agreement. The Company is not required to make any adjustment to the Warrant Price unless such adjustment could require an increase or decrease of at least $ in the Warrant Price then subject to adjustment; provided, however, that any adjustments that are not made for this reason must be carried forward and taken into account in any subsequent adjustment. (Section 4.01) The Company may, at its option, reduce the Warrant Price at any time. Rights Upon Consolidation, Merger, Sale, Transfer or Reclassification. In the event of certain consolidations with or mergers of the Company into another corporation or in the event of certain leases, sales or conveyances of the property of the Company to another corporation, the holder of each outstanding Warrant shall have the right to receive, upon exercise of the Warrant, the kind and amount of shares, securities, property or cash receivable upon such consolidation, merger, lease, sale or conveyance by a holder of one share of Class B Common Stock. (Section 4.05(a)) In the event of any liquidation, dissolution or winding up of the affairs of the Company, each holder of a Warrant may receive, upon exercise of such Warrant in accordance with the Warrant Agreement, the same kind and amount of any stock, securities or assets as may be issuable, distributable or payable on any such dissolution, liquidation, or winding up with respect to each share of Class B Common Stock of the Company. (Section 4.05(b)) In the event of certain reclassifications or changes of the shares of Class B Common Stock issuable upon exercise of the Warrants or in the event of the consolidation or merger of another corporation into the Company in which the Company is the continuing corporation in which the holders of the shares of Common Stock thereafter receive shares, other securities, property or cash for such shares of Common Stock, each holder of a Warrant shall have the right to receive, upon exercise of the Warrant, the kind and amount of shares, other securities, property or cash receivable upon such reclassification or change. (Section 4.05(c)) Rights as Warrantholders. A holder of Warrants does not have any rights whatsoever as a stockholder of the Company, either at law or equity, including but not limited to the right to vote at, or to receive notice of, any meeting of stockholders of the Company. The consent of any holder is not required with respect to any action or proceeding of the Company nor do holders, by reason of the ownership or possession of a Warrant, 69 72 have any right to receive any cash dividends, stock dividends, allotments or rights, or other distributions paid, allotted or distributed or distributable to the stockholders of the Company. A holder of a Warrant shall not have any rights unless the right is expressly conferred by the Warrant Agreement or by a Warrant Certificate held by the holder. (Section 5.01) PLAN OF DISTRIBUTION Selling Securityholders may sell their Securities in transactions through such underwriters, brokers, dealers or agents as may be approved by the Company from time to time or through privately negotiated transactions; provided, however, that pursuant to the Stockholders' Agreement, certain of the Selling Securityholders have agreed that (i) they will not dispose of any Common Stock (other than to an affiliate of the transferor) if, after giving effect thereto and to any concurrent transaction, the total number of shares of Class B Common Stock owned by the transferor is less than 200% of the total number of shares of Class A Common Stock beneficially owned by the transferor; provided, however, that the preceding will not prohibit any person from transferring or otherwise disposing of all shares of Common Stock owned by such person; (ii) all of the Securities issued to the Selling Securityholders shall bear the legend that the Securities may not be sold, transferred or otherwise disposed of except in accordance with applicable securities laws and the terms of the Plan; and (iii) AmWest has agreed that subject to certain exceptions it will not, prior to August , 1997, sell in a single transaction or related transaction 51% or more of the combined voting power of all shares of Common Stock then outstanding unless other holders of Common Stock 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 AmWest. See "Principal Stockholders -- Stockholders' Agreement." The distribution of the Securities may be effected from time to time in one or more transactions (which may involve crosses or block transactions) (i) in the over-the-counter market, (ii) in transactions otherwise than in the over-the-counter market or (iii) through the writing of options on the Securities (whether such options are listed on an options exchange or otherwise). Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices. If the Selling Securityholders effect such transactions by selling Securities to or through underwriters, dealers or agents, such underwriters, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders or commissions from purchasers of Securities for whom they may act as agent (which discounts, concessions or commissions as to a particular underwriters, dealers or agents might be in excess of those customary in the types of transactions involved). The Selling Securityholders and any underwriters, brokers, dealers or agents that participate in the distribution of the Securities might be deemed to be underwriters and any profit on the sale of Securities by them and any discounts, concessions or commissions received by any such underwriters, brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. The Company will not receive any of the proceeds from the sale of any of the Securities by the Selling Securityholders. At the time a particular offer of Securities is made, a Prospectus Supplement, to the extent required, will be distributed which will set forth the aggregate amount and type of Securities being offered, the names of the Selling Securityholders, the purchase price, the amount of expenses of the offering and the terms of the offering, including the name or names of any underwriters, brokers, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Under the Exchange Act and applicable rules and regulations promulgated thereunder, any person engaged in a distribution of any of the Securities may not simultaneously engage in market making activities with respect to the Securities for a period, depending upon certain circumstances, of either two days or nine days prior to the commencement of such distribution. In addition and without limiting the foregoing, the Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations promulgated thereunder, including without limitation Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders. 70 73 Under the securities laws of certain states, the Securities may be sold in such states only through registered or licensed brokers or dealers. In addition, in certain states the Securities may not be sold unless the Securities have been registered or qualify for sale in such state or an exemption from registration or qualification is available and is complied with. Prior to this offering, there has been no public market for the Securities. Application has been made to list the Class B Common Stock and the Warrants on the New York Stock Exchange. No assurance can be given as to whether an active trading market will develop for the Securities. All of the foregoing may affect the marketability of the Securities and the ability of broker-dealers to engage in market making activities with respect to the Securities. See "Investment Considerations -- Limited Trading Market; Shares Eligible for Future Sale." LEGAL MATTERS The validity of the shares of Common Stock and certain legal matters relating to the Senior Notes and Warrants offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas. EXPERTS The financial statements and schedules of America West Airlines, Inc., as of December 31, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1993, have been included herein and in the registration statement in reliance upon the reports of KPMG Peat Marwick, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The reports of KPMG Peat Marwick covering the December 31, 1993 financial statements and schedules contain an explanatory paragraph that states that the Company's Chapter 11 proceeding, significant losses, accumulated deficit and highly leveraged capital structure raise substantial doubt about its ability to continue as a going concern. The financial statements and schedules do not include any adjustments that might result from the outcome of these uncertainties. 71 74 AMERICA WEST AIRLINES, INC., D.I.P. INDEX TO FINANCIAL STATEMENTS
PAGE ---- CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 1994 (UNAUDITED) Condensed Balance Sheets as of June 30, 1994 (unaudited)............................ F-2 Condensed Statements of Operations and Accumulated Deficit for the six months ended June 30, 1994 (unaudited) and 1993 (unaudited)................................... F-4 Condensed Statements of Cash Flows for the six months ended June 30, 1994 (unaudited) and 1993 (unaudited)................................................. F-5 Notes to Condensed Financial Statements............................................. F-6 FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993 Independent Auditors' Report........................................................ F-20 Balance Sheets as of December 31, 1993 and 1992..................................... F-21 Statements of Operations for the Years ended December 31, 1993, 1992 and 1991....... F-23 Statements of Cash Flows for the Years ended December 31, 1993, 1992 and 1991....... F-24 Statements of Stockholders' Equity (Deficiency) for the Years ended December 31, 1993, 1992 and 1991.............................................................. F-25 Notes to Financial Statements....................................................... F-26
F-1 75 AMERICA WEST AIRLINES, INC., D.I.P. CONDENSED BALANCE SHEETS ASSETS
JUNE 30, DECEMBER 31, 1994 1993 -------------- ------------ (UNAUDITED) (IN THOUSANDS) Current assets: Cash and cash equivalents....................................... $ 176,922 $ 99,631 Accounts receivable, less allowance for doubtful accounts of $3,756,000 in 1994 and $3,030,000 in 1993.................... 78,207 65,744 Expendable spare parts and supplies, less allowance for obsolescence of $7,754,000 in 1994 and $7,231,000 in 1993.... 28,622 28,111 Prepaid expenses................................................ 32,888 34,939 --------- --------- Total current assets.................................... 316,639 228,425 --------- --------- Property and equipment: Flight equipment................................................ 895,662 872,104 Other property and equipment.................................... 183,765 180,607 --------- --------- 1,079,427 1,052,711 Less accumulated depreciation and amortization............... 422,109 385,776 ---------- --------- 657,318 666,935 Equipment purchase deposits..................................... 51,836 51,836 ---------- --------- 709,154 718,771 ---------- --------- Restricted cash................................................... 50,468 46,296 Other assets...................................................... 24,280 23,251 ---------- --------- $1,100,541 $1,016,743 ========== ==========
See accompanying notes to condensed financial statements. F-2 76 AMERICA WEST AIRLINES, INC., D.I.P. CONDENSED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' DEFICIENCY
JUNE 30, DECEMBER 31, 1994 1993 ----------- ------------ (UNAUDITED) (IN THOUSANDS) Current liabilities: Current maturities of long-term debt............................. $ 118,621 $ 125,271 Accounts payable................................................. 71,463 62,957 Air traffic liability............................................ 166,383 118,479 Accrued compensation and vacation benefits....................... 12,525 11,704 Accrued interest................................................. 7,812 8,295 Accrued taxes.................................................... 27,304 14,114 Other accrued liabilities........................................ 19,291 11,980 ----------- ---------- Total current liabilities................................ 423,399 352,800 ----------- ---------- Estimated liabilities subject to Chapter 11 proceedings............ 379,814 381,114 Long-term debt, less current maturities............................ 381,397 396,350 Manufacturers' and deferred credits................................ 71,366 73,592 Other liabilities.................................................. 59,903 67,149 Commitments contingencies and subsequent events Stockholders' deficiency: Preferred stock, $.25 par value. Authorized 50,000,000 shares: Series C 9.75 percent 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 25,694,469 shares in 1994 and 25,291,102 in 1993............................................ 6,424 6,323 Additional paid-in capital....................................... 200,013 197,010 Accumulated deficit.............................................. (403,315) (438,626) ----------- ---------- (196,860) (235,275) Less deferred compensation and notes receivable -- employee stock purchase plans................................................... 18,478 18,987 ----------- ---------- Total stockholders' deficiency........................... (215,338) (254,262) ----------- ---------- $ 1,100,541 $1,016,743 =========== ==========
See accompanying notes to condensed financial statements. F-3 77 AMERICA WEST AIRLINES, INC., D.I.P. CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1994 1993 ----------- ----------- Operating revenues: Passenger......................................................... $ 665,044 $ 603,790 Cargo............................................................. 21,489 18,971 Other............................................................. 22,082 18,754 ----------- ----------- Total operating revenues.................................. 708,615 641,515 ----------- ----------- Operating expenses: Salaries and related costs........................................ 162,484 149,990 Rentals and landing fees.......................................... 132,835 140,555 Aircraft fuel..................................................... 75,794 83,553 Agency commissions................................................ 59,931 52,093 Aircraft maintenance materials and repairs........................ 18,902 14,619 Depreciation and amortization..................................... 43,198 39,879 Other............................................................. 133,575 118,479 ----------- ----------- Total operating expenses.................................. 626,719 599,168 ----------- ----------- Operating income.......................................... 81,896 42,347 ----------- ----------- Nonoperating income (expenses): Interest income................................................... 344 411 Interest expense.................................................. (26,068) (27,563) Loss on disposition of property and equipment..................... (1,270) (613) Reorganization expense, net....................................... (18,258) (1,892) Other, net........................................................ 138 (43) ----------- ----------- Total nonoperating expenses, net.......................... (45,114) (29,700) ----------- ----------- Income before income taxes................................ 36,782 12,647 ----------- ----------- Income taxes........................................................ 1,471 253 ----------- ----------- Net income.......................................................... 35,311 12,394 Accumulated deficit at beginning of period.......................... (438,626) (475,791) ----------- ----------- Accumulated deficit at end of period................................ $ (403,315) $ (463,397) ========== ========== Earnings per share: Primary........................................................... $ 1.30 $ 0.52 ========== ========== Fully diluted..................................................... $ 0.92 $ 0.36 ========== ========== Shares used for computation: Primary........................................................... 28,704 29,669 ========== ========== Fully diluted..................................................... 40,607 42,804 ========== ==========
See accompanying notes to condensed financial statements. F-4 78 AMERICA WEST AIRLINES, INC., D.I.P. CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1994 1993 -------- -------- Cash flows from operating activities: Net income......................................................... $ 35,311 $ 12,394 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization................................... 43,198 39,879 Amortization of manufacturers' and deferred credits............. (2,225) (2,451) Loss on disposition of property and equipment................... 1,270 613 Reorganization items............................................ 3,703 -- Other........................................................... (283) (247) Changes in operating assets and liabilities: Increase in accounts receivable, net............................... (12,463) (8,227) Decrease (increase) in spare parts and supplies, net............... (511) 2,941 Increase in prepaid expenses....................................... 2,051 2,666 (Decrease) increase in other assets and restricted cash............ (5,201) 2,078 Increase (decrease) in accounts payable............................ 8,923 (10,331) Increase in air traffic liability.................................. 45,467 33,312 Increase in accrued compensation and vacation benefits............. 821 195 Increase in accrued interest....................................... 5,130 5,013 Increase in accrued taxes.......................................... 13,190 8,168 Increase in other accrued liabilities.............................. 7,141 1,984 Decrease in other liabilities...................................... (6,337) (6,901) -------- -------- Net cash provided by operating activities....................... 139,185 81,086 Cash flows from investing activities: Purchases of property and equipment................................ (34,981) (23,586) Proceeds from disposition of property.............................. 269 619 -------- -------- Net cash used in investing activities........................... (34,712) (22,967) Cash flows from financing activities: Repayment of debt.................................................. (27,182) (39,532) -------- -------- Net cash used in financing activities........................... (27,182) (39,532) -------- -------- Net increase in cash and cash equivalents....................... 77,291 18,587 -------- -------- Cash and cash equivalents at beginning of period..................... 99,631 74,383 -------- -------- Cash and cash equivalents at end of period........................... $176,922 $ 92,970 ======== ========
See accompanying notes to condensed financial statements. F-5 79 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1994 1. REORGANIZATION UNDER CHAPTER 11, LIQUIDITY AND FINANCIAL CONDITION On August 10, 1994, the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") confirmed the Company's Plan of Reorganization ("Plan"). The Company currently anticipates that the Plan will be effective after expiration of the Bankruptcy Code 10-day appeal period on or about August 23, 1994 (the "Effective Date"). In connection with the confirmation hearing on August 10, 1994, the Company filed certain motions with the Bankruptcy Court to secure approval to pay the following confirmation bonuses or success fees: -- $9.3 million to be paid based upon length of service to non-officer employees. -- $1.2 million to be paid to officers and other members of management. -- 125,000 shares of stock in the reorganized Company to be issued to the Company's Chairman and Chief Executive Officer. A hearing on these motions has been scheduled for August 24, 1994. HISTORICAL CHAPTER 11 EVENTS AND EVENTS LEADING TO PLAN CONFIRMATION 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 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 were extended at the discretion of the Bankruptcy Court, but only on a showing of good cause. On May 17, 1994, the Company filed a Disclosure Statement with the Bankruptcy Court which includes its Plan of Reorganization. On June 28, 1994, the Bankruptcy Court approved the adequacy of the Disclosure Statement and set into motion a balloting process for the approval of the Plan of Reorganization. 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 percent of the number and 66 2/3 percent of the dollar amount) of each class of creditors and equity holders whose claims are impaired by the plan. (See "Plan of Reorganization" for further discussion of the contents of the Plan of Reorganization). 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. F-6 80 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 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 otherwise agreed, the rejection of a contract is deemed to constitute a breach of the agreement as of the moment immediately preceding the 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. February 28, 1992 was set 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. 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. In connection with the confirmation of the Company's Plan of Reorganization, the Bankruptcy Court will be requested to fix the total amount of allowed claims as well as the total amount of disputed claims that may become allowed claims. 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 the 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 mutually 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 certain 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 was $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 June 30, 1994, significant claims for rejected aircraft have not yet been settled. 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 F-7 81 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 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 and seeking allowance or disallowance, as appropriate, of the general unsecured claims asserted against the Company. In many instances, such allowance 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. In its Disclosure Statement, the Company estimates the range of allowed general unsecured claims to be from a low of approximately $300 million to a high of approximately $360 million. This range does not include, nor can the Company currently estimate, claims which may arise and be allowed as a result of the renegotiation of certain aircraft purchase agreements. 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. 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. As of June 30, 1994, $115 million of the filed claims have been allowed and settled for $50.2 million in the aggregate. Additionally, the Company has obtained Bankruptcy Court approval of an agreement which settled the remaining $38 million filed administrative expense claim (which relates to a rejected lease of a Boeing 737-300 aircraft) for $5 million. Pursuant to an order dated May 18, 1994, the Bankruptcy Court fixed July 1, 1994 as the bar date for filing such administrative claims. In response to the notice of this bar date, certain claims were filed asserting status as non-ordinary course administrative expense claims. These include claims for administrative rent, breach of return conditions on aircraft, guarantees and obligations under tax indemnity agreements. The amount of such asserted claims, if allowed, could be material; however, the Company is optimistic that the claims, except to the extent previously known and provided for by the Company, will be either disallowed, withdrawn or negotiated to a mutually acceptable amount. PLAN OF REORGANIZATION On December 8, 1993 and February 16, 1994, the Bankruptcy Court entered certain orders which provided for a procedure through 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 TPG Partners, L.P., Continental Airlines, Inc. and Mesa Airlines, Inc. Certain funds managed or advised by Fidelity Management Trust Company and its affiliates and Lehman Brothers, Inc. are participating in the proposal as assignees of AmWest. On March 11, 1994, the Company and AmWest entered into an Investment Agreement which was filed with the Bankruptcy Court on March 11, 1994 (the "Original Investment Agreement"). The Original Investment Agreement was superseded by a Revised Investment Agreement dated as of March 11, 1994 and filed with the Bankruptcy Court on March 28, 1994 (the "Revised Investment Agreement"). The Revised Investment Agreement was superseded by a Second Revised Investment Agreement dated as of April 7, 1994 and filed with the Bankruptcy Court on April 8, 1994 (the "Second Revised Investment Agreement"). The Second Revised Investment Agreement was superseded by a Third Revised Investment F-8 82 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) Agreement dated as of April 21, 1994 and filed with the Bankruptcy Court on April 26, 1994 (the "Third Revised Investment Agreement"). The Third Revised Investment Agreement is substantially identical to the Second Revised Investment Agreement except for a change in the configuration of the expanded 15-member board of directors of the Company. The Third Revised Investment Agreement substantially incorporates the terms of the AmWest investment proposal. It provides that AmWest will purchase from America West equity securities representing a 33.5 percent ownership interest (subject to adjustment) in the Company for $114.8 million and $100 million in new senior unsecured debt securities. The Third Revised Investment Agreement also provides that, in addition to the 33.5 percent ownership interest in the Company, AmWest would also obtain 71.2 percent of the total voting interest (subject to adjustment) in America West after the Company is reorganized. The terms of the Third Revised Investment Agreement have been incorporated into a Plan of Reorganization which was filed with the Bankruptcy Court on May 17, 1994. By Order dated June 28, 1994, the Bankruptcy Court approved the Company's Disclosure Statement, finding that it contained adequate information as required by Section 1125 of the Bankruptcy Code. The Bankruptcy Court also entered an order fixing August 3, 1994 as the last date for filing objections to confirmation of the Plan of Reorganization, voting to accept or reject the Plan and making any available elections under the Plan. In addition, the Court fixed August 10, 1994 as the hearing date for confirmation of the Plan of Reorganization. Consummation of the Plan of Reorganization is subject to satisfaction of the closing conditions specified therein, including (among others) the accuracy of certain representations and warranties of the Company and the absence of any material adverse change in the Company's condition (financial or otherwise), business, assets, properties, operations or relations with employees or labor unions since December 31, 1993. In addition to the interest in the reorganized America West that would be acquired by AmWest pursuant to the Plan of Reorganization, the Plan also provides for the following: 1. The D.I.P. financing would be repaid in full with cash on the date the Plan of Reorganization is effective ("Effective Date") or on such other terms as may be agreed to. 2. On the Effective Date, unsecured creditors would receive 59.5 percent of the new common equity in the reorganized Company. 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 purchase by AmWest of the shares otherwise allocable to such unsecured creditors making the election under the Plan of Reorganization. 3. Holders of common stock equity interests would receive 5 percent of the new common equity of the Company. In addition, such holders of equity interests would have the right to subscribe to purchase up to 1,615,179 shares of the new Class B common stock of the Company for $8.889 per share from AmWest, and would also receive warrants entitling them to purchase 6,230,769 shares of the reorganized Company's common stock. With respect to establishing the price of the warrants, the Bankruptcy Court will be requested to fix the total amount of allowed unsecured claims as well as the total amount of disputed claims that may become allowed claims. In turn, the aggregate amount established by the Bankruptcy Court would be multiplied by 1.1 and the resultant product divided by the number of shares of new common equity to be issued to unsecured creditors (26,775,000 shares) to establish the price. Holders of preferred stock equity interests would receive $500,000 cash and the right to subscribe to the purchase of the first 250,000 shares of the over-subscription stock otherwise allocable to holders of common stock equity interests. 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) 2.0 percent of the new common equity in the reorganized Company, (ii) warrants to purchase up to 1,384,615 shares of the reorganized Company's common stock on the same terms as the AmWest warrants, (iii) $30.5 million in cash, and (iv) the right to require the Company to lease from GPA prior to June 30, 1999 up to eight aircraft of types operated by the Company on terms which the Company believes to be more favorable than those currently applicable to the put aircraft. (See Note 8(c) for further discussion of the new put agreement.) F-9 83 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 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 precedent to the Effective Date of the Plan of Reorganization is 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 that $40 million per year. 6. The expansion of the Company's board of directors to 15 members for a period not less than three years following effective date. Nine members would be designated by AmWest and other members reasonably acceptable to AmWest would include three members designated by the Creditors' Committee, one member designated by the Equity Committee, one member designated by the Company's current board of directors and one member designated by GPA. 7. The pre-petition executory contract for the purchase of 24 A320-200 aircraft between the Company and AVSA would be amended to provide the Company with greater flexibility, reduced pricing and enhanced terms for the acquisition of the aircraft than is presently provided in the contract. Under the modified terms, delivery dates of the aircraft would fall in the years 1998 through 2000 with an option to further defer deliveries. In addition, if A320 aircraft are delivered as a result of the new GPA Put Agreement (see item 4 above), the Company would have the right to cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft deliveries hereunder, subject to certain conditions. In exchange for these modifications, the contract, as modified, would be assumed and certain promissory notes relating thereto would be reinstated on the Effective Date of the Plan of Reorganization. 8. The Plan of Reorganization 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 renegotiation, assumption as modified or rejection of certain pre-petition aircraft purchase agreements and release of the Company's employees from all obligations presently existing under the notes issued in connection with the Company's employee stock purchase plan, concurrent with abandonment of such notes by the Company and the cancellation of the shares of Company stock securing such notes. In connection with the selection of AmWest's proposal as the Lead Plan Proposal and pursuant to an order of the Bankruptcy Court, America West and AmWest entered into an Interim Procedures Agreement setting forth, among other things, the rights and obligations of AmWest and America West pending Confirmation of the Plan of Reorganization. After a series of hearings, and certain modifications, a Third Revised Interim Procedures Agreement (the "Interim Procedures Agreement") was approved by the Bankruptcy Court on May 4, 1994. Among other terms governing the relationship of America West and AmWest and its partners until the Effective Date of the Plan of Reorganization, the Interim Procedures Agreement provides, subject to certain exceptions, that America West is prohibited from directly soliciting additional investment proposals. However, the Interim Procedures Agreement provides that, until an order approving a Disclosure Statement is entered, America West may consider unsolicited proposals subject to certain rights of AmWest to match any alternative proposal. If America West accepts any such alternative proposal, or a competing plan of reorganization proposed by another party in interest is confirmed by the Bankruptcy Court, the Interim Procedures Agreement provides that AmWest may apply to the Bankruptcy Court, on a substantial contribution basis consistent with Section 503(b) of the Bankruptcy Code for recovery of an additional amount not to exceed $4 million as reasonable compensation for its actions in connection with the proposed investment in America West and the benefits it provided to America West and its constituents in connection therewith and with the Chapter 11 Case, provided, however, that making the proposed investment will not, in and of itself, entitle AmWest to any additional payment. Further, should America West breach the Interim Procedures Agreement at any time, AmWest has agreed that any damages it may be entitled to recover shall be limited to an amount not to exceed $4 million, subject to the approval of the Bankruptcy Court. Upon the entry of an order by the Bankruptcy Court approving the Disclosure Statement, America F-10 84 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) West has agreed not to consider any other proposals. (An order approving the Disclosure Statement was entered by the Bankruptcy Court on June 28, 1994.) The Interim Procedures Agreement also provides that America West will reimburse AmWest for all out-of-pocket and third-party expenses actually incurred by AmWest through February 28, 1994, subject to a cap of $550,000. The Interim Procedures Agreement also provides for America West to reimburse AmWest for expenses covered under the Interim Procedures Agreement and incurred by AmWest on and after March 1, 1994 in an amount of up to $300,000 per month, provided that any unused portion of such $300,000 for any month shall accumulate and be carried forward and be available in any subsequent month, through the Effective Date of the Plan of Reorganization. On the Effective Date, America West will be obligated to reimburse AmWest for all expenses covered under the Interim Procedures Agreement, irrespective of the foregoing monthly limitations. All such fees will be subject to final approval of the Bankruptcy Court. On June 28, 1994, the Bankruptcy Court entered an order fixing August 3, 1994, as the last date for filing objections to confirmation of the Plan of Reorganization, voting to accept or reject the Plan of Reorganization and making any applicable elections available under the Plan. Additionally, the Court fixed August 10, 1994, as the hearing date for confirmation of the Plan of Reorganization. The 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. 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, existing holders of equity interests are anticipated to receive 5 percent of the new common equity under the proposed Plan of Reorganization. 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. The financial statements do not include any adjustments as a result of the effects of the Plan of Reorganization. Fresh Start Reporting (pro forma) In connection with its emergence from Chapter 11 protection, which is anticipated to occur on or about August 23, 1994, the Company will be adopting fresh start reporting in accordance with SOP 90-7 of the American Institute of Certified Public Accountants. The pro forma effects of the Company's Plan of F-11 85 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) Reorganization and fresh start reporting on the Company's condensed balance sheet as of June 30, 1994 are as follows (in thousands):
JUNE 30, 1994 JUNE 30, 1994 ------------- FRESH START AND OTHER ------------- ASSETS ADJUSTMENTS (NET) - ----------------------------------------------- (HISTORICAL) --------------------- (PRO FORMA) Cash and cash equivalents...................... $ 176,922 $ 108,005 $ 284,927 Other current assets........................... 139,717 (8,825) 130,892 ------------- --------------------- ------------- Total current assets...................... 316,639 99,180 415,819 Property and equipment (net)................... 709,154 (162,559) 546,595 Other assets................................... 74,748 (30,701) 44,047 Reorganization value in excess of amounts allocable to identifiable assets............. -- 697,278 697,278 ------------- --------------------- ------------- Total assets.............................. $ 1,100,541 $ 603,198 $ 1,703,739 ========== ================ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt........... $ 118,621 $ (59,172) $ 59,449 Other current liabilities...................... 304,778 13,078 317,856 ------------- --------------------- ------------- Total current liabilities................. 423,399 (46,094) 377,305 Estimated liabilities subject to Chapter 11 proceedings.................... 379,814 (379,814) -- Long-term debt................................. 381,397 197,525 578,922 Other liabilities.............................. 131,269 28,743 160,012 Stockholders' equity (deficiency).............. (215,338) 802,838 587,500 ------------- --------------------- ------------- Total liabilities and stockholders' equity (deficiency)................................. $ 1,100,541 $ 603,198 $ 1,703,739 ========== ================ ==========
The pro forma fresh start reporting common equity value was estimated by the Company with the assistance of its financial advisors. The significant factors used in estimating this value were analyses of publicly available information of other companies believed to be comparable to the Company, industry, economic and overall market conditions and historical and estimated performance of the airline industry and certain financial analyses. There may be differences between the amounts estimated above and those actually recorded when fresh start reporting is applied as of the Effective Date, and such differences may be material. Under fresh start reporting, the pro forma reorganization value of the Company has been assumed to be allocated to the reorganized Company's assets and liabilities on a basis substantially consistent with the purchase method of accounting. Pro forma reorganization value not attributable to specific assets of the reorganized Company has been included as "Reorganization value in excess of amounts allocable to identifiable assets" in the pro forma condensed balance sheet above. The pro forma fresh start reporting adjustments relate primarily to the adjustment of the reorganized Company's assets and liabilities to fair market values as well as reflecting the issuance of new stock and debt and the discharge of certain pre-petition liabilities under the Plan. The ultimate amount of such adjustments, when actually recorded, will likely have a significant effect on the reorganized Company's future operations. F-12 86 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) As a result of elections made and subscription rights exercised in connection with the balloting for the Plan of Reorganization, the Company expects the allocation of its common shares, post-emergence, excluding success bonuses, to approximate the following (in thousands):
PERCENT OF CLASS A CLASS B TOTAL TOTAL ------- ------- ------ -------- AmWest.............................................. 1,200 13,366 14,566 32.4% Unsecured Creditors................................. -- 25,669 25,669 57.0% Common Equity Interests............................. -- 3,615 3,615 8.0% Preferred Equity Interests.......................... -- 250 250 .6% GPA................................................. -- 900 900 2.0% ------- ------- ------ -------- 1,200 43,800 45,000 100.0% ====== ====== ======= ========
The allocation as discussed above is based upon the preliminary balloting results as of August 3, 1994 and is subject to change. 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 June 30, 1994 consisted of the following (in thousands):
JUNE 30, 1994 -------------- (IN THOUSANDS) Long-term debt (including convertible subordinated debentures of $138.9 million)................................................... $223,023 Accounts payable and accrued liabilities............................... 112,919 Accrued interest....................................................... 18,153 Accrued taxes.......................................................... 25,719 ----------- $379,814 ===========
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. F-13 87 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 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 consisted of the following:
SIX MONTHS ENDED JUNE 30, ------------------- 1994 1993 ------- ------- (IN THOUSANDS) Provisions for pre-petition and administrative claims........................................ $ 8,680 $ -- Professional fees.............................................. 11,656 2,827 D.I.P. financing issuance costs................................ 209 -- Interest income................................................ (2,549) (1,025) Other.......................................................... 262 90 ------- ------- $18,258 $ 1,892 ======= =======
2. PER SHARE DATA Primary earnings 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 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 reflect net income adjusted for interest on borrowings effectively reduced by the proceeds from the assumed conversion of common stock equivalents. 3. LONG-TERM DEBT On June 13, 1994, the Company filed a motion seeking authorization to amend the terms and extend the maturity of approximately $77.6 million of the D.I.P. financing to the earlier of December 31, 1994, or the Effective Date of the Plan. On June 28, 1994, the Bankruptcy Court granted the extension of the D.I.P. financing. One of the D.I.P. lenders has elected to be repaid as of June 30, 1994 (the prior maturity date), in the approximate amount of $1 million. Accordingly, the outstanding principal amount of the extended D.I.P. financing will be approximately $77.6 million. While there are certain fees to be paid in the event that the D.I.P. financing is not fully repaid prior to September 30, 1994, there is an interest rate reduction to 90-day LIBOR plus 250 basis points for the period July 1, 1994 through September 30, 1994, unless the extended D.I.P. financing is not repaid by such date. Under the terms of the amended D.I.P. financing, the Company is required to notify the lenders if the unrestricted cash balance of the Company exceeds $175 million. Subsequent to June 30, 1994, the Company notifed the D.I.P. lenders that the Company's unrestricted cash exceeded $175 million. The amended D.I.P. financing contains a minimum unencumbered cash balance requirement of $74 million and certain other covenants with which the Company was in compliance at June 30, 1994. 4. COMMON STOCK In May 1994, the Company entered into a settlement agreement with the Patrician Corporation for its preferred dividend claim and issued 336,277 shares of common stock. In return, Patrician agreed not to bring litigation seeking to compel the issuance of such shares, or, in the alternative, to either rescind its prior F-14 88 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) conversion of the Series B preferred stock into common stock, or assert a claim for such dividends senior to Common equity. 5. EMPLOYEE STOCK PURCHASE PLANS Under the Plan of Reorganization, the remaining obligations of approximately $17.6 million under notes issued in connection with the Employee Stock Purchase Plan will be forgiven on the Effective Date in return for the cancellation of the shares held as security for such obligations. Such notes will be abandoned by the Company as provided for in the Bankruptcy Code. As of June 30, 1994, 7,486,427 shares of common stock had been sold under the plans. No shares were sold during the second quarter of 1994. At June 30, 1994, the unamortized deferred compensation and outstanding receivable balance relating to such plans amounted to $875,000 and $17,603,000, respectively. 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS Cash paid for interest and income taxes during the six months ended June 30, 1994 and 1993 was as follows:
1994 1993 ------- ------- (IN THOUSANDS) Interest (net of amounts capitalized)............................ $20,615 $22,356 Income taxes..................................................... $ 1,207 $ 55
In addition, during the six months ended June 30, 1994 and 1993, the Company had the following non-cash financing and investing activities:
1994 1993 ------- ------- (IN THOUSANDS) Equipment acquired through capital leases........................ $ 138 $ 43 Conversion of long-term debt to common stock..................... $ -- $ 1,918 Accrued interest reclassified to long-term debt.................. $ 4,268 $ 9 Notes payable issued to seller................................... $ -- $ 574
7. INCOME TAX For the six months ended June 30, 1994, the Company recorded income tax expense as follows based upon its estimate of its annual effective rate:
SIX MONTHS ENDED JUNE 30, --------------- 1994 1993 ------ ---- (IN THOUSANDS) Current taxes Federal........................................................... $1,163 $215 State............................................................. 308 38 ------ ---- $1,471 $253 ====== ==== Deferred taxes...................................................... $ -- $ -- ====== ====
For the quarter and six months ended June 30, 1994, 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") primarily results from the benefit of net operating loss carryforwards resulting in an effective tax rate of 4 percent. F-15 89 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) As of June 30, 1994, 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 the Effective Date of a plan of reorganization, 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. 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 method, prior year financial statements have not been restated. 8. 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 the then remaining lease term of certain advanced credits received by the Company which relate to the ten canceled aircraft. 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 percent over the remaining term of the lease or secured borrowing with repayment commencing generally in December 1991. At June 30, 1994 and December 31, 1993, the remaining unpaid deferrals are reported as follows:
JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ (IN THOUSANDS) Accounts payable.............................................. $ 5,744 $ 5,744 Other liabilities............................................. 20,071 22,912 Long-term debt................................................ 17,547 18,671 ------- ------- $43,362 $47,327 ======= =======
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. The 1992 deferrals are generally scheduled to be repaid either without interest during the first quarter of 1993 or with interest over a period of seven years. At June 30, 1994 and December 31, 1993, the remaining unpaid deferrals are reported as follows:
JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ (IN THOUSANDS) Accounts payable.............................................. $ 1,823 $ 1,823 Other liabilities............................................. 6,922 8,513 Long-term debt................................................ 20,064 21,539 ------- ------- $28,809 $31,875 ======= =======
F-16 90 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) As of June 30, 1994, the Company had 66 aircraft under operating leases with remaining terms ranging from one year to 25 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 that one years are as follows:
(IN THOUSANDS) 1994........................................... $ 194,379 1995........................................... 186,978 1996........................................... 184,152 1997........................................... 171,357 1998........................................... 160,759 Thereafter..................................... 1,333,187 ---------- $2,230,812 ==========
Rent expense (excluding landing fees) was approximately $118.3 million and $126.1 million for the six months ended June 30, 1994 and 1993, respectively. Collectively, the operating lease agreements require security deposits with lessors of $8.1 million and bank letters of credit of $17.7 million. The letters of credit are collateralized by $17.6 million in restricted cash. (b) Revenue Bonds Special facility revenue bonds issued by a municipality have been used to fund the acquisition of 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. (c) Aircraft Acquisitions At June 30, 1994, the Company had on order a total of 49 aircraft of the types the Company currently operates, of which 29 are firm orders and 20 are option orders. The table below details such deliveries.
FIRM ORDERS -------------------------------------------------------- OPTION 1994 1995 1996 1997 THEREAFTER TOTAL ORDERS TOTAL ---- ---- ---- ---- ---------- ----- ------ ----- Boeing: 737-300 -- -- 2 2 -- 4 10 14 757-200 -- -- 1 -- -- 1 10 11 Airbus: A320-200 -- -- -- -- 24 24 -- 24 -- -- ---- ---- --- --- --- --- Total -- -- 3 2 24 29 20 49 ==== ==== === === === === === ===
F-17 91 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) At June 30, 1994, the estimated aggregate cost for delivery positions under existing contracts for the acquisition of B737's, B757's and A320 aircraft from manufacturers listed in the above table is approximately $2.7 billion. The table does not include any deliveries under put arrangements more fully discussed below nor does it include orders for B747-400 aircraft. With respect to various contracts with Boeing, a purchase agreement to acquire B737-300 aircraft has been affirmed in the Company's bankruptcy proceedings. With timely notice to the manufacturer, all or some of these deliveries may be converted to B737-400 aircraft. Existing purchase agreements for B757-200 and B747-400 aircraft have not been affirmed nor rejected. All Boeing purchase agreements require a 24-month reconfirmation notice for the delivery of each aircraft. As of June 30, 1994, ten B737-300 and nine B757-200 delivery positions have expired due to the lack of reconfirmation by the Company, leaving 14 and 11 delivery positions, respectively, 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 in the bankruptcy proceeding. The Company also has a pre-petition executory contract under which the Company holds delivery positions for four B747-400 aircraft under firm order and four B747-400 aircraft under option order. This executory contract allows the Company, with the giving of adequate notice, to substitute B737-400 aircraft for those delivery positions. The Company is currently renegotiating all of its aircraft purchase agreements with Boeing. With respect to the purchase of aircraft from AVSA presented in the table above, a single executory contract for the purchase of 24 A320 aircraft has not been affirmed nor rejected by the Company. As part of the investment by AmWest, the A320 purchase agreement was amended to provide the Company with greater flexibility and reduced pricing. Under the modified terms, delivery dates of the aircraft will fall in the years 1998 through 2000 with an option to further defer deliveries. In addition, if new A320 aircraft are delivered as a result of the renegotiated put agreement (see below), the Company will have the right to cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft deliveries hereunder, subject to certain conditions. Negotiations are currently continuing between AVSA and the Company to finalize the details of this amendment. In June 1994, the Company renegotiated a put agreement for ten A320 aircraft. The new agreement reduced the number of put aircraft from ten to eight and rescheduled the deliveries to start not earlier than June 30, 1995 and end on June 30, 1999. Under the new agreement, new or used A320-200 aircraft, B737-300 or B757-200 aircraft may be put to the Company but at a rate of no more than two in 1995, and with respect to each ensuing year during the put period, of no more than three. In addition, no more than five used aircraft may be put to the Company and for every new A320 aircraft put to the Company, the Company has the right to reduce the AVSA A320 purchase contract on a one-for-one basis. During each January of the put period, the Company will negotiate the type and delivery dates of the put aircraft for that year. The puts will require 150-day notice and will be leased at fair market rates for terms ranging from three to eighteen years, depending on the type and condition of the aircraft. As part of the renegotiated agreement, certain cash payments and securities will be issued to the put holder pursuant to the Plan of Reorganization (see Note 1). In connection with the $78 Million D.I.P. Facility, in December 1991, the Company terminated its agreement with a D.I.P. lender to lease 24 aircraft and replaced it with a put agreement to lease up to ten of the aircraft. In September 1992, the put agreement was amended and the number of put aircraft was reduced from ten to four with aircraft scheduled for delivery in 1994. In June 1994, the Company reached a settlement for the cancellation of the right to put four aircraft to the Company for $4.5 million of which $2.5 million was paid in June 1994 and $2.0 million will be paid on the Effective Date of the Plan of Reorganization. (d) Concentration of Credit Risk The Company does not believe it is subject to any significant concentration of credit risk. At June 30, 1994, approximately 82 percent of the Company's receivables related to tickets sold to individual passengers F-18 92 AMERICA WEST AIRLINES, INC., D.I.P. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 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. F-19 93 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. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurances 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. The accompanying financial statements 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 do not include any adjustments that might result from the outcome of these uncertainties. KPMG PEAT MARWICK Phoenix, Arizona March 18, 1994 F-20 94 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-21 95 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-22 96 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-23 97 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) 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-24 98 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) --- ------ -------- --------- -------- --------- Issuance of 170,173 shares of common stock pursuant to 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-25 99 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. 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 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 F-26 100 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 mutually 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. 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 F-27 101 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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"). 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 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 F-28 102 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) $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. 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 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 F-29 103 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 form 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 interest, 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 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. F-30 104 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 consisted 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 ======== ========
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 consisted 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. F-31 105 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. (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 equipment 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. (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. F-32 106 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (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. (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. F-33 107 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 instruments is subject to disposition within the bankruptcy proceedings. (m) Reclassifications Certain prior year reclassifications have been made to conform to the current year presentation. (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 ========= =========
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 ======== ========
F-34 108 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 termination 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. 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. 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. financing. 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. F-35 109 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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 F-36 110 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. (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 F-37 111 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. (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 F-38 112 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. (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 development 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
F-39 113 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (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. As of December 31, 1993, to the best of the Company's knowledge, it has not undergone a statutory "ownership change" (as defined in sec.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 reorganization, 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. F-40 114 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. (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' F-41 115 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. Additional, 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. F-42 116 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (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 ========= ========= ==============
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 F-43 117 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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)
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. 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 F-44 118 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 ======= =======
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 deposits 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. F-45 119 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (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. (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 purchase 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. F-46 120 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 minimum 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. 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. F-47 121 AMERICA WEST AIRLINES, INC., D.I.P NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (13) RESTRUCTURING CHARGES Restructuring charges consist of the following:
1992 -------------- (IN THOUSANDS) Write-off for certain assets related to station closures or route $ 9,529 restructuring....................................................... 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. (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-48 122 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SECURITYHOLDERS OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. 2 Prospectus Summary.................... 3 Investment Considerations............. 9 The Company........................... 13 Use of Proceeds....................... 15 Dividend Policy....................... 15 Capitalization........................ 16 Selected Financial Data............... 17 Unaudited Pro Forma Condensed Financial Information............... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 25 Business.............................. 33 Management............................ 42 Compensation Committee Interlocks and Insider Participation............... 50 Certain Transactions.................. 51 Principal Stockholders................ 52 Selling Securityholders............... 55 Shares Eligible for Future Sale....... 55 Description of the Senior Notes....... 56 Description of Capital Stock.......... 66 Description of Warrants............... 68 Plan of Distribution.................. 70 Legal Matters......................... 71 Experts............................... 71 Index to Financial Statements......... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ AMERICA WEST AIRLINES, INC. 1,200,000 SHARES CLASS A COMMON STOCK 14,265,473 SHARES CLASS B COMMON STOCK $100,000,000 % SENIOR UNSECURED NOTES DUE 2001 4,153,846 CLASS B COMMON STOCK WARRANTS ------------------------ PROSPECTUS ------------------------ , 1994 ------------------------------------------------------ ------------------------------------------------------ 123 PART II INFORMATION REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the issuance and distribution of the securities being registered hereby: Securities and Exchange Commission Filing Fee............................. $ 87,357 NYSE Listing Fee.......................................................... 287,046 Blue Sky Filing Fees and Expenses......................................... 820,000 Printing and Engraving Costs.............................................. * Legal Fees and Expenses................................................... * Accounting Fees and Expenses.............................................. 75,000 Trustee's Fees and Expenses............................................... 7,500 Transfer Agent Fees....................................................... * Miscellaneous............................................................. 8,000 -------- Total........................................................... $ * ========
- --------------- * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law ("DGCL") authorizes, inter alia, a corporation generally to indemnify any person ("indemnitee") who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, in a similar position with another corporation or entity, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding 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 criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. With respect to actions or suits by or in the right of the corporation; however, an indemnitee who acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation is generally limited to attorneys' fees and other expenses, and no indemnification shall be made if such person is adjudged liable to the corporation unless and only to the extent that a court of competent jurisdiction determines that indemnification is appropriate. Section 145 further provides that any indemnification shall be made by the corporation only as authorized in each specific case upon a determination by the (i) stockholders, (ii) board of directors by a majority vote of a quorum of disinterested directors so directs, that indemnification of the indemnitee is proper because he has met the applicable standard of conduct. Section 145 provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law agreement, vote of stockholders or disinterested directors or otherwise. Section 8.02 of the Company's By-laws, a copy of which is filed as Exhibit 3.2 to this Registration Statement provides, in substance, that directors, officers, employees and agents shall be indemnified to the fullest extent permitted by Section 145 of the DGCL. Article 12.0 of the Company's Restated Certificate of Incorporation, a copy of which is filed as Exhibit 3.1 to this Registration Statement, limits the liability of directors of the Company to the Company or its stockholders (in their capacity as directors but not in their capacity as officers) to the fullest extent permitted by the DGCL. Specifically, directors of the Company will not be personally liable for monetary damages for II-1 124 breach of a director's fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchase or redemptions as provided in section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The Restated Certificate of Incorporation also provides that if the DGCL is amended after the approval of the Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company will be eliminated or limited to the full extent permitted by the DGCL, as so amended. The form of the Third Revised Investment Agreement filed as Exhibit 10.1 to this Registration Statement contains certain provisions for indemnification of directors and officers of the Company and the Selling Securityholder against civil liabilities under the Securities Act. Certain of these provisions are set forth in the form of the Registration Rights Agreement filed as Exhibit 4.6 to this Registration Rights Agreement. The Company intends to enter into indemnification agreements with certain of its directors providing for indemnification to the fullest extent permitted by the laws of the State of Delaware. These agreements provide for specific procedures to better assure the directors' rights to indemnification, including procedures for directors to submit claims, for determination of directors entitled to indemnification (including the allocation of the burden of proof and selection of a reviewing party) and for enforcement of directors' indemnification rights. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following summarizes transactions occurring within the last three years in which the Company has sold securities without registration under the Securities Act. On February 15, 1991, the Company sold 253,422 shares of its common stock to Transpacific Enterprises, Inc. for $1,393,821, or $5.50 per share, in reliance upon the exemption set forth in Section 4(2) of the Securities Act. On the Effective Date, the Company will issue the following securities in connection with its Reorganization: 1. The Company will issue 25,669,348 shares of Class B Common Stock to holders of approximately million of allowed, general unsecured prepetition claims against the Company in satisfaction of such claims in reliance upon the exemption set forth in Section 1145 of the Bankruptcy Code. 2. The Company will issue 3,865,179 shares of Class B Common Stock (1,615,179 of which shares are to be issued in exchange for cash, aggregating $14,357,326, provided by such equity holders upon the exercise of rights to subscribe for such shares at a price of $8.889 per share) and 6,230,769 Warrants to the holders of pre-existing equity interests in the Company in consideration of cancellation of such pre-existing equity interests in reliance upon the exemption set forth in Section 1145 of the Bankruptcy Code. 3. The Company issued 900,000 shares of Class B Common Stock and 1,384,615 Warrants to Guiness Peat Aviation and its affiliates ("GPA") in satisfaction of claims of GPA against the Company in reliance upon the exemption set forth in Section 1145 of the Bankruptcy Code. 4. The Company issued the following securities to AmWest (or to Lehman Brothers Inc. or certain funds managed or advised by Fidelity Management Trust Company, in each case as assignees of AmWest's rights to acquire such securities) for new consideration paid to the Company in accordance with the Company's Plan: (i) 1,200,000 shares of Class A Common Stock for $7.467 per share; (ii) 13,365,473 shares of Class B Common Stock for $7.467 per share and 1,105,652 shares of Class B Common Stock for $8.889 per share; (iii) $100 million principal amount of Senior Notes for $100 million in cash; and (iv) 2,769,231 Warrants, separate consideration for which was not specified. The Company relied upon the exemption set forth in Section 4(2) of the Securities Act. II-2 125 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed as part of this Registration Statement:
EXHIBIT NUMBER TITLE ---------- -------------------------------------------------------------------------- *2.1 -- The Company's Plan of Reorganization under Chapter 11 of the Bankruptcy Code. *3.1 -- Form of Restated Certificate of Incorporation of America West Airlines, Inc. *3.2 -- Form of Restated By-laws of America West Airlines, Inc. 4.1 -- Form of Indenture for $100,000,000 % Senior Notes due 2001 dated 1994, of America West Airlines, Inc. and American Bank National Association, as trustee. 4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above). *4.3 -- Form of Warrant Agreement dated , 1994 between America West Airlines, Inc. and First Interstate, N.A., as Warrant Agent. *4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above). *4.5 -- Form of Stockholders' Agreement for America West Airlines, Inc. dated , 1994 among America West Airlines, Inc., AmWest Partners, L.P., GPA Group plc and certain other Stockholder Representatives. *4.6 -- Form of Registration Rights Agreement dated , 1994 among America West Airlines, Inc., AmWest Partners, L.P. and other holders. *4.7 -- Article 4.0 of the Company's Restated Certificate of Incorporation (included in Exhibit 3.1 above). *5.1 -- Opinion of Andrews & Kurth L.L.P. 10.1 -- Third Revised Investment Agreement dated April 21, 1994 between America West Airlines, Inc. and AmWest Partners, L.P. -- Incorporated by reference to Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994. 10.11 -- Third Revised Interim Procedures Agreement dated April 21, 1994 between America West Airlines and AmWest Partners, L.P. -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.12 -- Code Sharing Agreement dated June 29, 1994 between America West Airlines, Inc. and Continental Airlines, Inc. 10.13 -- Alliance agreement as amended dated September 4, 1992 between America West Airlines, Inc. and Mesa Airlines. 10.14 -- The GPA Term Sheet between America West Airlines, Inc. and GPA Group plc, dated June 13, 1994. *10.15 -- America West Airlines Management Resignation Allowance Guidelines, as amended, dated November 18, 1993. 10.16 -- 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 Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. 10.17 -- 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 Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.19 -- V2500 Support Contract Between the Company and IAE International Aero Engines AG ("IAE"), dated September 28, 1990, together with Side Letters Nos. 1-4, inclusive -- Incorporated by reference to Exhibit 10-(D)(3) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
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EXHIBIT NUMBER TITLE ------- ----- 10.20 -- 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 Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.21 -- 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 Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.22 -- Second Amendment to Cash Management Agreement, dated September 1, 1992, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-O(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.23 -- Restructuring Agreement, dated December 1, 1991 between the Company and Kawasaki -- Incorporated by reference to Exhibit 10-D(24) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.24 -- A320 Put Agreement, dated December 1, 1991 between the Company and Kawasaki -- Incorporated by reference to Exhibit 10-D(25) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.25 -- First Amendment to A320 Put Agreement, dated September 1, 1992 -- Incorporated by reference to Exhibit 10-R(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.26 -- 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 Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.27 -- First Amendment to A320 Put Agreement, dated as of September 1, 1992 -- Incorporated by reference to Exhibit 10-S(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.28 -- Restructuring Agreement, dated as of June 25, 1991 among GPA Group plc, GPA Leasing USA I, Inc. GPA Leasing USA Sub I, and the Company -- Incorporated by reference to Exhibit 10-D(27) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.29 -- 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 Quarterly Report on Form 10-Q for the period ended September 30, 1986. 10.30 -- Airport Use Agreement dated July 1, 1989 (the "Airport Use Agreement") 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 the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10.31 -- First Amendment dated August 1, 1990 to Airport Use Agreement -- Incorporated by reference to Exhibit 10-(D)(9) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.32 -- Revolving Loan Agreement dated 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 the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1990. 10.33 -- First Amendment dated April 17, 1990 to Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(10) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990.
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EXHIBIT NUMBER TITLE ---------- --------------------------------------------------------------------------
10.34 -- Second Amendment dated September 28, 1990 to the Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.35 -- Third Amendment dated as of January 14, 1991 to the Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(13) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.36 -- Spares Credit Agreement, dated as of September 28, 1990, between the Company and IAE -- Incorporated by reference to Exhibit 10-(D)(4) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.37 -- 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 Annual Report on Form 10-K for the year ended December 31, 1992. 10.38 -- Credit Agreement, dated as of September 28, 1990 between the Company and IAE -- Incorporated by reference to Exhibit 10-(D)(5) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.39 -- Amendment No. 1 to the Credit Agreement, dated March 1, 1991 -- Incorporated by reference to Exhibit 10-(M)(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.40 -- Amendment No. 2 to the Credit Agreement, dated May 15, 1991 -- Incorporated by reference to Exhibit 10-(M)(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.41 -- Amendment No. 3 to the Credit Agreement, dated October 1, 1992 -- Incorporated by reference to Exhibit 10-(M)(4) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.42 -- Form of Third Amended and Restated Credit Agreement dated September 30, 1993, among the Company, various lenders, and BT Commercial Corp. as Administrative Agent (without exhibits) -- Incorporated by reference to Exhibit 10-(N)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.43 -- Form of Amended and Restated Management Letter Agreement, dated as of September 30, 1993 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.44 -- Form of Amendment to Amended and Restated Management Letter Agreement; Consent to Amendment of By-laws dated February 8, 1994 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.45 -- Fourth Amended and Restated Credit Agreement dated June 30, 1994 -- Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994. *10.46 -- Key Employee Protection Agreement dated as of June 27, 1994 between America West Airlines, Inc. and William A. Franke. 11.1 -- Statement re: computation of net income (loss) per common share. 12.1 -- Statement re: computation of ratio of earnings to fixed charges. *23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1 above). 23.2 -- Consent of KPMG Peat Marwick (independent auditors) -- Included at page S-1.
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EXHIBIT NUMBER TITLE ---------- -------------------------------------------------------------------------- *24.1 -- Power of Attorney (included on the signature pages of this Registration Statement. 25.1 -- Statement of Eligibility on Form T-1 of American Bank National Association, as trustee under the Indenture for $100,000,000 Senior Notes due 2001.
- --------------- * Previously filed. ** To be filed by amendment. (b) Financial Statement Schedules: The following financial statement schedules are filed as part of this Registration Statement, but not included in the Prospectus.
SCHEDULES PAGE ---------------------------------------------------------------------- ----- Independent Auditors' Report on Schedules and Consent................. S-1 Schedule V -- Property, Plant and Equipment........................... S-2 Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment.......................... S-3 Schedule VIII -- Valuation and Qualifying Accounts.................... S-4 Schedule X -- Supplementary Income Statement Information.............. S-5
All other schedules for which provision is made in Regulation S-X of the Commission are not required under the related instructions or are inapplicable or the required information is included in the financial statements or notes thereto and, therefore, have been omitted. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-6 129 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on the 12th day of August, 1994. AMERICA WEST AIRLINES, INC. By: * ------------------------------------ William A. Franke, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board and Chief August 12, 1994 - ------------------------------------------ Executive Officer (Principal William A. Franke Executive Officer) * President, Chief Operating August 12, 1994 - ------------------------------------------ Officer and Director A. Maurice Myers * Vice President and Controller August 12, 1994 - ------------------------------------------ (Principal Financial and Raymond T. Nakano Accounting Officer) * Director August 12, 1994 - ------------------------------------------ O. Mark DeMichele * Director August 12, 1994 - ------------------------------------------ Frederick W. Bradley Director - ------------------------------------------ Samuel L. Eichenfield * Director August 12, 1994 - ------------------------------------------ Richard C. Kraemer Director - ------------------------------------------ James T. McMillan * Director August 12, 1994 - ------------------------------------------ John R. Norton III
II-7 130
SIGNATURE TITLE DATE --------- ----- ---- * Director August 12, 1994 - ------------------------------------------ John F. Tierney Director - ------------------------------------------ Declan Treacy *By: /s/ MARTIN J. WHALEN ------------------------------------- Martin J. Whalen Attorney-in-Fact
II-8 131 INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT The Board of Directors and Stockholders America West Airlines, Inc. D.I.P.: The audits referred to in our report dated March 18, 1994 included the related financial statement schedules as of December 31, 1993, and for each of the years in the three-year period ended December 31, 1993, included in the registration statement. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such 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. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. Our report dated March 18, 1994, referenced to above, contains an explanatory paragraph that states that America West's Chapter 11 proceeding, significant losses, accumulated deficit and highly leveraged capital structure raise substantial doubt about its 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 these uncertainties. KPMG PEAT MARWICK Phoenix, Arizona August 12, 1994 S-1 132 AMERICA WEST AIRLINES, INC., D.I.P. SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
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 ========== ========= ========== ========= ==========
S-2 133 AMERICA WEST AIRLINES, INC., D.I.P. SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS OF 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 ======== ======= ======== ========
S-3 134 AMERICA WEST AIRLINES, INC., D.I.P. SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1993, 1992, 1991 (IN THOUSANDS)
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 ====== ====== ==== ====== ======
S-4 135 AMERICA WEST AIRLINES, INC., D.I.P. SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED DECEMBER 31, 1993, 1992, 1991 (IN THOUSANDS)
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. S-5 136 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE ------- ----- *2.1 -- The Company's Plan of Reorganization under Chapter 11 of the Bankruptcy Code. *3.1 -- Form of Restated Certificate of Incorporation of America West Airlines, Inc. *3.2 -- Form of Restated By-laws of America West Airlines, Inc. 4.1 -- Form of Form of Indenture for $100,000,000 % Senior Notes due 2001 dated 1994, of America West Airlines, Inc. and , as trustee. *4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above). *4.3 -- Form of Warrant Agreement dated , 1994 between America West Airlines, Inc. and , as Warrant Agent. *4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above). *4.5 -- Form of Stockholders' Agreement for America West Airlines, Inc. dated , 1994 among America West Airlines, Inc., AmWest Partners, L.P., GPA Group plc and certain other Stockholder Representatives. *4.6 -- Form of Registration Rights Agreement dated , 1994 among America West Airlines, Inc., AmWest Partners, L.P. and other holders. *4.7 -- Article 4.0 of the Company's Restated Certificate of Incorporation (included in Exhibit 3.1 above). *5.1 -- Opinion of Andrews & Kurth L.L.P. 10.1 -- Third Revised Investment Agreement dated April 21, 1994 between America West Airlines, Inc. and AmWest Partners, L.P. -- Incorporated by reference to Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994. 10.11 -- Third Revised Interim Procedures Agreement dated April 21, 1994 between America West Airlines and AmWest Partners, L.P. -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.12 -- Code Sharing Agreement dated , 1994 between America West Airlines, Inc. and Continental Airlines, Inc. 10.13 -- Alliance Agreement dated , 1994 between America West Airlines, Inc. and Mesa Airlines. 10.14 -- The GPA Term Sheet between America West Airlines, Inc. and GPA Group plc, dated , 1994. *10.15 -- America West Airlines Management Resignation Allowance Guidelines, as amended, dated November 18, 1993. 10.16 -- 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 Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
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SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE --------- ---------------------------------------------------------------- ---------- 10.17 -- 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 Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.19 -- V2500 Support Contract Between the Company and IAE International Aero Engines AG ("IAE"), dated September 28, 1990, together with Side Letters Nos. 1-4, inclusive -- Incorporated by reference to Exhibit 10-(D)(3) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. 10.20 -- 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 Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.21 -- 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 Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.22 -- Second Amendment to Cash Management Agreement, dated September 1, 1992, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-O(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.23 -- Restructuring Agreement, dated December 1, 1991 between the Company and Kawasaki -- Incorporated by reference to Exhibit 10-D(24) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.24 -- A320 Put Agreement, dated December 1, 1991 between the Company and Kawasaki -- Incorporated by reference to Exhibit 10-D(25) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.25 -- First Amendment to A320 Put Agreement, dated September 1, 1992 -- Incorporated by reference to Exhibit 10-R(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.26 -- 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 Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.27 -- First Amendment to A320 Put Agreement, dated as of September 1, 1992 -- Incorporated by reference to Exhibit 10-S(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.28 -- Restructuring Agreement, dated as of June 25, 1991 among GPA Group plc, GPA Leasing USA I, Inc. GPA Leasing USA Sub I, and the Company -- Incorporated by reference to Exhibit 10-D(27) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.29 -- 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 Quarterly Report on Form 10-Q for the period ended September 30, 1986.
138
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE ------- ----- 10.30 -- Airport Use Agreement dated July 1, 1989 (the "Airport Use Agreement") 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 the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10.31 -- First Amendment dated August 1, 1990 to Airport Use Agreement -- Incorporated by reference to Exhibit 10-(D)(9) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.32 -- Revolving Loan Agreement dated 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 the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1990. 10.33 -- First Amendment dated April 17, 1990 to Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(10) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.34 -- Second Amendment dated September 28, 1990 to the Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.35 -- Third Amendment dated as of January 14, 1991 to the Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(13) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.36 -- Spares Credit Agreement, dated as of September 28, 1990, between the Company and IAE -- Incorporated by reference to Exhibit 10-(D)(4) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.37 -- 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 Annual Report on Form 10-K for the year ended December 31, 1992. 10.38 -- Credit Agreement, dated as of September 28, 1990 between the Company and IAE -- Incorporated by reference to Exhibit 10-(D)(5) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.39 -- Amendment No. 1 to the Credit Agreement, dated March 1, 1991 -- Incorporated by reference to Exhibit 10-(M)(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.40 -- Amendment No. 2 to the Credit Agreement, dated May 15, 1991 -- Incorporated by reference to Exhibit 10-(M)(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.41 -- Amendment No. 3 to the Credit Agreement, dated October 1, 1992 -- Incorporated by reference to Exhibit 10-(M)(4) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.
139
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE --------- ---------------------------------------------------------------- ---------- 10.42 -- Form of Third Amended and Restated Credit Agreement dated September 30, 1993, among the Company, various lenders, and BT Commercial Corp. as Administrative Agent (without exhibits) -- Incorporated by reference to Exhibit 10-(N)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.43 -- Form of Amended and Restated Management Letter Agreement, dated as of September 30, 1993 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.44 -- Form of Amendment to Amended and Restated Management Letter Agreement; Consent to Amendment of By-laws dated February 8, 1994 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.45 -- Fourth Amended and Restated Credit Agreement dated June 30, 1994-Incorporated by reference to the Company's Quarterly report on Form 10-Q for the period ended June 30, 1994 10.46 -- Key Employee Protection Agreement dated as of June 27, 1994 between America West Airlines, Inc. and William A. Franke. 11.1 -- Statement re: computation of net income (loss) per common share. 12.1 -- Statement re: computation of ratio of earnings to fixed charges. *23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1 above). 23.2 -- Consent of KPMG Peat Marwick (independent auditors) -- Included at page S-1. *24.1 -- Power of Attorney (included on the signature pages of this Registration Statement. 25.1 -- Statement of Eligibility on Form S-1 of American Bank National Association, as trustee under the Indenture for $100,000,000 Senior Notes due 2001.
- --------------- * Previously filed. ** To be filed by amendment. EX-4.1 2 FORM OF INDENTURE 1 EXHIBIT 4.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICA WEST AIRLINES, INC., AND AMERICAN BANK NATIONAL ASSOCIATION, TRUSTEE INDENTURE DATED AS OF AUGUST , 1994 ------------------------------------ $100,000,000 % SENIOR UNSECURED NOTES DUE 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CROSS REFERENCE SHEET(1) Provisions of Trust Indenture Act of 1939 and Indenture to be dated as of , 1994 among AMERICA WEST AIRLINES, INC. and [ ], Trustee:
SECTION OF THE ACT SECTION OF INDENTURE - ---------------------------------------------------- ------------------------------------- 310(a)(1) and (2)................................... 6.9 and 6.10(b) 6.8, 6.10(a), (b) and (d), 6.11 and 310(b).............................................. 6.12 311(a).............................................. 6.13 312(a).............................................. 4.1 and 4.2 312(b).............................................. 4.2 312(c).............................................. 4.2 313(a).............................................. 4.4 313(c).............................................. 4.4, 5.11, 6.10, 6.11, 8.2 and 12.2 314(a).............................................. 4.3 314(a)(4)........................................... 3.5 314(c)(1) and (2)................................... 11.5 314(c)(3)........................................... Inapplicable 314(e).............................................. 11.5 315(a), (c) and (d)................................. 6.1 315(b).............................................. 5.11 315(e).............................................. 5.12 and 6.10(b) 316(a)(1)........................................... 5.9 316(a) (last sentence).............................. 7.4 316(b).............................................. 5.7 317(a).............................................. 5.2 317(b).............................................. 3.4(a) and (b) 318(a).............................................. 11.7
- --------------- (1) This Cross Reference Sheet is not part of the Indenture. 3 TABLE OF CONTENTS
PAGE ---- ARTICLE ONE -- DEFINITIONS............................................................ 1 SECTION 1.1 Certain Terms Defined............................................... 1 "Acceleration Notice"............................................................ 1
"Adjusted Consolidated Net Income"............................................... 1 "Affiliates"..................................................................... 1 "Alliance Agreements"............................................................ 1 "Applicable Documents"........................................................... 1 "Asset Sale"..................................................................... 1 "Authenticating Agent"........................................................... 2 "Board of Directors"............................................................. 2 "Board Resolution"............................................................... 2 "Business Day"................................................................... 2 "Capital Stock".................................................................. 2 "Capitalized Lease Obligation"................................................... 2 "Cash Equivalents"............................................................... 2 "Change of Control".............................................................. 2 "Closing Date"................................................................... 2 "Commission"..................................................................... 3 "Commodity Agreement"............................................................ 3 "Common Stock"................................................................... 3 "Company"........................................................................ 3 "Company Order".................................................................. 3 "Consolidated" or "consolidated"................................................. 3 "Consolidated Net Worth"......................................................... 3 "Consolidated Tangible Net Worth"................................................ 3 "Corporate Trust Office"......................................................... 3 "Currency Agreement"............................................................. 3 "Default"........................................................................ 3 "Depository"..................................................................... 3 "Event of Default"............................................................... 3 "Excess Proceeds Offer".......................................................... 3 "Excess Proceeds Purchase Date".................................................. 3 "Exchange Act"................................................................... 4 "GAAP"........................................................................... 4 "Global Security"................................................................ 4 "Guarantee"...................................................................... 4 "Holder", "Holder of Securities", "Securityholder"............................... 4 "Indebtedness"................................................................... 4 "Indenture"...................................................................... 4 "Interest Payment Date".......................................................... 4 "Interest Rate Agreement"........................................................ 4 "Investment"..................................................................... 5 "Investment Grade"............................................................... 5 "Lien"........................................................................... 5 "Material Subsidiary"............................................................ 5 "Moody's"........................................................................ 5 "Net Cash Proceeds".............................................................. 5 "Net Offering Proceeds".......................................................... 5 "Net Proceeds Offer"............................................................. 5 "Net Proceeds Purchase Date"..................................................... 5 "Officer"........................................................................ 5 "Officers' Certificate".......................................................... 6 "Opinion of Counsel"............................................................. 6 "Outstanding".................................................................... 6
i 4
PAGE ---- "Paying Agent"................................................................... 6 "Payment Restriction"............................................................ 6 "Permitted Holders".............................................................. 6 "Person"......................................................................... 6 "principal"...................................................................... 6 "Public Offering Sale"........................................................... 6 "Purchase Agreement"............................................................. 6 "record date".................................................................... 6 "Redeemable Dividends"........................................................... 6 "Redeemable Stock"............................................................... 7 "Redemption Date"................................................................ 7 "Redemption Price"............................................................... 7 "Refinancing Indebtedness"....................................................... 7 "Registration Rights Agreement".................................................. 7 "Responsible Officer"............................................................ 7 "Restricted Payment"............................................................. 7 "S&P"............................................................................ 8 "Securities Act"................................................................. 8 "Security" or "Securities"....................................................... 8 "Stated Maturity"................................................................ 8 "Subsidiary"..................................................................... 8 "TIA"............................................................................ 8 "Trade Payables"................................................................. 8 "Trustee"........................................................................ 8 "U.S. Government Obligations".................................................... 8 "U.S. Legal Tender".............................................................. 8 "Voting Stock"................................................................... 8 "Wholly Owned"................................................................... 8 ARTICLE TWO SECURITIES............................................................................ 8 SECTION 2.1 Form and Dating..................................................... 8 SECTION 2.2 Execution and Authentication........................................ 9 SECTION 2.3 Certificate of Authentication....................................... 9 SECTION 2.4 Payments of Interest................................................ 9 SECTION 2.5 Registration, Transfer and Exchange................................. 10 SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities........... 11 SECTION 2.7 Cancellation of Securities; Destruction Thereof..................... 12 SECTION 2.8 Temporary Securities................................................ 12 SECTION 2.9 Currency and Manner of Payments in Respect of Securities............ 12 SECTION 2.10 CUSIP Number......................................................... 12 ARTICLE THREE REDEMPTIONS........................................................................... 12 SECTION 3.1 Notices to Trustee.................................................. 12 SECTION 3.2 Selection of Securities to be Redeemed.............................. 13 SECTION 3.3 Notice of Redemption................................................ 13 SECTION 3.4 Effect of Notice of Redemption...................................... 14 SECTION 3.5 Deposit of Redemption Price......................................... 14 SECTION 3.6 Securities Redeemed in Part......................................... 14 SECTION 3.7 Optional Redemption................................................. 14 SECTION 3.8 Mandatory Redemption................................................ 15 ARTICLE FOUR COVENANTS OF THE COMPANY.............................................................. 15 SECTION 4.1 Payment of Principal and Interest................................... 15 SECTION 4.2 Offices for Payments, etc........................................... 15
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PAGE ---- SECTION 4.3 Appointment to Fill a Vacancy in Office of Trustee.................. 15 SECTION 4.4 Paying Agents....................................................... 15 SECTION 4.5 Reports and Information............................................. 16 SECTION 4.6 Corporate Existence................................................. 17 SECTION 4.7 Payment of Taxes and Other Claims................................... 17 SECTION 4.8 Maintenance of Properties........................................... 17 SECTION 4.9 Maintenance of Insurance............................................ 17 SECTION 4.10 Compliance with Laws................................................. 17 SECTION 4.11 Change of Control.................................................... 17 SECTION 4.12 Limitation on Issuances and Dispositions of Capital Stock of Subsidiaries......................................................... 18 SECTION 4.13 Limitation on Restricted Payments.................................... 18 SECTION 4.14 Limitation on Transactions with Affiliates........................... 20 SECTION 4.15 Limitation on Asset Sales............................................ 21 SECTION 4.16 Limitation on Payment Restrictions Affecting Subsidiaries............ 22 SECTION 4.17 [INTENTIONALLY OMITTED].............................................. 23 SECTION 4.18 Limitation on Investments............................................ 23 SECTION 4.19 Waiver of Stay, Extension or Usury Laws.............................. 23 ARTICLE FIVE SECURITYHOLDERS LISTS AND REPORTS BY COMPANY AND THE TRUSTEE.......................... 23 SECTION 5.1 The Company to Furnish Trustee Information as to Names and Addresses of Securityholders............................................. 23 SECTION 5.2 Disclosure of Names and Addresses of Securityholders................ 23 SECTION 5.3 Reports by the Trustee.............................................. 23 ARTICLE SIX CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER......................................... 24 SECTION 6.1 Merger or Consolidation............................................. 24 SECTION 6.2 Successor Corporation Substituted................................... 24 ARTICLE SEVEN REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT....................... 25 SECTION 7.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default............................................................. 25 SECTION 7.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt....... 27 SECTION 7.3 Application of Proceeds............................................. 28 SECTION 7.4 Suits for Enforcement............................................... 29 SECTION 7.5 Restoration of Rights on Abandonment of Proceedings................. 29 SECTION 7.6 Limitations on Suits by Securityholders............................. 29 SECTION 7.7 Unconditional Right of Securityholders to Institute Certain Suits... 29 SECTION 7.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default............................................................. 29 SECTION 7.9 Control by Holders of Securities.................................... 29 SECTION 7.10 Waiver of Past Defaults.............................................. 30 SECTION 7.11 Trustees to Give Notice of Default, But May Withhold in Certain Circumstances........................................................ 30 SECTION 7.12 Right of Court to Require Filing of Undertaking to Pay Costs......... 30 ARTICLE EIGHT CONCERNING THE TRUSTEE................................................................ 31 SECTION 8.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default............................................................. 31 SECTION 8.2 Certain Rights of the Trustee....................................... 32 SECTION 8.3 Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof..................................... 32 SECTION 8.4 Trustee and Agents May Hold Securities; Collections, etc............ 32 SECTION 8.5 Monies Held by Trustee.............................................. 33 SECTION 8.6 Compensation and Indemnification of Trustee and Its Prior Claim..... 33 SECTION 8.7 Right of Trustee to Rely on Officers' Certificate, etc.............. 33 SECTION 8.8 Persons Eligible for Appointment as Trustee......................... 33 SECTION 8.9 Resignation and Removal; Appointment of Successor Trustee........... 33
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PAGE ---- SECTION 8.10 Acceptance of Appointment by Successor Trustee....................... 34 SECTION 8.11 Merger, Conversion, Consolidation or Succession to Business of Trustee.............................................................. 35 SECTION 8.12 Preferential Collection of Claims Against the Company................ 35 SECTION 8.13 Appointment of Authenticating Agent.................................. 35 ARTICLE NINE CONCERNING THE SECURITYHOLDERS........................................................ 36 SECTION 9.1 Evidence of Action Taken by Securityholders......................... 36 SECTION 9.2 Proof of Execution of Instruments and of Holding of Securities...... 36 SECTION 9.3 Holders to be Treated as Owners..................................... 36 SECTION 9.4 Securities Owned by the Company Deemed Not Outstanding.............. 37 SECTION 9.5 Right of Revocation of Action Taken................................. 37 ARTICLE TEN AMENDMENTS............................................................................ 37 SECTION 10.1 Amendments and Supplements Permitted Without Consent of Holders...... 37 SECTION 10.2 Amendments and Supplements Requiring Consent of Holders.............. 38 SECTION 10.3 Compliance with TIA.................................................. 39 SECTION 10.4 Revocation and Effect of Consents.................................... 39 SECTION 10.5 Notation on or Exchange of Securities................................ 39 SECTION 10.6 Trustee Protected.................................................... 39 ARTICLE ELEVEN SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONIES............................. 39 SECTION 11.1 Satisfaction and Discharge of Indenture.............................. 39 SECTION 11.2 Application by Trustee of Funds Deposited for Payment of Securities; Other Miscellaneous Provisions................................. 43 SECTION 11.3 Repayment of Monies Held by Paying Agent............................. 43 SECTION 11.4 Return of Monies Held by Trustee and Paying Agent Unclaimed for Two Years...................................................... 43 SECTION 11.5 Indemnity for U.S. Government Obligations............................ 43 ARTICLE TWELVE MISCELLANEOUS PROVISIONS.............................................................. 43 SECTION 12.1 Incorporators, Stockholders, Officers and Directors of the Company Exempt from Individual Liability............................... 43 SECTION 12.2 Provisions of Indenture for the Sole Benefit of Parties and Holders of Securities........................................................ 44 SECTION 12.3 Successors and Assigns of the Company Bound by Indenture............. 44 SECTION 12.4 Notices.............................................................. 44 SECTION 12.5 Officers' Certificates and Opinions of Counsel; Statements to be Contained Therein.............................................. 44 SECTION 12.6 Payments Due on Saturdays, Sundays and Holidays...................... 45 SECTION 12.7 Conflict of Any Provision of Indenture with Trust Indenture Act of 1939................................................................. 45 SECTION 12.8 New York Law to Govern............................................... 45 SECTION 12.9 Counterparts......................................................... 45 SECTION 12.10 Effect of Headings................................................... 45
iv 7 INDENTURE, dated as of August , 1994, between America West Airlines, Inc., a Delaware corporation (the "Company"), having its principal office at 4000 East Sky Harbour Blvd., Phoenix, Arizona 85034, and American Bank National Association (the "Trustee"). Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's % Senior Unsecured Notes due 2001. ARTICLE ONE DEFINITIONS SECTION 1.1 Certain Terms Defined. The following terms (except as otherwise expressly provided or unless the context otherwise clearly requires) for all purposes of this Indenture shall have the respective meanings specified in this Section. All other terms used in this Indenture that are defined in the TIA or the definitions of which in the Securities Act are referred to in the TIA, including terms defined therein by reference to the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in the TIA and in the Securities Act as in force at the date of this Indenture. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with GAAP. The words "herein " "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular. "Acceleration Notice" shall have the meaning set forth in Section 7.1 "Adjusted Consolidated Net Income" means, for any Person for any period, the aggregate net income (or loss) of such Person and its consolidated Subsidiaries for such period determined in accordance with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income (or loss) of any Person (other than a Subsidiary of such first Person) in which any other Person (other than such first Person or any of its Subsidiaries) has a joint or shared interest, except to the extent of the amount of cash dividends or other distributions actually paid to, and received by, such first Person or any of its Subsidiaries during such period out of funds legally available therefor, (ii) the net income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of such first Person or any of its Subsidiaries or all or substantially all of the property and assets of such Person are acquired by such first Person or any of its Subsidiaries, (iii) the net income (or loss) of any Subsidiary of such first Person which Subsidiary is subject to a Payment Restriction, except (A) such exclusion shall not apply to the extent of the amount of cash dividends or other distributions actually paid to, and received by, such first Person or any of its Subsidiaries during such period from such Subsidiary in compliance with such Payment Restriction out of funds legally available therefor and (B) such exclusion shall apply only while such Payment Restriction is in effect, and upon the elimination or reduction of such Payment Restriction, the previously excluded net income (or loss) shall be added back retroactively; (iv) any gains or losses (on an after-tax basis) attributable to Asset Sales; and (v) all extraordinary gains and extraordinary losses. "Affiliates" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Alliance Agreements" means those certain business alliance agreements among the Company, Continental Airlines, Inc. and Mesa Airlines, Inc. that include, but are not limited to, code-sharing, frequent flyer, ground handling and marketing agreements. "Applicable Documents" means collectively, the Purchase Agreement, the Registration Rights Agreement, this Indenture and the Securities. 8 "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation, exchange of assets or sale-leaseback transactions), in one transaction or a series of related transactions, by the Company or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries of (i) all or any of the Capital Stock of any Subsidiary of the Company, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Subsidiaries or (iii) any other property and assets of the Company or any of its Subsidiaries outside the ordinary course of business of the Company or such Subsidiary and, in each case, that is not governed by the provisions of Article Six of this Indenture; provided that none of (A) sales or other dispositions of inventory, receivables and other current assets, (B) sale or other dispositions of surplus equipment, spare parts, expendable inventories, furniture or fixtures in an aggregate amount not to exceed $10,000,000 in any fiscal year of the Company, (C) sale leasebacks of aircraft and engines, passenger loading bridges or other flight or ground equipment, flight simulators or the Company's reservation facility located at 222 South Mill Avenue, Tempe, Arizona or (D) $20,000,000 of other sales in any fiscal year of the Company shall be included within the meaning of "Asset Sale". "Authenticating Agent" shall have the meaning set forth in Section 8.13. "Board of Directors" when used with reference to any Person, means the Board of Directors of such Person or any committee of such Board duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person, as certified by the Secretary or an Assistant Secretary of such Person. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York, New York, the City of Phoenix, Arizona or the city of the Corporate Trust Office of the Trustee, are authorized or required by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all Common Stock. "Capitalized Lease Obligation" means, as applied to any Person, obligations of such Person under any lease of any property (whether real, personal or mixed) which, in accordance with GAAP, is required to be capitalized on the balance sheet of such Person, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) U.S. Government Obligations, (ii) commercial paper, (iii) time deposits, certificates of deposit and banker's acceptances, (iv) repurchase agreements that are secured by a perfected security interest in U.S. Government Obligations, and (v) money market funds investing solely in one or both of the types of securities described in clauses (i) and (ii) above. "Change of Control" means (i) the acquisition at any time by any Person (other than one or more Permitted Holders), of "beneficial ownership" (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) in excess of 50% of the total voting power of the Voting Stock of the Company; (ii) the sale, lease, transfer or other dispositon, of all or substantially all of the assets of the Company to any Person (other than one or more Permitted Holders) as an entirety or substantially as an entirety in one transaction or a series of related transactions; (iii) the merger or consolidation of the Company, with or into another corporation, or the merger of another corporation into the Company, or any other transaction, with the effect that a Person (other than one or more Permitted Holders), has "beneficial ownership" (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) in excess of 50% of the Voting Stock of the Company, or such other corporation, as the case may be (including indirect ownership through another Person other than one or more Permitted Holders); or (iv) the liquidation or dissolution of the Company. For purposes of this definition, the term Person includes a "person" within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. "Closing Date" means the date on which the Securities are originally issued under this Indenture. 2 9 "Commission" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution and delivery of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties on such date. "Commodity Agreement" means any agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in the prices of commodities used by the Company or any of its Subsidiaries in the ordinary course of its business. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means America West Airlines, Inc., a Delaware corporation and, subject to Article Six hereof, its successors and assigns. "Company Order" means a written statement, request or order of the Company signed in its name by the Chairman, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee. "Consolidated" or "consolidated," when used with reference to any accounting term, means the amount described by such accounting term, determined on a consolidated basis in accordance with GAAP, after elimination of intercompany items. "Consolidated Net Worth" means, with respect to any Person on any date, the consolidated stockholders' equity, less amounts attributable to Redeemable Stock, of such Person and its Subsidiaries on such date as determined on a consolidated basis in accordance with GAAP; provided that, with respect to the Company, adjustments following the Closing Date to the accounting books and records of the Company in accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto) shall not be given effect. "Consolidated Tangible Net Worth" means, with respect to any Person on any date, the Consolidated Net Worth of such Person on such date, less the net book value on such date as shown by the accounting books and records of such Person and its Subsidiaries of all of its licenses, patents, patent applications, copyrights, trademarks, trade names, goodwill, non-compete agreements or unamortized debt discount and expense, all as determined on a consolidated basis in accordance with GAAP. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date as of which this Indenture is dated, located at . "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Depository" means, with respect to the Securities issued in the form of one or more Global Securities, each Person designated as Depository by the Company until a successor Depository shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depository" shall mean or include each Person who is then a Depository hereunder. "Event of Default" means any event or condition specified as such in Section 7.1. "Excess Proceeds Offer" shall have the meaning set forth in Section 4.15. "Excess Proceeds Purchase Date" shall have the meaning set forth in Section 4.15. 3 10 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of this Indenture, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board. "Global Security" means a Security evidencing all or a part of the Securities, issued to a Depository or its nominee in accordance with Section 2.2, and bearing the legend prescribed in Section 2.2. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct, or indirect, contingent or otherwise, of such first Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder", "Holder of Securities", "Securityholder" or other similar terms means the person in whose name a Security is registered in the security register kept by the Company for that purpose in accordance with the terms hereof. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (v) all Capitalized Lease Obligations of such Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the stated principal amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person, (viii) to the extent not otherwise included in this definition, obligations under Currency Agreements, Interest Rate Agreements and Commodity Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Indenture" means this instrument as originally executed and delivered or, if amended or supplemented as herein provided, as so amended or supplemented or both, and shall include the form and terms of the Securities as set forth herein. "Interest Payment Date", means the fifteenth day of each and , commencing 15, 1994. "Interest Rate Agreement" means any interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary thereafter. 4 11 "Investment" means, with respect to any Person, any direct or indirect advance, loan (other than advances to customers in the ordinary course of business consistent with past practices that are recorded as accounts receivable on the balance sheet of such Person or its Subsidiaries) or other extension of credit or capital contribution by such Person to any other Person (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others; provided, that any transfer of aircraft to a limited partnership or other entity in connection with the transaction in which the aircraft are leased to the Company shall not be an Investment), or any purchase or acquisition by such person of Capital Stock, bonds, notes, debentures or other similar instruments issued by any other Person. "Investment Grade" means a rating of BBB-or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other rating agency, the equivalent of such ratings by such rating agency shall be used. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest); provided, that in no event shall a true operating lease be deemed to constitute a Lien hereunder. "Material Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required by its own terms to be paid as a result of such Asset Sale, and (iv) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP. "Net Offering Proceeds" means, with respect to any Public Offering Sale, the proceeds of such Public Offering Sale in the form of cash or Cash Equivalents, net of (i) underwriting discounts and commissions and other fees and expenses (including fees and expenses of counsel) incurred in connection with such Public Offering Sale, (ii) provisions for all taxes payable as a result of such Public Offering Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, and (iii) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against any liabilities associated with such Public Offering Sale, all as determined in conformity with GAAP. "Net Proceeds Offer" shall have the meaning set forth in Section 4.11(a). "Net Proceeds Purchase Date" shall have the meaning set forth in Section 4.11(b). "Officer" means with respect to any Person, the Chairman, the President, the Secretary, any Assistant Secretary, the Chief Financial Officer, the Controller, the Treasurer, the Assistant Treasurer or any Vice President of such Person. 5 12 "Officers' Certificate" means a certificate signed by the Chairman, the President or a Vice President of the Company and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. "Opinion of Counsel" means a written opinion of legal counsel, who may be either internal or outside counsel for the Company. "Outstanding" when used with reference to Securities, subject to the provisions of Section 9.4 means, as of any particular time, all Securities authenticated and delivered by the Trustee under this Indenture, except: (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for the payment or redemption of which monies or U.S. Government Obligations (as provided for in Section 11.1) in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside, segregated and held in trust by the Company for the Holders of such Securities (if the Company shall act as Paying Agent); provided, however, that, if such Securities, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Securities that shall have been paid or in substitution for which other Securities shall have been authenticated and delivered pursuant to the terms of Section 2.6. "Paying Agent" means any Person (which may include the Company) authorized by the Company to pay the principal of, premium (if any) or interest on the Securities on behalf of the Company. "Payment Restriction" means, with respect to a Subsidiary of any Person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such Subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such Person or any other Subsidiary of such Person, (b) make loans or advances to such Person or any other Subsidiary of such Person, or (c) transfer any of its property or assets to such Person or any other Subsidiary of such Person, or (ii) such Person or any other Subsidiary of such Person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) property or assets. "Permitted Holders" means (i) AmWest Partners, L.P., (ii) TPG Partners, L.P., (iii) Continental Airlines, Inc., (iv) Mesa Airlines, Inc., (v) funds or accounts managed or advised by Fidelity Management Trust Company and its affiliates, and their respective successors and Affiliates. "Person" means an individual, a corporation, a partnership, an association, a business trust, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "Public Offering Sale" means an underwritten public offering of Capital Stock of the Company pursuant to a registration statement filed pursuant to the Securities Act. "Purchase Agreement" means that certain Note Purchase Agreement dated as of the date of this Indenture pursuant to which the Company agreed to issue and sell and the Purchasers named in such agreement agreed to purchase, an aggregate of $100,000,000 in principal amount of Securities. "record date" shall have the meaning set forth in Section 2.4. "Redeemable Dividends" means, for any dividend payable with regard to Redeemable Stock, the quotient of (i) the aggregate amount of the dividend divided by (ii) the difference between one and the maximum statutory federal and state income tax rate (expressed as a decimal number between one and zero) then applicable to the issuer of such Redeemable Stock. 6 13 "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise (i) is required to be redeemed prior to the Stated Maturity of the Securities, (ii) may be required to be redeemed at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Securities or (iii) is convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Securities; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof offering holders thereof the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" occurring prior to the Stated Maturity of the Securities shall not constitute Redeemable Stock if the asset sale provisions contained in such Capital Stock specifically provide that in respect of any particular asset sale proceeds, the Company will not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Company's repurchase of such Securities as are required to be repurchased from Holders accepting an Excess Proceeds Offer pursuant to the provisions of Section 4.15. "Redemption Date" when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. "Redemption Price" when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Securities. "Refinancing Indebtedness" means any Indebtedness of the Company or any Subsidiary issued in exchange for, or the net proceeds of which are applied entirely to substantially concurrently repay, refinance, refund or replace, outstanding Indebtedness of the Company or any of its Subsidiaries (the "Refinanced Indebtedness"), to the extent such Indebtedness: (a) is issued in a principal amount (or if such Indebtedness is issued at an original issue discount, is issued at an original issue price) not exceeding the outstanding principal amount (or, if such Refinanced Indebtedness was issued at an original issue discount, not exceeding the outstanding accreted principal amount) of such Refinanced Indebtedness, and (b) if the Refinanced Indebtedness is Indebtedness of the Company and ranks by contract, by its terms or otherwise junior in right of payment to the Securities, (i) does not have a final scheduled maturity and is not subject to any principal payments, including but not limited to payments upon mandatory or optional redemption, prior to the dates of analogous payments under the Refinanced Indebtedness, and (ii) has subordination provisions effective to subordinate such Indebtedness to the Securities at least to the extent that such Refinanced Indebtedness is subordinated to the Securities, and (c) if the Refinanced Indebtedness is Indebtedness of the Company which is pari passu in right of payment with the Securities, (i) is pari passu or subordinated in right of payment to the Securities, (ii) does not have a final scheduled maturity and is not subject to any principal payments, including but not limited to, payments upon mandatory or optional redemption, prior to the final scheduled maturity date of the Refinanced Indebtedness, and (iii) is not secured by any Lien on any property of the Company or any Subsidiary in addition to Liens securing the Refinanced Indebtedness. "Registration Rights Agreement" means that certain Registration Rights Agreement dated as of the date of this Indenture among the Company and the parties named as signatories thereto, pursuant to which the Company is obligated to register the Securities and certain other securities of the Company. "Responsible Officer" when used with respect to the Trustee means the chairman of the board of directors, any vice chairman of the board of directors, the chairman of the trust committee, the chairman of the executive committee, any vice chairman of the executive committee, the president, any vice president (whether or not designated by numbers or words added before or after the title "vice president"), the secretary, the treasurer, any trust officer, any assistant trust officer, any assistant secretary, any assistant treasurer, or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payment" shall have the meaning set forth in Section 4.13. 7 14 "S&P" means Standard & Poor's Corporation and its successors. "Securities Act" means the Securities Act of 1933, as amended. "Security" or "Securities" means the Company's % Senior Unsecured Notes due 2001 issued under this Indenture. "Stated Maturity" means, (i) with respect to the principal of the Securities, 2001 and (ii) with respect to any scheduled installment of interest on any Security, the date specified in such Security as the fixed date on which such installment is due and payable. "Subsidiary" means any corporation more than 50% of the outstanding shares of Voting Stock of which at the time of determination are owned by the Company directly or indirectly through one or more Subsidiaries, or both. "TIA" means the Trust Indenture Act of 1939, as amended. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries and arising in the ordinary course of business in connection with the acquisition of goods or services. "Trustee" means the Person identified as the "Trustee" in the first paragraph hereof and, subject to the provisions of Article Eight, shall also include any successor trustee. "Trustee" shall also mean or include each Person who is then a trustee hereunder. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the principal of the Securities, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to vote for the election of directors, managers or trustees of any Person (irrespective of whether or not at the time stock of any class or classes will have or might have voting power by the reason of the happening of any contingency). "Wholly Owned" means, a Subsidiary all of the Capital Stock or other similar equity ownership interests of which (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned directly or indirectly by the Company. ARTICLE TWO SECURITIES SECTION 2.1 Form and Dating. The Securities and the related Trustee's certificate of authentication shall be substantially in the respective forms set forth in Exhibit A, which exhibit is a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule 8 15 or usage. Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and agree to be bound thereby. SECTION 2.2 Execution and Authentication. Two Officers of the Company (each of whom shall have been duly authorized by all requisite corporate actions) shall sign each Security for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time any Securities are authenticated, such Securities shall nevertheless be valid. The Company's seal shall be reproduced on each Security. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security that has been duly authenticated and delivered by the Trustee. With respect to the sale and issuance of the Securities, the Trustee shall, upon receipt of a written order of the Company in the form of an Officers' Certificate, authenticate Securities for issuance on the Closing Date in the aggregate principal amount of $100,000,000. If any Securities are to be issued in the form of one or more Global Securities, then the Company shall execute and the Trustee shall authenticate and deliver one or more Global Securities, that (i) shall be in denominations of $1,000 or integral multiples thereof (ii) shall be registered in the name of the Depository for such Global Security or Securities or the nominee of such Depository, (iii) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instructions and (iv) shall bear a legend substantially to the following effect: Unless and until it is exchanged in whole or in part for Securities in definitive registered form, this Security may not be transferred except as a whole by the Depository to the nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Each Depository must, at the time of its designation and at all times while it serves as Depository, be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. SECTION 2.3 Certificate of Authentication. Only such Securities as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A hereto, executed (subject to Section 8.13) by the Trustee by the manual signature of one of its authorized officers, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. The execution of such certificate by the Trustee upon any Security executed by the Company shall be conclusive evidence, and the only evidence, that the Security so authenticated has been duly authenticated and delivered hereunder and that the Holder of such Security is entitled to the benefits of this Indenture. SECTION 2.4 Payments of Interest. The Securities shall bear interest from the date of authentication, and such interest shall be payable on the Interest Payment Dates. The person in whose name any Security is registered at the close of business on any record date applicable to such Security with respect to any Interest Payment Date for such Security shall be entitled to receive the interest, if any, payable on such Interest Payment Date notwithstanding any transfer or exchange of such Security subsequent to the record date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest due on such Interest Payment Date, in which case such defaulted interest shall be paid to the persons in whose names Outstanding Securities are registered at the close of business on a subsequent record date (which shall be not less then five Business Days prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Company to the Holders of Securities not less than 15 days preceding such subsequent record date. The term 9 16 "record date" as used with respect to any Interest Payment Date (except a date for payment of defaulted interest) for the Securities shall mean the date specified as such in the terms of the Securities. Subject to the foregoing provisions of this Section 2.4, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 2.5 Registration, Transfer and Exchange. The Company will keep at each office or agency to be maintained for the purpose as provided in Section 4.2 a register or registers in which, subject to such reasonable regulations as it may prescribe, it will provide for the registration of Securities and the registration of transfer of Securities. Such register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. At all reasonable times such register or registers shall be open for inspection by the Trustee. Upon due presentation for registration of transfer of any Security at any such office or agency to be maintained for the purpose as provided in Section 4.2, the Company shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Security or Securities. At the option of the Holder thereof, Securities (other than a Global Security, except as set forth below) may be exchanged for a Security or Securities having authorized denominations in an equal aggregate principal amount, upon surrender of such Securities to be exchanged at the agency of the Company that shall be maintained for such purpose in accordance with Section 4.2 and upon payment, if the Company shall so require, of the amounts hereinafter provided. All Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company and the Trustee and duly executed by the Holder or his attorney duly authorized in writing. The Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities. No service charge shall be made for any such transaction. The Company shall not be required to exchange or register a transfer of (a) any Securities for a period of 15 days next preceding the first mailing of notice of redemption of Securities to be redeemed or (b) any Securities selected, called or being called for redemption, in whole or in part, except, in the case of any Security to be redeemed in part, the portion thereof not so to be redeemed. Notwithstanding any other provision of this Section 2.5, unless and until it is exchanged in whole or in part for Securities in non-global form, a Global Security representing all or a portion of the Securities may not be transferred except as a whole by the Depository to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any such nominee to a successor Depository or a nominee of such successor Depository. If at any time the Depository for any Securities represented by one or more Global Securities notifies the Company that it is unwilling or unable to continue as Depository for such Securities or if at any time the Depository for such Securities shall no longer be eligible under Section 2.2, the Company shall appoint a successor Depository eligible under Section 2.2 with respect to such Securities. If a successor Depository eligible under Section 2.2 for such Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of an Officer's Certificate of the Company for the authentication and delivery of Securities in non-global form, will authenticate and deliver Securities in non-global form in exchange for such Global Security or Securities. The Company may at any time and in its sole discretion determine that the Securities issued in the form of one or more Global Securities shall no longer be represented by a Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and 10 17 delivery of Securities in non-global form, will authenticate and deliver, Securities in non-global form in exchange for such Global Security or Securities. Any person having a beneficial interest in a Global Security may upon request exchange such beneficial interest for Securities in non-global form. Upon receipt by the Trustee of written instructions (or such other form of instructions as is customary for the Depository) from the Depository or its nominee on behalf of any person having a beneficial interest in a Global Security and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the person designated by the Depository as having such a beneficial interest containing registration instructions, then the Trustee will cause, in accordance with the standing instructions and procedures existing between the Depository and the Trustee, the aggregate principal amount of the Global Security to be reduced and following such reduction, the Company will execute and upon receipt of an authentication order in the form of an Officers' Certificate, the Trustee will authenticate and deliver Securities in non-global form. Securities in non-global form issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.5 shall be registered in such names and in such authorized denominations as the Depository for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or an agent of the Company or the Trustee. The Trustee or such agent shall deliver such Securities to or as directed by the Person in whose names such Securities are so registered. The Securities executed by the Company, and authenticated and delivered by the Trustee, upon any transfer or exchange contemplated by this Section 2.5 shall be dated the date of their authentication, shall be in authorized denominations, shall be in like aggregate principal amount and have the same Stated Maturity date and interest rate as, and bear interest from the most recent date to which interest has been paid on (or if no interest has been paid, from the date of), the Securities surrendered upon such transfer or exchange (or as the portion of any Global Security being exchanged for Securities in non-global form, as the case may be), and shall bear a number of other distinguishing symbol not appearing on any Security contemporaneously Outstanding. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In case any temporary or definitive Security shall become mutilated, defaced or be destroyed, lost or stolen, the Company in its discretion may execute, and upon the written request of any officer of the Company, the Trustee shall authenticate and deliver a new Security of the same principal amount, Stated Maturity date and interest rate as, and bearing interest from the most recent date to which interest has been paid on (or if no interest has been paid, from the date of) the mutilated or defaced Security, or the Security so destroyed, lost or stolen, and bearing a number or other distinguishing symbol not appearing on any security contemporaneously Outstanding, in exchange and substitution for the mutilated or defaced Security, or in lieu of or in substitution for the Security so destroyed, lost or stolen. In every case the applicant for a substitute Security shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as may be required by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the destruction, loss or theft of such Security and of the ownership thereof and in the case of mutilation or defacement, shall surrender the Security to the Trustee or such agent. Upon the issuance of any substitute Security, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee or its agent) connected therewith. In case any Security that has matured or is about to mature or has been called for redemption in full shall become mutilated or defaced or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated or defaced Security), if the applicant for such payment shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as any of them may require to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee and 11 18 any agent of the Company or the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security and of the ownership thereof. Every substitute Security issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any such Security is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities duly authenticated and delivered hereunder. All Securities shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, defaced or destroyed, lost or stolen Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.7 Cancellation of Securities; Destruction Thereof. (a) All Securities surrendered for payment, redemption, registration of transfer or exchange, if surrendered to the Company or any agent of the Company or any agent of the Trustee, shall be delivered to the Trustee for cancellation and, upon receipt thereof by the Trustee, shall be cancelled by it; and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy cancelled Securities held by it and deliver a certificate of destruction to the Company. If the Company or any agent of the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. (b) At such time as all beneficial interests in a Global Security have either been exchanged for Securities in non-global form, redeemed, repurchased or cancelled, such Global Security shall be returned to and cancelled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for Securities in non-global form, redeemed, repurchased or cancelled, the principal amount of Securities represented by such Global Security shall be reduced and an endorsement shall be made on such Global Security by the Trustee to reflect such reduction. SECTION 2.8 Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of a written order signed by two Officers of the Company, shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.9 Currency and Manner of Payments in Respect of Securities. Payment of the principal of and premium (if any) and interest on, any Security will be made in U.S. Legal Tender. SECTION 2.10 CUSIP Number. A "CUSIP" number will be printed on the Securities, and the Trustee shall use the CUSIP number in notices of redemption, purchase or exchange as a convenience to Holders, provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company will promptly notify the Trustee of any change in the CUSIP number. ARTICLE THREE REDEMPTIONS SECTION 3.1 Notices to Trustee. If the Company elects to redeem Securities pursuant to Section 3.7 or is required to redeem Securities pursuant to Section 3.8 it shall furnish to the Trustee, at least 10 but not more than 15 days before notice of any redemption is to be mailed to Holders (or such shorter time as 12 19 may be satisfactory to the Trustee), an Officers' Certificate stating that the Company has elected to redeem Securities pursuant to Section 3.7 or is required to redeem Securities pursuant to Section 3.8, as the case may be, the date notice of redemption is to be mailed to Holders, the Redemption Date, the aggregate principal amount of Securities to be redeemed, the Redemption Price for such Securities and the amount of accrued and unpaid interest on such Securities as of the Redemption Date. If the Trustee is not the registrar for the Securities, the Company shall, concurrently with delivery of its notice to the Trustee of a redemption, cause the registrar for the Securities to deliver to the Trustee a certificate (upon which the Trustee may rely) setting forth the name of, and the aggregate principal amount of Securities held by each Holder. The Company will also provide the Trustee with any additional information that the Trustee reasonably requests in connection with any redemption. SECTION 3.2 Selection of Securities to be Redeemed. If less than all outstanding Securities are to be redeemed, the Company shall select the outstanding Securities to be redeemed or accepted for payment in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not listed on a securities exchange, on a pro rata basis, by lot or by any other method that the Trustee deems fair and appropriate. If the Company elects to mail notice of a redemption to Holders, the Trustee shall, at least 5 days prior to the date notice of redemption is to be mailed, (i) select the Securities to be redeemed from Securities Outstanding not previously called for redemption, and (ii) promptly notify the Company of the names of each Holder of Securities selected for redemption, the principal amount of Securities held by each such Holder and the principal amount of such Holder's Securities that are to be redeemed. The Trustee shall select for redemption Securities or portions of Securities in principal amounts of $1,000 or integral multiples of $1,000; except that if all of the Securities of a Holder are selected for redemption, the aggregate principal amount of the Securities held by such Holder, even if not a multiple of $1,000, may be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.3 Notice of Redemption. (a) At least 30 days but not more than 60 days before any Redemption Date, the Company shall mail by first class mail to each such Holder's registered address a notice of redemption to each Holder of Securities or portions thereof that are to be redeemed. With respect to any redemption of Securities, the notice shall identify the Securities or portions thereof to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price for the Securities and the amount of unpaid and accrued interest on such Securities as of the date of redemption; (3) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion will be delivered; (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price for, and any accrued and unpaid interest on, such Securities; (6) that, unless the Company defaults in making such redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portions thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. (b) At the Company's request, the Trustee shall (at the Company's expense) give the notice of any redemption to Holders; provided, however, that the Company shall deliver to the Trustee, at least 10 days prior to the date that notice of the redemption is to be mailed to Holders, an Officers' Certificate that (i) requests the Trustee to give notice of the redemption to Holders, (ii) sets forth the information to be provided to Holders in the notice of redemption, as set forth in the preceding paragraph, and (iii) sets forth the aggregate principal amount of Securities to be redeemed and the amount of accrued and unpaid interest thereon as of the redemption date. If the Trustee is not the registrar for the Securities, the Company shall, concurrently with any such request, cause the registrar for the Securities to deliver to the Trustee a certificate (upon which the Trustee may rely) setting forth the name of, the address of, and the 13 20 aggregate principal amount of Securities held by, each Holder; provided further that any such Officers' Certificate may be delivered to the Trustee on a date later than permitted under this Section 3.3(b) if such later date is acceptable to the Trustee. SECTION 3.4 Effect of Notice of Redemption. Once notice of redemption is mailed to the Holders, Securities called for redemption shall become due and payable on the Redemption Date at the Redemption Price. Upon surrender to the Trustee or the Paying Agent, the Securities called for redemption shall be paid at the Redemption Price. SECTION 3.5 Deposit of Redemption Price. (a) On or prior to any Redemption Date, the Company shall deposit with the Paying Agent money sufficient to pay the Redemption Price of, and accrued interest on, all Securities to be redeemed on that date. After any Redemption Date, the Trustee or the Paying Agent shall promptly return to the Company any money that the Company deposited with the Trustee or the Paying Agent in excess of the amounts necessary to pay the Redemption Price of, and accrued interest on, all Securities to be redeemed. (b) If the Company complies with the preceding paragraph, unless the Company defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease to accrue on such Securities on the applicable Redemption Date, whether or not such Securities are presented for payment. If a Security is redeemed on or after an interest record date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such record date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest will be paid on the unpaid principal and interest from the redemption date until such principal and interest is paid, at the rate of interest provided in the Securities and Section 4.1. SECTION 3.6 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder at the Company's expense a new Security equal in principal amount to the unredeemed portion of the Security surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security. SECTION 3.7 Optional Redemption. The Company, at its option on notice to the Holders as provided herein, may redeem the Securities: (a) prior to , 1997 (i) at any time in whole but not in part, at a Redemption Price equal to 105% of the aggregate principal amount of the Securities then Outstanding, plus accrued and unpaid interest thereon to the Redemption Date; or (ii) from time to time in part from the Net Offering Proceeds received by the Company prior to , 1997 from one or more Public Offering Sales at a Redemption Price equal to 105% of the aggregate principal amount of the Securities so redeemed, plus accrued and unpaid interest thereon to the Redemption Date, except for amounts redeemed under Section 3.8 hereof; and (b) on and after , 1997, at any time in whole or from time to time in part, at a Redemption Price equal to the applicable percentage of the aggregate principal amount of the Securities so to be redeemed, set forth below, plus accrued and unpaid interest thereon to the Redemption Date.
IF REDEEMED DURING THE 12 MONTHS BEGINNING PERCENTAGE ------------------------------------------------------------------ ---------- 1997.............................................................. 105.0 % 1998.............................................................. 103.3 % 1999.............................................................. 101.7 % 2000 and thereafter............................................... 100.0 %
14 21 SECTION 3.8 Mandatory Redemption. In the event that, prior to , 1997, the Company consummates a Public Offering Sale and immediately prior to such consummation the Company has cash and Cash Equivalents, not subject to any restriction on disposition (other than any such restriction imposed by this Indenture), of at least $100,000,000, then the Company shall redeem Securities at a Redemption Price equal to 104% of the aggregate principal amount of the Securities so redeemed, plus accrued and unpaid interest to the Redemption Date. The aggregate Redemption Price and accrued and unpaid interest of the Securities to be so redeemed shall equal the lesser of (a) 50% of the Net Offering Proceeds of such Public Offering Sale and (b) the excess, if any, of (i) $20,000,000 over (ii) the amount of any Net Offering Proceeds of any prior Public Offering Sale received to , 1997 and applied to redeem Securities pursuant to this Section 3.8. ARTICLE FOUR COVENANTS OF THE COMPANY SECTION 4.1 Payment of Principal and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of, premium (if any) and interest on, each of the Securities at the place or places, at the respective times and in the manner provided in such Securities and in this Indenture. To the extent lawful, the Company shall pay interest on overdue principal, premium and interest at a rate equal to the then applicable interest rate on the Securities, compounded semi-annually. SECTION 4.2 Offices for Payments, etc. So long as any Securities are authorized for issuance pursuant to this Indenture or are outstanding hereunder, the Company will maintain in the Borough of Manhattan, the City of New York, an office or agency where the Securities may be presented for payment and for exchange and registration of transfer as in this Indenture provided. The Company will give prompt written notice to the Trustee of any change in the location of such office or agency. Until the Company shall furnish to the Trustee a different address therefor, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee as specified in Section 12.4 hereof. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 4.3 Appointment to Fill a Vacancy in Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.9, a Trustee so that there shall at all times be a Trustee with respect to the Securities. SECTION 4.4 Paying Agents. Whenever the Company shall appoint a Paying Agent other than the Trustee with respect to the Securities, it will cause such Paying Agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 4.4, (a) that it will hold all sums received by it as such agent for the payment of the principal of, premium (if any) and interest on the Securities (whether such sums have been paid to it by the Company or any other obligor on the Securities) in trust for the benefit of the Holders of the Securities or of the Trustee, (b) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities) to make any payment of the principal of, premium (if any) or interest on the Securities when the same shall be due and payable, and (c) that it will pay any such sums so held in trust by it to the Trustee upon the Trustee's written request, at any time during the continuance of the failure referred to in clause (b) above. 15 22 The Company will, on or prior to each due date of the principal of, premium (if any) or interest on the Securities, deposit with the Paying Agent a sum sufficient to pay such principal, premium or interest so becoming due, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action. If the Company shall act as its own Paying Agent with respect to the Securities it will, on or before each due date of the principal of, premium (if any) or interest on the Securities set aside, segregate and hold in trust for the benefit of the Holders of the Securities a sum sufficient to pay such amount so becoming due. The Company will promptly notify the Trustee of any failure to take such action. Anything in this Section 4.4 to the contrary notwithstanding, but subject to Section 11.1, the Company may at any time, for the purpose of obtaining a satisfaction and discharge with respect to the Securities or for any other reason, pay or cause to be paid to the Trustee all sums held in trust with respect to the Securities by the Company or any Paying Agent hereunder, as required by this Section, such sums to be held by the Trustee upon the trusts herein contained. Anything in this Section 4.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.4 is subject to the provisions of Sections 11.3 and 11.4 hereof. SECTION 4.5 Reports and Information. (a) The Company will furnish to the Trustee within 120 days after the end of each fiscal year an Officers' Certificate stating that (i) a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made to determine whether the Company has kept, observed, performed and fulfilled all of its obligations under this Indenture and the Securities, (ii) such review was supervised by the Officers of the Company signing such certificate, and (iii) that to the best knowledge of each Officer signing such certificate, (A) during such year the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default occurred, describing all such Defaults or Events of Default of which each such Officer may have knowledge and what action the Company has taken or proposes to take with respect thereto), and (B) no event has occurred and remains in existence by reason of which payments on account of the principal of, premium (if any) or interest on, the Securities are prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, promptly after any Officer of the Company becomes aware of (i) any Default or Event of Default, or (ii) any default or event of default under any issue of Indebtedness that could result in an Event of Default under Section 7.1, an Officers' Certificate specifying such Default, Event of Default or default and what action the Company is taking or proposes to take with respect thereto. (b) If the Company is subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Commission all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. The Company shall file with the Trustee, within 5 days after it files the same with the Commission, copies of the quarterly and annual reports and such other information, documents, and reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that it files with the Commission as contemplated by this Section 4.5(b). The Company shall also comply with the other provisions of Section 314(a) of the TIA. If the Company is not required to file the aforementioned reports, the Company (at its own expense) shall file with the Trustee and mail, or cause the Trustee to mail, to Holders at their addresses appearing in the register of Securities at the time of such mailing within 5 days after it would have been required to file such information with the Commission, all information and financial statements, including any notes thereto and with respect to annual reports, an auditors' report by an accounting firm of established national reputation, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to the disclosure that the Company would have been required to include in annual and quarterly reports, information, 16 23 documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if the Company was subject to the requirements of Section 13 or 15(d) of the Exchange Act. SECTION 4.6 Corporate Existence. Subject to Article Six, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each Subsidiary of the Company and the rights (charter and statutory) and franchises of the Company and any Subsidiary of the Company; provided, that the Company shall not be required to preserve any such corporate, partnership or other existence of any Subsidiary or any such right or franchise, if the Board of Directors of the Company shall determine in the exercise of its business judgment that the preservation thereof is no longer desirable in the conduct of the business of the Company or any Subsidiary and that abandonment of any such right or franchise shall have no material adverse effect on the Company and its Subsidiaries taken as a whole, or the Holders. SECTION 4.7 Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon the property of the Company, or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and with respect to which an adequate reserve has been established by the Company to the extent required by GAAP. SECTION 4.8 Maintenance of Properties. The Company shall, and shall cause each of its Subsidiaries to, maintain all properties used or useful in the conduct of its business in good condition, repair and working order and supply such properties with all necessary equipment and make all necessary repairs, renewals, replacements, betterments and improvements thereto, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company or any Subsidiary from discontinuing the operation and maintenance of any of such properties if such discontinuance is, in the good faith judgment of the Company or such Subsidiary, as the case may be, desirable in the conduct of its respective business and not disadvantageous in any material respect to the Holders. SECTION 4.9 Maintenance of Insurance. The Company will insure and keep insured, and will cause each Subsidiary to insure and keep insured, with reputable insurance companies, such of their respective properties, to such an extent and against such risks, and will maintain liability insurance, to the extent that property of a similar character is usually so insured by companies engaged in a similar business and owning similar properties in accordance with good business practice. SECTION 4.10 Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliance as would not in the aggregate have a material adverse effect on the Company and its Subsidiaries, taken as a whole. SECTION 4.11 Change of Control. (a) Upon a Change of Control, each Holder shall have the right to require the Company to repurchase all or any part of such Holder's Securities at a repurchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). 17 24 (b) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the record Holders' right on the relevant record date to receive interest due on the relevant interest payment date); (ii) the circumstances and relevant facts regarding such Change of Control; (iii) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; and (iv) the instructions, consistent with this Section 4.11, that the Company determines that a Holder must follow to have its Securities repurchased. (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least 10 Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Company receives not later than three Business Days prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered by the Company to the Trustee for cancellation, together with an Officer's Certificate requesting such cancellation and stating that they are being delivered for cancellation in accordance with the terms of this Section 4.11 and that the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) The Company shall comply with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 4.11. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.11, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.11 by virtue thereof. (f) The Trustee shall be under no obligation to ascertain the occurrence of a Change of Control or to give notice with respect thereto other than as provided above, upon receipt of the written notice of Change of Control from the Company. The Trustee may conclusively assume, in the absence of written notice to the contrary from the Company, that no Change of Control has occurred. SECTION 4.12 Limitation on Issuances and Dispositions of Capital Stock of Subsidiaries. Each Subsidiary of the Company shall at all times be a Wholly Owned Subsidiary of the Company. The Company (i) shall not, and shall not permit any Subsidiary to, transfer, convey, sell, or otherwise dispose of any Capital Stock of a Subsidiary, or securities convertible or exchangeable into, or options, warrants, rights or any other interest with respect to, Capital Stock of a Subsidiary to any Person (other than the Company or a Wholly Owned Subsidiary) and (ii) shall not permit any Subsidiary to issue shares of its Capital Stock (other than directors' qualifying shares), or securities convertible or exchangeable into, or options, warrants, rights or any other interest with respect to, its Capital Stock to any Person other than to the Company or a Wholly Owned Subsidiary. SECTION 4.13 Limitation on Restricted Payments. (a) Except as otherwise provided in this Section 4.13, the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, 18 25 (i) declare or pay any dividends on or make any distributions in respect of the Capital Stock of the Company (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) or in options, warrants, or other rights to purchase Capital Stock (other than Redeemable Stock)) to holders of Capital Stock of the Company; (ii) purchase, redeem or otherwise acquire or retire for value (other than through the issuance solely of Capital Stock (other than Redeemable Stock) or options, warrants or other rights to purchase Capital Stock (other than Redeemable Stock)) any Capital Stock or warrants, rights (other than exchangeable or convertible Indebtedness of the Company not prohibited under clause (iii) below) or options to acquire Capital Stock of the Company; or (iii) redeem, repurchase, defease (including, but not limited to, in substance or legal defeasance), or otherwise acquire or retire for value (other than through the issuance solely of Capital Stock (other than Redeemable Stock) or warrants, rights or options to acquire Capital Stock (other than Redeemable Stock)) (collectively, a "prepayment"), directly or indirectly (including by way of amendment of the terms of any Indebtedness in connection with any retirement or acquisition of such Indebtedness), other than at any scheduled maturity thereof or by any scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company which is subordinated in right of payment to the Securities or which matures after the maturity date of the Securities (except out of the proceeds of Refinancing Indebtedness); if, at the time of such transaction described in clause (i), (ii) or (iii) (such transactions being hereinafter collectively referred to as "Restricted Payments") or after giving effect thereto, either (x) a Default or an Event of Default shall have occurred and be continuing or (y) the aggregate amount expended by the Company and its Subsidiaries for all Restricted Payments (the amount of any Restricted Payment if other than cash to be the fair market value of the property included in such payment as determined in good faith by the Board of Directors as evidenced by a Board Resolution) from and after the Closing Date shall exceed the sum of (A) 50% (or, if the Securities at the time of the proposed Restricted Payment are rated Investment Grade by both S&P and Moody's, 75%) of the aggregate Adjusted Consolidated Net Income (or if such Adjusted Consolidated Net Income is a loss, minus 100% of such loss) of the Company and its Subsidiaries for the period from the first day of the first quarter ended subsequent to the Closing Date and through the last day of the most recently completed quarter immediately preceding the quarter in which the Restricted Payment occurs, calculated on a cumulative basis as if such period were a single accounting period; (B) the aggregate net proceeds received by the Company after the Closing Date (including the fair market value of non-cash proceeds as determined in good faith by the Board of Directors as evidenced by a Board Resolution) from any Person other than a Subsidiary, as a result of the issuance of (or contribution to capital on) Capital Stock of the Company (other than any Redeemable Stock) or warrants, rights or options to acquire Capital Stock (other than any Redeemable Stock); (C) the aggregate net proceeds received by the Company after the Closing Date from any Person other than a Subsidiary as a result of the issuance of Capital Stock (other than Redeemable Stock) upon conversion or exchange of Indebtedness or upon exercise of options, warrants or other rights to acquire such Capital Stock and (D) $25,000,000. For purposes of any calculation that is required to be made in respect of, or after, the declaration of a dividend by the Company, such dividend shall be deemed to be paid at the date of declaration and shall be included in determining the aggregate amount of Restricted Payments. For the purposes of this Section 4.13, the net proceeds from the issuance of shares of Capital Stock of the Company upon conversion of debt securities shall be deemed to be an amount equal to the net book value of such debt securities (plus the additional amount required to be paid upon such conversion, if any), less any cash payment on account of fractional shares; the "net book value" of a security shall be the net amount received by the Company on the issuance of such security, as adjusted on the books of the Company to the date of conversion. (b) Notwithstanding the foregoing, if no Default or Event of Default shall have occurred or be continuing at the time or as a result thereof, the provisions of this Section 4.13 shall not prohibit (i) the 19 26 payment of any dividend in respect of the Company's Capital Stock within 60 days after the date of declaration thereof, if at such date of declaration such payment complied with the provisions hereof; (ii) the purchase, redemption or other acquisition or retirement for value of any shares of the Company's Capital Stock or the prepayment of any indebtedness of the Company which is subordinated in right of payment to the Securities or which matures after the maturity date of the Securities by any exchange for, or out of and to the extent the Company has received cash proceeds from the substantially concurrent sale or issuance (other than to a Subsidiary) of, shares of Capital Stock (other than any Redeemable Stock) of the Company or warrants, rights or options to acquire Capital Stock (other than any Redeemable Stock); or (iii) the purchase or redemption of shares of Capital Stock of the Company (including options on any such shares or related stock appreciation rights or similar securities) held by officers or employees of the Company or its Subsidiaries (or their estates or beneficiaries under their estates) upon death, disability, retirement, termination of employment of any such Person pursuant to the terms of any Plan or any other agreement under which such shares of stock or related rights were issued; provided that the aggregate amount of such purchases or redemptions of such Capital Stock shall not exceed $3,000,000 in any one fiscal year of the Company. For purposes of determining the aggregate amount of Restricted Payments permitted under clause (y) of Section 4.13(a), all amounts expended pursuant to clauses (i) (to the extent deemed to have been paid and already included in determining the aggregate amount of Restricted Payments pursuant to clause (y) of Section 4.13(a)), (ii) and (iii) of this paragraph shall be excluded. Prior to making any Restricted Payment under this Section, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments was determined. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this computation or that the provisions of this Section have been satisfied and shall be fully protected in relying on such Officers' Certificate. SECTION 4.14 Limitation on Transactions with Affiliates. (a) Neither the Company nor any Subsidiary of the Company shall, directly or indirectly (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or holder of 5% or more of any class of Capital Stock (and any Affiliate of such holder) of the Company (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under Section 4.14(b) and (y) Affiliate Transactions (including lease transactions) which are on fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than those as might reasonably have been obtainable at such time from an unaffiliated party; provided that if an Affiliate Transaction or series of related Affiliate Transactions involves or has a value in excess of $10,000,000, the Company or such Subsidiary, as the case may be, shall not enter into such Affiliate Transaction or series of related Affiliate Transactions unless a majority of the disinterested members of the Board of Directors of the Company or such Subsidiary shall reasonably and in good faith determine that such Affiliate Transaction is fair to the Company or such Subsidiary, as the case may be, or is on terms no less favorable to the Company or such Subsidiary, as the case may be, than those as might reasonably have been obtainable at such time from an unaffiliated party. (b) The provisions of Section 4.14(a) shall not apply to (i) any agreement as in effect as of the Closing Date, or any amendment thereto so long as any such amendment is not disadvantageous to the Holders in any material respect or any transaction contemplated thereby (including pursuant to any amendment thereto); (ii) any transaction between the Company and any Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith; (iv) any Restricted Payments not prohibited by Section 4.13; (v) any payments or other transactions pursuant to any tax sharing agreement between the Company and any other Person with which the Company is required or permitted to file a consolidated tax return or with which the Company 20 27 is or could be part of a consolidated group for tax purposes; and (vi) transactions with Continental Airlines, Inc., Mesa Airlines, Inc. and their respective Affiliates as contemplated by the Alliance Agreements. SECTION 4.15 Limitation on Asset Sales. Subject to the following paragraphs of this Section, in the event and to the extent that on any date after the Closing Date the Company and its Subsidiaries shall receive Net Cash Proceeds from one or more Asset Sales (other than Asset Sales by the Company or any Subsidiary to the Company or another Subsidiary), then the Company shall, or shall cause such Subsidiary to, within 12 months after such date apply an amount equal to such Net Cash Proceeds (A) to repay Indebtedness of the Company or Indebtedness of any Subsidiary, in each case owing to a Person other than the Company or any of its Subsidiaries, and/or (B) as an Investment (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in property or assets of a nature or type or that are used in a business (or in a Person having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Subsidiaries existing on the date thereof (as determined in good faith by the Board of Directors of the Company or such Subsidiary, as the case may be, whose determination shall be conclusive and evidenced by a Board Resolution). The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period as set forth in clause (A) or (B) of the preceding sentence shall constitute "Excess Proceeds." If on the first Business Day following any 12-month period referred to in the preceding paragraph, the aggregate amount of Excess Proceeds from all Asset Sales, not previously applied as provided in clause (A) or (B) of the preceding paragraph, exceeds $15,000,000, the Company, within 10 Business Days after the end of any such 12-month period, make an offer to purchase on a pro rata basis from all Holders (an "Excess Proceeds Offer"), and shall purchase from Holders accepting such Excess Proceeds Offer, the maximum principal amount (expressed as an integral multiple of $1,000) of Securities that may be purchased from funds in an amount equal to all such outstanding Excess Proceeds at a purchase price equal to 100% of the principal amount of the Securities so purchased, plus accrued and unpaid interest thereon (if any) to the date of purchase ("Excess Proceeds Payment"). Upon completion of an Excess Proceeds Offer (or upon termination of such offer if no repurchases are required), the amount of such Excess Proceeds relating thereto shall be equal to zero. The Company shall commence an Excess Proceeds Offer by causing the Trustee to mail a notice to each Holder stating: (i) that the Excess Proceeds Offer is being made pursuant to this Section 4.15 and that all Securities validly tendered will be accepted for purchase; provided, however, that if the aggregate purchase price of Securities tendered in an Excess Proceeds Offer (including accrued interest to the date of purchase) exceeds the aggregate amount of the Excess Proceeds required to be applied in such Excess Proceeds Offer, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or integral multiples thereof shall be purchased); (ii) the purchase price (including the amount of accrued interest) and the purchase date (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Excess Proceeds Purchase Date"); (iii) that any Security not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the purchase of such Security on the Excess Proceeds Purchase Date, any Security accepted for purchase pursuant to the Excess Proceeds Offer shall cease to accrue interest after the Excess Proceeds Purchase Date; (v) that Holders electing to have a Security purchased pursuant to the Excess Proceeds Offer will be required to surrender the Security, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Excess Proceeds Purchase Date; (vi) that each Holder will be entitled to withdraw its election (in whole but not in part) if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Excess Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing its election to have such Securities purchased; and (vii) that Holders whose Securities are being purchased only 21 28 in part will be issued new Securities equal in aggregate principal amount to the unpurchased portion of the Securities surrendered. On the Excess Proceeds Purchase Date, the Company shall: (i) accept for purchase on a pro rata basis Securities or portions thereof tendered pursuant to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for purchase by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail to each such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered; provided that each Security purchased and each new Security delivered shall be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. Notwithstanding the foregoing: (i) to the extent that any or all of the Net Cash Proceeds of any Asset Sale are prohibited or delayed by applicable local law from being repatriated to the United States of America, the portion of such Net Cash Proceeds so affected will not be required to be applied pursuant to this Section 4.14 but may be retained for so long, but only for so long, as the applicable local law will not permit repatriation to the United States of America (the Company hereby agrees to promptly take all reasonable actions required by the applicable local law to permit such repatriation) and once such repatriation of any such affected Net Cash Proceeds is permitted under the applicable local law, such repatriation will be immediately effected and such repatriated Net Cash Proceeds will be applied in the manner set forth in this Section 4.15 as if such Asset Sale had occurred on the date of repatriation; and (ii) to the extent that the Board of Directors of the Company has determined in good faith that repatriation of any or all of the Net Cash Proceeds would have an adverse tax consequence to the Company, the Net Cash Proceeds so affected may be retained outside the United States of America for so long as such adverse tax consequences would continue. The Company will comply with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that such Excess Proceeds are received by the Company as contemplated by this Section 4.15 and the Company is required to repurchase Securities as described above. SECTION 4.16 Limitation on Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any Subsidiary to, create or otherwise cause or suffer to exist or become effective any Payment Restriction or consensual encumbrance with respect to any Subsidiary thereof to (a) pay dividends or make any other distributions on such Subsidiary's Capital Stock; (b) make any loans or advances to the Company or any other Subsidiary; or (c) transfer any of its property or assets to the Company or any other Subsidiary except (i) restrictions imposed by applicable law; (ii) any restrictions existing under this Indenture; and (iii) encumbrances or restrictions contained in any agreement or instrument (A) relating to any property acquired or leased by the Company or any of its Subsidiaries after the Closing Date, provided that such encumbrance or restriction relates only the property which is acquired or leased; (B) relating to any Indebtedness of any Subsidiary at the date of acquisition of such Subsidiary by the Company or any Subsidiary of the Company, provided that such Indebtedness was not incurred in connection with, or in contemplation of, such acquisition (the Company being entitled to rely upon a certificate of such Subsidiary as to whether such Indebtedness was incurred in contemplation thereof); (C) arising pursuant to an agreement effecting a refinancing of Indebtedness issued pursuant to an agreement referred to in the foregoing clauses (A) and (B), so long as the encumbrances and restrictions contained in any such refinancing agreement are no more restrictive than the encumbrances and restrictions contained in such agreements; (D) which constitute customary provisions restricting subletting or assignment of any lease of the Company or any Subsidiary or provisions in agreements that restrict the assignment of such agreement or any rights thereunder; 22 29 and (E) which constitute restrictions on the sale or other disposition of any property securing Indebtedness as a result of a lien on such property. SECTION 4.17 [Intentionally Omitted]. SECTION 4.18 Limitation on Investments. The Company shall not, and shall not permit any Subsidiary to make any Investment other than (i) Investments consisting of non-cash proceeds from Asset Sales as contemplated by Section 4.15 of this Indenture; (ii) Investments consisting of Cash Equivalents; (iii) accounts receivable if credited or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iv) payroll advances and advances for business and travel expenses in the ordinary course of business; (v) Investments by the Company in its Subsidiaries in the ordinary course of business; (vi) Investments by any Subsidiary of the Company in the Company or in any Subsidiary; [(vii) Investments by the Company for the purpose of acquiring businesses reasonably related to the business of the Company, in an aggregate amount not exceeding $5,000,000 in any fiscal year of the Company; (viii) Investments made by way of any endorsement of negotiable instruments received by the Company or any Subsidiary in the ordinary course of its business and presented by it to any bank for collection or deposit; (ix) stock, obligations or securities received in settlement of debts created in the ordinary course of business owing to the company or any Subsidiary; (x) Investments by the Company in any Subsidiary for the purpose of receivables financing; and (xi) in addition to any other permitted investments, any other Investments by the Company in an aggregate amount not exceeding $1,000,000 at any time]. SECTION 4.19 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE FIVE SECURITYHOLDERS LISTS AND REPORTS BY COMPANY AND THE TRUSTEE SECTION 5.1 The Company to Furnish Trustee Information as to Names and Addresses of Securityholders. If and so long as the Trustee shall not be the Security registrar for the Securities, the Company covenants and agrees that it will furnish or cause to be furnished to the Trustee a list in such form as the Trustee may reasonably require of the names and addresses of the Holders of the Securities pursuant to Section 312 of the TIA: (a) semi-annually and not more than 15 days after each record date for the payment of interest on such Securities, as hereinabove specified and as of such record date, and (b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request as of a date not more than 15 days prior to the time such information is furnished. SECTION 5.2 Disclosure of Names and Addresses of Securityholders. Each and every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of the Company or the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 312 of the TIA, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the TIA. SECTION 5.3 Reports by the Trustee. Any Trustee's report required under Section 313(m) of the TIA shall be transmitted on or before May 15 in each year beginning May 15, 1995, as provided in 23 30 Section 313(c) of the TIA, so long as any Securities are outstanding hereunder, and shall be dated as of a date convenient to the Trustee no more than 60 days prior thereto. ARTICLE SIX CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER SECTION 6.1 Merger or Consolidation. The Company shall not consolidate with or merge into any other corporation or convey, lease or transfer its properties and assets substantially as an entirety to any Person, unless: (a) the corporation formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance, lease or transfer the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the Company's obligation for the due and punctual payment of the principal of and interest on all the Securities according to their tenor and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (b) immediately before and after giving effect to such transaction, no Event of Default, and no event that, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance, lease or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. This Section shall only apply to a merger or consolidation in which the Company is not the surviving corporation and to conveyances, leases, and transfers by the Company, as transferee or lessor. SECTION 6.2 Successor Corporation Substituted. Upon any consolidation or merger by the Company with or into any other corporation, or any conveyance or transfer by the Company of its properties and assets substantially as an entirety to any Person, in accordance with Section 6.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company and in the event of any such conveyance or transfer, the Company, except in the event of a conveyance by way of lease, shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved and liquidated. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession, any or all of the Securities issuable hereunder that theretofore shall not have been signed by the Company or and delivered to the Trustee; and, upon the order of such successor corporation, instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities that previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities that such successor corporation thereafter shall, cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, conveyance or transfer, such changes in phrasing and form (but not in substance) may be made in the Securities that may be endorsed thereon, as the case may be, thereafter to be delivered as may be appropriate. 24 31 ARTICLE SEVEN REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT SECTION 7.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default. "Event of Default", with respect to the Securities, means any one of the following events that shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of the principal of or premium (if any) on any Security when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Security when the same becomes due and payable, and such default continues for a period of 30 days; (c) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in this Indenture or under the Securities and such default or breach continues for a period of 30 consecutive days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" under the Indenture and demanding that the Company remedy the same, shall have been given by registered or certified mail, return receipt requested, to the Company by the Trustee or to the Company and the Trustee by the Holders of 25% or more in aggregate principal amount of the Securities Outstanding; (d) there occurs with respect to any issue or issues of Indebtedness of the Company and/or one or more Subsidiaries having an outstanding principal amount of $10 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration; (e) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Subsidiary and shall not be discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding against all such Persons to exceed $10 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (f) a court having jurisdiction in the premises enters a decree or order for (i) relief in respect of the Company or any Material Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Material Subsidiary or for all or substantially all of the property and assets of the Company or any Material Subsidiary or (iii) the winding up or liquidation of the affairs of the Company or any Material Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (g) the Company or any Material Subsidiary (i) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Material Subsidiary or for all or substantially all of the property and assets of the Company or any Material Subsidiary or (iii) effects any general assignment for the benefit of creditors of the Company or any Material Subsidiary; (h) the Company and/or one or more Subsidiaries fail to make at the final (but not any interim) fixed maturity of one or more issues of Indebtedness a principal payment or principal payments 25 32 aggregating more than $10 million and all such defaulted payments shall not have been made, waived or extended within 30 days of the payment default that caused the aggregate amount of such defaulted payments to exceed $10 million; or (i) any of the Applicable Documents shall cease, for any reason, to be in full force and effect in any material respect, except as a result of an amendment, waiver or termination thereof as contemplated or permitted therein. If an Event of Default (other than an Event of Default specified in clause (f) or (g) above that occurs with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% of the aggregate principal amount of the Securities then Outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders (the "Acceleration Notice" )), may, and the Trustee at the request of the Holders shall, declare the entire unpaid principal, premium (if any) and accrued interest on the Securities to be immediately due and payable as specified below. Upon a declaration of acceleration, such principal, premium (if any) and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (d) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default shall be remedied, cured by the Company or waived by the holders of the relevant Indebtedness within 30 days after the occurrence of the Event of Default with respect thereto and the Company has delivered an Officer's Certificate as to such effect. If an Event of Default specified in clause (f) or (g) above occurs with respect to the Company, all unpaid principal of, premium (if any) and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in principal amount of the outstanding Securities, by written notice to the Company and the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal of, premium, if any, and interest on Securities that have become due solely by such declaration of acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. Upon receipt by the Trustee of any Notice of Default pursuant to this Section 7.1 with respect to Securities all or part of which are represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities entitled to join in such Notice of Default, which record date shall be at the close of business on the day the Trustee receives such Notice of Default. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such Notice of Default, whether or not such Holders remain Holders after such record date; provided, that unless Holders of at least 25% in principal amount of the Outstanding Securities, or their proxies, shall have joined in such Notice of Default prior to the day which is 90 days after such record date, such Notice of Default shall automatically and without further action by any Holder be cancelled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new Notice of Default identical to a Notice of Default which has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 7.1. Upon receipt by the Trustee of any Acceleration Notice or any rescission and annulment thereof, with respect to Securities all or part of which are represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be cancelled and of no further effect. Nothing in this paragraph shall 26 33 prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 7.1. SECTION 7.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt. The Company covenants that (a) in case default shall be made in the payment of any installment of interest on any of the Securities when such interest shall have become due and payable, and such default shall have continued for a period of 30 days or (b) in case default shall be made in the payment of all or any part of the principal of any of the Securities when the same shall have become due and payable, whether upon maturity of the Securities or upon any redemption or by declaration or otherwise, then upon demand of the Trustee, the Company will pay to the Trustee for the benefit of the Holders of the Securities the whole amount that then shall have become due and payable an all Securities for principal or interest, as the case may be (with interest to the date of such payment upon the overdue principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest at the same rate as the rate of interest specified in the Securities); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and any expenses and liabilities incurred, and all advances made by the Trustee and each predecessor Trustee except as a result of its negligence or bad faith. Until such demand is made by the Trustee, the Company may pay the principal of and interest on the Securities to the registered Holders, whether or not the Securities are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Securities and collect in the manner provided by law out of the property of the Company or other obligor upon the Securities, wherever situated the monies adjudged or decreed to be payable. In case there shall be pending proceedings relative to the Company or any other obligor upon the Securities under Title 11 of the United States Code or any other applicable Federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or the property of the Company or such other obligor, or in case of any other judicial proceedings relative to the Company or other obligor upon the Securities, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee will have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise: (a) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Securityholders allowed in any judicial proceedings relative to the Company or other obligor upon the Securities, or to the creditors or property of the Company or such other obligor, (b) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of the Securities in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and 27 34 (c) to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute all amounts received with respect to the claims of the Securityholders and of the Trustee on their behalf; and any trustee, receiver, or liquidator, custodian or other similar official is hereby authorized by each of the Securityholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar person. All rights of action and of asserting claims under this Indenture, or under any of the Securities may be enforced by the Trustee without the possession of any of the Securities or the production thereof on any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Securities in respect of which such action was taken, and it shall not be necessary to make any Holders of such Securities parties to any such proceedings. SECTION 7.3 Application of Proceeds. Any monies collected by the Trustee pursuant to this Article Seven in respect of the Securities shall be applied in the following order at the date or dates fixed by the Trustee and, in the case of the distribution of such monies on account of principal or interest, upon presentation of the several Securities in respect of which monies have been collected and stamping (or otherwise noting) thereon the payment, or issuing Securities in reduced principal amounts in exchange for the presented Securities if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of amounts due the Trustee or any predecessor Trustee under Section 8.6; SECOND: In case the principal of the Securities shall not have become and be then due and payable, to the payment of interest on the Securities in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the same rate as the rate of interest specified in the Securities, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; THIRD: In case the principal of the Securities shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities for principal and interest, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the same rate as the rate of interest specified in the Securities and in case such monies shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities, then to the payment of such principal and interest without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Security over any other Security, ratably to the aggregate of such principal and accrued and unpaid interest; and FOURTH: To the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto. 28 35 SECTION 7.4 Suits for Enforcement. In case an Event of Default has occurred, has not been waived and is continuing, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. SECTION 7.5 Restoration of Rights on Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. SECTION 7.6 Limitations on Suits by Securityholders. A Holder of Securities may not pursue any remedy with respect to this Indenture or the Securities unless; (i) such Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Securities do not give the Trustee a direction that is inconsistent with the request. For purposes of this Section 7.6, the Trustee shall comply with Section 316(a) of the TIA in making any determination of whether the Holders of the required aggregate principal amount of outstanding Securities have concurred in any request or direction of the Trustee to pursue any remedy available to the Trustee or the Holders with respect to this Indenture or the Securities or otherwise under the law. A Holder of Securities may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 7.7 Unconditional Right of Securityholders to Institute Certain Suits. Notwithstanding any other provision in this Indenture and any provision of any Security, the right of any Holder of any Security to receive payment of the principal of, premium (if any) and interest on such Security on or after the respective due dates expressed in such Security, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 7.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. Except as provided in Section 7.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to Section 7.6, every power and remedy given by this Indenture or by law to the Trustee or to the Holders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Holders. SECTION 7.9 Control by Holders of Securities. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Securities by this Indenture; provided, that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture; and provided, further, that 29 36 (subject to the provisions of Section 8.1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors, the executive committee, or a trust committee of directors or Responsible Officers of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forbearances specified in or pursuant to such direction would be unduly prejudicial to the interests of Holders not joining in the giving of said direction. It being understood that (subject to Section 8.1) the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders. Nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and that is not inconsistent with such direction or directions by the Holders. Upon receipt by the Trustee of any written notice directing the time, method or place of conducting any such proceeding or exercising any such trust or power, with respect to Securities all or part of which are represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless the Holders of a majority in principal amount of the Outstanding Securities shall have joined in such notice prior to the day which is 90 days after such record date, such notice shall automatically and without further action by any Holder be cancelled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new notice identical to a notice which has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 7.9. SECTION 7.10 Waiver of Past Defaults. Subject to Sections 7.1 and 7.7, the Holders of at least a majority in principal amount of the outstanding Securities, by notice to the Trustee, may waive an existing Event of Default and its consequences, except a default in the payment of principal of or interest on any Security as specified in clause (a) or (b) of Section 7.1. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any past default hereunder. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to waive any default hereunder, whether or not such Holders remain Holders after such record date; provided, that unless such majority in principal amount shall have waived such default prior to the date which is 90 days after such record date, any such waiver previously given shall automatically and without further action by any Holder be cancelled and of no further effect. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default at Event of Default or impair any right consequent thereon. SECTION 7.11 Trustees to Give Notice of Default, But May Withhold in Certain Circumstances. The Trustee shall, within ninety days after the occurrence of a Default with respect to the Securities, give notice of all Defaults known to the Trustee to all Holders of Securities in the manner and to the extent provided in Section 313(c) of the TIA, unless in each case such Defaults shall have been cured before the mailing or publication of such notice; provided, however, that, except in the case of Default in the payment of the principal of or interest on any of the Securities, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or trustees or Responsible Officers of the Trustee, or any combination of the foregoing, in good faith determines that the withholding of such notice is in the interests of the Securityholders. SECTION 7.12 Right of Court to Require Filing of Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Security by its acceptance thereof shall be deemed to have agreed, 30 37 that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merit and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder or group of Securityholders holding in the aggregate more than 10% in aggregate principal amount of the Securities or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on any Security on or after the due date expressed in such Security or any date fixed for redemption. ARTICLE EIGHT CONCERNING THE TRUSTEE SECTION 8.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default. With respect to the Holders of the Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Securities and after the curing or waiving of all Events of Default that may have occurred, has undertaken to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to the Securities has occurred (that has not been cured or waived), the Trustee shall exercise with respect to such Securities such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (a) prior to the occurrence of an Event of Default with respect to the Securities and after the curing or waiving of all such Events of Default with respect to such Securities that may have occurred: (i) the duties and obligations of the Trustee with respect to the Securities shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statements, certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders pursuant to Section 7.9 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there shall be reasonable ground for believing that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to it. 31 38 Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. The provisions of this Section 8.1 are in furtherance of and subject to Section 315 of the TIA. SECTION 8.2 Certain Rights of the Trustee. In furtherance of and subject to the TIA, and subject to Section 8.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate of the Company (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors of the Company may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant secretary of the Company; (c) the Trustee may consult with counsel and any written advice or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture; and (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing to so do by the Holders of not less than a majority in aggregate principal amount of the Securities then Outstanding; provided, however, that, if the payment within a reasonable time to the Trustee of the costs, expenses, or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand. SECTION 8.3 Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of any of the Securities or of the proceeds thereof. SECTION 8.4 Trustee and Agents May Hold Securities; Collections, etc. The Trustee or any agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not the Trustee or such agent and may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee or such agent. 32 39 SECTION 8.5 Monies Held by Trustee. Subject to the provisions of Section 11.4 hereof, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Neither the Trustee nor any agent of the Company or the Trustee shall be under any liability for interest on any monies received by it hereunder. SECTION 8.6 Compensation and Indemnification of Trustee and Its Prior Claim. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred, without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute additional indebtedness of the Company hereunder and shall survive the satisfaction and discharge of this Indenture. Such additional indebtedness shall be a senior claim to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities, and the Securities are hereby subordinated to such senior claim. SECTION 8.7 Right of Trustee to Rely on Officers' Certificate, etc. Subject to Sections 8.1 and 8.2, whenever in the administration of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate of the Company delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. SECTION 8.8 Persons Eligible for Appointment as Trustee. The Trustee shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State or the District of Columbia, or a corporation or other Person permitted to act as Trustee by the Commission pursuant to the TIA, having a combined capital and surplus of at least $50,000,000, and that is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal, State or District of Columbia authority. Such corporation shall have an address in the Borough of Manhattan, The City of New York for the presentment of Securities. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.9. The provisions of this Section 8.8 are in furtherance of and subject to Section 310(a) of the TIA. SECTION 8.9 Resignation and Removal; Appointment of Successor Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice of resignation to the Company and by mailing notice of such resignation to the Holders of then Outstanding Securities at their addresses as they shall appear on the registry books. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee or trustees by written 33 40 instrument in duplicate, executed by authority of the Board of Directors of the Company, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee or trustees. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Securityholder who has been a bona fide Holder of a Security or Securities for at least six months may, subject to the provisions of Section 8.12, on behalf of itself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (i) the Trustee shall fail to comply with the provisions of Section 310(b) of the TIA with respect to the Securities after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of a Security or Securities for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 8.8 and Section 310(a) of the TIA and shall fail to resign after written request therefor by the Company or by any Securityholder; or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, unless the Trustee's duty to resign has been stayed as provided pursuant to Section 310(b) of the TIA, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 315(e) of the TIA, any Securityholder who has been a bona fide Holder of a Security or Securities of such series for at least six months may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The Holders of a majority in aggregate principal amount of the Securities at the time Outstanding may at any time remove the Trustee and appoint a successor trustee by delivering to the Trustee so removed, to the successor trustee so appointed, and to the Company the evidence provided for in Section 9.1 of the action in that regard taken by the Securityholders. (d) Any resignation or removal of the Trustee and any appointment of a successor trustee pursuant to any of the provisions of this Section 8.9 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.10. SECTION 8.10 Acceptance of Appointment by Successor Trustee. Any successor trustee appointed as provided in Section 8.9 shall execute and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee hereunder; but nevertheless, on the written request of the Company or of the successor trustee, upon payment of its charges then unpaid, the Trustee ceasing to act shall, subject to Section 11.4, pay over to the successor trustee all monies at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 8.6. 34 41 No successor trustee shall accept appointment as provided to this Section 8.10 unless at the time of such acceptance such successor trustee shall be qualified under Section 310(b) of the TIA and eligible under the provisions of Section 8.8. Upon acceptance of appointment by any successor trustee as provided in this Section 8.10, the Company shall give notice thereof to the Holders of Securities, by mailing such notice to such Holders at their addresses as they shall appear on the registry books. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 8.9. If the Company fails to give such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Company. SECTION 8.11 Merger, Conversion, Consolidation or Succession to Business of Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder; provided, however, that such corporation shall be qualified under Section 310(b) of the TIA and eligible under the provisions of Section 8.8, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case at the time such successor to the Trustee shall succeed to the trust created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee hereunder or in the name of the successor Trustee; and in all such cases such certificate shall have the full force that it has anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 8.12 Preferential Collection of Claims Against the Company. The Trustee shall comply with Section 311(a) of the TIA. Any Trustee that has resigned or been removed is subject to Section 311(s) of the TIA to the extent indicated therein. SECTION 8.13 Appointment of Authenticating Agent. As long as any Securities remain Outstanding, the Trustee may, by an instrument in writing, appoint an authenticating agent (the "Authenticating Agent") that shall be authorized to act on behalf of the Trustee to authenticate Securities, including Securities issued upon exchange, registration of transfer, partial redemption or pursuant to Section 2.5. Securities authenticated by such Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee. Whenever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or to the Trustee's Certificate of Authentication (including, without limitation, in Section 2.3), such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a Certificate of Authentication executed on behalf of the Trustee by such Authenticating Agent. Such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $5,000,000 (determined as provided in Section 8.8 with respect to the Trustee) and subject to supervision or examination by Federal or State authority. Any corporation into which any Authenticating Agent may be merged or converted, or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency business of any Authenticating Agent, shall continue to be the Authenticating Agent with respect to all Securities for which it served as Authenticating Agent without the execution or filing of any paper or any further act on the part of 35 42 the Trustee or such Authenticating Agent. Any Authenticating Agent may at any time, and if it shall cease to be eligible shall, resign by giving written notice of resignation to the Trustee and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 8.13, the Trustee shall upon receipt of an Company Order appoint a successor Authenticating Agent and the Company shall provide notice of such appointment to all Holders in the manner and to the extent provided in Section 12.4. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent. The Company agrees to pay to the Authenticating Agent from time to time reasonable compensation. The Authenticating Agent for the Securities shall have no responsibility or liability for any action taken by it as such at the direction of the Trustee. Sections 8.2, 8.3, 8.4, 8.6, 8.8 and 9.3 shall be applicable to any Authenticating Agent as if each reference to "Trustee" therein referred to the Authenticating Agent. ARTICLE NINE CONCERNING THE SECURITYHOLDERS SECTION 9.1 Evidence of Action Taken by Securityholders. Any request demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by a specified percentage in principal amount of the Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such specified percentage of Securityholders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 8.1 and 8.2) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Article Nine. SECTION 9.2 Proof of Execution of Instruments and of Holding of Securities. Subject to Sections 8.1 and 8.2, the execution of any instrument by a Securityholder or his agent or proxy may be proved in the following manner: (a) The fact and date of the execution by any Holder of any instrument may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the person executing such instruments acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or other such officer. Where such execution is by or on behalf of any legal entity other than an individual, such certificate or affidavit shall also constitute sufficient proof of the authority of the person executing the same. (b) The ownership of Securities shall be proved by the Security register or by a certificate of the Security registrar. The Company may set a record date for purposes of determining the identity of Holders of Securities entitled to vote or consent to any action referred to in Section 9.1, which record date may be set at any time or from time to time by notice to the Trustee, for any date or dates (in the case of any adjournment or reconsideration not more than 60 days nor less than five days prior to the proposed date of such vote or consent, and thereafter, notwithstanding any other provisions hereof, only Holders of Securities of record on such record date shall be entitled to so vote or give such consent or revoke such vote or comment. SECTION 9.3 Holders to be Treated as Owners. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the person in whose name any Security shall be registered upon the Security register as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium (if any) and interest on such Security and for all other purposes, 36 43 and neither the Company or the Trustee nor any agent of the Company or the Trustee shall be affected by any notice to the contrary. SECTION 9.4 Securities Owned by the Company Deemed Not Outstanding. In determining whether the Holders of the requisite aggregate principal amount of Outstanding Securities have concurred in any direction, consent or waiver under this Indenture, Securities that are owned by the Company or any other obligor on the Securities with respect to which such determination is being made or by any Affiliate of the Company or any other obligor on the Securities with respect to which such determination is being made shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver only Securities that the Trustee knows are so owned shall be so disregarded. Securities so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Securities. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Trustee in accordance with such advice. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officer's Certificate listing and identifying all Securities, if any, known by the Company, to be owned or held by or for the account of any of the above-described persons; and, subject to Sections 8.1 and 8.2, the Trustee shall be entitled to accept such Officer's Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. SECTION 9.5 Right of Revocation of Action Taken. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 9.1, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action, any Holder of a Security the serial number of which is shown by the evidence to be included among the serial numbers of the Securities the Holders of which have consented to such action may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article Nine, revoke such action so far as it concerns such Security. Except as aforesaid, any such action taken by the Holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Security and of any Securities issued in exchange of substitution therefor or on registration of transfer thereof, irrespective of whether or not any notation in regard thereto is made upon any such Security. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the Holders of all the Securities affected by such action. ARTICLE TEN AMENDMENTS SECTION 10.1 Amendments and Supplements Permitted Without Consent of Holders. (a) Notwithstanding Section 10.2, the Company and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder to: (i) cure any ambiguity, correct or supplement any provisions herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided that such amendment does not adversely affect the rights of the Holders; (ii) provide for uncertificated Securities in addition to or in place of certificated Securities; (iii) evidence the succession of another corporation to the Company and provide for the assumption by such successor of the Company's obligations to the Holders hereunder and under the Notes as permitted under Article Six; (iv) make any change that would (1) provide any additional rights or benefits to Holders or (2) not adversely affect the legal rights under the Indenture of any Holder, or (v) comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. 37 44 (b) Upon the Company's request, after receipt by the Trustee of a resolution of the Board of Directors authorizing the execution of any amended or supplemental indenture, and the documents described in Section 10.6, the Trustee shall join with the Company in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be contained in any such amended or supplemental indenture, but the Trustee shall not be obligated to enter into an amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 10.2 Amendments and Supplements Requiring Consent of Holders. (a) Except as otherwise provided in Section 10.1(a) and 10.2(c), this Indenture and the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for the Securities), and any existing Default or Event of Default or non-compliance with any provision of the Indenture or the Securities may be waived with the consent of Holders of at least a majority in principal of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for the Securities). (b) Upon the Company's request and after receipt by the Trustee of a resolution of the Board of Directors authorizing the execution of any supplemental indenture, evidence of the Holders' consent, and the documents described in Section 10.6, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. (c) Without the consent of each Holder affected, no amendment, supplement or waiver to this Indenture shall: (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture on the Securities, (ii) reduce the principal of or change the fixed maturity of any Security, or alter the provisions with respect to the redemption of the Securities in a manner adverse to the Holders, (iii) reduce the rate of or change the time for payment of interest on any Security, (iv) waive a Default or Event of Default in the payment of principal of, or premium (if any) or interest on, the Securities (except that Holders of at least a majority in aggregate principal amount of the then outstanding Securities may (1) rescind an acceleration of the Securities that resulted from a non-payment default, and (2) waive the payment default that resulted from such acceleration), (v) make any Security payable in money other than U.S. Legal Tender, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of, or premium (if any) or interest on, the Securities, (vii) waive a redemption payment with respect to any Security, or (ix) make any change in Section 7.7, Section 7.10 or this sentence. (d) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be cancelled and of no further effect. (e) It shall not be necessary for the consent of the Holders under this Section 10.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 10.2 becomes effective, the Company shall mail to each Holder affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. 38 45 SECTION 10.3 Compliance with TIA. Every amendment or supplement to this Indenture or the Securities shall be set forth in an amended supplemental indenture that complies with the TIA as then in effect. SECTION 10.4 Revocation and Effect of Consents. (a) Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent holder of a Security or portion of a Security that evidences the same Indebtedness as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment or waiver. (b) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the holders of Securities entitled to consent to any amendment or waiver. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those Persons who were holders of Securities at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment or waiver or to revoke any consent previously given, whether or not such Persons continue to be holders of Securities after such record date. No consent shall be valid or effective for more than 90 days after such record date. (c) After an amendment or waiver becomes effective it shall bind every Holder, unless it is of the type described in Section 10.2(c), in which case the amendment or waiver shall only bind each Holder that consented to it and every subsequent holder of a Security that evidences the same debt as the consenting Holder's Security. SECTION 10.5 Notation on or Exchange of Securities. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 10.6 Trustee Protected. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article Ten if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 8.1, shall be fully protected in relying upon, an Officers' Certificate and Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. ARTICLE ELEVEN SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONIES SECTION 11.1 Satisfaction and Discharge of Indenture. (A) Except as otherwise provided in this Section 11.1, the Company may terminate its obligations under the Securities and this Indenture with respect to the Securities if: (i) all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities that have been replaced or Securities that are paid pursuant to Section 4.1 of this Indenture or Securities for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 11.4 of this Indenture) have been 39 46 delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) the Securities mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obligations sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of any interest thereon, to pay principal and interest on the Securities to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (C) no Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which either is bound and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (i), the Company's obligations under Section 8.6 shall survive. With respect to the foregoing clause (ii), the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 4.1, 4.2, 4.3, 4.4, 8.6, 8.9, 11.2, 11.4 and 11.5 of this Indenture shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations in Section 8.6 and 11.2 of this Indenture shall survive. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture with respect to the Securities except for those surviving obligations specified above. (B) The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Securities on the 123rd day after the deposit referred to in clause (d) of this paragraph, and the provisions of this Indenture will no longer be in effect with respect to the Securities, except as to (i) rights of registration of transfer and exchange, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Securities, (iii) rights of Holders to receive payments of principal thereof and interest thereon, (iv) the Company's obligations under Section , (v) the rights, obligations and immunities of the Trustee hereunder and (vi) the rights of the Holders of Securities as beneficiaries of this Indenture with respect to the property so deposited with the Trustee payable to all or any of them, and the Trustee, at the expense of the Company, shall at the Company's request execute proper instruments acknowledging the same; provided that the following conditions shall have been satisfied: (a) with reference to this Section 11.1(B), the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 8.8) and conveyed all right, title and interest for the benefit of the Holders of the Securities, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, in and to (1) money in an amount, (2) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (a), money in an amount or (3) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and interest on the outstanding Securities at the Stated Maturity of such principal or interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Securities; 40 47 (b) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which either is bound; (c) the Company shall have delivered to the Trustee (1) either (x) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of Securities will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 11.1(B) and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised or (y) an Opinion of Counsel to the same effect as the ruling described in clause (x) above and (2) an Opinion of Counsel to the effect that (w) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (x) the Holders have a valid first-priority security interest in the trust funds and (y) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (I) the trust funds will not longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (II) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (a) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (b) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; (d) if the Securities are then listed on a national securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit, defeasance and discharge will not cause the Securities to be delisted; and (e) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 11.1(B) have been complied with. Notwithstanding the foregoing clause (a), prior to the end of the 123-day period referenced to in clause (d)(2)(y) above, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day period with respect to this Section 11.1, the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 4.1, 4.2, 4.3, 4.4, 8.6, 8.9, 11.2, 11.4 and 11.5 shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations in Section 8.6 and 11.2 shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (d)(1) above is able to be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.1, then the Company's obligations under such Section 4.1 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 11.1. After any such irrevocable deposit, the Trustee upon request, shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture with respect to the Securities except for those surviving obligations in the immediately preceding paragraph. (C) The Company may omit to comply with any term, provision or condition set forth in clause (d) of Section 6.1 of this Indenture, the covenants described in Sections 4.11, 4.13, 4.14, 4.15 and 4.18 of this Indenture and clause (c) of Section 7.1 of this Indenture with respect to such covenants, and clauses (d), 41 48 (e) and (h) of Section 7.1 shall be deemed not to be Events of Default, in each case with respect to the outstanding Securities if: (a) with reference to this Section 11.1(C), the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 8.8) and conveyed in and to all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee as security for payment of the principal of, premium, if any, and interest, in any, on the Securities for, and dedicated solely to, the benefit of the Holders of the Securities, in and to (1) money in an amount, (2) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (a), money in an amount or (3) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and interest on the outstanding Securities on the Stated Maturity of such principal or interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Securities; (b) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (c) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (d) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (1) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (2) the Holders of the Securities have a valid first-priority security interest in the trust funds, (3) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (4) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (x) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (y) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, and (i) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trustee funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (ii) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; (e) if the Securities are then listed on a national securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit, defeasance and discharge will not cause the Securities to be delisted; and 42 49 (f) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 11.1 have been complied with. SECTION 11.2 Application by Trustee of Funds Deposited for Payment of Securities; Other Miscellaneous Provisions. Subject to Section 11.4, all monies deposited with the Trustee (or other trustee) pursuant to Section 11.3 shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company or the guarantor acting as Paying Agent), to the Holders of the Securities for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal premium, if any, and interest if may; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or any Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 11.1 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such applications, the Company's obligations under this Indenture and the Securities related thereto shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.1B(a) or 11.1C(a) until such time as the Trustee or any Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 11.1; provided, however, that if the Company has made any payment of interest on or principal of and premium (if any) on the Securities because of the reinstatement of its obligations hereunder, the Company shall be subrogated to the rights of the holders of the Securities to receive such payment from the money or U.S. Government obligations held by the Trustee for such purpose. SECTION 11.3 Repayment of Monies Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to Securities, all monies then held by any Paying Agent under the provisions of this Indenture with respect to such Securities shall, upon demand of the Company, be repaid to the Company or paid to the Trustee and thereupon such Paying Agent shall be released from all further liability with respect to such monies. SECTION 11.4 Return of Monies Held by Trustee and Paying Agent Unclaimed for Two Years. Any monies deposited with or paid to the Trustee or any Paying Agent for the payment of the principal of, premium (if any) or interest on any Security and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall have become due and payable shall, upon the written request of the Company and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such Paying Agent, and the Holder of the Securities shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment that such Holder may be entitled to collect, and all liability of the Trustee or any Paying Agent with respect to such monies shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment with respect to monies deposited with it for any payment, may at the expense of the Company, mail by first-class mail to Holders of such Securities at their addresses as they shall appear on the security register notice, that such monies remain and that, after a date specified therein, which shall not be less than thirty days from the date of such mailing, any unclaimed balance of such money then remaining will be, repaid to the Company. SECTION 11.5 Indemnity for U.S. Government Obligations. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited by the Company pursuant to Section 11.1 or the principal or interest received in respect of such obligations. ARTICLE TWELVE MISCELLANEOUS PROVISIONS SECTION 12.1 Incorporators, Stockholders, Officers and Directors of the Company Exempt from Individual Liability. No director, officer, employee, incorporator or shareholder of the Company or the 43 50 Trustee shall have any liability for any obligation of the Company under this Indenture or the Securities or for any claim based on, in respect of, or by reason of, any such obligation or the creation of any such obligation. Each Holder by accepting a Security waives and releases such Persons from all such liability and such waiver and release is part of the consideration for the issuance of the Securities. SECTION 12.2 Provisions of Indenture for the Sole Benefit of Parties and Holders of Securities. Nothing in this Indenture or in the Securities expressed or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and their successors and the Holders of the Securities any legal or equitable right, remedy or claim under this Indenture or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and their successors and of the Holders of the Securities. SECTION 12.3 Successors and Assigns of the Company Bound by Indenture. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. SECTION 12.4 Notices. Any notice, communication or demand that by any provision of this Indenture is required or permitted to be given or served may be given or served by being personally delivered, deposited postage prepaid, first-class mail, return receipt requested or delivered by telecopier or overnight air courier guaranteeing next day delivery addressed if to the Company to: 4000 East Sky Harbor Blvd., Phoenix, Arizona 85034; if to the Trustee to: . The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Where this Indenture provides for notice to Holders of Registered Securities, such notice shall be sufficiently given (unless otherwise herein expressly provided) it in writing and mailed, first-class postage prepaid, to each Holder entitled thereto, at his last address an it appears in the Security register. In any case where notice to such Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but each filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 12.5 Officers' Certificates and Opinions of Counsel; Statements to be Contained Therein. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition, (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based, (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to 44 51 factual matters, information with respect to which is in the possession of the Company, upon the certificate, statement or opinion of or representations by an officer or officers of the Company unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with and directed to the Trustee shall contain a statement that such firm is independent. SECTION 12.6 Payments Due on Saturdays, Sundays and Holidays. If the date of maturity of interest on or principal of the Securities the date fixed for redemption or repayment of any Security shall not be a Business Day, then payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. SECTION 12.7 Conflict of Any Provision of Indenture with Trust Indenture Act of 1939. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, Sections 310 to 316, inclusive, of the Trust Indenture Act of 1939, such imposed duties or incorporated provision shall control. SECTION 12.8 New York Law to Govern. This Indenture and each Security, shall be deemed to be a contract under the law of the State of New York, and for all purposes shall be construed in accordance with the law of such State, except as may otherwise be required by mandatory provisions of law. SECTION 12.9 Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 12.10 Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 45 52 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of August , 1994. AMERICA WEST AIRLINES, INC. By: Title: Attest: By: Title: AMERICAN BANK NATIONAL ASSOCIATION By: Title: Attest: By: Title: 46 53 STATE OF NEW YORK ss.: COUNTY OF NEW YORK On this of August , 1994, before me personally came , to me personally known, who, being by me duly sworn, did depose and say that he resides at ; that he is the of America West Airlines, Inc., one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that It was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. (NOTARIAL SEAL) -------------------------------------- Notary Public 47 54 STATE OF NEW YORK ss.: COUNTY OF NEW YORK On this of August, 1994, before me personally came , to me personally known, who, being by me duly sworn, did depose and say that he resides at ; that he is the of [TRUSTEE], one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that It was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. (NOTARIAL SEAL) -------------------------------------- Notary Public 67762.c7 48 55 EXHIBIT A [FORM OF FACE OF SECURITY] THE ISSUANCE OF THE SECURITIES PRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE. [OID LEGEND] AMERICA WEST AIRLINES, INC. % SENIOR UNSECURED NOTES DUE 2001 No. R- $ America West Airlines, Inc. a Delaware corporation (the "Company"), which term includes any successor corporation, for value received, promises to pay , or registered assigns, the principal sum of on , 2001. Interest Payment Dates: 15 and 15, commencing , 1994. Record Dates: 1 and 1. This Security is continued on the following page and the additional provisions set forth therein shall for all purposes have the same effect as if set forth at this place. A-1 56 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed to, or imprinted on, this Security. Dated: AMERICA WEST AIRLINES, INC. By: ------------------------------------ Name: Title: Attest: - --------------------------------------------------------- Assistant Secretary [Seal] TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities described in the within mentioned Indenture. [TRUSTEE], as trustee By: ------------------------------------ Authorized Signature A-2 57 AMERICA WEST AIRLINES, INC. [FORM OF REVERSE OF SECURITY] % SENIOR UNSECURED NOTES DUE 2001 1. INTEREST. America West Airlines, Inc., a Delaware corporation (the "Company"), promises to pay interest on the unpaid principal amount of this Security to Persons who are registered Holders at the close of business on the relevant Record Date at the rate of % per annum. Interest shall be computed on the basis of a 360-day year of twelve 30-day months and shall be payable semi-annually on 15 and 15 of each year commencing 15, 1994, or if any such day is not a Business Day, on the next succeeding Business Day. Interest will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest shall accrue with respect to principal on this Security to, but not including the date of repayment of such principal; provided, however, that if payment to the Paying Agent occurs after 10:00 a.m., New York City time, interest shall be deemed to accrue until the following Business Day. To the extent lawful, the Company shall pay interest on overdue principal, premium (if any) and interest at the rate of interest borne by this Security. On each Interest Payment Date, interest on the Securities will be paid for the immediately preceding accrual period. 2. METHOD OF PAYMENT. The Company will pay interest on the Securities (except defaulted interest) to the persons who are registered Holders at the close of business on the Record Date next preceding the applicable Interest Payment Date. If the Company defaults in the payment of the interest due on such Interest Payment Date, such defaulted interest will be paid to the Persons who are registered Holders of Securities at the close of business on a subsequent record date established by notice given not less than 15 days prior to such subsequent record date. The Company will pay the principal of this Security to the Holder that surrenders this Security to a Paying Agent on or after , 2001 or, in the event of a redemption of this Security, on or after the Redemption Date, as described below. The Company will pay principal and interest in U.S. Legal Tender by Federal funds bank wire transfer or (in the case of payment of interest) by check. If this Security is a Global Security, all payments in respect of this Security will be made to the Depository or its nominee in immediately available funds in accordance with customary procedures established from time to time by the Depository. 3. PAYING AGENT AND REGISTRAR. Initially, (the "Trustee"), will act as Paying Agent and registrar for the Securities. The Company may change any Paying Agent, co-Paying Agent, registrar or co-registrar without notice. Except as provided in the Indenture, the Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, registrar or co-registrar. 4. INDENTURE. The Company issued this Security under an Indenture dated as of , 1994 (the "Indenture") between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code sec.sec. 77aaa -- 77bbbb). The Securities are subject to all such terms, and Holders of the Securities are referred to the Indenture and said Act for a statement of such terms. In the event of any conflict between this Security and the Indenture, the Indenture shall govern. The Securities are general unsecured obligations of the Company limited in aggregate principal amount to $100,000,000. 58 5. OPTIONAL REDEMPTION. The Securities may be redeemed prior to , 1997 (a) at any time in whole but not in part, at a Redemption Price equal to 105% of the aggregate principal amount of the Securities then Outstanding plus accrued and unpaid interest hereon to the Redemption Date, or (b) from time to time in part from the Net Offering Proceeds received by the Company prior to , 1997 from one or more Public Offering Sales at a Redemption Price equal to 105% of the aggregate principal amount of the Securities so redeemed, plus accrued and unpaid interest thereon to the Redemption Date. The Securities further may be redeemed on and after , 1997, at any time in whole or from time to time in part, at a Redemption Price equal to the applicable percentage of the aggregate principal amount of the Securities so to be redeemed, set forth below, plus accrued and unpaid interest thereon to the Redemption Date.
IF REDEEMED DURING THE 12 MONTHS BEGINNING % OF , PRINCIPAL AMOUNT ------------------------- ---------------- 1997................................................. 105.0 1998................................................. 103.3 1999................................................. 101.7 2000 and thereafter.................................. 100.0
If the Redemption Date is subsequent to a Record Date with respect to any Interest Payment Date and on or prior to such Interest Payment Date, then such accrued interest, if any, will be paid to the person in whose name such Securities are registered at the close of business on such Record Date and no other interest will be payable thereon. 6. MANDATORY REDEMPTION. As more fully set forth in the Indenture, under certain circumstances the Company is required to redeem Securities with the net proceeds from one or more Public Offering Sales at a Redemption Price equal to 104% of the aggregate principal amount of the Securities so redeemed, plus accrued and unpaid interest to the Redemption Date. 7. NOTICE OF REDEMPTION. Notice of Redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part, but not in denominations of less than $1,000. From and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been made available for redemption on such Redemption Date, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 8. PUT PROVISIONS. As provided in and subject to the terms of the Indenture, upon a Change of Control, any Holder will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest, if any, to the date of repurchase. 9. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in fully registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer of or exchange Securities in accordance with the 2 59 Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Company need not register the transfer of or exchange any Securities selected for redemption. Also, the Company need not issue, exchange or register the transfer of any Securities for a period of 15 days prior to the selection of the Securities to be redeemed. In accordance with the provisions of the Indenture and subject to certain limitations therein set forth, an owner of a beneficial interest in a Global Security may request a Security in certificated form, in exchange in whole or in part, as the case may be, for such beneficial owner's interest in the Global Security. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in certificated form of Securities in authorized denominations equal in principal amount to such beneficial interest and to have such Securities registered in its name. 10. PERSONS DEEMED OWNERS. The registered Holder of a Security may be treated as the owner of it for all purposes. With respect to Global Securities, the Depository shall grant proxies and otherwise authorize Holders of Global Securities to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder of a Security is entitled to give or take under the Indenture. 11. UNCLAIMED MONEY. If money deposited with or paid to the Trustee or any Paying Agent for the payment of principal, premium (if any) or interest on the Securities remains unclaimed for 2 years, the Trustee and any such Paying Agent will pay the money back to the Company at its request. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any time deposits with the Trustee money or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding certain obligations, including without limitation its obligation to pay the principal of or interest on the Securities). 13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities and certain existing Defaults or Events of Default or compliance with any provisions may be waived with the consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, correct or supplement any provision which may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Indenture which shall not be inconsistent with the provisions of the Indenture (provided such amendment or supplement does not adversely affect the rights of any of the Holders), provide for any additional rights or benefits to Holders or make any change that does not adversely affect the rights of any Holder. 14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, make payments in respect of its Capital Stock or certain Indebtedness, merge or consolidate with any other person or sell, lease, transfer or otherwise dispose of all or substantially all of its properties or assets and undertake certain transactions with Affiliates. The limitations are subject to a number of important 3 60 qualifications and exceptions. The Company must annually (and in certain instances, more frequently) report to the Trustee on compliance with such limitations. 15. ASSET SALES. As more fully set forth in the Indenture, the Indenture provides that the Company must apply certain proceeds resulting from certain Asset Sales to the repurchase Securities under certain circumstances in an Excess Proceeds Offer at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. A Holder of Securities may tender or refrain from tendering in any Excess Proceeds Offer all or any portion of its Securities at its discretion by completing the form entitled "Option of Holder to Elect Purchase" appearing on the reverse side of this Security. 16. SUCCESSORS. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 17. DEFAULTS AND REMEDIES. If an Event of Default occurs and is continuing, subject to certain exceptions, the Trustee or the Holders of at least 25% in principal amount of Securities may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold notice in certain circumstances. 18. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 19. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer, employee or incorporator, as such, past, present or future, of the Company or any successor corporation shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration of the issue for the Securities. 20. AUTHENTICATION. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the face of this Security. 21. ABBREVIATION. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the entireties), TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. INDENTURE. The Holder hereof, by accepting this Security, agrees to be bound by all of the terms and provisions of the Indenture applicable to such Holder. 4 61 The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: America West Airlines, Inc., 4000 East Sky Harbor Blvd., Phoenix, Arizona 85034. 5 62 [FORM OF ASSIGNMENT] I or we assign and transfer this Security to - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code of assignee) Please insert social security or other identifying number of assignee and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated Signed - -------------------------------------------------------------------------------- (Sign exactly as name appears on the other side of this Security) Signature Guarantee: 6 EX-10.12 3 CODE SHARING AGREEMENT WITH CONTINENTAL AIRLINES 1 EXHIBIT 10.12 CODE SHARING AGREEMENT This Agreement is made this 29th day of June, 1994, by and between CONTINENTAL AIRLINES, INC. ("CAL"), a Delaware corporation, and AMERICA WEST AIRLINES, INC. ("AWA"), Debtor and Debtor-in-Possession, a Delaware corporation. RECITALS CAL and AWA are each certificated air carriers providing air transportation services in their respective areas of operation. CAL and AWA desire to cooperate in the coordination of schedules by allowing AWA to market its flight operations under the CO* designator and CAL to market its flight operations under the HP* designator. NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, CAL and AWA hereby agree as follows: 1. Schedules to be Operated. It is the intent of the parties to share their two letter designator codes, "CO*" in the case of CAL and "HP*" in the case of AWA. CAL operated Shared Code Segments (as herein defined) will be marketed under not only CAL's "CO" designator code but also under AWA's "HP*" designator code, and AWA operated Shared Code Segments will be marketed under not only AWA's "HP" designator code, but also under CAL's "CO*" designator code. Schedule 1 hereto sets forth the flight segments where shared code segments ("Shared Code Segments") will operate at the commencement of this Agreement and some of the Shared Code Segments that will be operated in the future; however, it is the intent of the carriers to designate, to the maximum extent permitted by law, all flights operated by either as Share Code Segments during the term of this Agreement. The carriers shall meet together every six months that this Agreement is in effect to discuss the appropriateness of expanding or contracting the list of city pairs on Schedule 1. 2. Code Sharing Licenses. (a) CO* License. (i) Grant of License. Subject to the terms and conditions of this Agreement, CAL hereby grants to AWA a nonexclusive, nontransferable, revocable license to use the CO* designator code on all of its flights operated as a Shared Code Segments. (AWA flights flown using the CO* code are hereinafter referred to as "CO* Flights"). (ii) Control of CO* Flights. AWA shall have sole responsibility for and control over, and CAL shall have no responsibility for, control over or obligations or duties with respect to, each and every aspect of AWA's operations including, without limitation, scheduling (except as provided in Section 12 hereto), pricing (except as provided in Section 13 hereto), planning of flight itineraries and routings, reservations, reservations control/yield management, dispatch, fueling, weight and balance, flight release, maintenance, and flight operations and compliance with applicable rules and regulations. (b) HP* License. (i) Grant of License. Subject to the terms and conditions of this Agreement, AWA hereby grants to CAL a nonexclusive, nontransferable, revocable license to use the HP* designator code on all of its flights operated as a Shared Code Segment. (CAL flights flown using the HP* code are hereinafter referred to as "HP* Flights"). (ii) Control of HP* Flights. CAL shall have sole responsibility for and control over, and AWA shall have no responsibility for, control over or obligations or duties with respect to, each and every aspect of CAL's operations including, without limitation, scheduling (except as provided in 1 2 Section 12 hereto), pricing (except as provided in Section 13 hereto), planning of flight itineraries and routings, reservations, reservations control/yield management, dispatch, fueling, weight and balance, flight release, maintenance, and flight operations and compliance with applicable rules and regulations. 3. Confidential Information. Neither AWA nor CAL shall disclose to the other carrier or be required to disclose by the other carrier any information relating to its scheduling (except as provided in Section 12 hereto), pricing, inventory control or flight profitability. Neither AWA nor CAL shall disclose the terms of this Agreement or any proprietary information with respect to the other obtained as a result of this Agreement, either during the term hereof or thereafter except as may be required by law or by any order of a court or administrative agency, and then on ten days' notice to the other. The parties hereto recognize that, in the course of the performance of each of the provisions hereof, each carrier may be given and may have access to confidential and proprietary information of the other carrier, including proposed schedule and fare changes, statistical data regarding loads and fares, sales and promotional programs and other operating and competitive information ("Confidential Information"). Each carrier shall preserve, and shall ensure that each of its officers, agents, consultants and employees who receive Confidential Information preserve, the confidentiality of the other carrier's Confidential Information. 4. Quality of Service. Each carrier shall perform its service with respect to its flights operated under the designation of the other carrier in a timely, expert and quality manner. Each carrier agrees that, in conducting flight operations under the designator of the other carrier, it will employ prudent safety and loss prevention policies. 5. Audit. (a) CAL Audit. CAL shall have the right, at its own cost, to inspect, review, and observe AWA's operations of CO* Flights, and/or to conduct a full safety and/or service audit of AWA's operations, manuals and procedures reasonably related to CO* Flights, at such intervals as CAL shall reasonably request. In the exercise of such right, CAL does not undertake any responsibility for the performance of AWA's operations. CAL shall coordinate its safety and service audits with AWA so as to avoid disruptions of AWA's operations. Any safety audit may include, without limitation, maintenance and operation procedures, crew planning, reservations, passenger and baggage handling, customer service, personnel records, spare parts, inventory records, training records and manuals, flight, flight training and operational personnel records. This paragraph shall not entitle CAL access to AWA's records, documents or systems relating to its pricing, inventory control or flight profitability. (b) AWA Audit. AWA shall have the right, at its own cost, to inspect, review, and observe CAL's operations of HP* Flights, and/or to conduct a full safety and/or service audit of CAL's operations, manuals and procedures reasonably related to HP* Flights, at such intervals as AWA shall reasonably request. In the exercise of such right, AWA does not undertake any responsibility for the performance of CAL's operations. AWA shall coordinate its safety and service audits with CAL so as to avoid disruptions of CAL's operations. Any safety audit may include, without limitation, maintenance and operation procedures, crew planning, reservations, passenger and baggage handling, customer service, personnel records, spare parts, inventory records, training records and manuals, flight, flight training and operational personnel records. This paragraph shall not entitle AWA access to CAL's records, documents or systems relating to its pricing, inventory control or flight profitability. 6. Public Relations. In the event of any irregularity in Shared Code Segments' operations, including, without limitation, any event causing damage to persons or property, the operating carrier shall identify itself as being operated independently of the carrier whose code is being used, and as being solely responsible for its operations. Either carrier may state that it holds a code sharing license from the other carrier and that it obtains certain services from the other carrier if third parties inquire as to such relationship. 7. Irregularities in Operations. AWA shall promptly notify CAL of all irregularities involving a CO* Flight which result in any damage to persons or property as soon as such information is available and shall furnish to CAL as much detail as practicable. CAL shall promptly notify AWA of all irregularities involving a 2 3 HP* Flight which result in any damage to persons or property as soon as such information is available and shall furnish to AWA as much detail as practicable. 8. Reporting Obligation. (a) Changes in Service. Each carrier shall give the other carrier 60 days advance notice (or notice as far in advance as possible if 60 days is impracticable) of any intended (i) changes to its operating specifications, or (ii) material changes to the manner of conducting its business or the nature of its product. In the event any such change materially affects the value or risk to the other carrier of this Code Sharing Agreement in the other carrier's reasonable judgment, the other carrier shall be entitled to terminate this agreement if the change is implemented. (b) Correspondence from Government Authorities. AWA shall immediately provide CAL copies of any correspondence received from government authority which, with respect to CO* Flights, references (i) any alleged noncompliance with rules or regulations affecting air transportation, or (ii) any investigation of AWA performed or proposed by any government authority, including, without limitation, any communication issued by a government authority concerning the airworthiness of AWA's aircraft, the compliance of AWA's personnel with required operational or training procedures or any other matter relating to the safe operation of AWA aircraft. CAL shall immediately provide AWA copies of any correspondence received from any government authority which, with respect to HP* Flights, references (i) any alleged noncompliance with rules or regulations affecting air transportation, or (ii) any investigation of CAL performed or proposed by any government authority, including, without limitation, any communication issued by a government authority concerning the airworthiness of CAL's aircraft, the compliance of CAL's personnel with required operational or training procedures or any other matter relating to the safe operation of CAL aircraft. (c) Notice of Complaints. AWA shall monthly furnish CAL a summary of complaints, notices or violation, request to cease activity or similar correspondence which reasonably relate to CO* Flights and which are received by AWA from passengers, any government authority, or other parties. CAL shall monthly furnish AWA a summary of complaints, notices or violation, request to cease activity or similar correspondence which reasonably relate to HP* Flights and which are received by CAL from passengers, any government authority, or other parties. Each carrier shall comply with the other carrier's reasonable requests for actual copies of any such documents. 9. Flight Display. (a) All Shared Code Segments will be included in the availability and fare displays of all computerized reservations systems in which CAL and AWA participate, the Official Airline Guide (to the extent agreed upon) and CAL's and AWA's internal reservation systems, under the shared code as well as the operator's own code, to the extent possible. CAL and AWA will take the appropriate measures necessary to ensure the display of Shared Code Segments in accordance with the preceding sentence. (b) CAL and AWA will disclose and identify the Shared Code Segments to the public as actually being a flight of and operated by the operating carrier, in at least the following ways: (i) a symbol will be used in timetables and computer reservation system indicating that Shared Code Segments are actually operated by the other carrier; (ii) to the extent reasonable, messages on airport flight information displays will identify the operator of flights shown as Shared Code Segments; (iii) CAL and AWA advertising concerning Shared Code Segments and CAL and AWA reservationists will disclose the operator of each flight; and (iv) in any other manner prescribed by law. 3 4 10. Terms and Conditions of Carriage and Claims Procedures. (a) In all cases the contract of carriage between a passenger and a carrier will be that of the carrier whose designator code is used and not that of the carrier operating the Shared Code Flight. (b) The carriers will use existing IATA procedures when handling and settling claims made by customers in connection with Shared Code Segments. 11. Irregularity Handling. (a) In the event of flight delays, cancellations or other schedule irregularities that affect Shared Code Segments, the operating carrier will inform the carrier whose designator is also used of all pertinent information concerning an irregularity for customer information purposes. (b) The parties agree that they will cooperate in all available ways to accommodate passengers experiencing flight irregularities and that neither will forbear from providing such assistance because the other may have been responsible for the flight irregularity. In the event of a flight irregularity, the carrier causing or experiencing the irregularity shall bear all related costs associated with accommodating the passengers who have been delayed. The carriers will review existing procedures for accommodating interline passengers with respect to flight irregularities and oversales to determine their adequacy for the purposes of this Agreement and will make such adjustments in existing procedures as they find necessary or appropriate. 12. Airport Operational Assistance. CAL and AWA will cooperate to coordinate and maintain their schedules to minimize the waiting time and to maximize convenience of passengers who are connecting from a CAL to AWA flight segment (or vice versa). Each carrier will provide the other with the airport operational assistance that is required to assure schedule compatibility for Shared Code Segments for which a Through Fare (as such term is hereinafter defined) may be applicable. The carriers will use their respective best efforts to align gates and ticket counter space where Shared Code Segments operate. 13. Pricing and Capacity Control of Shared Code Segments. [CONFIDENTIAL PORTION DELETED] 15. Compliance with Laws and Regulations. CAL and AWA each represent, warrant, and agree that performance of its respective obligations under this Agreement shall be conducted and all of its personnel shall at all times meet, be in full compliance with and have all required licenses under any and all applicable statutes, orders, rules and regulations, and satisfy all applicable insurance requirements, whether in effect or hereafter promulgated of the United States National Transportation Safety Board, Department of Transportation of Federal Aviation Administration, Department of Defense of any country or territory with jurisdiction over the Shared Code Segments. 16. Independent Parties. (a) Independent Contractors. It is expressly recognized and agreed that each carrier, in its performance and otherwise under this Agreement, is and shall be engaged and acting as an independent contractor and in its own independent and separate business; that each carrier shall retain complete and exclusive control over its staff and operations and the conduct of its business; and that each carrier shall bear and pay all expenses, costs, risks and responsibilities incurred by it in connection with its obligations under this Agreement. Neither CAL nor AWA nor any officer, employee, representative, or agent of CAL or AWA shall in any manner, directly or indirectly, expressly or by implication, be deemed to be, or make any representation or take any action which may give rise to the existence of, any employment, agent, partnership, or other like relationship as between CAL and AWA but each carrier's relationship as respects the other carrier in connection with this Agreement is and shall remain that of an independent contractor. (b) Status of Employees. The employees, agents and/or independent contractors of AWA shall be employees, agents, and independent contractors of AWA for all purposes, and under no circumstances 4 5 shall be deemed to be employees, agents or independent contractors of CAL. The employees, agents and independent contractors of CAL for all purposes, and under no circumstances shall be deemed to be employees, agents or independent contractors of AWA. In its performance under this Agreement, each carrier shall act as an independent contractor and not as an agent for the other. CAL shall have no supervisory power or control over any employees, agents or independent contractors employed by AWA, and AWA shall have no supervisory power or control over any employees, agents and independent contractors employed by CAL. (c) Liability For Employee Costs. Each carrier, with respect to its own employees (hired directly or through a third party), accepts full and exclusive liability for the payment of worker's compensation and/or employer's liability (including insurance premiums where required by law) and for the payment of all taxes, contributions or other payments for unemployment compensation, vacations, or old age benefits, pensions and all other benefits now or hereafter imposed upon employers with respect to its employees by any government or agency thereof or any other party (whether measured by the wages, salaries, compensation or other remuneration paid to such employees or otherwise) and each carrier further agrees to make such payments and to make and file all reports and returns, and to do everything necessary to comply with the laws imposing such taxes, contributions or other payments. 17. Indemnification and Insurance. (a) Indemnification. (i) AWA hereby assumes liability for, and shall indemnify, defend, protect, save and hold harmless CAL, its officers, agents, and employees from and against any and all liabilities, claims, judgments, damages, and losses, including all costs, fees, and expenses incidental thereto, of every type and nature whatsoever, including without limitation those involving (i) death of or injury to any person including, but not limited to, AWA's officers, employees and agents, (ii) loss of, damage to, or destruction of any property whatsoever, including any loss of use thereof, and (iii) trademark, service mark or trade name infringement, provided that such liabilities, claims, judgments, damages or losses are caused by or arise out of (or are alleged to be caused by or arise out of) any alleged acts or omissions of AWA or its officers, employees, or agents which are in any way related to the services contemplated by this Agreement. CAL shall give AWA prompt notice of any claim made or suit instituted against CAL which, if successful, would result in indemnification of CAL hereunder, and CAL shall have the right to compromise or participate in the defense of same to the extent of its own interest. (ii) CAL hereby assumes liability for, and shall indemnify, defend, protect, save and hold harmless AWA, its officers, agents, and employees from and against any and all liabilities, claims, judgments, damages, and losses, including all costs, fees, and expenses incidental thereto, of every type and nature whatsoever, including without limitation those involving (i) death of or injury to any person including, but not limited to, CAL's officers, employees and agents, (ii) loss of, damage to, or destruction of any property whatsoever, including any loss of use thereof, and (iii) trademark, service mark or trade name infringement, provided that such liabilities, claims, judgments, damages or losses are caused by or arise out of (or are alleged to be caused by or arise out of) any alleged acts or omissions of CAL or its officers, employees, or agents which are in any way related to the services contemplated by this Agreement. AWA shall give CAL prompt notice of any claim made or suit instituted against AWA which, if successful, would result in indemnification hereunder, and AWA shall have the right to compromise or participate in the defense of same to the extent of its own interest. (b) Insurance Coverage. (i) Each carrier shall, at all time during the term of this Agreement, maintain in full force and effect policies of insurance as follows: 1. Comprehensive Airline Liability Insurance, including Aircraft Third Party, Passenger, including Passengers' Baggage and Personal Effects, Cargo and Mail Legal Liability for a 5 6 Combined Single Limit (CSL) of not less than $500 million per occurrence per Aircraft. In respect of Personal Injury the maximum limit is $25 million per offense and in the aggregate. The minimum amounts of insurance coverage required under this paragraph 1 shall be per occurrence, combined single limit for all coverage required under this paragraph 1. 2. Workmen's Compensation Insurance Per Accident (Company Employee) Statutory 3. Employer's Liability $1,000,000 (combined single limit)
(ii) Subject to Section 17(b)(i) above, each carrier as appropriate shall cause the policies of insurance described in such Section 17(b)(i) to be duly and properly endorsed by that carrier's insurance underwriters as follows: 1. as to the policies of insurance described in paragraphs (b)(i)1 and (b)(i)2 of Section 17: (A) to provide that any waiver of rights of subrogration against other parties by one party will not affect the coverage provided thereunder with respect to the other party; and (B) to provide that the one party's underwriters shall waive any and all subrogation rights against the other party, its directors, officers, agents, employees and other authorized representatives, except for gross negligence or wilful misconduct, with regard to any breach of warranty on the part of the other party or to provide other evidence of such waiver or recourse against the other party, its directors, officers, agents, employees and other authorized representatives. (C) to provide that each party, its directors, officers, agents, employees and other authorized representatives shall be endorsed as named insured parties thereunder, except for gross negligence or wilful misconduct; and (D) to provide that said insurance shall be primary insurance and to acknowledge that any other insurance policy or policies of each party shall be secondary or excess insurance. 2. as to policies of insurance described in paragraph (b)(i)1 of Section 17 to provide a breach of warranty clause to said policies; and (iii) Each party shall cause each of the insurance policies referred to in Section 17(b)(i) to be duly and properly endorsed to provide that said policy or policies or any part or parts thereof shall not be canceled, terminated or materially altered, changed or amended by each party's insurance underwriters, until after 30 days' prior notice to the other party, such notice period to commence when such other party actually receives such notice. (iv) Simultaneously with the commencement of this Agreement, and from time to time thereafter upon request by either party, the other party shall furnish to the requesting party evidence reasonably satisfactory to the requesting party of the aforesaid insurance coverage and endorsements, including certificates certifying that the aforesaid insurance and endorsements are in full force and effect. Initially, this evidence shall be a certificate of insurance required hereunder. (v) In the event either party fails to maintain in full force and effect any of the insurance and endorsements required in terms of these sections, the other party shall have the right (but not the obligation) to procure and maintain such insurance or any part thereof. The cost of such insurance shall be payable by the first party to the other party upon demand by the other party. The procurement of such insurance or any part thereof by the other party shall not discharge or excuse the first party's obligation to comply with the provisions of Sections 17(b)(i) and 17(b)(ii) (c) Survival of Rights and Obligations. The rights and obligations of Section 18(a) shall survive the expiration or termination of this Agreement. 6 7 18. Term and Termination. (a) Term. Unless the carriers agree to an earlier commencement date, the term of this Agreement shall commence as soon as practicable after the date that is the later of the date that this Agreement is signed by both parties or the date that the investment agreement between AWA and AmWest partners, L.P. (the "Investment Agreement") is consummated and shall continue until the date immediately preceding the tenth anniversary of the commencement date, unless earlier terminated as provided herein, and shall continue thereafter until either carrier gives the other carrier notice of termination at least 90 days prior to the effective date of such termination. In no event shall termination or expiration pursuant to this Section 18(a) be effective unless such 90 days' notice is provided. (b) Termination as a Result of Changes of Law. In the event there is any change in treaties, statutes or regulations of air transportation that materially affects the rights and/or obligations presently in force with respect to the air transportation services of CAL or AWA or both, relating to CO* or HP* Flights, then the carriers will consult, within 30 days after any of the occurrences described herein, in order to determine or seek mutual agreement as to what, if any changes to this Agreement are necessary or appropriate, including but not limited to the early termination and cancellation of this Agreement. (c) Other Termination Rights. In addition to any other provisions of this Agreement, this Agreement may be terminated, without liability, as follows: (i) By either carrier on 30 days' prior written notice, if the other carrier has breached any material provision of this Agreement unless such other carrier cures such breach within such 30 day period; (ii) By either carrier immediately on notice, if the other carrier shall be dissolved or shall fail to maintain its corporate existence in good standing, or shall have its authority to operate as a scheduled airline suspended or revoked, either in whole or with respect to the CO* or HP* Flights, or shall cease operations as a scheduled airline. (iii) By either carrier immediately on notice if the other carrier shall be cited by any government authority for any significant noncompliance with a material law, rule or regulation with respect to the marketing or operation of a CO* or HP* Flight; (iv) By either carrier immediately on notice, in the event that the commencement date of this Agreement is prior to the date that the Investment Agreement is consummated, if the Investment Agreement is terminated prior to its having been consummated; (v) Except for AWA's currently pending Chapter 11 proceeding, by either carrier if a petition is filed by or against the other carrier under bankruptcy law, or any other law providing for the relief of debtors, and the affected party does not succeed in having such petition lifted or stayed within sixty days from the date of entry; the carrier at its option may cancel this Agreement immediately and exercise such other remedies as may be available at law and/or in equity; (vi) By either carrier on six months' prior written notice, if a carrier, foreign or domestic, that competes with the terminating carrier on a material basis, acquires majority ownership of or substantial control over the other carrier. (vii) By CAL immediately on notice if 1. AWA shall fail to maintain any of its aircraft in an airworthy condition and conduct its flight operations in accordance with the standards, rules and regulations promulgated by any government authority; or 2. AWA shall have a completion factor of less then 80% during any 20 day period with respect to CO* Flights (including in such calculations all flights canceled less than one week prior to the date of its scheduled operation and excluding flights not completed due to weather or labor stoppages); and 7 8 (viii) By AWA immediately on notice if 1. CAL shall fail to maintain any of its aircraft in an airworthy condition and conduct its flight operations in accordance with the standards, rules and regulations promulgated by any government authority; or 2. CAL shall have a completion factor of less then 80% during any 20 day period with respect to HP* Flights (including in such calculations all flights canceled less than one week prior to the date of its scheduled operation and excluding flights not completed due to weather or labor stoppages). 19. Booking Fee. The carrier operating over any segment of a Shared Code Flight will be responsible for any booking fee relating to such segment charges by the vendor of a computer reservation system used to create a booking on that flight. If the booking fee relating to such segment is billed to the carrier whose designator code is also used for that flight, the operating carrier will reimburse the carrier whose designator code is also used for that flight. 20. Entire Agreement, Waivers and Amendments. This Agreement constitutes the entire understanding of the carriers with respect to the subject matter hereof superseding all prior discussions and agreements, written or oral. This Agreement may not be amended, nor may any of its provisions be waived, except by writing signed by both carriers. No delay on the part of either carrier in exercising any right power or privilege hereunder shall operate as a waiver hereof, nor shall any waiver operate as a continuing waiver of any right, power or privilege. 21. Notices. All notices given hereunder shall be in writing delivered by hand, certified mail, telex, or telecopy to the carriers at the following addresses: If to CAL: Continental Airlines, Inc. Telephone No.: 713-834-2950 2929 Allen Parkway Telecopier No.: 713-520-6329 Houston, Texas 77019 Attention: Vice Chairman & CEO With copy to: Continental Airlines, Inc. Telephone No.: 713-834-5149 2929 Allen Parkway Telecopier No.: 713-834-5161 Houston, Texas 77019 Attention: Senior Vice President and General Counsel If to AWA: America West Airlines, Inc. Telephone No.: (602) 693-5880 4000 E. Sky Harbor Blvd. Telecopier No.: (602) 693-5950 Phoenix, AZ 85034 Attention: President & COO With copy to: America West Airlines, Inc. Telephone No.: (602) 693-5750 4000 E. Sky Harbor Blvd. Telecopier No.: (602) 593-5904 Phoenix, AZ 85034 Attention: Vice President and General Counsel 22. Successors and Assigns. Neither carrier may assign its rights or delegate its duties under this Agreement without the prior written consent of the other carrier, and any such purported assignment or delegation shall be void. This Agreement shall be binding on the lawful successors of each carrier. 8 9 23. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 24. Headings. The headings in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 25. Counterparts. This Agreement may be executed in counterparts, all of which taken together shall constitute one agreement. 26. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to principles of choice or conflicts of law. 27. Equal Opportunity. EEO clauses contained at 11 C.F.R. sec.sec. 60-1.4, 60-250.4 and 60-741.4 are hereby incorporated by reference. Each party shall comply with all equal opportunity laws and regulations which apply to or must be satisfied by that party as a result of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. CONTINENTAL AIRLINES, INC. AMERICA WEST AIRLINES, INC. By: /s/ BARRY P. SIMON By: /s/ A. MAURICE MYERS --------------------------------------------- --------------------------------------------- Title: Senior Vice President Title: President & CEO ------------------------------------------ ------------------------------------------
9 10 SCHEDULE 1 INITIAL SHARED CODE SEGMENTS [CONFIDENTIAL PORTION DELETED] 10 11 SCHEDULE 2 [CONFIDENTIAL PORTION DELETED] 11 EX-10.13 4 AGREEMENT BETWEEN AWA AND MESA AIRLINES 1 EXHIBIT 10.13 AGREEMENT BETWEEN AMERICA WEST AIRLINES, INC. AND MESA AIRLINES, INC. 2 SECTION 5.03. Delivery of Prospectuses. If, and to the extent that, the Company may be required by the 1933 Act or any other applicable Federal or state law to furnish a prospectus to Warrant holders upon their exercise of Warrants, the Company shall cause to be kept, either at the Warrant Agent's Office or at such other location designated by the Company, sufficient quantities of such prospectuses for delivery to Warrant holders upon their exercise of Warrants, and shall deliver such prospectuses or cause such prospectuses to be delivered to such Warrant holders together with the shares of Class B Common Stock or other securities receivable by such Warrant holders upon their exercise of Warrants. ARTICLE VI CONCERNING THE WARRANT AGENT SECTION 6.01. Payment of Certain Taxes. The Company will from time to time promptly pay all transfer, stamp or similar taxes and all other governmental charges that may be imposed upon the Company or otherwise in respect of the initial issuance or delivery of shares of Class B Common Stock upon the exercise of Warrants, but the Company shall not be obligated to pay any transfer, stamp or similar taxes or other governmental charges in respect of any transfer of the Warrants or such shares effected by any holder thereof. SECTION 6.02. Change of Warrant Agent. (a) The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own negligence, willful misconduct or bad faith) after giving 60 days' notice in writing to the Company, except that such shorter notice may be given as the Company and AmWest shall, in writing, accept as sufficient. At least 15 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the registered holder of each Warrant Certificate. If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint a successor Warrant Agent in place of the Warrant Agent [; provided that in the event that AmWest is the holder of any Warrants at such time, the Company shall notify and consult with AmWest with respect to such proposed appointment]. If the Company shall fail to make such appointment within a period of 60 days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any holder of Warrants (who shall, with such notice, submit a copy of his Warrant Certificate for inspection by the Company), then the holder of any Warrants may apply, at the expense of the Company, to any court of competent jurisdiction for the appointment of a successor warrant agent. (b) The Warrant Agent may be removed by the Company at any time upon 30 days' written notice to the Warrant Agent; provided, that the Warrant Agent shall not be removed until a successor Warrant Agent meeting the qualifications hereof shall have been appointed and provided further that in the event AmWest is the holder of any Warrants at such time, the Company shall obtain the consent of AmWest, which consent shall not be unreasonably withheld. (c) Any successor Warrant Agent, whether appointed by the Company or by a court, shall be a corporation organized, in good standing and doing business under the laws of the United States of America or any state thereof or the District of Columbia, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal or state authority and having a combined capital and surplus of not less than $10,000,000. The combined capital and surplus of any such successor Warrant Agent shall be deemed to be the combined capital and surplus as set forth in the most recent report of its condition published prior to its appointment pursuant to law or to the requirements of a Federal or state supervising or examining authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further assurance, conveyance, act or deed; provided, however, that in no event shall any successor Warrant Agent be liable for any breach, default or failure of performance by the predecessor Warrant Agent of any covenant or obligation under this Agreement existing on the date the successor 15 3 Warrant Agent assumes authority pursuant to this Section 6.02. If for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent, the Company shall make, execute, acknowledge and deliver any and all instruments in writing to more fully and effectually vest in and confirm to such successor Warrant Agent all such authority, powers, rights, immunities, duties and obligations. Upon assumption by a successor Warrant Agent of the duties and responsibilities hereunder, the predecessor Warrant Agent shall deliver and transfer, at the expense of the Company, to the successor Warrant Agent any property at the time held by it hereunder. As soon as practicable after such appointment, the Company shall give notice thereof to the predecessor Warrant Agent, the registered holders of the Warrants and each transfer agent for the shares of its Class B Common Stock. Failure to give such notice, or any defect therein, shall not affect the validity of the appointment of the successor Warrant Agent. (d) Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, shall be the successor Warrant Agent under this Agreement without any further act, provided that such corporation is eligible for appointment as a successor to the Warrant Agent. Any such successor Warrant Agent shall promptly cause notice of its succession as Warrant Agent to be mailed to the Company and to the registered holder of each Warrant Certificate. In case at the time such successor Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrant Certificates shall have been countersigned but not delivered, any such successor Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrant Certificates so countersigned, and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent; and in all such cases Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement. (e) In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignatures under its prior name and deliver such Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement. SECTION 6.03. Compensation; Further Assurances. The Company agrees (i) that it will pay the Warrant Agent the fees set forth in Exhibit B for its services as Warrant Agent hereunder and, except as otherwise expressly provided, will pay or reimburse the Warrant Agent upon demand for all reasonable expenses, disbursements and advances incurred or made by the Warrant Agent in accordance with any of the provisions of this Agreement (including the reasonable compensation, expenses and disbursements of its agents and counsel) except any such expense, disbursement or advance as may arise from its or any of their negligence, willful misconduct or bad faith; and (ii) that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing of the provisions of this Agreement. SECTION 6.04. Reliance on Counsel. The Warrant Agent may consult with legal counsel (who may be legal counsel for the Company), and the written opinion of such counsel or any advice of legal counsel subsequently confirmed by a written opinion of such counsel shall be full and complete authorization and protection to the Warrant Agent as to any action taken or omitted by it in good faith and in accordance with such written opinion or advice, provided that such counsel shall be reasonably acceptable to the Company. SECTION 6.05. Proof of Actions Taken. Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any matter be proved or established by 16 4 the Company prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Warrant Agent, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Warrant Agent; and such Officers' Certificate shall, in the absence of bad faith on the part of the Warrant Agent be full authority to the Warrant Agent for any action taken, suffered or omitted in good faith by it under the provisions of this Agreement in reliance upon such certificate; but in its discretion the Warrant Agent may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as to it may deem reasonable. SECTION 6.06. Correctness of Statements. The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant Certificates (except its countersignature thereof) or be required to verify the same, and all such statements and recitals are and shall be deemed to have been made by the Company only. SECTION 6.07. Validity of Agreement. The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (other than such execution and delivery by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificates (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant Certificate; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Class B Common Stock to be issued pursuant to this Agreement or any Warrants or as to whether any shares of Class B Common Stock will, when issued, be validly issued and fully paid and non-assessable. SECTION 6.08. Use of Agents. The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents and the Warrant Agent shall not be responsible for the misconduct or negligence of any agent or attorney, provided due care had been exercised in the appointment and continued employment thereof. SECTION 6.09. Liability of Warrant Agent. The Warrant Agent shall incur no liability or responsibility to the Company or to any holder of Warrants for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. The Company agrees to indemnify the Warrant Agent and hold it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted in good faith by the Warrant Agent in the execution of this Warrant Agreement, except as a result of the Warrant Agent's negligence or willful misconduct or bad faith. SECTION 6.10. Legal Proceedings. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more holders of Warrants shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. SECTION 6.11. Other Transactions in Securities of the Company. The Warrant Agent in its individual or any other capacity may become the owner of the Warrants or other securities of the Company, or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Warrant Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 6.12. Actions as Agent. The Warrant Agent shall act hereunder solely as agent and not in a ministerial capacity, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in good faith in connection with this Agreement except for its own negligence or willful misconduct or bad faith. SECTION 6.13. Appointment and Acceptance of Agency. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the instructions set forth in this Agreement, and the 17 5 Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.01. Supplements and Amendments. (a) Notwithstanding the provisions of subsection (b) below, the Warrant Agent may, without the consent or concurrence of the registered holders of the Warrants, enter into one or more supplemental agreements or amendments with the Company for the purpose of evidencing the rights of Warrant holders upon consolidation, merger, sale, transfer, reclassification, liquidation or dissolution pursuant to Section 4.05 hereof, making any changes or corrections in this Agreement that are required to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provision herein or any clerical omission or mistake or manifest error herein contained, or making such other provisions in regard to matters or questions arising under this Agreement as shall not adversely affect the interests of the holders of the Warrants or be inconsistent with this Agreement or any supplemental agreement or amendment. (b) With the consent of the registered holders of at least a majority in number of the Warrants at the time outstanding, the Company and the Warrant Agent may at any time and from time to time by supplemental agreement or amendment add any provisions to or change in any manner or eliminate any of the provisions of this Agreement or of any supplemental agreement or modify in any manner the rights and obligations of the Warrant holders and of the Company; provided, however, that no such supplemental agreement or amendment shall, without the consent of the registered holder of each outstanding Warrant affected thereby, (1) alter the provisions of this Agreement so as to affect adversely in any material respect the terms upon which the Warrants are exercisable; or (2) reduce the number of Warrants outstanding the consent of whose holders is required for any such supplemental agreement or amendment. SECTION 7.02. Successors and Assigns. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 7.03. Notices. Any notice or demand authorized by this Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or on the Company shall be sufficiently given or made if sent by mail first-class, postage prepaid or by facsimile, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows: America West Airlines, Inc. [4000 E. Sky Harbor Blvd. Phoenix, AZ 85035 Attention: General Counsel Facsimile No.: (602) 693-5904] Any notice or demand authorized by this Agreement to be given or made by the holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given or made if sent by mail first-class, 18 6 postage prepaid or by facsimile, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows: [ ] Any notice of demand authorized by this Agreement to be given or made to the holder of any Warrants shall be sufficiently given or made if sent by first-class mail, postage prepaid to the last address of such holder as it shall appear on the Warrant Register. SECTION 7.04. Applicable Law. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND OF THE WARRANT CERTIFICATES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 7.05. Benefits of this Agreement. Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any Person other than the parties hereto and the holders of the Warrants any right, remedy or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise or agreement hereof, and all covenants, conditions, stipulations, promises and agreements in this Agreement contained shall be for the sole and exclusive benefit of the parties hereto and their successors and assigns and of the holders of the Warrants. SECTION 7.06. Registered Warrant Holders. Prior to due presentment for registration of transfer, the Company and the Warrant Agent may deem and treat the Person in whose name any Warrants are registered in the Warrant Register as the absolute owner thereof for all purposes whatever (notwithstanding any notation of ownership or other writing thereon made by anyone other than the Company or the Warrant Agent) and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary or be bound to recognize any equitable or other claim to or interest in any Warrants on the part of any other Person and shall not be liable for any registration of transfer of Warrants that are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer or with such knowledge of such facts that its participation therein amounts to bad faith. The terms "Warrant" holder and holder of any "Warrants" and all other similar terms used herein shall mean such Person in whose name Warrants are registered in the Warrant Register. SECTION 7.07. Inspection of Agreement. A copy of this Agreement shall be available at all reasonable times for inspection by any registered Warrant holder at the principal office of the Warrant Agent. The Warrant Agent may require any such holder to submit his Warrant Certificate for inspection by it before allowing such holder to inspect a copy of this Agreement. SECTION 7.08. Headings. The Article and Section headings herein are for convenience only and are not a part of this Agreement and shall not affect the interpretation thereof. SECTION 7.09. Counterparts. The Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original. 19 7 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto under their respective seals as of the day and year first above written. AMERICA WEST AIRLINES, INC. [CORPORATE SEAL] By:__________________________________ Name: Title: Attest:___________________________ Name: Title: [NAME OF WARRANT AGENT] [CORPORATE SEAL] By:__________________________________ Name: Title: Attest:____________________________ Name: Title: 20 8 EXHIBIT A [FORM OF WARRANT CERTIFICATE] [INSERT LEGEND FROM STOCKHOLDERS AGREEMENT] [THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER (THE "1933 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE; AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED OTHER THAN IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE 1933 ACT OR AN EXEMPTION THEREFROM AND FROM ANY APPLICABLE STATE SECURITIES LAWS.] NO. [ ]-[ ] WARRANTS VOID AFTER , 1999 WARRANTS TO PURCHASE CLASS B COMMON STOCK OF AMERICA WEST AIRLINES, INC. AMERICA WEST AIRLINES, INC., a Delaware corporation (hereinafter called the ("Company" ), for value received, hereby certifies that or registered assigns, is the owner of the number of Warrants set forth above, each of which represents the right, at any time commencing on the day after , 1994, and before 5:00 p.m., New York time, on , 1999, on which date such Warrants expire, initially to purchase, subject to the terms hereof and of the Warrant Agreement (as hereinafter defined), one share of Class B Common Stock, par value $[ ] per share, of the Company (hereinafter called the "Class B Common Stock" ) at the price of $[ ] per share (the "Warrant Price" ), subject to the terms and conditions hereof and of the Warrant Agreement, each such purchase to be made, and to be deemed effective for the purpose of determining the date of exercise, only upon surrender hereof to the Company at the Warrant Agent's Office, with the Election to Exercise Form on the reverse hereof duly completed and signed, and upon [either (i)] payment in full to the Warrant Agent for the account of the Company of the Warrant Price (a) in cash, (b) by certified or official bank check, or (c) by any combination of the foregoing [or (ii) payment in full to the Warrant Agent as provided pursuant to the last sentence of Section 3.02(c) of the Warrant Agreement], and upon compliance with and subject to the conditions set forth herein and in the Warrant Agreement. Capitalized terms that are not otherwise defined herein shall have the meanings ascribed to them in the Warrant Agreement (as hereinafter defined). The Warrant Price and, at the Company's option, either (1) the number of shares of Class B Common Stock purchasable on the exercise of each Warrant or (2) the number of Warrants outstanding, are subject to adjustment in certain events as provided in the Warrant Agreement. In the event the Company elects to adjust the number of Warrants outstanding rather than the number of shares of Class B Common Stock purchasable on the exercise of each Warrant, the Company shall cause the Warrant Agent to distribute to registered holders of Warrant Certificates either Warrant Certificates representing any additional Warrants issuable pursuant to the adjustment or substitute Warrant Certificates to replace all outstanding Warrant Certificates in accordance with the provisions of the Warrant Agreement. The Company shall not be required to issue fractions of Warrants or Warrant Certificates evidencing fractional Warrants upon any such adjustment or otherwise, but the Company shall make adjustment in cash or scrip for any fraction of a Warrant which the registered holder of Warrants would have been entitled to receive upon such adjustment or otherwise on the basis of the then-current market value of such fraction of a Warrant (computed as provided in the Warrant Agreement). This Warrant Certificate is issued under and in accordance with the Warrant Agreement dated as of [ ], 1994 (herein called the "Warrant Agreement" ), between the Company and the Warrant Agent and is subject to and is to be construed in accordance with the terms and provisions of the Warrant A-1 9 Agreement, which terms and provisions are hereby incorporated by reference herein and made a part hereof. Every holder of this Warrant Certificate consents to all of the terms contained in the Warrant Agreement by acceptance hereof. A copy of the Warrant Agreement is available for inspection by the registered holder hereof at the Warrant Agent's Office. The Company shall not be required upon the exercise of the Warrants represented hereby to issue fractions of shares of Class B Common Stock, to distribute stock certificates that evidence fractional shares of Class B Common Stock or to issue Warrant Certificates representing fractional Warrants, but shall make adjustment in cash or scrip for any fraction of a share which the same registered holder of Warrants exercised in the same transaction would have been entitled to purchase on the basis of the then-current market value of any such fraction of a share (computed as provided in the Warrant Agreement). If the Warrants represented hereby shall be exercised in part, the registered holder hereof shall be entitled to receive, upon surrender hereof, another Warrant Certificate for the balance of the number of whole Warrants not exercised as provided in the Warrant Agreement. Commencing on the day after the Distribution Date, this Warrant Certificate may be exchanged either separately or in combination with other Warrant Certificates at the Warrant Agent's Office for new Warrant Certificates representing the same aggregate number of Warrants evidenced by the Warrant Certificate or Warrant Certificates exchanged, upon surrender of this Warrant Certificate and upon compliance with and subject to the conditions set forth herein and in the Warrant Agreement. Commencing on the day after the Distribution Date, this Warrant Certificate is transferable at the Warrant Agent's Office by the registered holder hereof in Person or by his attorney duly authorized in writing, upon surrender of this Warrant Certificate and upon compliance with and subject to the conditions set forth herein and in the Warrant Agreement. Upon any such transfer, a new Warrant Certificate or new Warrant Certificates of different denominations, representing in the aggregate a like number of Warrants, will be issued to the transferee. Every holder of Warrants, by accepting this Warrant Certificate, consents and agrees with the Company, the Warrant Agent and with every subsequent holder of this Warrant Certificate that until due presentation for the registration of transfer of this Warrant Certificate on the Warrant Register maintained by the Warrant Agent, the Company and the Warrant Agent may deem and treat the Person in whose name this Warrant Certificate is registered as the absolute and lawful owner for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. The Company is authorized by the Warrant Agreement to suspend the exercise of all Warrants for any period during which any shares of Class B Common Stock reserved for exercise of Warrants require, under any Federal or state law or rule or regulation of any national securities exchange, registration with or approval of any governmental authority or listing on any national securities exchange and such registration, approval or listing is not in effect. Nothing contained in the Warrant Agreement or in this Warrant Certificate shall be construed as conferring on the holder of any Warrants or his transferee any rights whatsoever as a stockholder of the Company. This Warrant Certificate shall not be valid unless countersigned manually by the Warrant Agent. The Warrant Agreement and each Warrant Certificate, including this Warrant Certificate, shall be deemed a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of the State of New York. A-2 10 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: , 1994 AMERICA WEST AIRLINES, INC. [CORPORATE SEAL] By:___________________________________ Name: Title: ATTEST: By:___________________________________ Name: Title: COUNTERSIGNED: [NAME OF WARRANT AGENT] By:___________________________________ Name: Title: A-3 11 ELECTION TO EXERCISE (TO BE EXECUTED UPON EXERCISE OF WARRANT) To AMERICA WEST AIRLINES, INC.: The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder, shares of Class B Common Stock, as provided for therein, and [either (i)] tenders herewith payment of the purchase price in full in the form of cash or a certified or official bank check in the amount of $ [or (ii) provide for cashless exercise option]. Please issue a certificate or certificates for such shares of Class B Common Stock in the name of, and pay any cash for any fractional share to: PLEASE INSERT SOCIAL SECURITY OR OTHER Name________________________________________ IDENTIFYING NUMBER OF ASSIGNEE (Please Print Name and Address) _______________________________________________ Address_____________________________________ _______________________________________________ Signature___________________________________
NOTE: The above signature should correspond exactly with the name on the face of this Warrant Certificate or with the name of assignee appearing in the assignment form below. In the event of any assignment, the Warrant Agent may require evidence of payment of any applicable transfer taxes. AND, if said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder less any fraction of a share paid in cash or scrip. Dated: , 19 A-4 12 ASSIGNMENT (TO BE EXECUTED ONLY UPON ASSIGNMENT OF WARRANT CERTIFICATE) For value received, hereby sells, assigns and transfers unto the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint attorney, to transfer said Warrant Certificate on the books of the within-named Company, with full power of substitution in the premises. Dated: , 19 ______________________________________ NOTE: The above signature should correspond exactly with the name on the face of this Warrant Certificate. Signature guaranteed: _____________________________________________ A-5 13 EXHIBIT B [SCHEDULE OF FEES TO BE PAID TO WARRANT AGENT] 14 EXHIBIT 4.5 STOCKHOLDERS' AGREEMENT FOR AMERICA WEST AIRLINES, INC. THIS STOCKHOLDERS' AGREEMENT FOR AMERICA WEST AIRLINES, INC. (this "Agreement") is entered into as of this day of , 1994 by and among AmWest Partners, L.P., a Texas limited partnership ("AmWest"), GPA Group plc, a corporation organized under the laws of Ireland ("GPA"), , and (collectively, the "Stockholder Representatives"), and America West Airlines, Inc., a Delaware corporation (the "Company"). RECITALS: WHEREAS, on June 27, 1991, the Company 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 WHEREAS, on December 8, 1993, the Bankruptcy Court entered an Order on Motion to Establish Procedures for Submission of Investment Proposals (the "Procedures Order"); and WHEREAS, pursuant to the Procedures Order, AmWest and the Company have entered into that certain Third Revised Investment Agreement dated April 21, 1994 (the "Investment Agreement"), contemplating an investment by AmWest in the Company (the "Investment") and providing for the consummation of the Company's Plan of Reorganization (the "Plan"); and WHEREAS, on , 1994, the Bankruptcy Court entered an order confirming the Plan; and WHEREAS, in consideration of the Investment, the Company has issued common stock of the Company ("Common Stock") consisting of Class A Common Stock ("Class A Common") and Class B Common Stock ("Class B Common") and warrants to purchase Class B Common to AmWest and others; and WHEREAS, in exchange for the release and modification of certain agreements and claims, the Company has issued shares of Class B Common and warrants to purchase Class B Common to GPA; and WHEREAS, pursuant to Section 6(b) of the Investment Agreement, the Official Committee of Equity Holders of America West Airlines, Inc., appointed in the Company's Chapter 11 case (the "Equity Committee") has appointed as a Stockholder Representative; and WHEREAS, pursuant to Section 6(b) of the Investment Agreement, the Official Committee of Unsecured Creditors of America West Airlines, Inc., appointed in the Company's Chapter 11 case (the "Creditors' Committee") has appointed as a Stockholder Representative; and WHEREAS, pursuant to Section 6(b) of the Investment Agreement, the Board of Directors of the Company, as constituted prior to consummation of the Plan, has appointed as a Stockholder Representative; and WHEREAS, the parties hereto have agreed to enter into this Agreement pursuant to Section 218(c) of Title 8 of the Delaware Code (the "General Corporation Law"). NOW, THEREFORE, in consideration of the premises herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. "Affiliate" shall mean (i) when used with reference to any partnership, any person or entity that, directly or indirectly, owns or controls ten percent (10%) or more of either the capital or profit interests of such partnership or is a partner of such partnership or is a person or entity in which such partnership has a ten percent (10%) or greater direct or indirect equity interest and (ii) when used with reference to any 1 15 corporation, any person or entity that, directly or indirectly, owns or controls ten percent (10%) or more of the outstanding voting securities of such corporation or is a person or entity in which such corporation has a ten percent (10%) or greater direct or indirect equity interest. In addition, the term "Affiliate," when used with reference to any person or entity, shall also mean any other person or entity that, directly or indirectly, controls or is controlled by or is under common control with such person or entity. 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, neither the Company nor any Fidelity Fund will be deemed to be an Affiliate of AmWest or any of its partners. "Alliance Agreements" shall have the meaning set forth in the Investment Agreement. "AmWest" shall have the meaning set forth above, and in the event AmWest Partners, L.P., by dissolution or otherwise, designates any or all of its general and limited partners to receive Common Stock attributable to AmWest Partners, L.P., upon consummation of the Plan, "AmWest" shall collectively include all such general and limited partners. "AmWest Director" shall mean a director of the Company designated by AmWest pursuant to Section 2.1(a). "Annual Meeting" shall mean an annual meeting of the shareholders of the Company. "Board" shall mean the Company's Board of Directors. "Bylaws" shall mean the Restated Bylaws adopted by the Company in accordance with Section 303 of the General Corporation Law pursuant to the Plan. "Citizens of the United States" shall have the meaning set forth in Section 1301, Title 49, United States Code, as now in effect or as it may hereafter from time to time be amended. "Continental" shall mean Continental Airlines, Inc. or any successor. "Creditors' Committee Director" shall mean a director of the Company designated by the Creditors' Committee or otherwise pursuant to Section 2.1(b). "Effective Date" shall mean the date upon which the Restated Certificate of Incorporation becomes effective in accordance with the Plan and the General Corporation Law. "Equity Committee Director" shall mean a director of the Company designated by the Equity Committee or otherwise pursuant to Section 2.1(b) "Fidelity Fund" shall mean a fund or account managed or advised by Fidelity Management Trust Company or any of its Affiliates or successor(s). "GPA Director" shall mean a director of the Company designated by GPA pursuant to Section 2.1(c). "Independent Company Director" shall mean a director of the Company designated pursuant to Section 2.1(b). "Independent Directors" shall mean, collectively, the Creditors' Committee Directors, the Equity Committee Director, and the Independent Company Director. "Lehman" shall mean Lehman Brothers Inc. or any successor. "Mesa" shall mean Mesa Airlines, Inc. or any successor. "Public Offering" shall have the meaning set forth in Section 4.2. "Restated Certificate of Incorporation" shall mean the Restated Certificate of Incorporation adopted by the Company in accordance with Section 303 of the General Corporation Law pursuant to the Plan. 2 16 "Stockholder Representatives" shall mean the persons identified as such in the recitals set forth above; provided that in the case of the death, resignation, removal or disability of a Stockholder Representative, his or her successor shall be designated by the remaining Stockholder Representatives, and upon providing a written acknowledgment to such effect to all other parties hereto and agreeing to be bound and subject to the terms hereof, shall become a Stockholder Representative. "Third Annual Meeting" shall mean the first Annual Meeting after the third anniversary of the Effective Date. 2. DESIGNATION AND VOTING FOR COMPANY DIRECTORS. 2.1 Until the Third Annual Meeting, subject to the exception set forth in Section 4.7(a), the Board shall consist of up to fifteen (15) persons, of whom nine (9) persons shall be AmWest Directors, five (5) persons shall be Independent Directors and up to one (1) person shall be a GPA Director, all designated in accordance with the following procedure: (a) The AmWest Directors designated on Exhibit A hereto shall serve until the first Annual Meeting following the Effective Date and until the successor to each such director shall be duly elected and qualified, or until their death, disability, removal or resignation. No less than thirty (30) days in advance of each Annual Meeting prior to (but not including) the Third Annual Meeting, and no less than five (5) days in advance of any other meeting of the Board at which a director will be elected to sit on the Board in a seat vacated by an AmWest Director because of death, disability, removal, resignation, or otherwise, AmWest shall give written notice to the other parties hereto designating the individual or individuals to serve as AmWest Directors. For so long as AmWest and/or its Affiliates holds at least five percent (5%) of the voting equity securities of the Company (on a fully diluted basis), GPA agrees to vote the Common Stock held and controlled by it and to cause the GPA Director to vote or provide written consents in favor of such designees and to take any other action necessary to elect such designees. The Stockholder Representatives agree to recommend to the Independent Directors to vote or provide written consents in favor of such designees and to take any other action necessary to elect such designees. (b) Three (3) Creditors' Committee Directors, one (1) Equity Committee Director, and one (1) Independent Company Director, each as designated on Exhibit A hereto, shall serve until the first Annual Meeting following the Effective Date and until the successor to each such director shall be duly elected and qualified, or until their death, disability, removal or resignation. Until the Third Annual Meeting, the Company shall nominate for reelection, and AmWest and GPA shall vote the Common Stock held and controlled by them in favor of, each Independent Director designated on Exhibit A for so long as he or she continues to serve on the Board. No less than five (5) days in advance of any meeting of the Board at which a director will be elected to sit on the Board in a seat vacated by an Independent Director because of death, disability, removal, resignation or otherwise (a "Successor Independent Director"), and no less than thirty (30) days in advance of an Annual Meeting prior to (but not including) the Third Annual Meeting at which the term of any Successor Independent Director will expire, the Stockholder Representatives shall give written notice to the other parties hereto designating the individuals to serve as Independent Directors; except that if the Creditors' Committee or the Equity Committee remain in effect, they shall have the right to designate the Creditors' Committee Directors and the Equity Committee Director, respectively, or the individuals to fill vacancies thereof, by giving written notice to the other parties hereto in accordance with the terms set forth above and provided that the Stockholder Representatives shall select any Successor Independent Director to replace the Independent Company Director from among the executive officers of the Company. Each of AmWest and GPA agrees to vote the Common Stock held and controlled by them and to cause the AmWest Directors and the GPA Director, respectively, to vote or provide written consents in favor of such designees and to take any other action necessary to elect such designees; provided that each Independent Director shall be reasonably acceptable to AmWest at the time of his or her initial designation. (c) The GPA Director designated on Exhibit A hereto shall serve until the first Annual Meeting following the Effective Date and until the successor to such director shall be duly elected and qualified or 3 17 until his or her death, disability, removal, or resignation. No less than thirty (30) days in advance of each Annual Meeting prior to (but not including) the Third Annual Meeting, and no less than five (5) days in advance of any other meeting of the Board at which a director will be elected to sit on the Board in a seat vacated by the GPA Director because of death, disability, removal, resignation or otherwise, GPA shall give written notice to the other parties hereto designating the individual to serve as GPA Director. Unless the rights of GPA hereunder have been terminated pursuant to Section 6.2, AmWest agrees to vote the Common Stock held and controlled by it, and to cause the AmWest Directors, and the Stockholder Representatives agree to recommend to the Independent Directors, to vote or provide written consents in favor of such designee and to take any other action necessary to elect such designee; provided that the GPA Director shall be reasonably acceptable to AmWest at the time of his or her initial designation. (d) Except as otherwise provided herein, each of AmWest, the Stockholder Representatives, and GPA agrees to nominate or cause the nomination of the AmWest Directors, the Independent Directors, and the GPA Director, respectively, in accordance with the Bylaws. (e) Notwithstanding the foregoing, no party hereto shall be obligated to vote any shares for which the voting rights have been suspended, whether voluntarily or involuntarily. (f) In the event that AmWest, the Creditors' Committee or Equity Committee (for so long as each is in existence and has the ability to designate a director as herein provided), the Stockholder Representatives, or GPA shall fail or refuse to designate a nominee to the Board for a position allocated to and to be filled by such group or entity as herein provided, such position shall not be filled and shall remain vacant unless and until such designation shall be made as herein provided. (g) In the event that the rights and obligations of GPA with respect to this Agreement are terminated in accordance with Section 6.2, GPA agrees to cause the resignation of, or provide notice to the other parties hereto as provided in subsection (h)(i) below requesting removal of the GPA Director, at which time the Board shall be reduced to fourteen (14) persons. (h) The parties hereto agree (i) to vote the Common Stock held and controlled by them in favor of the removal from the Board, upon notice by the group or entity having the right to designate such director under this Section 2.1 and requesting such removal, of any person or persons designated to the Board by such group or entity, and (ii) to vote the Common Stock held and controlled by them (other than stock held individually by any Stockholder Representative) and to cause (or in the case of the Stockholder Representatives, recommend to) the directors designated by them to vote or take such action as may be required under the General Corporation Law or otherwise to implement the provisions of this Agreement. The group or entity who has nominated any director in accordance with this Agreement shall have the exclusive right to remove or replace such director by written notice as herein provided; except that nothing in this agreement shall be construed to limit or prohibit the removal of any director for cause. 2.2 Until the Third Annual Meeting, at least eight of the AmWest Directors, at least two of the Creditors' Committee Directors, the Equity Committee Director, and the Independent Company Director shall each be Citizens of the United States. 2.3 AmWest agrees that no AmWest Director shall be an officer or employee of Continental. 3. VOTING ON CERTAIN MATTERS. 3.1 Any Director who is selected by, or who is a director of, Continental shall recuse himself or herself from voting on, or otherwise receiving any confidential information regarding, matters in connection with negotiations between Continental and the Company (including, without limitation, negotiation between Continental and the Company of the Alliance Agreements) and matters in connection with any action involving direct competition between Continental and the Company. Any Director who is selected by, or who is a director, officer or employee of, Mesa shall recuse himself or herself from voting on, or otherwise receiving any confidential information regarding, matters in connection with negotiations between Mesa and the Company (including, without limitation, negotiation between Mesa and the Company of the Alliance 4 18 Agreements) and matters in connection with any action involving direct competition between Mesa and the Company. 3.2 Until the Third Annual Meeting, the affirmative vote of the holders of a majority of the voting power of the outstanding shares of each class of common stock of the Company entitled to vote (excluding any shares owned by AmWest or any of its Affiliates, but not, however, excluding shares owned, controlled or voted by Mesa or any of its transferees that are not otherwise Affiliates of AmWest), voting as a single class, shall be required to approve, adopt or authorize: (a) Any merger or consolidation of the Company with or into AmWest or any Affiliate of AmWest; (b) Any sale, lease, exchange, transfer, or other disposition by the Company of all or any substantial part of the assets of the Company to AmWest or any Affiliate of AmWest; (c) Any transaction with or involving the Company as a result of which AmWest or any of AmWest'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 for (i) the exercise of Warrants issued under the Plan, (ii) the conversion of Class A Common held by it to Class B Common, or (iii) otherwise pursuant to a transaction in which all holders of Class B Common may participate on a pro rata basis at the same price per share and on the same economic terms, including, without limitation, (A) a tender or exchange offer for all shares of the Common Stock and (B) a Public Offering; or (d) Any related series or combination of transactions having or which will have, directly or indirectly, the same effect as any of the foregoing. At the request of any party proposing such a transaction and subject to approval by the Board, the Company agrees to put to a vote of the shareholders the approval of any transaction referred to in subparagraphs (a) through (d) above (excluding the excepted transactions referred to in clauses (i), (ii), and (iii) of subparagraph (c)) at the next regular or any duly convened special meeting of the shareholders of the Company. The voting requirements specified above shall not be applicable to a proposed action which has been approved or recommended by at least three Independent Directors. 4. FURTHER COVENANTS. 4.1 Neither AmWest nor any partner or Affiliate of AmWest or of any partner of AmWest shall sell or otherwise transfer any Common Stock (other than to an Affiliate of the transferor) if, after giving effect thereto and to any related transaction, the total number of shares of Class B Common beneficially owned by the transferor is less than twice the total number of shares of Class A Common beneficially owned by the transferor; provided, however, that nothing contained in this Section 4.1 shall prohibit any owner of Common Stock from selling or otherwise transferring, in a single transaction or related series of transactions, all shares of Common Stock owned by it, subject to the remaining provisions of this Agreement. 4.2 AmWest agrees that its constituent documents shall at all times require that this Agreement be binding upon all general and limited partners of AmWest and any Affiliate of AmWest or such partners who hold or receive shares of the Company or direct the voting of any shares held by AmWest, and upon any assignees or transferees in a single transaction or a related series of transactions of all or substantially all of the Common Stock owned by AmWest or any of its partners or Affiliates of AmWest or any of their partners; except that this Agreement shall not be binding (x) upon and Fidelity Fund or Lehman with respect to Class B Common and warrants to purchase Class B Common acquired by them contemporaneous with the consummation of the Plan pursuant to an assignment or transfer from AmWest, or (y) upon any assignee or transferee who acquires such Common Stock pursuant to (i) a tender or exchange offer open to all shareholders of the Company on a pro rata basis at the same price per share and on the same economic terms, (ii) a distribution registered under the Securities Act of 1933 (as amended, the "Securities Act") (a "Public Offering"), or (iii) a transfer made pursuant to Rule 144 (as amended, "Rule 144") under the Securities Act. AmWest shall not sell or transfer (including upon dissolution of AmWest) any Common Stock held by it to any of its general or limited partners, to any Fidelity Fund, or to any Affiliate of AmWest or such partners and 5 19 AmWest shall not sell or transfer all or substantially all of the Common Stock held by it in a single transaction or a related series of transactions, except in accordance with clauses (i), (ii) or (iii), above, unless and until it causes any assignee or transferee to provide a written acknowledgment to the other parties hereto that it accepts and is bound and subject to the terms of this Agreement. 4.3 AmWest covenants and agrees that it shall not sell or transfer, in a single transaction or a related series of transactions, shares of Common Stock representing fifty one percent (51%) or more of the combined voting power of all shares of Common Stock then outstanding, other than (i) pursuant to or in connection with a tender or exchange offer for all shares of Common Stock and for the benefit of all holders of Class B Common on a pro rata basis at the same price per share and on the same economic terms, (ii) to any Affiliate of AmWest, (iii) to any Affiliate of AmWest's partners, (iv) pursuant to a bankruptcy or insolvency proceeding, (v) pursuant to a judicial order, legal process, execution or attachment, or (vi) in a Public Offering. 4.4 Within ten (10) days of the Effective Date, AmWest shall file with the Securities and Exchange Commission, a Schedule 13D pursuant to Regulation 13D-G ("Regulation 13D-G") under the Securities Exchange Act of 1934 (as amended, the "Exchange Act"), and shall amend such filing as required by Regulation 13D-G. Each other party hereto covered by such filing covenants and agrees to promptly provide to AmWest all information pertaining to such party and necessary to make such amendments and to notify AmWest of any changes in facts or circumstances pertaining to such party that would require any amendments under Regulation 13D-G. 4.5 AmWest agrees that it shall not cause any amendment to the provisions of the Restated Certificate of Incorporation or the Bylaws or otherwise take any action that supersedes or materially adversely affects or impairs the rights and obligations of the parties under this Agreement or is contrary to the provisions of this Agreement. 4.6 (a) Each certificate evidencing shares of Common Stock issued to AmWest or any of its partners, GPA and any of their respective Affiliates, and any assignee or transferee bound by the terms hereof, including shares of Common Stock issued in connection with the exercise of any warrant, so long as such Common Stock is held by them and prior to the termination or expiration of this Agreement, shall be conspicuously stamped or marked with a legend including substantially as follows: THE RIGHTS AND OBLIGATIONS OF THE HOLDER OF THIS CERTIFICATE SHALL BE SUBJECT TO THE TERMS AND PROVISIONS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED , 1994, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF AMERICA WEST AIRLINES, INC. and each such certificate, for so long as such certificate is held by AmWest or any of its partners and any of their respective Affiliates and any assignee or transferee bound by the terms hereof and prior to the termination or expiration of this Agreement, shall include in such legend the following: THIS CERTIFICATE AND ANY INTEREST HEREIN MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE AFORESAID STOCKHOLDERS' AGREEMENT. (b) All certificates evidencing shares of Common Stock and warrants of the Company that have not been registered pursuant to the Securities Act of 1933, as amended, and that are not exempt from registration under Section 1145 of the Bankruptcy Code, shall at all times be conspicuously stamped or marked with a legend including substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER (THE "SECURITIES ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE; AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED OTHER THAN IN ACCOR- 6 20 DANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR AN EXEMPTION THEREFROM AND FROM ANY APPLICABLE STATE SECURITIES LAWS. (c) Upon the termination of this Agreement, the Company shall, without charge and upon surrender of certificates by the holders thereof and written request cancel all certificates evidencing shares of Common Stock bearing the legend described in subparagraph (a) above and issue to the holders thereof replacement certificates that do not bear such a legend for an equal number of shares held by such holders. Upon the transfer of any Common Stock bearing the legend described in subparagraph (a) above to a party not bound by and subject to this Agreement, the Company shall, without charge and upon the surrender of certificates by the holders thereof and written request cancel all certificates evidencing such shares of Common Stock and issue to the transferee thereof replacement certificates that do not bear such a legend. 4.7 During the term of this Agreement, AmWest shall not cause the issuance of any preferred stock that would (a) increase the number of directors in excess of the number provided in Section 2.1 (except for increases caused by a provision allowing holders of preferred stock to elect additional directors in the event of nonpayment of dividends) or (b) eliminate or reduce the number of Creditors' Committee Directors, Equity Committee Director, Independent Company Director, or GPA Director. 5. RIGHTS UPON BREACH. 5.1 Each party hereto recognizes and agrees that a violation of any term, provision, or condition of this Agreement may cause irreparable damage to the other parties which is difficult or impossible to quantify or ascertain and that the award of any sum of damages may not be adequate relief to such other parties. Each party hereto therefore agrees that in the event of any breach of this Agreement, the other party or parties shall, in addition to any remedies at law which may be available, have the right to obtain appropriate equitable (including, but not limited to, injunctive) relief. All remedies hereunder shall be cumulative and not exclusive. 5.2 In addition to any other remedies available at law or in equity, each party hereto agrees that the Company shall have the right (a) to withhold transfer, and to instruct any transfer agent for securities of the Company to withhold transfer, of any certificates evidencing shares of Common Stock held by AmWest or any partner or Affiliate of AmWest or transferee if the Company reasonably believes that such transfer would not be in material compliance with the terms and provisions of this Agreement, unless the transferee provides to the Company an opinion of legal counsel reasonably acceptable to the Company that such transfer will be in material compliance with the terms and provisions hereof, and (b) to require any person requesting such transfer to provide such information as may reasonably be requested by the Company regarding ownership of securities, affiliations, if any, between AmWest and the transferee and such other matters pertaining to the transfer as may be appropriate to enable the Company to determine the compliance of the proposed transfer of securities with the terms and provisions of this Agreement. 6. TERMINATION. 6.1 This Agreement shall automatically terminate without any action by any party on the day immediately preceding the Third Annual Meeting and shall not be extended except in accordance with Section 7.3. Upon such termination, the rights and obligations of each party hereunder shall terminate and the provisions of this Agreement shall be of no force and effect; provided that no such termination shall relieve any person or entity from liability for breach or default of this Agreement prior to such termination. 6.2 GPA's rights and obligations under this Agreement (other than its obligations under Section 2.1(g)) shall terminate immediately and without notice upon the earlier of (a) termination of this Agreement under Section 6.1, (b) the sale or transfer by GPA of equity securities of the Company resulting in the holding by GPA of less than two percent (2%) of the voting equity securities of the Company (on a fully diluted basis), or (c) any occurrence, other than as described in clause (b) above, resulting in the holding by GPA of less than two percent (2%) of the voting equity securities of the Company (on a fully diluted basis) if (i) the Company files a Form 10-Q under the Exchange Act, or other written report or statement, that is delivered to 7 21 GPA and a copy to the party designated in Section 7.1, reflecting information as to the Company's total issued and outstanding capital stock as of a date therein specified (the "Determination Date") from which GPA can determine whether it holds less than two percent (2%) of the voting equity securities of the Company (on a fully diluted basis) and (ii) GPA fails to acquire (by purchase, or otherwise) sufficient voting equity securities of the Company such that it continues to hold less than two percent (2%) of the voting equity securities of the Company (on a fully diluted basis) determined as of the Determination Date for thirty-five (35) days after delivery of such Form 10-Q, or provision of such report or statement to GPA. GPA acknowledges that the Company's continuing with its existing procedures for the distribution of Form-10Qs constitutes delivery to GPA within the meaning of this Section 6.2. 7. MISCELLANEOUS. 7.1 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 at the following addresses or facsimile numbers: If to AmWest: 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 If to GPA: GPA Group plc GPA House Shannon, Ireland Attention: Patrick H. Blaney Fax Number: 353 61 360220 with a copy to: Paul, Hastings, Janofsky & Walker 399 Park Avenue, 31st Floor New York, New York 10022 Attention: Marguerite R. Kahn Fax Number: (212) 319-4090 If to____________: If to____________: If to____________: If to the Company: America West Airlines, Inc. 4000 East Sky Harbor Boulevard Phoenix, Arizona 85034 Attention: General Counsel Fax Number: (602) 693-5904
8 22 with a copy to: Andrews & Kurth, L.L.P. 4200 Texas Commerce Tower Houston, Texas 77002 Attention: David G. Elkins Fax Number: (713) 220-4285
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 7.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 7.1, 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 7.1, 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 7.1). Any 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 as provided in this Section 7.1 specifying such change to the other parties hereto. Nothing in this Section 7.1 shall be deemed or construed to alter any notice provisions contained in the Bylaws. 7.2 This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply. 7.3 This Agreement may only be amended, waived, supplemented, modified or extended by a written instrument signed by authorized representatives of each party hereto. 7.4 This Agreement shall inure to the benefit of and be binding upon each of the parties hereto and their respective successors and permitted assigns. 7.5 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. 7.6 If any term or provision of this Agreement shall be found by a court of competent jurisdiction to be illegal, invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 7.7 The parties hereto intend that in the case of any conflict or inconsistency between this Agreement and the Restated Certificate of Incorporation or the Bylaws, that this Agreement shall control, and therefore in the event that any term or provision of this Agreement is rendered invalid, illegal or unenforceable by the Restated Certificate of Incorporation or the Bylaws, the parties agree to amend the Restated Certificate of Incorporation or the Bylaws (as the case may be) so as to render such term or provision valid, legal and enforceable, if and to the extent possible. 9 23 IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement as of the date first written above. AMWEST PARTNERS, L.P. By: AmWest Genpar, Inc., its General Partner By:________________________________ Name: Title: GPA GROUP PLC By:________________________________ Name: Title: ___________________________________ [Stockholder Representative] ___________________________________ [Stockholder Representative] ___________________________________ [Stockholder Representative] AMERICA WEST AIRLINES, INC. By:________________________________ Name: Title: 10 24 EXHIBIT 4.6 ================================================================================ REGISTRATION RIGHTS AGREEMENT AMONG AMERICA WEST AIRLINES, INC., AMWEST PARTNERS, L.P. AND THE OTHER HOLDERS NAMED HEREIN DATED AS OF , 1994 ================================================================================ 25 TABLE OF CONTENTS
PAGE ---- 1. Definitions....................................................................... 2 2. Registration under the Securities Act............................................. 6 2.1 Shelf Registration Statement............................................... 6 2.2 Demand Registration........................................................ 7 2.3 Piggyback Registration..................................................... 8 2.4 Trust Indenture Act Qualification; Rating.................................. 10 2.5 Registration Terms and Procedures.......................................... 10 2.6 Underwritten Offerings..................................................... 18 2.7 Preparation; Reasonable Investigation...................................... 19 2.8 Indemnification............................................................ 19 [2.9 Liquidated Damages......................................................... 23] 3. Rule 144 and Rule 144A............................................................ 25 4. Term.............................................................................. 26 5. Amendments and Waivers............................................................ 26 6. Entire Agreement.................................................................. 27 7. No Third-Party Beneficiary........................................................ 27 8. Invalid Provisions................................................................ 27 9. Nominees for Beneficial Owners.................................................... 27 10. Notices........................................................................... 27 11. Assignment........................................................................ 29 12. Descriptive Headings.............................................................. 29 [13. Specific Performance.............................................................. 28] 14. Governing Law..................................................................... 29 15. Registration Rights to Others..................................................... 29 16. Attorney's Fees................................................................... 30 17. Limitation of Liability........................................................... 30 18. Termination of Certain Rights..................................................... 30 19. Counterparts...................................................................... 30
i 26 SCHEDULES SCHEDULE 1 -- ADDITIONAL NOTICES ii 27 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of , 1994 among AMERICA WEST AIRLINES, INC., a Delaware corporation (including its successor, as reorganized pursuant to Chapter 11, Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), the "Company"), AMWEST PARTNERS, L.P., a Texas limited partnership ("Investor"), and the funds or accounts managed or advised by Fidelity Management Trust Company or its affiliates listed on the signature pages hereto (each, a "Fidelity Fund" and collectively, "Fidelity"). W I T N E S S E T H : WHEREAS, the Company is a Debtor and Debtor-in-Possession in the case (the "Chapter 11 Case") filed in the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court"), entitled "In re America West Airlines, Inc., Debtor," Chapter 11 Case No. 91-07505-PHX-RGM, under the Bankruptcy Code; WHEREAS, the Company and Investor have entered into that certain Third Revised Investment Agreement dated as of April 21, 1994 (as it may be further amended, modified or supplemented from time to time, the "Investment Agreement") and the Company and Fidelity have entered into a Note Purchase Agreement dated as of , 1994 (as amended, modified or supplemented from time to time, the "Note Purchase Agreement"), which agreements among other things provide for the purchase of the Securities (as defined in the Investment Agreement) in connection with and as part of the transactions to be consummated pursuant to the confirmation of a Plan of Reorganization (as amended, modified or supplemented from time to time) of the Company in the Chapter 11 Case (the "Plan of Reorganization"); WHEREAS, as a condition to Investor's obligations to consummate the transactions contemplated by the Investment Agreement, the Company has agreed to file a shelf registration statement with respect to the Securities issued or issuable to Investor, Fidelity and their respective Affiliates [and such shelf registration shall have been declared effective on or prior to the Effective Date]; WHEREAS, by Order dated , 1994, the Bankruptcy Court confirmed the Plan of Reorganization; and WHEREAS, the Investment Agreement, the Note Purchase Agreement and the Plan of Reorganization contemplate that the Company, Investor, and Fidelity will enter into certain agreements, including, without limitation, this Registration Rights Agreement; NOW THEREFORE, the parties hereby agree as follows: 1. Definitions. Capitalized terms used herein that are not otherwise defined herein shall have the meanings ascribed to them in the Investment Agreement. In addition, the following terms, as used herein, have the following meanings (all terms defined herein in the singular to have the correlative meanings when used in the plural and vice versa): "Agreement" means this Registration Rights Agreement, as the same shall be amended, modified or supplemented from time to time. "Chapter 11 Case" has the meaning ascribed to it in the preamble. "Demand Registration" means any registration of Registrable Securities under the Securities Act effected in accordance with Section 2.2. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations promulgated thereunder. "Fidelity Funds" has the meaning ascribed to it in the preamble. "Holders" means the holders of record of Registrable Securities. "Indemnified Party" has the meaning ascribed to it in Section 2.9(a). 28 "Indenture" means that certain Indenture between the Company and , as Trustee, dated as of , 1994 and relating to $ principal amount of the Notes. "Loss" has the meaning ascribed to it in Section 2.9(a). "Material Adverse Change" means (i) any general suspension of trading in, or limitation on, prices for securities on any national securities exchange or in the over-the-counter market in the United States of America, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States of America, (iii) the commencement of a war, armed hostilities or other international or national calamity involving the United States of America, (iv) any limitation (whether or not mandatory) by any governmental authority on, or any other event which is reasonably likely to significantly affect the extension of credit by banks or other financial institutions, (v) any material adverse change in the Company's business, condition (financial or otherwise) or prospects or (vi) a % or more decline in the Dow Jones Industrial average or the Standard and Poor's Index of 400 Industrial Companies, in each case from the date a Notice of Demand is made. "Notes" has the meaning ascribed to it in the Note Purchase Agreement. "Notice of Demand" means a request by Investor or any Fidelity Fund, as the case may be, pursuant to Section 2.2 that the Company effect the registration under the Securities Act of all or part of the Registrable Securities held by it and its Affiliates and, at its option, any direct or indirect transferee of Registrable Securities held by it, and any other Holder that requests to have its Registrable Securities included in such registration pursuant to Section 2.2(c). A Notice of Demand shall specify (i) the type and amount of Registrable Securities proposed to be registered, (ii) the intended method or methods and plan of disposition thereof and (iii) whether or not such requested registration is to be an underwritten offering. "Participating Holders" means, with respect to any registration of Registrable Securities by the Company pursuant to this Agreement, the Requesting Holder and any other Holders that are entitled to participate in, and are participating in or seeking to participate in, such registration. "Piggyback Registration" means any registration of Registrable Equity Securities under the Securities Act effected in accordance with Section 2.3. "Piggyback Registration Notice" has the meaning ascribed to it in Section 2.3(a). "Registrable Debt Securities" means the Notes sold to any Fidelity Fund or any of their respective assignees or Affiliates pursuant to the Note Purchase Agreement or subsequently acquired by any transferee (direct or indirect) of such Persons. As to any particular Registrable Debt Securities, once issued such securities shall cease to be Registrable Debt Securities when (a) such securities shall have been distributed pursuant to the Plan of Reorganization without registration or qualification under the Securities Act or any similar state law then in force pursuant to Section 1145 of the Bankruptcy Code, (b) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with the plan of distribution set forth in such registration statement, (c) such securities shall have been distributed in accordance with Rule 144 or (d) such securities shall have been otherwise transferred, new certificates therefor not bearing a legend restricting further transfer shall have been delivered in exchange therefor by the Company and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force. "Registrable Equity Securities" means the equity securities acquired by Investor, any Fidelity Fund or any of their respective assignees or Affiliates pursuant to the Plan or subsequently acquired by any transferee (direct or indirect) of such Persons, including, without limitation, (a) any shares of Class A Common or Class B Common issued or issuable on the Effective Date, (b) any Warrant, (c) any shares of Class B Common issued or issuable upon the exercise of the Warrants and (d) any securities issued or issuable with respect to any such Class A Common, Class B Common or Warrants by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Equity Securities, once issued such securities shall cease to be Registrable Equity Securities when (i) such securities shall have been distributed pursuant to the Plan of 2 29 Reorganization without registration or qualification under the Securities Act or any similar state law then in force pursuant to Section 1145 of the Bankruptcy Code, (ii) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with the plan of distribution set forth in such registration statement, (iii) such securities shall have been distributed in accordance with Rule 144 or (iv) such securities shall have been otherwise transferred, new certificates therefor not bearing a legend restricting further transfer shall have been delivered in exchange therefor by the Company and subsequent disposition of such shares shall not require registration or qualification under the Securities Act or any similar state law then in force. "Registrable Securities" means the Registrable Debt Securities and the Registrable Equity Securities. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, (a) all registration, filing, securities exchange listing, rating agency and National Association of Securities Dealers fees, (b) all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws and any legal fees and expenses incurred in connection with the blue sky qualifications of the Registrable Securities and the determination of their eligibility for investment under the laws of any jurisdiction, (c) all word processing, duplicating, printing, messenger and delivery expenses, (d) the fees and disbursements of counsel for the Company and of its independent public accountants, including, without limitation, the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (e) the fees and disbursements incurred by the Holders of the Registrable Securities being registered (including, without limitation, the fees and disbursements for one counsel or firm of counsel selected by the Requisite Holders of Registrable Debt Securities and Registrable Equity Securities), (f) premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered to the extent the Company elects to obtain such insurance, (g) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the Registrable Securities being registered) and (h) fees and expenses of other Persons retained or employed by the Company. "Requesting Holder" means the party providing a Notice of Demand to the Company pursuant to Section 2.2(a). "Requisite Holders" means, (a) with respect to any Registrable Equity Securities, any Holder or Holders of a majority in interest of the Registrable Equity Securities included or to be included in such registration and (b) with respect to any Registrable Debt Securities, any Holder or Holders of a majority of the aggregate principal amount of the Registrable Debt Securities included or to be included in such registration. "Rule 144" means Rule 144 promulgated by the SEC under the Securities Act, and any successor provision thereto. "Rule 144A" means Rule 144A promulgated by the SEC under the Securities Act, and any successor provision thereto. "SEC" means the United States Securities and Exchange Commission, or any successor governmental agency or authority thereto. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations promulgated thereunder. "Shelf Period" has the meaning ascribed to it in Section 2.1(b). "Shelf Registration Statement" has the meaning ascribed to it in Section 2.1. "Successor" means, with respect to any Person, a successor to such Person by merger, consolidation, liquidation or other similar transaction. "Suspension Notice" has the meaning ascribed to it in Section 2.5(h). "Suspension Period" has the meaning ascribed to it in Section 2.5(h). 3 30 "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec. 77aaa-77bbbb), as amended from time to time, or any successor statute, and the rules and regulations promulgated thereunder. 2. Registration under the Securities Act. 2.1 Shelf Registration Statement. (a) Filing of Shelf Registration Statement. If, as of the Effective Date, (i) the Company shall not have filed, or the SEC shall not have declared (or there shall not remain) effective, a shelf registration statement covering all of the Registrable Securities (the "Shelf Registration Statement") or (ii) the securities covered under the Shelf Registration Statement shall not qualify under all blue sky or other securities laws, the Company shall, as appropriate, promptly file a Shelf Registration Statement with the SEC and use [commercially reasonable] [its best] efforts to cause a Shelf Registration Statement to be declared effective as soon as practicable and to qualify such securities under all blue sky and other securities laws as soon as practicable. (b) Continuous Effectiveness of Shelf Registration Statement. Once the Shelf Registration Statement has been filed and declared effective, the Company shall use [commercially reasonable] [its best] efforts to cause the Shelf Registration Statement to remain continuously effective until the earlier of (i) the third (3rd) anniversary of the Effective Date and (ii) the date on which all of the Registrable Securities covered by such Shelf Registration Statement have been sold, but in no event prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder (the "Shelf Period"); provided, however, that (x) the Company may (no more than twice during any twelve (12) month period and for a period not to exceed forty-five (45) days) suspend use of the Shelf Registration Statement at any time if the continued effectiveness thereof would require the Company to disclose a material transaction, which disclosure the Board of Directors of the Company shall have determined in good faith is not in the best interests of the Company and its stockholders and (y) the Company may suspend use of the Shelf Registration Statement during any period (not to exceed forty-five (45) days) if each of the Company, Investor and each Fidelity Fund agrees in writing to such suspension for such period. (c) Underwritten Offering. If Investor and Fidelity so elect, the offering of Registrable Securities pursuant to the Shelf Registration Statement shall be in the form of an underwritten offering, with such book-running managing underwriter or underwriters as they shall jointly select with the approval of the Company, such approval not to be unreasonably withheld. 2.2 Demand Registration. (a) Registration on Request. Except as provided in subsection (b) below, (i) at any time after the Shelf Period, Investor may provide the Company with a Notice of Demand[; and (ii) if at any time during the Shelf Period the Shelf Registration Statement is not effective for any reason (other than under the circumstances and during the periods permitted by the proviso to Section 2.1(b)), each of Investor and Fidelity may, at any time and from time to time, provide the Company with up to two (2) additional Notices of Demand.] Upon receipt of a Notice of Demand, the Company shall use [commercially reasonable] [its best] efforts to effect at the earliest practicable date the registration under the Securities Act of the Registrable Securities that the Company has been so requested to register (whether pursuant to the Notice of Demand or pursuant to Section 2.2(c)), for disposition in accordance with the intended method or methods of disposition specified in the Notice of Demand or such other notice. (b) Limitations on Demand Registration. The Company shall not be obligated to take any action to effect any registration pursuant to this Section 2.2: (i) after the Company has, in accordance with the provisions of Section 2.5(c), effected [(A) one (1) registration of Registrable Securities with respect to 4 31 a registration requested pursuant to Section 2.2(a)(i) and (B) four (4) registrations of Registrable Securities with respect to a registration requested pursuant to Section 2.2(a)(ii); (ii) during any period (occurring no more than twice during any twelve (12) month period and not to exceed forty-five (45) days) in which such registration would require the Company to disclose a material transaction, which disclosure the Board of Directors of the Company shall have determined in good faith is not in the best interests of the Company and its stockholders; or (iii) during any period (not to exceed forty-five (45) days) if each of the Company, Investor and each Fidelity Fund agrees in writing to suspend such registration for such period. (c) Notice to certain non-Requesting Holders. Upon receipt of any Notice of Demand from a Requesting Holder, the Company will give prompt (but in any event within ( ) days after such receipt) notice to all Holders of Registrable Securities of such Notice of Demand and of such Holders' rights under this Section 2.2. Upon the request of any such Holder made within ( ) days after the receipt by such Holder of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method or methods of disposition thereof), the Company will use [commercially reasonable] [its best] efforts to effect the registration of all Registrable Securities which the Company has been so requested to register pursuant to the Notice of Demand. (d) Priority in Demand Registrations. If (i) a registration pursuant to this Section 2.2(c) involves an underwritten offering of the securities being registered to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction and (ii) the managing underwriter of such underwritten offering shall inform the Company and the Requesting Holder by letter of its belief that the amount of securities requested to be included in such registration exceeds the amount which can be sold in (or during the time of) such offering within a price range acceptable to the Requesting Holder, then the Company will include in such registration such amount of securities which the Company is so advised can be sold in (or during the time of) such offering as follows: first, such Registrable Securities requested to be included in such registration by the Requesting Holder, its Affiliates and any direct or indirect transferees of its Registrable Securities pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included by such parties; and second, such Registrable Securities requested to be included in such registration by all other Holders pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included by such Holders. 2.3 Piggyback Registration. (a) Right to Include Registrable Securities. If the Company at any time proposes to register any of its equity securities under the Securities Act (other than by a registration on Form S-4 or Form S-8 or any successor or similar form then in effect and other than pursuant to Section 2.1 or 2.2) in a form and in a manner that would permit registration of the Registrable Equity Securities, whether or not for sale for its own account, it will give prompt (but in no event less than [thirty (30)] days prior to the proposed date of filing the registration statement relating to such registration) notice to all Holders of Registrable Equity Securities of the Company's intention to do so and of such Holders' rights under this Section 2.3. Upon the request of any such Holder made within [twenty (20)] days after the receipt by such Holder of any such notice (which request shall specify the Registrable Equity Securities intended to be disposed of by such Holder and the intended method or methods of disposition thereof) (the "Piggyback Registration Notice"), the Company will use [commercially reasonable] [its best] efforts to effect the registration under the Securities Act of all Registrable Equity Securities which the Company has been so requested to register by the Holders thereof, to the extent required to permit the disposition (in accordance with the intended method or methods thereof as aforesaid) of the Registrable Equity Securities so to be registered, provided that if, at any time after giving notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company may, at its election, give notice of such determination to each such Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any 5 32 Registrable Equity Securities in connection with such registration (but not from its obligation to pay all Registration Expenses in connection therewith as provided in Section 2.5(b)), without prejudice, however, to the right of Investor to request that such registration be effected as a registration under Section 2.2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Equity Securities for the same period as the delay in registering such other equity securities. No registration effected under this Section 2.3 shall be deemed to have been effected pursuant to Section 2.1 or 2.2 or shall relieve the Company of its obligation to effect any registration under such Sections. (b) Priority in Piggyback Registrations. If (i) a registration pursuant to this Section 2.3 involves an underwritten offering of the securities being registered, whether or not for sale for the account of the Company, to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction and (ii) the managing underwriter of such underwritten offering shall inform the Company and the Holders requesting such registration by letter of its belief that the amount of securities requested to be included in such registration exceeds the amount which can be sold in (or during the time of) such offering within a price range acceptable to the Company, then the Company will include in such registration such amount of securities which the Company is so advised can be sold in (or during the time of) such offering as follows: first, all securities proposed by the Company to be sold for its own account; second, such Registrable Equity Securities requested to be included in such registration by Investor, any Fidelity Fund or any of their respective Affiliates pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included by such parties; third, such Registrable Equity Securities requested to be included in such registration by all other Holders pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included by such Holders; and fourth, all other securities of the Company requested to be included in such registration pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included. 2.4 Trust Indenture Act Qualification; Rating. At or prior to the date the SEC declares the Shelf Registration Statement to be effective, the Company shall qualify the Indenture under the Trust Indenture Act, and shall use [commercially reasonable] [its best] efforts to effect such registration to permit the sale of the Notes thereunder in accordance with the intended method or methods of disposition thereof. If notified by a nationally recognized rating agency that the Notes are being rated, the Company shall cooperate in providing information and making a presentation to such agency in connection therewith. 2.5 Registration Terms and Procedures. (a) Registration Statement Form. Registrations under Section 2.2 shall be on such appropriate registration forms of the SEC (i) as shall be acceptable to the Requesting Holder (such acceptance not to be unreasonably withheld) and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition. The Company agrees to include in any such registration statement all information that any Participating Holder shall reasonably request (to the extent such information relates to such Participating Holder). (b) Registration Expenses. Subject to Section 2.5(f), the Company will pay all Registration Expenses incurred in connection with a registration to be effected (whether or not effected or deemed effected pursuant to subsection (c) below) pursuant to Sections 2.1, 2.2 or 2.3. (c) Effectiveness of Demand Registration. A registration will not be deemed to have been effected under Section 2.2 unless the registration statement with respect thereto has been declared effective by the SEC [and remains effective for [nine (9)] months]; provided, however, that if (i) after such registration statement has been declared effective, the offering of Registrable Securities pursuant to such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court (for reasons other than a misrepresentation or omission by the Requesting Holder or any Participating Holder) or (ii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration have not been satisfied (for reasons other than a wrongful or bad faith act, omission or misrepresentation by the 6 33 Requesting Holder or any Participating Holder), such registration statement will be deemed not to have become effective. If a registration pursuant to Section 2.2 is deemed not to have been effected hereunder, then the Company shall continue to be obligated to effect a registration pursuant to such Section. (d) Selection of Underwriter. If, in connection with a registration effected pursuant to Section 2.2, the Requesting Holder so elects, the offering of Registrable Securities pursuant to such Section shall be in the form of an underwritten offering. If the Requesting Holder so elects, it shall select one or more nationally recognized firms of investment bankers to act as the book-running managing underwriter or underwriters in connection with such offering, provided that such selection shall be subject to the consent of the Company, which consent shall not be unreasonably withheld. (e) Registration of Securities. Participating Holders may seek to register different types of Registrable Securities and/or different classes of the same type of Registrable Securities simultaneously and the Company shall use its, and in the case of an underwritten offering, shall cause the managing underwriter or underwriters to use [commercially reasonable] [its best] efforts to effect such registration and sale in accordance with the intended method or methods of disposition specified by such Holders. (f) Withdrawal. Any Holder participating in a registration pursuant to this Agreement shall be permitted to withdraw all or part of its Registrable Securities from such registration at any time prior to the effective date of the registration statement covering such securities; provided that, in the event of a withdrawal from a registration effected pursuant to Section 2.2, such registration shall be deemed to have been effected for purposes of Section 2.5(c) unless (i) the Requesting Holder and any Participating Holders shall have paid or reimbursed the Company for the reasonable fees and expenses paid by the Company hereunder to the extent such fees and expenses would customarily have been paid by sellers in connection with a registration of similar securities or (ii) the Requesting Holder elects to terminate such registration due to the occurrence of a Material Adverse Change; provided, however, that only one such withdrawal shall be permitted pursuant to this clause (ii). (g) Registration Procedures. In connection with the Company's obligations to register Registrable Securities pursuant to this Agreement, the Company will use [commercially reasonable] [its best] efforts to effect such registration so as to permit the sale of any Registrable Securities included in such registration in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and (as soon thereafter as possible) file with the SEC the requisite registration statement containing all information required thereby to effect such registration and thereafter use [commercially reasonable] [its best] efforts to cause such registration statement to become and remain effective in accordance with the terms of this Agreement, provided that as far in advance as practicable before filing such registration statement or any amendment, supplement or exhibit thereto (but, with respect to the filing of such registration statement, in no event later than ten (10) days prior to such filing), the Company will furnish to the Participating Holders or their counsel copies of reasonably complete drafts of all such documents proposed to be filed (excluding exhibits, which shall be made available upon request by any Participating Holder), and any such Holder shall have the opportunity to object to any information contained therein and the Company will make the corrections reasonably requested by such Holder with respect to such information prior to filing any such registration statement, amendment, supplement or exhibit; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith (A) as reasonably requested by any Participating Holder to which such registration statement relates (but only to the extent such request relates to information with respect to such Holder) and (B) as may be necessary to keep such registration statement effective for the period referred to in Section 2.1(b) in the case of a Shelf Registration Statement or [nine (9) months] in the case of a registration effected pursuant to Section 2.2 or 2.3 (or such shorter period as shall be necessary to complete the distribution of the securities covered thereby, but not before the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder), and comply with the provisions of the 7 34 Securities Act with respect to the sale or other disposition of all securities covered by such registration statement during such period in accordance with the intended method or methods of disposition by the seller or sellers thereof set forth in such registration statement; (iii) furnish to each Holder covered by, and each underwriter or agent participating in the disposition of securities under, such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act relating to such Holder's Registrable Securities, in conformity with the requirements of the Securities Act, and such other documents as such Holder, underwriter or agent may reasonably request to facilitate the disposition of such Registrable Securities; (iv) use [commercially reasonable] [its best] efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under (A) with respect to the Shelf Registration Statement, all blue sky and other securities laws and (B) with respect to a registration effected pursuant to Section 2.2, all applicable blue sky and other securities laws, and to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the securities owned by such Holder, except that the Company shall not for any such purpose be required to (a) qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this clause (iv) be obligated to be so qualified, (b) subject itself to taxation in any such jurisdiction [or (c) consent to general service of process in any jurisdiction]; (v) use [commercially reasonable] [its best] efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities applicable to the Company as may be reasonably necessary to enable the seller or sellers thereof (or underwriter or agent, if any) to consummate the disposition of such Registrable Securities in accordance with the plan of distribution set forth in such registration statement; (vi) furnish to each Holder of at least percent ( %) in interest of Registrable Equity Securities or at least percent ( %) in aggregate principal amount of Registrable Debt Securities covered by such registration statement a signed counterpart, addressed to such Holder (and underwriter or agent, if any) of: (A) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), and (B) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, in each case, reasonably satisfactory in form and substance to such Holder (and underwriter or agent and their respective counsel) and covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriter or agent in underwritten public offerings of securities; (vii) promptly notify each Holder and any underwriter or agent participating in the disposition of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the 8 35 happening of any event known to the Company as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and promptly prepare and furnish to such Holder (or underwriter or agent, if any) a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; (viii) otherwise use [commercially reasonable] [its best] efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable (but not more than fifteen (15) months) after the effective date of the registration statement, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and furnish to each Holder covered by such registration statement or any participating underwriter or agent at least five (5) business days prior to the filing a copy of any amendment or supplement to such registration statement or prospectus; (ix) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; (x) use [commercially reasonable] [its best] efforts to (A) list, on or prior to the effective date of such registration statement, all Registrable Equity Securities covered by such registration statement on any securities exchange on which any of the Registrable Equity Securities is then listed, if any or (B) have authorized for quotation and/or listing, as applicable, on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") of the National Market System of NASDAQ if the Registrable Equity Securities so qualify; (xi) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers; (xii) use [commercially reasonable] [its best] efforts to prevent the issuance by the SEC or any other governmental agency or court of a stop order, injunction or other order suspending the effectiveness of such registration statement and, if such an order is issued, use [commercially reasonable] [its best] efforts to cause such order to be lifted as promptly as practicable; [(xiii) enter into such agreements and take such other actions as the Requisite Holders of such Registrable Securities shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;] (xiv) promptly notify each seller and the underwriter or agent, if any: (A) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; (B) of any written comments from the SEC with respect to any filing referred to in clause (A) and of any written request by the SEC for amendments or supplements to such registration statement or prospectus; (C) of the notification to the Company by the SEC of its initiation of any proceeding with respect to, or of the issuance by the SEC of, any stop order suspending the effectiveness of such registration statement; and 9 36 (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (xv) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the distribution of such Registrable Securities to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends, other than as required by applicable law, the Investment Agreement or the Note Purchase Agreement) representing securities sold under a registration statement hereunder, and enable such securities to be in such denominations and registered in such names as such seller, underwriter or agent may request and keep available and make available to the Company's transfer agent, prior to the effectiveness of such registration statement, an adequate supply of such certificates; (xvi) not later than the effective date of such registration statement, provide a CUSIP number for all Registrable Securities covered by a registration statement hereunder; (xvii) incorporate in the registration statement or any amendment, supplement or post-effective amendment thereto such information as each Holder, the underwriter or agent (if any) or their respective counsel may reasonably request to be included therein with respect to any Registrable Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and any other terms of the offering of such Registrable Securities; (xviii) during any period when a prospectus is required to be delivered under the Securities Act, make periodic filings with the SEC pursuant to and containing the information required by the Exchange Act (whether or not the Company is required to make such filings pursuant to such Act); (xix) in connection with an underwritten offering, participate, to the extent reasonably requested by the Requisite Holders or the managing underwriter for the offering, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows." (h) Agreements of Certain Holders. (i) Each Holder of Registrable Securities as to which any registration is being effected shall furnish to the Company such information regarding such Holder, the Registrable Securities held by such Holder and the intended plan of distribution of such securities as the Company may from time to time reasonably request in writing in connection with such registration. If any registration statement refers to Investor, any Fidelity Fund or any of their respective Affiliates by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require [(A) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (B)] in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal or state blue sky statute and the rules and regulations thereunder then in force, the deletion of the reference to such Holder. (ii) Each Holder of Registrable Securities as to which any registration is being effected agrees, by acquisition of such Registrable Securities, that upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in clause (vii) of Section 2.5(g), such Holder will forthwith discontinue such Holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by clause (vii) of Section 2.5(g)[; provided, however, that in no event shall the period (the "Suspension Period") from the date on which such Holder receives a Suspension Notice to and including the date on which such Holder receives copies of the supplemented or amended prospectus contemplated by clause (vii) of Section 2.5(g) exceed twenty (20) days]. The Company shall [use commercially reasonable efforts to] take such actions as are necessary to 10 37 end the Suspension Period as promptly as practicable. In the event the Company shall give any such notice, the period referred to in clause (ii) of Section 2.5(g) shall be extended by a number of days equal to the number of days of the Suspension Period. 2.6 Underwritten Offerings. (a) Underwritten Offerings in Connection with a Shelf or a Demand Registration. If requested by the underwriters for any underwritten offering in connection with a registration pursuant to Section 2.1 or 2.2, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement (i) to be satisfactory in substance and form to the Company and to each of Investor and each Fidelity Fund (so long as it or any of its Affiliates holds Registrable Securities to be included in such registration) and (ii) to contain such representations and warranties by the Company and such Holders (subject to the last sentence of this Section 2.6(a)) and such other terms as are generally prevailing in agreements of such type, including, without limitation, indemnities to the effect and to the extent provided in Section 2.8. Each of Investor and each Fidelity Fund (so long as it or any of its Affiliates holds Registrable Securities to be included in such registration) shall be a party to such underwriting agreement and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for its benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to its obligations thereunder. [No Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder's Registrable Securities and such Holder's intended method of distribution and any other representation required by law.] (b) Underwritten Offerings in Connection with Piggyback Registrations. If the Company at any time proposes to register any of its equity securities under the Securities Act as contemplated by Section 2.3 and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any Participating Holder and subject to Section 2.3(b), arrange for such underwriters to include all of the Registrable Equity Securities to be offered and sold by such Holder or Holders among the securities to be distributed by such underwriters. The Holders of Registrable Equity Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters, provided that such agreement is reasonably satisfactory in substance and form to the Requisite Holders, and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holders and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders thereunder. Any such Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder's Registrable Equity Securities and such Holder's intended method of distribution and any other representation required by law. 2.7 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Holders of Registrable Securities to be registered under such registration statement, their underwriters or agents, if any, and their respective counsel and accountants reasonable access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders' and such underwriters' or agents' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.8 Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder participating in an offering hereunder, its directors, officers, 11 38 shareholders, employees, investment advisers, agents and Affiliates, either direct or indirect (and such Affiliates', directors, officers, shareholders, employees, investment advisers and agents), and each other Person, if any, who controls such Persons within the meaning of the Securities Act (each such Person, an "Indemnified Party"), from and against any losses, claims, damages, liabilities or expenses, joint or several (each a "Loss" and collectively, "Losses"), to which such Indemnified Party may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act (including all documents incorporated therein by reference), any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such Indemnified Party for any legal or any other expenses reasonably incurred by it in connection with investigating or defending against any such Loss, action or proceeding; provided that in any such case the Company shall not be liable to any particular Indemnified Party to the extent that such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Indemnified Party specifically for inclusion therein; and provided, further, that the Company shall not be liable in any such case to the extent it is finally determined by a court of competent jurisdiction that any such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made (i) in any such preliminary prospectus, if (A) it was the responsibility of such Indemnified Party to provide the Person asserting such Loss with a current copy of the prospectus and such Indemnified Party failed to deliver or cause to be delivered a copy of the prospectus to such Person after the Company had furnished such Indemnified Party with a sufficient number of copies of the same prior to the sale of Registrable Securities to the Person asserting such Loss and (B) the prospectus corrected such untrue statement or omission; or (ii) in such prospectus, if such untrue statement or omission is corrected in an amendment or supplement to such prospectus and such amendment or supplement has been delivered to the Indemnified Party prior to the sale of Registrable Securities to the Person asserting such Loss and the Indemnified Party thereafter fails to deliver the prospectus as so amended or supplemented prior to or concurrently with such sale after the Company had furnished such Indemnified Party with a sufficient number of copies of the same [and informed the Indemnified Party of the necessity to deliver such amendment or supplement to purchasers of securities]. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of such securities by such Indemnified Party. The Company shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities hereunder, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to Indemnified Parties. (b) Indemnification by the Sellers. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2.3 and as a condition to indemnifying such sellers pursuant to this Section 2.8, that the Company shall have received an undertaking reasonably satisfactory to it from each prospective seller of such securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 2.8) the Company, each director, officer, employee and agent of the Company, and each other Person, if any, who controls the Company within the meaning of the Securities Act, from and against any Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arising out of or 12 39 based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such securities were registered under the Securities Act (including all documents incorporated therein by reference), any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission from such registration statement, preliminary prospectus, final prospectus or summary prospectus, or any amendment or supplement thereto required to be stated therein or necessary to make the statements therein not misleading, if (but only if) such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such prospective seller specifically for inclusion therein; provided, however, that such prospective seller shall not be obligated to provide such indemnity to the extent that such Losses result, directly or indirectly, from the failure of the Company to promptly amend or take action to correct or supplement any such registration statement, prospectus, amendment or supplement based on corrected or supplemental information provided in writing by such prospective seller to the Company expressly for such purpose; and provided further, that the obligation to provide indemnification pursuant to this Section 2.8(b) shall be several, and not joint and several, among such indemnifying parties. Notwithstanding anything in this Section 2.8(b) to the contrary, in no event shall the liability of any prospective seller under such indemnity be greater in amount than the amount of the proceeds received by such seller upon the sale of its Registrable Securities in the offering to which the Losses relate. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer, employee, agent or participating or controlling Person and shall survive the transfer of such securities by such prospective seller. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in paragraph (a) or (b) of this Section 2.8, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give prompt written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 2.8, except to the extent that the indemnifying party is actually and materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof [(such assumption to constitute its acknowledgement of its agreement to indemnify the indemnified party with respect to such matters)], jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal fees or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided, however, that if, in such indemnified party's reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, such indemnified party shall be entitled to separate counsel at the expense of the indemnifying party; and provided, further, that[, unless there exists a conflict of interest among indemnified parties,] all indemnified parties in respect of such claim shall be entitled to only one counsel or firm of counsel for all such indemnified parties. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, unless in the reasonable judgment of any such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect of such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel for such indemnified party or parties. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that (i) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all Losses in respect of such claim or litigation or (ii) would impose injunctive relief on such indemnified party. No indemnifying party shall be subject to 13 40 any Losses for any settlement made without its consent, which consent shall not be unreasonably withheld. (d) Other Indemnification. The provisions of this Section 2.8 shall be in addition to any other rights to indemnification or contribution which an indemnified party may have pursuant to law, equity, contract or otherwise. (e) Indemnification Payments. The indemnification required by this Section 2.8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, promptly as and when bills are received or Losses are incurred. (f) Contribution. If for any reason the foregoing indemnity and reimbursement is unavailable or is insufficient to hold harmless an indemnified party under paragraph (a) or (b) of this Section 2.8, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any Loss (or actions or proceedings, whether commenced or threatened, in respect thereof), including, without limitation, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss, action or proceeding, in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. Notwithstanding anything in this Section 2.8(f) to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this Section 2.8(f) to contribute any amount in excess of the amount by which the net proceeds received by such indemnifying party from the sale of Registrable Securities in the offering to which the Losses of the indemnified parties relate exceeds the amount of any damages which such indemnifying party has otherwise been required to pay by reason of such untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. [2.9 Liquidated Damages. (a) If the Company shall not have filed, or the SEC shall not have declared effective, a Shelf Registration Statement as of the Effective Date, the Company shall pay liquidated damages to each Holder covered or to be covered by such registration statement in an amount equal to (i) in the case of Registrable Debt Securities, $.10 per $1,000 outstanding principal amount of such Registrable Debt Securities and (ii) in the case of Registrable Equity Securities, $. per share (or, in the case of any Warrant, $. per share based on the number of shares issuable upon exercise of the Warrant) for each week specified in subsection (g) below. (b) If the late filing or late declaration of effectiveness referred to in clause (a) above shall not have been cured within ninety (90) days after the Effective Date, the daily liquidated damages set forth in clause (a) above shall increase by an amount equal to (i) in the case of Registrable Debt Securities, $.15 per $1,000 outstanding principal amount of such Registrable Debt Securities and (ii) in the case of Registrable Equity Securities, $. per share (or in the case of any Warrant, $. per share based on the number of shares issuable upon exercise of the Warrant) for each week specified in subsection (g) below. (c) If the late filing or late declaration of effectiveness referred to in clause (a) above shall not have been cured within one hundred and eighty (180) days after the Effective Date, the daily liquidated damages set forth in clause (a) above shall increase by an amount equal to (i) in the case of Registrable Debt Securities, $.20 per $1,000 outstanding principal amount of such Registrable Debt Securities and (ii) in the case of Registrable Equity Securities, $. per share (or in the case of any Warrant, $. per share based on the number of shares issuable upon exercise of the Warrant) for each week specified in subsection (g) below. 14 41 (d) If a stop order is imposed or if for any other reason the effectiveness of the Shelf Registration Statement is suspended during the period specified in the first sentence of Section 2.1(b), the Company shall pay liquidated damages to each Holder covered or to be covered by such registration statement in an amount equal to (i) in the case of Registrable Debt Securities, $.10 per $1,000 outstanding principal amount of such Registrable Debt Securities and (ii) in the case of Registrable Equity Securities, $. per share (or in the case of any Warrant, $. per share based on the number of shares issuable upon exercise of the Warrant) for each week specified in subsection (g) below. (e) If the stop order or other suspension of effectiveness of the Shelf Registration Statement referred to in clause (d) above shall not have been cured within ninety (90) days after such stop order was imposed or the effectiveness of the Shelf Registration Statement was otherwise suspended, the daily liquidated damages set forth in clause (d) above shall increase by an amount equal to (i) in the case of Registrable Debt Securities, $.15 per $1,000 outstanding principal amount of such Registrable Debt Securities and (ii) in the case of Registrable Equity Securities, $. per share (or in the case of any Warrant, $. per share based on the number of shares issuable upon exercise of the Warrant) for each week specified in subsection (g) below. (f) If the stop order or other suspension of effectiveness of the Shelf Registration Statement referred to in clause (d) above shall not have been cured within one hundred and eighty (180) days after such stop order was imposed or the effectiveness of the Shelf Registration Statement was otherwise suspended, the daily liquidated damages set forth in clause (d) above shall increase by an amount equal to (i) in the case of Registrable Debt Securities, $.20 per $1,000 outstanding principal amount of such Registrable Debt Securities and (ii) in the case of Registrable Equity Securities, $. per share (or in the case of any Warrant, $. per share based on the number of shares issuable upon exercise of the Warrant) for each week specified in subsection (g) below. (g) The liquidated damages payable to any Holder set forth in this Section 2.9 shall begin accruing on the date on which the event triggering such liquidated damages occurs and shall cease to accrue (i) with respect to clauses (a) through (c) above, on the earlier of the date after the SEC declares the Shelf Registration Statement to be effective and the date after the SEC declares effective a registration statement effected pursuant to Section 2.2 covering such Holder's Registrable Securities and (ii) with respect to clauses (d) through (f) above, on the date after reinstatement of the effectiveness of the Shelf Registration Statement. The Company will pay the liquidated damages due with respect to any Registrable Securities at the end of each month during which such damages accrue. Liquidated damages shall be paid to the Holders entitled to receive such liquidated damages by wire transfer in immediately available funds to the accounts designated by such Holders. (h) The parties hereto agree that (i) the liquidated damages provided for in this Section 2.9 constitute a reasonable estimate of the damages that will be suffered by each Holder covered or to be covered by the Shelf Registration Statement by reason of the failure of the Shelf Registration Statement to be filed, to be declared effective and to remain effective in accordance with this Agreement and (ii) such liquidated damages shall be the sole remedy of each such Holder with respect to the matters set forth in this Section 2.9.] 3. Rule 144 and Rule 144A. (a) The Company will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder and will take such further action as Investor and/or any Fidelity Fund may reasonably request, all to the extent required from time to time to enable Investor and/or such Fidelity Fund to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, (ii) Rule 144A or (iii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of Investor and/or any Fidelity Fund, the Company will deliver to Investor and/or such Fidelity Fund a written statement as to whether it has complied with such requirements and will, at its expense, forthwith upon the request of Investor and/or such Fidelity Fund, deliver to Investor and/or such Fidelity Fund a certificate, signed by the Company's principal financial officer, stating (A) the Company's name, address and telephone number (including area code), (B) the Company's Internal Revenue Service identification number, (C) the 15 42 Company's SEC file number, (D) the amount of shares of each class of capital stock outstanding as shown by the most recent report or statement published by the Company, and (E) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least ninety (90) days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. (b) If at any time the Company is not required to file reports in compliance with either Section 13 or Section 15(d) of the Exchange Act, the Company at its expense will, forthwith upon the request of Investor and/or any Fidelity Fund, (i) make available adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144 and (ii) deliver the information required by Section (d) of Rule 144A (such information to be "reasonably current" within the meaning of Section (d)(4)(ii) of Rule 144A). 4. Term. This Agreement shall enter into force on the date hereof and shall continue in full force and effect until the [sixth (6th)] [twelfth (12th)] anniversary of the date hereof. 5. Amendments and Waivers. This Agreement may be amended, supplemented or modified at any time; provided that (i) each of Investor and each Fidelity Fund (so long as it or any of its Affiliates holds Registrable Securities), (ii) each Holder of at least percent ( %) in interest of Registrable Equity Securities and percent ( %) in aggregate principal amount of Registrable Debt Securities then outstanding and (iii) the Company has provided its written consent to such amendment, supplement or modification. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same term or condition of this Agreement on any future occasion. 6. Entire Agreement. This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof (including, without limitation, Section 11 of the Investment Agreement) and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. 7. No Third-Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party, their respective Successors or permitted assigns and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than (i) any Affiliate of Investor or Fidelity, (ii) any transferee, direct or indirect, of any of the Registrable Securities held by Investor or Fidelity or (iii) any other Person entitled to notice of the registration of Registrable Securities under Sections 2.2(c) or 2.3(a), to indemnity under Section 2.8 [or to liquidated damages under Section 2.9]. 8. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) 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 (iv) 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. 9. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of request or other action by any Holder or Holders pursuant to this Agreement or any determination of any amount of shares of Registrable Securities held by any Holder or Holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. For purposes of this Agreement, "beneficial ownership" and "beneficial owner" refer to beneficial ownership as defined in Rule 13d-3 (without regard to the 60-day provision in paragraph (d)(1)(i) thereof) under the Exchange Act. 16 43 10. 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) to the parties at the following addresses or facsimile numbers: If to the Company, to: America West Airlines, Inc. 4000 East Sky Harbor Boulevard Phoenix, Arizona 85034 Attention: William A. Franke and Martin J. Whalen Fax No.: (602) 693-5904 If to Investor, to: AmWest Partners, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attention: James G. Coulter Fax No.: (817) 871-4010 If to Fidelity, to: Fidelity Management Trust Company 82 Devonshire Street, MS F7E Boston, Massachusetts 02109 Attention: Daniel S. Harmetz Fax No.: (617) 227-2536 and to: Fidelity Management Trust Company 82 Devonshire Street, MS F7D Boston, Massachusetts 02109 Attention: Wendy Schnipper-Clayton, Esq. Fax No.: (617) 570-7688 with a copy to: Goodwin, Procter & Hoar Exchange Place Boston, Massachusetts 02109-2881 Attention: Laura Hodges Taylor Fax No.: (617) 523-1231 With respect to any other holder of Registrable Securities entitled to receive notice, requests or other communications hereunder, such notices, requests and other communications shall be sent to the addresses and telecopy numbers set forth in SCHEDULE 1 hereto (as it may be amended, modified or supplemented from time to time). All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 10, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 10, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 10, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 10). Any Person from time to time may change its address, facsimile number or other information for the purpose of notices to that Person by giving notice in accordance with this Section 10 specifying such change to the Company and the Investor. 17 44 11. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their respective Successors (including, in the case of the Company, the Company as reorganized pursuant to the Plan of Reorganization) and permitted assigns. In addition, each of Investor and Fidelity may assign [(by written instrument)] any of its rights hereunder (in whole or in part) to one or more Affiliates or to one or more direct or indirect transferees of its Registrable Securities. 12. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for convenience of reference only and do not define or limit the provisions hereof or otherwise affect the meaning hereof. [13. Specific Performance. [Except with respect to the matters set forth in Section 2.9], the parties agree that, to the extent permitted by law, (i) the obligations imposed on them in this Agreement are special, unique and of an extraordinary character, and that in the event of a breach by any such party damages would not be an adequate remedy; (ii) each of the other parties shall be entitled to specific performance and injunctive and other equitable relief in addition to any other remedy to which it may be entitled at law or in equity; and (iii) any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief is hereby waived.] 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 15. Registration Rights to Others. [The Company shall not provide to any other holder of its securities rights with respect to the registration of such securities under the Securities Act without the prior written consent of Investor and each Fidelity Fund (so long as they or their Affiliates hold Registrable Securities).] The Company represents and warrants that, other than as provided herein, it has not granted to any other Person rights with respect to the registration of any Registrable Securities or any other securities issued or to be issued by it. 16. Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall, to the extent permitted by applicable law, be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 17. Limitation of Liability. Each party to this Agreement acknowledges and agrees that (i) this Agreement is not executed on behalf of or binding upon any of the trustees, officers, directors, partners or shareholders of any Fidelity Fund individually, but is binding only upon the assets and property of each Fidelity Fund and (ii) the obligations of each Fidelity Fund hereunder are several and not joint. With respect to the obligations of any Fidelity Fund arising out of this Agreement, each party to this Agreement shall look for payment or satisfaction of any claim solely to the assets and property of such Fidelity Fund. 18. Termination of Certain Rights. The rights and obligations hereunder of each of Investor and each Fidelity Fund shall terminate with respect to such party at such time when neither it nor any of its respective Affiliates holds Registrable Securities, provided that the provisions of Section 2.8 shall survive termination of this Agreement. 19. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. 18 45 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. AMERICA WEST AIRLINES, INC. By:__________________________________ Name: Title: AMWEST PARTNERS, L.P. By [AmWest GenPar Inc.] its General Partner [By ] By:___________________________________ Name: Title: [LIST EACH FIDELITY FUND] By:___________________________________ Name: Title: 19 46 EXHIBIT 10.15 MANAGEMENT RESIGNATION ALLOWANCE GUIDELINES NOVEMBER 18, 1993 PROGRAM PURPOSE The plan is intended to provide eligible employees with reasonable transition support in order for them to seek career opportunities outside the company. Management can use the plan after other reasonable alternatives for dealing with the situation have been exhausted. ELIGIBILITY Eligibility for the program is determined by the Company and is intended to apply to management employees who permanently end their employment relationship with AWA. Eligible management employees include those whose positions are eliminated or downgraded in conjunction with a reorganization of responsibilities or priorities within the Company or whose particular services no longer fit the needs of the Company. All or some of the functions may be transferred to another position or eliminated as a result of the reorganization. All resignation allowances are subject to case-by-case review by the Compensation Committee of the Board of Directors. All resignation allowances for directors, senior directors and officers of the corporation and all resignation allowances for other management personnel in amounts in excess of twenty-six (26) weeks pay must be approved by the Compensation Committee. The plan is not intended to relieve management of its responsibility to appropriately deal with individual performance issues on a firm and constructive basis. Specifically, the plan is not available for: - Employees with less than one full year of AWA service. - Employees subject to termination for cause, for example, an employee with an ongoing non-performance problem. - Employees guilty of serious misconduct, for example, stealing or willful or negligent destruction of AWA property. PLAN DESIGN - The resignation allowance payments are based on Current Annual Compensation of three (3) weeks pay for each year of full-time AWA service (partial years to be pro-rated to date of termination) with a four (4) week minimum and a fifty-two (52) week maximum. If applicable, any unearned portion of a salary advance will be reimbursed to the company or will be deducted from the resignation allowance. - Five percent (5%) increase in allowance period for each year over age 40, not to exceed 52-weeks combined maximum payment. - Group medical/life coverages continue during the allowance period at the same cost paid by active employees. - Travel privileges on AWA continue during the allowance period. Travel privileges with other carriers vary based on the agreements with those carriers. All travel privileges cease if the resigned employee becomes employed by another airline. - The resignation date is the termination date for purposes of 401(k) and incentive stock options. - Outplacement services through an outplacement agency approved by Human Resources will be made available on a case-by-case basis with a maximum per employee cost to AWA of $5,000. 47 PROCESS 1. Before discussing the resignation program with a potential candidate, the supervising Officer or Director will review the situation with the Senior Director, Human Resources, to confirm plan eligibility. The Senior Director, Human Resources, will then coordinate approval of the resignation package as required. Any exceptions to these guidelines require the advance review by Human Resources and the approval of the CEO and the Compensation Committee of the Board of Directors. 2. Human Resources will prepare the resignation agreement documents, including the resignation allowance payment calculation and employee benefits summary. 3. The supervising Officer or Director will make the offer to the employee with appropriate coordination from Human Resources. 4. The resigned employee is "out-processed" by Human Resources, Payroll and the various employee benefits departments. 48 EXHIBIT 10.46 KEY EMPLOYEE PROTECTION AGREEMENT KEY EMPLOYEE PROTECTION AGREEMENT ("Agreement"), dated June 27, 1994, by and between AMERICA WEST AIRLINES, INC., a Delaware corporation (the "Company"), and WILLIAM A. FRANKE ("Franke"). WHEREAS, Franke is the Chairman of the Board and Chief Executive Officer of the Company; and WHEREAS, at the time of Franke's employment as Chairman of the Board in 1992, the Company's Board of Directors and debtor-in-possession lenders agreed, among other things, to use their best efforts to cause any plan of reorganization filed with the Bankruptcy Court (as hereinafter defined) relating to the Company to provide for the payment to Franke, upon substantial consummation of such plan of reorganization, of a confirmation success bonus of not less than $500,000; and WHEREAS, with significant contribution from Franke in his capacities as Chairman of the Board and Chief Executive Officer of the Company, significant financial and operating progress has been made by the Company and other actions have been taken which have enhanced, and in the future are expected to further enhance, the value of the Company's estate for the benefit of its creditors and other constituencies; and WHEREAS, under Franke's leadership, the Company is currently endeavoring to develop and finalize a confirmable Plan of Reorganization (as hereinafter defined); and WHEREAS, the services and knowledge of Franke are valuable to the Company in many respects, including (without limitation) the rendering of advice to the Company and its Board of Directors with respect to the difficult and complex process of developing and finalizing a confirmable Plan of Reorganization; and WHEREAS, the Company considers it prudent to enter into this Agreement in order to (i) better secure Franke's continued services, (ii) ensure Franke's continued objectivity in the event of negotiations or actions that might lead to a Change in Control (as hereinafter defined) and (iii) define the nature and terms of Franke's severance benefits following a Change in Control. NOW THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties (intending to be legally bound) hereby covenant and agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Bankruptcy Court" means the Bankruptcy Court for the District of Arizona. (b) "Board" means the Board of Directors of the Company. (c) "Change in Control" shall occur if either: (i) the individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (ii) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) acquires the beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. 49 (d) "Company Affiliate" means any corporation, partnership or other business entity directly or indirectly controlling, controlled by or under common control with, the Company. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a corporation, partnership or other business entity, whether through ownership of voting securities, by contract or otherwise. (e) "Confirmation Bonus" means any reorganization success bonus payable to Franke pursuant to a Plan of Reorganization in the event such Plan of Reorganization is confirmed and consummated. (f) "Confirmation Date" means the date a Plan of Reorganization is confirmed by the Bankruptcy Court. (g) "Plan of Reorganization" means any plan of reorganization which (i) is filed with the Bankruptcy Court and (ii) contemplates and, if confirmed and consummated, would result in the emergence of the Company from its Chapter 11 bankruptcy proceedings. (h) "Severance Payment" means as specified in Section 2 below. (i) "Termination Date" means as specified in Section 2 below. 2. Severance Payment. (a) If a Change in Control occurs in connection with the consummation of a Plan of Reorganization and if, for any reason (including, without limitation, a voluntary resignation or an involuntary removal but excluding death), Franke ceases to serve as the Chairman of the Board and the Chief Executive Officer of the Company at any time during the period of 180 days beginning on the Confirmation Date, the Company agrees to pay to Franke, promptly after the date on which Franke ceases to be the Chairman of the Board and the Chief Executive Officer of the Company ("Termination Date"), a lump sum amount (the "Severance Payment") equal to 200% of the sum of (i) Franke's annual base salary as in effect immediately prior to the Termination Date and (ii) Franke's annual administrative expense allowance as in effect immediately prior to the Termination Date; provided, however, that the Severance Payment shall be reduced by the amount of any Confirmation Bonus actually paid to Franke prior to the Termination Date. (b) If all or any portion of the Severance Payment is actually paid to Franke, any Confirmation Bonus thereafter payable to Franke shall be reduced by the amount of the Severance Payment actually paid to Franke unless the payment of such amount to Franke was taken into account in determining the amount of such Confirmation Bonus. 3. Medical Insurance. During the 12-month period following the Termination Date, the Company, at its cost, shall maintain in full force and effect for the continued benefit of Franke and Franke's dependents all benefits available to Franke and Franke's dependents under all medical plans and programs of the Company, provided that (i) Franke's continued participation is possible under the terms and provisions of such plans and programs and (ii) Franke pays the regular employee contribution, if any, required by such plans and programs. In the event that participation by Franke (or his dependents) in any such plan or program after the Termination Date is barred pursuant to the terms thereof, or in the event the Company shall terminate any such plan or program, the Company shall obtain for Franke (and/or his dependents) comparable coverage under individual policies. 4. Life Insurance. During the 12-month period following the Termination Date, the Company, at its cost, shall continue to provide Franke all life insurance coverages (and in the same amounts) provided to him by the Company immediately prior to the Termination Date. 5. Travel Privileges. The Company shall provide Franke (and wife and his dependents) such lifetime on-line and interline, positive space travel privileges subject to the terms of the Company's non-revenue travel policy for retired executives as from time to time in effect. 6. Accrued Vacation Pay, etc. Promptly after the Termination Date, the Company shall pay to Franke a lump sum amount for (i) all unused vacation time accrued by Franke as of the Termination Date and (ii) all unpaid benefits earned by Franke as of the Termination Date under any and all incentive compensation plans or programs of the Company. 2 50 7. Tax Withholdings. The Company shall be entitled to withhold from all payments hereunder all applicable taxes (federal, state or other) which it is required to withhold therefrom. 8. Successors; Binding Agreement. (a) This Agreement shall not be terminated by the merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer referred to in paragraph (a) above, it will cause any successor or transferee to unconditionally assume in writing all of the obligations of the Company hereunder on terms and conditions reasonably satisfactory to Franke. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer shall be a breach of this Agreement and shall entitle Franke to immediately receive the Severance Payment from the Company and, for purposes of implementing the foregoing, the date on which such merger, consolidation or transfer becomes effective shall be deemed to be the Termination Date. (c) This Agreement shall inure to the benefit of and be enforceable by Franke's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Franke should die while any amounts would still be payable to Franke hereunder if Franke had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Franke to receive such amounts or, if no person is so appointed, to Franke's estate. 9. No Mitigation. The provisions of this Agreement are not intended to, nor shall they be construed to, require that Franke seek or accept other employment following a termination of employment. Except as provided in Section 1(a), the Company's obligations to make the payments to Franke required under this Agreement or any other agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against Franke. 10. Expense Reimbursement. If any litigation, contest or dispute shall arise under this Agreement involving the failure or refusal of the Company to fully perform in accordance with the terms hereof, the Company shall reimburse Franke, on a current basis, for all legal fees and expenses, if any, incurred by Franke, on a current basis, for all legal fees and expenses, if any incurred by Franke in connection with such litigation, contest or dispute, together with interest thereon at the rate of 10% per annum, such interest to accrue from the date the Company receives Franke's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the final resolution of such litigation, contest or dispute includes a finding denying, in total, Franke's claims in such litigation, contest or dispute, Franke shall be required to refund to the Company, over a period not to exceed 12 months from the date of such resolution, all sums advanced to Franke pursuant to this Section 10. 11. Assignability. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any affiliate of the Comapny, provided that no such assignment or delegation shall relieve the Company of its obligations under this Agreement. 12. Notices. All notices and all other communications to the parties shall be in writing and addressed (i) if to the Company, at its principal office address or such other address as it may have designated by written notice to Franks for purposes hereof, directed to the attention of the Board with a copy to the Secretary of the Company and (ii) if to Franke, at his residence address on the records of the Company or to such other address as he may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, except that any notice of change of address shall be effective only upon receipt. 3 51 13. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. Amendments and Waivers. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Franke and a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 15. Benefits Not Exclusive. The rights of and benefits payable to Franke or his beneficiaries under this Agreement are not exclusive and are in addition to any rights of and benefits payable to Franke or such beneficiaries under any other agreement between Franke and the Company or under any employee benefit plan or compensation program of the Company. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the Company and Franke have executed this Agreement as of the date first above written. AMERICA WEST AIRLINES, INC. By: /s/ RICHARD O'BRIEN ___________________________________ /s/ WILLIAM A. FRANKE ___________________________________ 4 52 EXHIBIT 5.1 [ANDREWS & KURTH] LETTERHEAD August 2, 1994 Board of Directors America West Airlines, Inc. 4000 East Sky Harbor Boulevard Phoenix, Arizona 85034 Gentlemen: We have acted as counsel for America West Airlines, Inc. (the "Company") in connection with the Company's Registration Statement on Form S-1 (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), relating to (i) shares of Class B Common Stock of the Company, par value $.01 per share (the "Class B Common Stock"), (ii) warrants to purchase Class B Common Stock (the "Warrants"), and (iii) senior unsecured notes of the Company (the "Senior Notes") (the Class B Stock, Warrants and Senior Notes are collectively referred to herein as the "Securities"), to be offered from time to time pursuant to Rule 415 under the Act by certain selling securityholders of the Company. The Securities are being issued pursuant to the Company's plan of reorganization under Chapter 11 of the United States Bankruptcy Code as described in the Registration Statement (the "Plan of Reorganization"). At your request, this opinion is being furnished to you for filing as Exhibit 5.1 to the Registration Statement. In our capacity as counsel for the Company in connection with the registration by the Company and proposed issuance of the securities described herein, we have examined the charter and bylaws of the Company, and have examined the originals, or copies otherwise identified, of corporate records of the Company, as furnished to us by the Company, certificates, advices and assurances of public officials and of representatives of the Company, statutes and other instruments and documents, as a basis for the opinions hereinafter expressed. In giving such opinions, we have relied upon certificates of officers of the Company with respect to the accuracy of the material factual matters contained in such certificates. We have assumed that all signatures on all documents examined by us are genuine, that all documents submitted to us as originals are authentic, that all documents submitted to us as copies are true and correct copies of the originals thereof and that all information submitted to us was accurate and complete. Based upon our examination as aforesaid, and subject to the assumptions and limitations herein set forth, we are of the opinion that: 1. The shares of Class B Common Stock to be issued pursuant to the Plan of Reorganization have been duly authorized by all necessary corporate action on the part of the Company and such shares, upon issuance pursuant to and in accordance with the Plan of Reorganization, will constitute validly issued, fully paid and non-assessable shares of common stock of the Company. 53 Board of Directors America West Airlines, Inc. August 2, 1994 Page 2 2. The Warrants to purchase Class B Common Stock have been duly authorized by all necessary corporate action on the part of the Company and, upon the issuance of the Warrants pursuant to and in accordance with the Plan of Reorganization and the Warrant Agreement, the Warrants will constitute valid and binding obligations of the Company enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws and by principles of equity. 3. The Senior Notes have been duly authorized by all necessary corporate action on the part of the Company and, upon the issuance of the Senior Notes pursuant to and in accordance with the Plan of Reorganization and the Indenture, the Senior Notes will constitute valid and binding obligations of the Company enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws and by principles of equity. In rendering the opinions set forth above, we express no opinion as to the adequacy or sufficiency of the consideration paid or to be paid or contributions made or to be made for any of the Securities in connection with the Plan of Reorganization. This opinion is limited in all respects to the corporate law of the State of Delaware, the laws of the State of New York and of the United States of America. To the extent any of such opinions relate to the corporate law of the State of Delaware, we have formed our opinion based solely upon a reading of the Delaware General Corporation Law. We express no opinion with respect to the laws or regulations of other jurisdictions applicable by virtue of conflict of laws or other principles. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the use of our name in the Registration Statement under the caption "Legal Matters." Very truly yours, /s/ ANDREWS & KURTH 1098/1146/2560:sfe 54 EXHIBIT 10.12 CODE SHARING AGREEMENT This Agreement is made this 29th day of June, 1994, by and between CONTINENTAL AIRLINES, INC. ("CAL"), a Delaware corporation, and AMERICA WEST AIRLINES, INC. ("AWA"), Debtor and Debtor-in-Possession, a Delaware corporation. RECITALS CAL and AWA are each certificated air carriers providing air transportation services in their respective areas of operation. CAL and AWA desire to cooperate in the coordination of schedules by allowing AWA to market its flight operations under the CO* designator and CAL to market its flight operations under the HP* designator. NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, CAL and AWA hereby agree as follows: 1. Schedules to be Operated. It is the intent of the parties to share their two letter designator codes, "CO*" in the case of CAL and "HP*" in the case of AWA. CAL operated Shared Code Segments (as herein defined) will be marketed under not only CAL's "CO" designator code but also under AWA's "HP*" designator code, and AWA operated Shared Code Segments will be marketed under not only AWA's "HP" designator code, but also under CAL's "CO*" designator code. Schedule 1 hereto sets forth the flight segments where shared code segments ("Shared Code Segments") will operate at the commencement of this Agreement and some of the Shared Code Segments that will be operated in the future; however, it is the intent of the carriers to designate, to the maximum extent permitted by law, all flights operated by either as Share Code Segments during the term of this Agreement. The carriers shall meet together every six months that this Agreement is in effect to discuss the appropriateness of expanding or contracting the list of city pairs on Schedule 1. 2. Code Sharing Licenses. (a) CO* License. (i) Grant of License. Subject to the terms and conditions of this Agreement, CAL hereby grants to AWA a nonexclusive, nontransferable, revocable license to use the CO* designator code on all of its flights operated as a Shared Code Segments. (AWA flights flown using the CO* code are hereinafter referred to as "CO* Flights"). (ii) Control of CO* Flights. AWA shall have sole responsibility for and control over, and CAL shall have no responsibility for, control over or obligations or duties with respect to, each and every aspect of AWA's operations including, without limitation, scheduling (except as provided in Section 12 hereto), pricing (except as provided in Section 13 hereto), planning of flight itineraries and routings, reservations, reservations control/yield management, dispatch, fueling, weight and balance, flight release, maintenance, and flight operations and compliance with applicable rules and regulations. (b) HP* License. (i) Grant of License. Subject to the terms and conditions of this Agreement, AWA hereby grants to CAL a nonexclusive, nontransferable, revocable license to use the HP* designator code on all of its flights operated as a Shared Code Segment. (CAL flights flown using the HP* code are hereinafter referred to as "HP* Flights"). (ii) Control of HP* Flights. CAL shall have sole responsibility for and control over, and AWA shall have no responsibility for, control over or obligations or duties with respect to, each and every aspect of CAL's operations including, without limitation, scheduling (except as provided in 1 55 Section 12 hereto), pricing (except as provided in Section 13 hereto), planning of flight itineraries and routings, reservations, reservations control/yield management, dispatch, fueling, weight and balance, flight release, maintenance, and flight operations and compliance with applicable rules and regulations. 3. Confidential Information. Neither AWA nor CAL shall disclose to the other carrier or be required to disclose by the other carrier any information relating to its scheduling (except as provided in Section 12 hereto), pricing, inventory control or flight profitability. Neither AWA nor CAL shall disclose the terms of this Agreement or any proprietary information with respect to the other obtained as a result of this Agreement, either during the term hereof or thereafter except as may be required by law or by any order of a court or administrative agency, and then on ten days' notice to the other. The parties hereto recognize that, in the course of the performance of each of the provisions hereof, each carrier may be given and may have access to confidential and proprietary information of the other carrier, including proposed schedule and fare changes, statistical data regarding loads and fares, sales and promotional programs and other operating and competitive information ("Confidential Information"). Each carrier shall preserve, and shall ensure that each of its officers, agents, consultants and employees who receive Confidential Information preserve, the confidentiality of the other carrier's Confidential Information. 4. Quality of Service. Each carrier shall perform its service with respect to its flights operated under the designation of the other carrier in a timely, expert and quality manner. Each carrier agrees that, in conducting flight operations under the designator of the other carrier, it will employ prudent safety and loss prevention policies. 5. Audit. (a) CAL Audit. CAL shall have the right, at its own cost, to inspect, review, and observe AWA's operations of CO* Flights, and/or to conduct a full safety and/or service audit of AWA's operations, manuals and procedures reasonably related to CO* Flights, at such intervals as CAL shall reasonably request. In the exercise of such right, CAL does not undertake any responsibility for the performance of AWA's operations. CAL shall coordinate its safety and service audits with AWA so as to avoid disruptions of AWA's operations. Any safety audit may include, without limitation, maintenance and operation procedures, crew planning, reservations, passenger and baggage handling, customer service, personnel records, spare parts, inventory records, training records and manuals, flight, flight training and operational personnel records. This paragraph shall not entitle CAL access to AWA's records, documents or systems relating to its pricing, inventory control or flight profitability. (b) AWA Audit. AWA shall have the right, at its own cost, to inspect, review, and observe CAL's operations of HP* Flights, and/or to conduct a full safety and/or service audit of CAL's operations, manuals and procedures reasonably related to HP* Flights, at such intervals as AWA shall reasonably request. In the exercise of such right, AWA does not undertake any responsibility for the performance of CAL's operations. AWA shall coordinate its safety and service audits with CAL so as to avoid disruptions of CAL's operations. Any safety audit may include, without limitation, maintenance and operation procedures, crew planning, reservations, passenger and baggage handling, customer service, personnel records, spare parts, inventory records, training records and manuals, flight, flight training and operational personnel records. This paragraph shall not entitle AWA access to CAL's records, documents or systems relating to its pricing, inventory control or flight profitability. 6. Public Relations. In the event of any irregularity in Shared Code Segments' operations, including, without limitation, any event causing damage to persons or property, the operating carrier shall identify itself as being operated independently of the carrier whose code is being used, and as being solely responsible for its operations. Either carrier may state that it holds a code sharing license from the other carrier and that it obtains certain services from the other carrier if third parties inquire as to such relationship. 7. Irregularities in Operations. AWA shall promptly notify CAL of all irregularities involving a CO* Flight which result in any damage to persons or property as soon as such information is available and shall furnish to CAL as much detail as practicable. CAL shall promptly notify AWA of all irregularities involving a 2 56 HP* Flight which result in any damage to persons or property as soon as such information is available and shall furnish to AWA as much detail as practicable. 8. Reporting Obligation. (a) Changes in Service. Each carrier shall give the other carrier 60 days advance notice (or notice as far in advance as possible if 60 days is impracticable) of any intended (i) changes to its operating specifications, or (ii) material changes to the manner of conducting its business or the nature of its product. In the event any such change materially affects the value or risk to the other carrier of this Code Sharing Agreement in the other carrier's reasonable judgment, the other carrier shall be entitled to terminate this agreement if the change is implemented. (b) Correspondence from Government Authorities. AWA shall immediately provide CAL copies of any correspondence received from government authority which, with respect to CO* Flights, references (i) any alleged noncompliance with rules or regulations affecting air transportation, or (ii) any investigation of AWA performed or proposed by any government authority, including, without limitation, any communication issued by a government authority concerning the airworthiness of AWA's aircraft, the compliance of AWA's personnel with required operational or training procedures or any other matter relating to the safe operation of AWA aircraft. CAL shall immediately provide AWA copies of any correspondence received from any government authority which, with respect to HP* Flights, references (i) any alleged noncompliance with rules or regulations affecting air transportation, or (ii) any investigation of CAL performed or proposed by any government authority, including, without limitation, any communication issued by a government authority concerning the airworthiness of CAL's aircraft, the compliance of CAL's personnel with required operational or training procedures or any other matter relating to the safe operation of CAL aircraft. (c) Notice of Complaints. AWA shall monthly furnish CAL a summary of complaints, notices or violation, request to cease activity or similar correspondence which reasonably relate to CO* Flights and which are received by AWA from passengers, any government authority, or other parties. CAL shall monthly furnish AWA a summary of complaints, notices or violation, request to cease activity or similar correspondence which reasonably relate to HP* Flights and which are received by CAL from passengers, any government authority, or other parties. Each carrier shall comply with the other carrier's reasonable requests for actual copies of any such documents. 9. Flight Display. (a) All Shared Code Segments will be included in the availability and fare displays of all computerized reservations systems in which CAL and AWA participate, the Official Airline Guide (to the extent agreed upon) and CAL's and AWA's internal reservation systems, under the shared code as well as the operator's own code, to the extent possible. CAL and AWA will take the appropriate measures necessary to ensure the display of Shared Code Segments in accordance with the preceding sentence. (b) CAL and AWA will disclose and identify the Shared Code Segments to the public as actually being a flight of and operated by the operating carrier, in at least the following ways: (i) a symbol will be used in timetables and computer reservation system indicating that Shared Code Segments are actually operated by the other carrier; (ii) to the extent reasonable, messages on airport flight information displays will identify the operator of flights shown as Shared Code Segments; (iii) CAL and AWA advertising concerning Shared Code Segments and CAL and AWA reservationists will disclose the operator of each flight; and (iv) in any other manner prescribed by law. 3 57 10. Terms and Conditions of Carriage and Claims Procedures. (a) In all cases the contract of carriage between a passenger and a carrier will be that of the carrier whose designator code is used and not that of the carrier operating the Shared Code Flight. (b) The carriers will use existing IATA procedures when handling and settling claims made by customers in connection with Shared Code Segments. 11. Irregularity Handling. (a) In the event of flight delays, cancellations or other schedule irregularities that affect Shared Code Segments, the operating carrier will inform the carrier whose designator is also used of all pertinent information concerning an irregularity for customer information purposes. (b) The parties agree that they will cooperate in all available ways to accommodate passengers experiencing flight irregularities and that neither will forbear from providing such assistance because the other may have been responsible for the flight irregularity. In the event of a flight irregularity, the carrier causing or experiencing the irregularity shall bear all related costs associated with accommodating the passengers who have been delayed. The carriers will review existing procedures for accommodating interline passengers with respect to flight irregularities and oversales to determine their adequacy for the purposes of this Agreement and will make such adjustments in existing procedures as they find necessary or appropriate. 12. Airport Operational Assistance. CAL and AWA will cooperate to coordinate and maintain their schedules to minimize the waiting time and to maximize convenience of passengers who are connecting from a CAL to AWA flight segment (or vice versa). Each carrier will provide the other with the airport operational assistance that is required to assure schedule compatibility for Shared Code Segments for which a Through Fare (as such term is hereinafter defined) may be applicable. The carriers will use their respective best efforts to align gates and ticket counter space where Shared Code Segments operate. 13. Pricing and Capacity Control of Shared Code Segments. [CONFIDENTIAL PORTION DELETED] 15. Compliance with Laws and Regulations. CAL and AWA each represent, warrant, and agree that performance of its respective obligations under this Agreement shall be conducted and all of its personnel shall at all times meet, be in full compliance with and have all required licenses under any and all applicable statutes, orders, rules and regulations, and satisfy all applicable insurance requirements, whether in effect or hereafter promulgated of the United States National Transportation Safety Board, Department of Transportation of Federal Aviation Administration, Department of Defense of any country or territory with jurisdiction over the Shared Code Segments. 16. Independent Parties. (a) Independent Contractors. It is expressly recognized and agreed that each carrier, in its performance and otherwise under this Agreement, is and shall be engaged and acting as an independent contractor and in its own independent and separate business; that each carrier shall retain complete and exclusive control over its staff and operations and the conduct of its business; and that each carrier shall bear and pay all expenses, costs, risks and responsibilities incurred by it in connection with its obligations under this Agreement. Neither CAL nor AWA nor any officer, employee, representative, or agent of CAL or AWA shall in any manner, directly or indirectly, expressly or by implication, be deemed to be, or make any representation or take any action which may give rise to the existence of, any employment, agent, partnership, or other like relationship as between CAL and AWA but each carrier's relationship as respects the other carrier in connection with this Agreement is and shall remain that of an independent contractor. (b) Status of Employees. The employees, agents and/or independent contractors of AWA shall be employees, agents, and independent contractors of AWA for all purposes, and under no circumstances 4 58 shall be deemed to be employees, agents or independent contractors of CAL. The employees, agents and independent contractors of CAL for all purposes, and under no circumstances shall be deemed to be employees, agents or independent contractors of AWA. In its performance under this Agreement, each carrier shall act as an independent contractor and not as an agent for the other. CAL shall have no supervisory power or control over any employees, agents or independent contractors employed by AWA, and AWA shall have no supervisory power or control over any employees, agents and independent contractors employed by CAL. (c) Liability For Employee Costs. Each carrier, with respect to its own employees (hired directly or through a third party), accepts full and exclusive liability for the payment of worker's compensation and/or employer's liability (including insurance premiums where required by law) and for the payment of all taxes, contributions or other payments for unemployment compensation, vacations, or old age benefits, pensions and all other benefits now or hereafter imposed upon employers with respect to its employees by any government or agency thereof or any other party (whether measured by the wages, salaries, compensation or other remuneration paid to such employees or otherwise) and each carrier further agrees to make such payments and to make and file all reports and returns, and to do everything necessary to comply with the laws imposing such taxes, contributions or other payments. 17. Indemnification and Insurance. (a) Indemnification. (i) AWA hereby assumes liability for, and shall indemnify, defend, protect, save and hold harmless CAL, its officers, agents, and employees from and against any and all liabilities, claims, judgments, damages, and losses, including all costs, fees, and expenses incidental thereto, of every type and nature whatsoever, including without limitation those involving (i) death of or injury to any person including, but not limited to, AWA's officers, employees and agents, (ii) loss of, damage to, or destruction of any property whatsoever, including any loss of use thereof, and (iii) trademark, service mark or trade name infringement, provided that such liabilities, claims, judgments, damages or losses are caused by or arise out of (or are alleged to be caused by or arise out of) any alleged acts or omissions of AWA or its officers, employees, or agents which are in any way related to the services contemplated by this Agreement. CAL shall give AWA prompt notice of any claim made or suit instituted against CAL which, if successful, would result in indemnification of CAL hereunder, and CAL shall have the right to compromise or participate in the defense of same to the extent of its own interest. (ii) CAL hereby assumes liability for, and shall indemnify, defend, protect, save and hold harmless AWA, its officers, agents, and employees from and against any and all liabilities, claims, judgments, damages, and losses, including all costs, fees, and expenses incidental thereto, of every type and nature whatsoever, including without limitation those involving (i) death of or injury to any person including, but not limited to, CAL's officers, employees and agents, (ii) loss of, damage to, or destruction of any property whatsoever, including any loss of use thereof, and (iii) trademark, service mark or trade name infringement, provided that such liabilities, claims, judgments, damages or losses are caused by or arise out of (or are alleged to be caused by or arise out of) any alleged acts or omissions of CAL or its officers, employees, or agents which are in any way related to the services contemplated by this Agreement. AWA shall give CAL prompt notice of any claim made or suit instituted against AWA which, if successful, would result in indemnification hereunder, and AWA shall have the right to compromise or participate in the defense of same to the extent of its own interest. (b) Insurance Coverage. (i) Each carrier shall, at all time during the term of this Agreement, maintain in full force and effect policies of insurance as follows: 1. Comprehensive Airline Liability Insurance, including Aircraft Third Party, Passenger, including Passengers' Baggage and Personal Effects, Cargo and Mail Legal Liability for a 5 59 Combined Single Limit (CSL) of not less than $500 million per occurrence per Aircraft. In respect of Personal Injury the maximum limit is $25 million per offense and in the aggregate. The minimum amounts of insurance coverage required under this paragraph 1 shall be per occurrence, combined single limit for all coverage required under this paragraph 1. 2. Workmen's Compensation Insurance Per Accident (Company Employee) Statutory 3. Employer's Liability $1,000,000 (combined single limit)
(ii) Subject to Section 17(b)(i) above, each carrier as appropriate shall cause the policies of insurance described in such Section 17(b)(i) to be duly and properly endorsed by that carrier's insurance underwriters as follows: 1. as to the policies of insurance described in paragraphs (b)(i)1 and (b)(i)2 of Section 17: (A) to provide that any waiver of rights of subrogration against other parties by one party will not affect the coverage provided thereunder with respect to the other party; and (B) to provide that the one party's underwriters shall waive any and all subrogation rights against the other party, its directors, officers, agents, employees and other authorized representatives, except for gross negligence or wilful misconduct, with regard to any breach of warranty on the part of the other party or to provide other evidence of such waiver or recourse against the other party, its directors, officers, agents, employees and other authorized representatives. (C) to provide that each party, its directors, officers, agents, employees and other authorized representatives shall be endorsed as named insured parties thereunder, except for gross negligence or wilful misconduct; and (D) to provide that said insurance shall be primary insurance and to acknowledge that any other insurance policy or policies of each party shall be secondary or excess insurance. 2. as to policies of insurance described in paragraph (b)(i)1 of Section 17 to provide a breach of warranty clause to said policies; and (iii) Each party shall cause each of the insurance policies referred to in Section 17(b)(i) to be duly and properly endorsed to provide that said policy or policies or any part or parts thereof shall not be canceled, terminated or materially altered, changed or amended by each party's insurance underwriters, until after 30 days' prior notice to the other party, such notice period to commence when such other party actually receives such notice. (iv) Simultaneously with the commencement of this Agreement, and from time to time thereafter upon request by either party, the other party shall furnish to the requesting party evidence reasonably satisfactory to the requesting party of the aforesaid insurance coverage and endorsements, including certificates certifying that the aforesaid insurance and endorsements are in full force and effect. Initially, this evidence shall be a certificate of insurance required hereunder. (v) In the event either party fails to maintain in full force and effect any of the insurance and endorsements required in terms of these sections, the other party shall have the right (but not the obligation) to procure and maintain such insurance or any part thereof. The cost of such insurance shall be payable by the first party to the other party upon demand by the other party. The procurement of such insurance or any part thereof by the other party shall not discharge or excuse the first party's obligation to comply with the provisions of Sections 17(b)(i) and 17(b)(ii) (c) Survival of Rights and Obligations. The rights and obligations of Section 18(a) shall survive the expiration or termination of this Agreement. 6 60 18. Term and Termination. (a) Term. Unless the carriers agree to an earlier commencement date, the term of this Agreement shall commence as soon as practicable after the date that is the later of the date that this Agreement is signed by both parties or the date that the investment agreement between AWA and AmWest partners, L.P. (the "Investment Agreement") is consummated and shall continue until the date immediately preceding the tenth anniversary of the commencement date, unless earlier terminated as provided herein, and shall continue thereafter until either carrier gives the other carrier notice of termination at least 90 days prior to the effective date of such termination. In no event shall termination or expiration pursuant to this Section 18(a) be effective unless such 90 days' notice is provided. (b) Termination as a Result of Changes of Law. In the event there is any change in treaties, statutes or regulations of air transportation that materially affects the rights and/or obligations presently in force with respect to the air transportation services of CAL or AWA or both, relating to CO* or HP* Flights, then the carriers will consult, within 30 days after any of the occurrences described herein, in order to determine or seek mutual agreement as to what, if any changes to this Agreement are necessary or appropriate, including but not limited to the early termination and cancellation of this Agreement. (c) Other Termination Rights. In addition to any other provisions of this Agreement, this Agreement may be terminated, without liability, as follows: (i) By either carrier on 30 days' prior written notice, if the other carrier has breached any material provision of this Agreement unless such other carrier cures such breach within such 30 day period; (ii) By either carrier immediately on notice, if the other carrier shall be dissolved or shall fail to maintain its corporate existence in good standing, or shall have its authority to operate as a scheduled airline suspended or revoked, either in whole or with respect to the CO* or HP* Flights, or shall cease operations as a scheduled airline. (iii) By either carrier immediately on notice if the other carrier shall be cited by any government authority for any significant noncompliance with a material law, rule or regulation with respect to the marketing or operation of a CO* or HP* Flight; (iv) By either carrier immediately on notice, in the event that the commencement date of this Agreement is prior to the date that the Investment Agreement is consummated, if the Investment Agreement is terminated prior to its having been consummated; (v) Except for AWA's currently pending Chapter 11 proceeding, by either carrier if a petition is filed by or against the other carrier under bankruptcy law, or any other law providing for the relief of debtors, and the affected party does not succeed in having such petition lifted or stayed within sixty days from the date of entry; the carrier at its option may cancel this Agreement immediately and exercise such other remedies as may be available at law and/or in equity; (vi) By either carrier on six months' prior written notice, if a carrier, foreign or domestic, that competes with the terminating carrier on a material basis, acquires majority ownership of or substantial control over the other carrier. (vii) By CAL immediately on notice if 1. AWA shall fail to maintain any of its aircraft in an airworthy condition and conduct its flight operations in accordance with the standards, rules and regulations promulgated by any government authority; or 2. AWA shall have a completion factor of less then 80% during any 20 day period with respect to CO* Flights (including in such calculations all flights canceled less than one week prior to the date of its scheduled operation and excluding flights not completed due to weather or labor stoppages); and 7 61 (viii) By AWA immediately on notice if 1. CAL shall fail to maintain any of its aircraft in an airworthy condition and conduct its flight operations in accordance with the standards, rules and regulations promulgated by any government authority; or 2. CAL shall have a completion factor of less then 80% during any 20 day period with respect to HP* Flights (including in such calculations all flights canceled less than one week prior to the date of its scheduled operation and excluding flights not completed due to weather or labor stoppages). 19. Booking Fee. The carrier operating over any segment of a Shared Code Flight will be responsible for any booking fee relating to such segment charges by the vendor of a computer reservation system used to create a booking on that flight. If the booking fee relating to such segment is billed to the carrier whose designator code is also used for that flight, the operating carrier will reimburse the carrier whose designator code is also used for that flight. 20. Entire Agreement, Waivers and Amendments. This Agreement constitutes the entire understanding of the carriers with respect to the subject matter hereof superseding all prior discussions and agreements, written or oral. This Agreement may not be amended, nor may any of its provisions be waived, except by writing signed by both carriers. No delay on the part of either carrier in exercising any right power or privilege hereunder shall operate as a waiver hereof, nor shall any waiver operate as a continuing waiver of any right, power or privilege. 21. Notices. All notices given hereunder shall be in writing delivered by hand, certified mail, telex, or telecopy to the carriers at the following addresses: If to CAL: Continental Airlines, Inc. Telephone No.: 713-834-2950 2929 Allen Parkway Telecopier No.: 713-520-6329 Houston, Texas 77019 Attention: Vice Chairman & CEO With copy to: Continental Airlines, Inc. Telephone No.: 713-834-5149 2929 Allen Parkway Telecopier No.: 713-834-5161 Houston, Texas 77019 Attention: Senior Vice President and General Counsel If to AWA: America West Airlines, Inc. Telephone No.: (602) 693-5880 4000 E. Sky Harbor Blvd. Telecopier No.: (602) 693-5950 Phoenix, AZ 85034 Attention: President & COO With copy to: America West Airlines, Inc. Telephone No.: (602) 693-5750 4000 E. Sky Harbor Blvd. Telecopier No.: (602) 593-5904 Phoenix, AZ 85034 Attention: Vice President and General Counsel 22. Successors and Assigns. Neither carrier may assign its rights or delegate its duties under this Agreement without the prior written consent of the other carrier, and any such purported assignment or delegation shall be void. This Agreement shall be binding on the lawful successors of each carrier. 8 62 23. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 24. Headings. The headings in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 25. Counterparts. This Agreement may be executed in counterparts, all of which taken together shall constitute one agreement. 26. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to principles of choice or conflicts of law. 27. Equal Opportunity. EEO clauses contained at 11 C.F.R. sec.sec. 60-1.4, 60-250.4 and 60-741.4 are hereby incorporated by reference. Each party shall comply with all equal opportunity laws and regulations which apply to or must be satisfied by that party as a result of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. CONTINENTAL AIRLINES, INC. AMERICA WEST AIRLINES, INC. By: /s/ BARRY P. SIMON By: /s/ A. MAURICE MYERS __________________________________________ __________________________________________ Title: Senior Vice President Title: President & CEO _______________________________________ _______________________________________
9 63 SCHEDULE 1 INITIAL SHARED CODE SEGMENTS [CONFIDENTIAL PORTION DELETED] 10 64 SCHEDULE 2 [CONFIDENTIAL PORTION DELETED] 11 65 EXHIBIT 10.13 AGREEMENT BETWEEN AMERICA WEST AIRLINES, INC. AND MESA AIRLINES, INC. 66 AMERICAN WEST EXPRESS SERVICE AGREEMENT AGREEMENT made this 4th day of September, 1992 by and between America West Airlines, Inc. ("AWA"), Debtor-In-Possession, a Delaware corporation having a principal place of business at 4000 East Sky Harbor Boulevard, Phoenix, Arizona, and Mesa Airlines, Inc. ("Contractor"), a New Mexico corporation having a principal place of business at 2325 E. 30th Street, Farmington, New Mexico: WITNESSETH: WHEREAS, AWA holds a certificate of public convenience and necessity issued by the Department of Transportation ("DOT") authorizing AWA to engage in the interstate and overseas air transportation of persons, property and mail between all points in the United States, its territories and possessions; WHEREAS, Contractor holds a certificate of public convenience and necessity issued by the Department of Transportation ("DOT") authorizing it to engage in the interstate air transportation of persons, property and mail between all points in the United States, its territories and possessions; WHEREAS, AWA owns various trademarks, service marks and logos, including "America West Airlines" and distinctive exterior color decor and patterns on its aircraft, hereinafter referred to individually and collectively as the "AWA Trademarks;" WHEREAS, Contractor wishes to acquire a non-exclusive license to use one or more of AWA's Trademarks in connection with the scheduled air transportation services operated by Contractor pursuant to this Agreement, including the use of the "HP" designator code used to identify, in computer systems and elsewhere, Contractor's scheduled flights operated pursuant to this Agreement; WHEREAS, Contractor desires to operate, and AWA is willing to contract for, AMERICA WEST EXPRESS operations in the manner and to the extent hereinafter described; NOW, THEREFORE, for and in the consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties to this Agreement hereby agree as follows: ARTICLE 1 -- COMPLIANCE WITH REGULATIONS Contractor hereby represents, warrants, and agrees that all air transportation services performed by it pursuant to this Agreement or otherwise shall be conducted in full compliance with any and all applicable statutes, orders, rules, and regulations, whether now in effect of hereafter promulgated, of all governmental agencies having jurisdiction over Contractor's operations, including but not limited to, the Federal Aviation Administration ("FAA") and the DOT. Contractor's compliance with such governmental statutes, orders, rules, and regulations shall be the sole and exclusive obligation of Contractor, and AWA will have no obligations or responsibilities, whether direct or indirect, with respect to such matters. 1 67 ARTICLE 2 -- AIR SERVICES TO BE PROVIDED BY CONTRACTOR Section 2.01 Schedules To Be Operated (a) Throughout the term of this Agreement and any amendment or extension thereof, Contractor shall schedule and operate, subject to Paragraph 2.01(c) below, AMERICA WEST EXPRESS service in the following markets:
MINIMUM # OF MARKETS FREQUENCIES - --------------------------------------------------------------------------- ------------ Bullhead City, AZ -- Phoenix, AZ....................................... Lake Havasu, AZ -- Phoenix, AZ....................................... Prescott, AZ -- Phoenix, AZ....................................... Kingman, AZ -- Phoenix, AZ....................................... Fort Huachuca, AZ -- Phoenix, AZ....................................... Flagstaff, AZ -- Phoenix, AZ....................................... Yuma, AZ -- Phoenix, AZ....................................... Farmington, NM -- Phoenix, AZ....................................... Gallup, NM -- Phoenix, AZ....................................... Durango, CO -- Phoenix, AZ....................................... Grand Junction, CO -- Phoenix, AZ....................................... Palm Springs, CA -- Phoenix, AZ....................................... Telluride, CO -- Phoenix, AZ.......................................
(b) All published schedules to be operated by Contractor pursuant to Section 2.01(a) above or to add new markets other than those listed in Section 2.01(a) above must be submitted to AWA at least 30 days prior to the effective date of such schedule. Contractor agrees that in the development of its schedules, it shall consult with AWA and use its best reasonable efforts to ensure that the primary needs of both local and connecting traffic in AWA markets are being met. AWA shall not have the right to approve or disapprove such schedules. AWA retains the right to withhold the use of its code, logo or trademarks from any flight operated by the Contractor. AWA shall timely file Contractor's code-shared schedules with its own schedules in accordance with industry standards provided Contractor's schedules are timely received by AWA. (c) Notwithstanding anything to the contrary contained in this Section 2.01, Contractor shall be entitled to operate additional services under its own name in the markets covered by this Agreement; provided that any aircraft used in providing such services shall not bear AWA's logo or markings. (d) Contractor shall be the sole and exclusive air carrier authorized by AWA to operate as AMERICA WEST EXPRESS (or operate by similar AWA turbo-prop feeder-operation-designation) for all AMERICA WEST EXPRESS flights serving the Phoenix hub. In consideration of their exclusive air carrier status, Contractor shall have a right of first refusal to institute any new services (cities or flights) which are forecast by AWA to be profitable. Such services shall be inaugurated within 90 days of recommendation by AWA. If Contractor refuses to provide the requested service, AWA shall have the right to contract with another carrier to operate that route as an AMERICA WEST EXPRESS, provided that the service shall be the same as that proposed to Contractor. Contractor shall have the right of first refusal to provide service to any additional major cities or hubs wherein AWA may desire to establish a code-sharing agreement. Contractor shall have 30 days from the time it is offered the additional agreement to accept or decline such opportunity. If accepted, Contractor shall have 120 days to prepare itself to fulfill its obligations at the additional city or hub. (e) Contractor may withdraw from, reduce service, or suspend service in any of its AMERICA WEST EXPRESS markets listed in Section 2.01(a) after [CONFIDENTIAL PORTION DELETED] Contractor shall then give 30 days' notice to AWA of its desire to affect service to that market. 2 68 (f) Inauguration of services listed in Section 2.01(a) will be accomplished according to the transition schedule contained in Exhibit A, made a part of this agreement and attached hereto. Section 2.02 Aircraft To Be Used (a) Contractor will provide the scheduled air services described in Section 2.01 with short-to-medium range, multi-engine, turbine-propeller aircraft. Such aircraft shall have a minimum of 19 seats and appropriate capacity for passenger baggage, freight and mail. (b) Upon filing a Plan of Reorganization with the Bankruptcy Court, Contractor shall begin to repaint its aircraft used in connection with the services provided under this Agreement with exterior color decor and Trademarks to be designed by AWA in consultation with Contractor. The Contractor shall provide the paint and other materials for the exterior aircraft decor and AWA shall paint the aircraft in its painting facility. Any change to the exterior color decor and pattern of the aircraft subsequent to the original design shall be made at the expense of AWA. AWA understands that the flowage of Contractor's aircraft prevents Contractor from painting all of its aircraft in AWA colors. Contractor will attempt to maximize the utilization of AWA painted aircraft on code-shared routes. AWA understands that on occasion an AWA-colored aircraft may be used in Contractor's "Mesa" system due to aircraft flowage requirements. In addition to the use of the AWA Trademarks on its aircraft, Contractor shall use and display a suitable sign on the exterior of its aircraft identifying Contractor as the operator of the services being provided pursuant to this Agreement. The use and display of such sign shall be in compliance with any applicable FAA rule or directive, shall be visible to passengers approaching the aircraft for boarding and shall be subject to the prior written approval of AWA as to its nature, size and location on Contractor's aircraft. Section 2.03 Flight Crews To Be Used All services performed by Contractor pursuant to this Agreement shall be operated with crews consisting of a captain or pilot, and a first officer or co-pilot. All such crew members shall at all times meet all currently applicable governmental requirements, as such requirements may be amended from time to time during the life of this Agreement, and shall be fully licensed and qualified for the services to be performed hereunder. ARTICLE 3 -- SUPPORT SERVICES AND FACILITIES Section 3.01 General Provision AWA and Contractor shall provide support services and facilities to the extent and in the manner set forth in the subsequent sections of this Article 3. Such support services and facilities, when furnished by AWA, shall be furnished only with respect to Contractor's scheduled air services described in Article 2. Section 3.02 Communications and Reservations Reservation telephone lines will be maintained by AWA at the points listed in Article 2 connecting those cities with AWA's reservations center. Reservations for passengers using the services described in Article 2 and connecting reservations to AWA or to other air carriers will be made by AWA on a non-discriminatory basis in accordance with AWA's established methods and procedures. For passengers originating their travel at points other than those served by Contractor pursuant to Article 2, either on AWA's system or on the systems of other airlines, connecting reservations to the services of Contractor will also be made on a non-discriminatory basis in accordance with currently established industry methods and procedures. In all cases, AWA will confirm the reservations of Contractor's passengers through the entire itinerary of their scheduled trips. When a contact number is supplied by the passengers making such reservations, AWA will assume the responsibility of notifying passengers of any changes in Contractor's schedules or operations, provided that Contractor furnishes AWA with sufficient advance notice of such changes. Contractor will provide AWA with parameters of Contractor's flight capacity and discount seat inventory levels and AWA will use its best efforts to accommodate Contractor's directions as to these levels. 3 69 Section 3.03 Operations (a) In the event of flight delays, cancellations or other schedule irregularities affecting Contractor's scheduled services, and as soon as information concerning such irregularities is available, Contractor shall notify AWA's flight control center and furnish AWA such information in as much detail as possible. (b) Contractor shall be solely responsible for, and AWA shall have no obligations or duties with respect to the dispatch of Contractor's flights operated pursuant to this Agreement or otherwise. For the purposes of this Section 3.03(b), the term "flight dispatch" shall include, but shall not be limited to, all planning of flight itineraries and routings, fueling and flight release. (c) From time to time, and solely upon request of Contractor or its flight crews, AWA shall provide to Contractor at its cost, such U.S. Weather Bureau information or data as may be available to AWA; provided that, in furnishing any such weather information or data to Contractor, neither AWA nor its employees or agents will be responsible or liable for the accuracy thereof. Section 3.04 Services (a) AWA will provide the following services at Sky Harbor International Airport (PHX) in Phoenix, Arizona: (1) check-in and ticketing of passengers of AWA's ticket counters and Fast Check facilities; (2) use of AWA's passenger facilities by Contractor's passengers; (3) passenger holding facilities and boarding gates; (4) interline transfer of baggage, mail, and freight in accordance with currently established industry methods and procedures; (5) such security facilities, personnel, and passenger screening procedures which may be required (a) by applicable orders, rules, and regulations of the FAA, and (b) by AWA's FAA-approved aircraft security plan for passengers originating at PHX; and (6) arrangements, made at Contractor's request and its sole cost and expense, for alternate transportation, meals, lodging, and other accommodations for Contractor's passengers as the need therefore may arise from time to time due to schedule irregularities in Contractor's operations. (b) Contractor shall provide its own services and facilities at all airports other than Phoenix, Arizona and will provide the following services at PHX: (1) all passenger screening for passengers arriving on Contractor's flights in PHX; (2) all ramp activities for Contractor's flights; and, (3) check-in Ticketing and Boarding of passengers at its gate or gates in PHX. (c) Contractor shall purchase from AWA, at AWA's cost, the CRT's and reservations lines necessary at each Station. Section 3.05 Terms of Transportation, Sales and Timetables (a) AWA's Terms of Transportation, with certain exceptions as listed therein, shall be applicable to services provided by Contractor pursuant to this Agreement. Such Terms of Transportation shall at all times be available for public inspection at Contractor's corporate offices and at each airport ticket counter and sales office maintained and operated by or on behalf of Contractor. (b) AWA and Contractor agree that each carrier is authorized to sell air transportation of passengers and property on the schedule flights operated by the other carrier utilizing the AWA ticket stock, airbill, forms and other documentation. Contractor will issue tickets on its own ticket stock and airbills only for tickets or airbills issued at Contractor's counter or for non-revenue passengers. 4 70 (c) The party issuing a ticket or exchange order for passenger transportation shall [CONFIDENTIAL PORTION DELETED] (d) With respect to airbills issued by Contractor for transportation of property on Contractor, AWA and other air carriers, and with respect to inbound collect shipments, handled by Contractor, Contractor shall retain possession of all cash proceeds collected and received by Contractor throughout the month in connection with such transactions and all such cash proceeds shall be remitted to AWA through the Clearing House in accordance with the procedures set forth in the currently effective Manual of Procedures issued by said Clearing House, but in no event later than the 28th day of the month following the month in which such monies or proceeds were collected. Inbound C.O.D. shipments shall be handled in accordance with established AWA policy. In addition, Contractor shall prepare and furnish to AWA all written reports, accounts and documents that AWA may require, on a weekly basis or at such lesser frequency as AWA may prescribe, at its sole discretion, from time to time during the life of this Agreement. (e) AWA and Contractor, by mutual agreement, may establish such new or different passenger and air freight sales and accounting procedures as may be required by experience or changed circumstances. In addition, AWA and Contractor by mutual agreement, may establish alternative or modified passenger sales and accounting procedures in order to accommodate tickets or exchange orders by air carriers which are not participants in the Clearing House. (f) Each party shall assume full liability for and shall indemnify, defend, protect, save, and hold harmless the other party, its directors, officers, agents, and employees from any and all liabilities, damages, claims, suits, judgments, and all related expenses or losses on account of the loss, misapplication, theft or forgery of passenger tickets, exchange orders, airbills or other supplies furnished by or on behalf of each party to the other, or the proceeds thereof, whether or not such loss is occasioned by the insolvency of either the purchaser of the aforesaid passenger tickets, exchange orders, airbills or other documents or of a bank in which the party may have deposited such proceeds. Each party's responsibility hereunder for passenger tickets, exchange orders, airbills, and other supplies shall commence immediately upon delivery of said passenger tickets, exchange orders, airbills, and other supplies into the possession of that party or any duly authorized officer, agent or employee of the party. Each party shall furnish the other party prompt and timely notice of any claims made, or suits instituted against it which in any way may result in the indemnification hereunder, and the indemnifying party shall have the right to compromise or participate in the defense of same to the extent of its own interest. (g) AWA will include the schedule air services provided by Contractor pursuant to Article 2 in its public timetables (including Contractor's connecting schedules on the same basis as it does its own). All references in AWA's public timetables to Contractor's AMERICA WEST EXPRESS services shall also contain notations indicating that such scheduled services are performed by Contractor as an independent contractor under the appropriate AWA Trademarks. Section 3.06 Advertising The parties will establish for the purpose of advertising the AWA product in the cities served by Contractor under this Agreement, a pool funded by each of the parties by each contributing to this pool. Contractor shall decide on the amount of its contribution, up to one percent (1%) of the revenue it derives from markets covered under this Agreement. Contractor will advise AWA of the amount and percentage of its contribution. AWA will then contribute the same percentage of revenue it derives under this Agreement, and advise Contractor of the percentage and amount. Contractor will then develop and propose an advertising program to be funded by the contribution which will then be submitted to AWA for approval. 5 71 ARTICLE 4 -- JOINT PASSENGER FARES AND DIVISION OF REVENUES Section 4.01 Joint Fares Joint (through) passenger fares involving travel on AWA and Contractor shall be established as mutually agreed upon by AWA and Contractor and published by AWA. [Confidential Portion Deleted]. Section 4.20 Local Fares Contractor shall establish and AWA shall publish local fares applicable to AMERICA WEST EXPRESS markets and Contractor shall [Confidential Portion Deleted]. ARTICLE 5 -- AIR FREIGHT RATES Section 5.01 Joint Air Freight Rates Throughout the life of this Agreement, AWA and Contractor shall establish and maintain joint air freight rates, including rates covering general commodity, small package, and priority air freight shipments. Section 5.02 Compensation to Carrier for Air Freight For the transportation of air freight on the scheduled services to be operated by Contractor pursuant to Article 2 above, the Contractor will receive [Confidential Portion Deleted]. Changes in Contractor-established local rates must be provided to AWA 45 days in advance of the effective date. ARTICLE 6 -- U.S. MAIL Contractor will execute separate contracts with the U.S. Postal Service (USPS). ARTICLE 7 -- LIABILITY, INDEMNIFICATION AND INSURANCE Section 7.01 Contractor Shall Act As An Independent Contractor (a) The employees, agents, and/or independent contractors of Contractor engaged in performing any of the services Contractor is to perform pursuant to this Agreement shall be employees, agents, and independent contractors of Contractor for all purposes, and under no circumstances shall be deemed to be employees, agents or independent contractors of AWA. In its performance under this Agreement, Contractor shall act, for all purposes, as an independent contractor and not as an agent for AWA. AWA shall have no supervisory power or control over any employees, agents or independent contractors engaged by Contractor in connection with its performance hereunder, and all complaints or requested changes in procedures shall, in all events, be transmitted by AWA to a designated officer of Contractor. Nothing contained in this Agreement is intended to limit or condition Contractor's control over its operations or the conduct of its business as a commuter air carrier, and Contractor and its principals assume all risks of financial losses which may result from the operation of the air services to be provided by Contractor hereunder. (b) The employees and agents of AWA engaged in performing any of the services AWA is to perform pursuant to this Agreement shall be employees and agents of AWA for all purposes, and under no circumstances shall be deemed to be employees and agents of Contractor. Contractor shall have no supervision or control over any such AWA employees and agents and any complaint or requested change in procedure shall be transmitted by Contractor to AWA's designated representative. 6 72 Section 7.02 Liability and Indemnification (a) Each party hereto assumes full responsibility for any and all liability to its own directors, officers, employees, or agents on account of injury, or death resulting from or sustained in the performance of their respective services under this Agreement. (b) Contractor shall indemnify, defend, protect, save, and hold harmless AWA, its directors, officers, employees, and agents from and against any and all liabilities, claims, demands, suits, judgments, damages, and losses (including the costs, fees, and expenses in connection therewith and incident thereto), brought against AWA, its directors, officers, employees or agents by or on behalf of any director, officer, employee, agent or independent contractor of Contractor or anyone else claiming through such persons, or by reason of damage or destruction of property of any such person, or injury to or death of such person, caused by or arising out of any act or omission of Contractor occurring while this Agreement is in effect. AWA shall give Contractor prompt and timely notice of any claim made or suit instituted against AWA which in any way results in indemnification hereunder, and Contractor shall have the right to compromise or participate in the defense of same to the extent of its own interest. (c) AWA shall indemnify, defend, protect, save, and hold harmless Contractor, its directors, officers, employees, and agents from and against any and all liabilities, claims, demands, suits, judgments, damages, and losses (including the costs, fees, and expenses in connection therewith and incident thereto), brought against Contractor, its directors, officers, employees or agents by or on behalf of any director, officer, employee, agent or independent contractor of AWA or anyone else claiming through such persons, or by reason of damage or destruction of property of any such person, or injury to or death of such person, caused by or arising out of any act or omission of AWA occurring while this Agreement is in effect. Contractor shall give AWA prompt and timely notice of any claim made or suit instituted against Contractor which in any way results in indemnification hereunder, and AWA shall have the right to compromise or participate in the defense of same to the extent of its own interest. (d) Each party, with respect to its own employees, accepts full and exclusive liability for the payment of workers' compensation and/or employer's liability insurance premiums with respect to such employees, and for the payment of all taxes, contributions or other payments for unemployment compensation or old-age benefits, pensions or annuities now or hereafter imposed upon employers by the government of the United States or by any state or local governmental body with respect to such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, or otherwise, and each party further agrees to make such payments and to make and file all reports and returns, and to do everything necessary to comply with the laws imposing such taxes, contributions or other payments. Section 7.03 Insurance Coverage (a) In consideration of the privileges granted herein, Contractor shall, at all times during the effectiveness of this Agreement, commencing with the first day thereof, have and maintain in full force and effect policies of insurance reasonably satisfactory to the other, of the types of coverages, including coverage on all aircraft described in Section 2.02, and in the minimum amounts stated below with companies reasonably satisfactory to AWA and under terms and conditions reasonably satisfactory to AWA as follows: 1. AIRCRAFT LIABILITY AND GROUND LIABILITY $50,000,000 Per Occurrence Combined INSURANCE (Including Comprehensive Public Single Limit of Liability Liability) a. Bodily Injury and Personal Injury -- Included in Combined Single Limit Passengers b. Bodily Injury and Personal Included in Combined Single Limit Injury -- Third Parties c. Property Damage Included in Combined Single Limit
The minimum amounts of insurance coverages required for Contractor under this paragraph 1 shall be $50,000,000 per occurrence, combined single limit for all coverages required under this paragraph 1, provided, 7 73 however, that before Contractor adds aircraft with more than 19 seats to its AMERICA WEST EXPRESS operations hereunder, Contractor shall obtain insurance coverage of $100,000,000 per occurrence per aircraft having greater than 19 seats. AMERICA WEST EXPRESS shall obtain insurance coverage of $100,000,000 per occurrence or $1 million per seat, whichever is greater.
PER ACCIDENT ------------ 2. WORKERS' COMPENSATION INSURANCE: (Company Statutory Employees) 3. EMPLOYERS' LIABILITY: (Company Employees) $100,000 4. ALL RISK HULL INSURANCE ON AIRCRAFT PERFORMING Replacement cost or Such Lesser Amount As SERVICES HEREUNDER: May Be Consented To By AWA 5. BAGGAGE LIABILITY: $1,250 (Per Passenger) 6. CARGO LIABILITY: $100,000 Any One Aircraft $100,000 Any One Disaster With Terms, Limitations, and Conditions Acceptable To AWA
(b) The parties hereby agree that from time to time during the life of this Agreement, the parties may negotiate with the other to have and maintain amounts set forth in paragraph (a) above, should the circumstances and conditions of operations under this Agreement be deemed, in a reasonable person's judgment, to require reasonable increases in any or all of the foregoing minimum insurance coverages. Section 7.04 Additional Requirement (a) The Contractor shall cause the policies of insurance described in Section 7.03 to be duly and properly endorsed by that party's insurance underwriters as follows: (1) as to the policies of insurance described in paragraphs 1, 2, 3, 4, 5, and 6 of said Section 7.03(a): (A) to provide that any waiver of rights of subrogation against other parties by the covered party will not affect the coverage provided hereunder with respect to the other party; and (B) with respect to the services performed by the parties pursuant to this Agreement to provide that the covered party's underwriters shall waive any and all subrogation rights against the other, its directors, officers, agents, and employees without regard to any breach of warranty on the part of Contractor or to provide other evidence of such waiver of recourse against the other party, its directors, officers, agents, or employees as shall be acceptable to AWA. (2) as to policies of insurance described in paragraph 1, 5, and 6 of said Section 7.03(a): (A) to provide that the other party, its directors, officers, agents, and employees shall be endorsed as Additional Insured parties thereunder; and (B) to provide that said insurance shall be primary insurance and to acknowledge that any other insurance policy or policies of the other party shall be secondary or excess insurance; (3) as to policies of insurance described in paragraphs 1 and 4 of said Section 7.03(a) to provide a breach of warranty clause to said policies acceptable to AWA; (4) as to policies of insurance described in paragraph 1 only of said Section 703(a): (A) to provide, with respect to claims in favor of the other party, its directors, officers, agents and employees against the covered party, its directors, officers, agents and employees, that the other party, its directors, officers, agents and employees shall not be deemed to be insured under the said insurance policies, and to this end to provide a cross-liability clause as though separate policies were issued for each party and to provide a reciprocal cross-liability clause in favor of each other; and 8 74 (B) to provide contractual liability insurance coverage for liability assumed by Contractor under this Agreement. (5) as to policies of insurance described in paragraph 4 above of said Section 7.03(a), to provide that said Aircraft Hull Insurance shall be on an agreed value basis, and shall not be subject to more than the standard market deductibles without the consent of the other party; in the event of loss, settled on the basis of a total loss, all losses shall be payable in full; (6) as to any insurance obtained directly from foreign underwriters, to provide that the non-covered party may maintain against the covered party's underwriters a direct action in the United States upon said insurance policies and to this end provide a standard service of suit clause designating a United States attorney in Phoenix, Arizona or Farmington, New Mexico. (b) The Contractor shall cause each of the insurance policies referred to in Section 7.03 to be duly and properly endorsed to provide that said policy or policies or any part or parts thereof shall not be cancelled, terminated or materially altered, changed or amended by the insurance underwriters until after 30 days' written notice to the other party, which 30-day notice period shall commence to run from the date such notice is actually received by the other party. (c) Upon the effective date of this Agreement, and from time to time thereafter upon request, the Contractor shall furnish to AWA evidence satisfactory to AWA of the aforesaid insurance coverages and endorsements, including certificates certifying that the aforesaid insurance policy or policies with the aforesaid policy limits are duly and properly endorsed as aforesaid and are in full force and effect. (d) In the event the Contractor fails to maintain in full force and effect any of the insurance and endorsements described in Sections 7.03 and 7.04, AWA shall have the right (but not the obligation) to procure and maintain such insurance or any part thereof. The cost of such insurance shall be payable by the defaulting party to the other upon demand. The procurement of such insurance or any part thereof by the Contractor does not discharge or excuse the defaulting party's obligation to comply with the provisions of Sections 7.03 and 7.04. The Contractor agrees not to cancel, terminate or materially alter, change or amend any of the policies referred to in Section 7.03 until after providing 30 days' advance written notice to AWA of its intent to so cancel, terminate or materially alter, change or amend said policies of insurance, which 30-day notice period shall commence to run from the date notice is actually received by the party. ARTICLE 8 -- CONSIDERATION, RECORDS AND REPORTS Section 8.01 Consideration (a) For and in consideration of the reservations services to be provided to Contractor hereunder, the non-exclusive, non-transferable license granted to Contractor authorizing the specified uses of AWA's Trademarks and other valuable consideration provided by this Agreement, Contractor shall pay to AWA [CONFIDENTIAL PORTION DELETED] year. AWA shall bill Contractor for such Service Charges through the Clearing House referred to in Article 3 in accordance with the procedures set forth in the currently effective Manual of Procedures issued by said Clearing House, but in no event later than the 28th day of month following the month in which services were provided. In the event Contractor fails to pay AWA in full all Service Charges payable hereunder when due, Contractor agrees to pay to AWA, in addition to such Service Charges, interest on the unpaid balance of such Service Charges computed at the rate per annum of one percent (1%) plus the prime rate which the Chase Manhattan Bank (National Association) from time to time charges at its principal office in New York on short-term loans to large businesses with the highest credit standing, with a minimum rate per annum of 9 75 10 percent, from the due date thereof to the date of payment. It is hereby mutually agreed and understood by the parties hereto that the aforesaid Service Charges [CONFIDENTIAL PORTION DELETED] AWA will use only the personnel in its employ and the equipment and facilities which it owns or leases. In the event AWA is required to employ, retain or otherwise furnish additional personnel or obtain, by purchase, lease or otherwise any additional facilities or equipment, or incur in any manner whatsoever any expenses or disbursements in connection with its performance of this Agreement in excess of the personnel, facilities or equipment being provided in the normal course of business, Contractor shall reimburse AWA in full, through the Clearing House for the actual costs of such additional personnel, facilities and/or equipment, and for any actual expenses or disbursements incurred by AWA in connection with its performance under this Agreement; provided that, prior to incurring any such additional costs or expenses or making any such disbursements, AWA shall first obtain a written approval therefor from Contractor. (b) All payments and/or reimbursements contemplated in this Article shall be deemed to be in addition to and not in lieu of any other payments and/or reimbursements required of either party hereto by other articles of this Agreement. Section 8.02 Records and Reports (a) Upon either party's request, and until such time as the party advises the other that such reports are no longer necessary, each party shall furnish to the requesting party, within 60 days following the close of the first three fiscal quarters of the party, unaudited financial statements including the party's current corporate balance sheets and profit and loss statements, and within 120 days after the close of its fiscal year, each party shall furnish the other with audited financial statements of such party (or its parent company) including, either separately or on a consolidated basis, the balance sheet and profit and loss statements of that party. The appropriate reports filed on Form 10-Q or 10-K shall be satisfactory to fulfill such obligation. (b) Each party shall also promptly furnish the other with a copy of every report that it prepares and is required to submit to the FAA, National Transportation Safety Board ("NTSB") or any other governmental agency, relating to any accident or incident involving an aircraft used by it in performing services under this Agreement, when such accident or incident is claimed to have resulted in the death of or substantial injury to any person or the loss of, damage to, or destruction of any property. (c) Each party shall promptly notify the other in writing of (i) any change in or relinquishment of control of it, (ii) any agreement contemplating such a change or relinquishment with a copy of such agreement, if in writing, to the other party, or (iii) any change or contemplated change in the Chief Executive Officer position of it. ARTICLE 9 -- EFFECTIVE DATE, TERMINATION AND CANCELLATION Section 9.01 Effective Date and Term (a) This Agreement will become effective on October 1, 1992 and will continue in effect thereafter for a period of ten years, unless it is terminated at an earlier date pursuant to one or more of the provisions of this Article 9. The AMERICA WEST EXPRESS service described in Section 2 shall commence on the dates specified in Section 2 and the applicable reservations and ticketing services shall be made available 30 days in advance of the start of such services. (b) In the event there is any change in the statutes governing the economic regulation of air transportation, or in the applicable rules, regulations or order of the DOT or some successor agency or department of the government having jurisdiction over air transportation which change or changes materially affect the rights and/or obligations presently in force with respect to the air transportation services of AWA or Contractor, or both, then the parties hereto will consult, within 30 days after any of the occurrences described 10 76 herein, in order to determine what, if any, changes to this Agreement are necessary or appropriate, including but not limited to, the early termination and cancellation of this Agreement. If the parties hereto are unable to agree whether any change or changes to this Agreement are necessary and proper, or as to the terms of such changes, or whether this Agreement should be cancelled in light of the occurrences described above, and such failure to reach agreement shall continue for a period of 30 days following the commencement of the consultations provided for by this Section 9.01(c), then this Agreement may be cancelled by either AWA or Contractor upon providing the other party a minimum of 90 days' written notice of such cancellation. Section 9.02 Termination (a) In addition to the foregoing provisions of this Article, this Agreement may be cancelled or terminated by either AWA or Contractor if there is an assignment of this Agreement or any of its rights, duties or obligations created hereunder with respect to any party to this Agreement without the written consent of the other party. In the event that this Agreement is assigned, whether by operation of law or otherwise, without such consent having been given in writing, the party not making the assignment shall have the right immediately to terminate the Agreement by telegraphic or written notice to the other party. If AWA merges, combines or consolidated with another carrier, or if substantially all of AWA's assets are acquired by another carrier and the "HP" designator code or the AMERICA WEST EXPRESS will thereafter not be used for the services of AWA or such other carrier at the Hub, Contractor shall have the right to use, in accordance with this Agreement, such replacement or substitute designator code and related trademarks as are utilized by AWA or such other acquiring or new carrier for its primary services at the Hub. A merger, combination, or consolidation by or with another person, company or corporation by Contractor shall be considered an assignment by Contractor; provided, however, a merger, combination, or consolidation by or with a subsidiary or affiliate of Contractor or with another corporation in which Contractor is the surviving corporation and in which there is no substantial change in the ownership or control of Contractor shall not be considered an assignment by Contractor. (b) Recognizing that AWA is presently operating as a Chapter 11 company, under reorganization, in the event that Contractor shall file a voluntary petition in bankruptcy or that proceedings in bankruptcy shall be instituted against it and such party shall be adjudged bankrupt, or that a court shall take jurisdiction of such party and its assets pursuant to proceedings brought under the provisions of any federal reorganization act, or that a receiver of such party's assets shall be appointed and such taking or appointment shall not be stayed or vacated within a period of 60 days, or if AWA should change to a Chapter 7 proceeding or re-enter bankruptcy after its discharge from its current bankruptcy, the other party may thereupon terminate this Agreement by 15 or more days' prior written notice to the other party. (c) Except as otherwise provided herein, if either party shall fail to perform, keep, and observe any of the terms, covenants or conditions herein contained on the part of such party to be performed, kept or observed, the non-breaching party may give the breaching party notice in writing to correct such condition or cure such default and, if any such condition or default shall continue for 30 days after the receipt of such notice by the breaching party and, if within such period of time the breaching party has not prosecuted with diligence the correction of such condition or default, the non-breaching party may then terminate this Agreement upon 15 or more days' prior written notice, and this Agreement shall thereupon cease and expire at the end of such 15 or more days in the same manner and to the same effect as if it were the expiration of the original term. (d) If either party is required by the FAA or DOT to suspend a substantial portion of its operations for any safety reason, and has not resumed a major portion of such operations hereunder within 30 days of suspension, the other party may terminate this Agreement upon five or more days' prior written notice. (e) AWA, in addition to the other provisions of this section and Section 9.01 above, may terminate this Agreement upon not less than 30 days' written notice to the other party hereto should any one of the following conditions occur during the time this Agreement is in effect: (1) if, during any two consecutive calendar months during the life of this Agreement, Contractor's flight completion factor shall fall below 97% due to cancellations attributable to maintenance or operational deficiencies within Contractor's normal management control; 11 77 (2) if, for any two consecutive calendar months during the life of this Agreement, Contractor's on-time performance falls below the lower of either: a.) 75 percent of arrivals within 15 minutes; or b.) AWA's actual on-time performance during the same period; (3) if, Contractor fails to comply with the trademark license provisions of Article 11 of this Agreement; (f) Either AWA or Contractor may terminate this Agreement without cause at any time after the third year from the effective date hereof upon 180 days' written notice to the other party. (g) Any early termination or cancellation of one or more of the provisions of this Article 9 shall not be construed so as to relieve any party hereto of any debts or monetary obligations to the other party that shall have accrued hereunder prior to the effective date of such termination or cancellation. Section 9.03 Force Majeure Neither AWA nor Contractor shall be liable for any failure to perform under this Agreement if such failure is due to causes beyond its control, including, but not limited to, acts of God or the public enemy, fire, floods, epidemics, quarantine or strikes; provided, however, that the foregoing shall not apply to the obligations described under Article 7 of this Agreement. ARTICLE 10 -- USE OF CONTRACTOR'S AIRCRAFT In the event that aircraft owned and/or operated by Contractor bearing the AMERICA WEST EXPRESS are available and can be utilized without adversely affecting in any manner the regular scheduled services operated pursuant to Section 2, such aircraft may be used: (1) for non-scheduled planeload passenger charters; or (2) for scheduled or non-scheduled services limited to the transportation of freight and/or mail in markets other than the markets described in Section 2.01; or (3) on an emergency basis in operations in other parts of Contractor's system not covered by this Agreement. ARTICLE 11 -- TRADEMARK LICENSE FOR OPERATIONS TO BE CONDUCTED BY CONTRACTOR PURSUANT TO THIS AGREEMENT Section 11.01 Grant of Trademark License Contractor will conduct all operations described in Section 2 above, and any additional operations undertaken by subsequent amendment hereto under the servicemark "AMERICA WEST EXPRESS" and shall utilize the AMERICA WEST EXPRESS Servicemarks consisting of the exterior color decor and patterns on its aircraft as prescribed by AWA. AWA hereby grants to Contractor a non-exclusive, non- transferable license to use such AMERICA WEST EXPRESS Servicemarks in connection with the services to be rendered by Contractor under this Agreement; provided, however, that subject to the provisions of Section 202(b) hereof, at any time during the life of this Agreement, AWA may alter, amend or revoke the license hereby granted and require Contractor's use of any new or different AWA Servicemarks in conjunction with the air transportation services provided hereunder as AWA may determine in the exercise of its sole discretion and judgment. Section 11.02 Terms and Conditions Governing Trademark License (a) Contractor hereby acknowledges AWA's ownership of the AWA Servicemarks, further acknowledges the validity of the AWA Servicemarks, and agrees that it will not do anything in any way to infringe or abridge AWA's rights in its Servicemarks or directly or indirectly to challenge the validity of the AWA Servicemarks. 12 78 (b) Contractor agrees that, in providing the services to be provided under this Agreement in conjunction with one or more of the AWA Servicemarks, it will conform to such customer service standards (including professional appearance guidelines and uniform standards; ground equipment appearance standards; ticket counter and gate area image standards; and other reasonable quality control measures) as may be reasonably prescribed by AWA either specifically in this Agreement or by subsequent communications to Contractor. AWA shall have the rights, through such agents or representatives as it may designate, to inspect the services and standards being performed by Contractor under this Agreement, and in the event that, in AWA's opinion, there has been some deviation from such services and/or standards, Contractor agrees upon written notice from AWA to rectify promptly any such deviation. (c) Contractor shall not, without AWA's express written consent, advertise the services to be rendered hereunder, nor make use of the AWA Servicemarks referred to in Section 11.01 above in any advertising. AWA shall have absolute discretion to withhold its consent concerning any and all such advertising and use of the AWA Servicemarks in advertising by Contractor. In the event AWA approves the use of such AWA Servicemarks in any advertising, such advertising shall identify AWA as the owner of such servicemark(s), and to the extent that any mark is registered, shall so specify. (d) To the extent that Contractor is licensed to use the mark "AMERICA WEST EXPRESS," Contractor will use said mark only in the mark "AMERICA WEST EXPRESS" and then only in conjunction with the services specifically embraced by this Agreement. (e) Nothing in this Agreement shall be construed to give Contractor the exclusive right to use the AWA Servicemarks, or to abridge AWA's right to use and/or to license its Servicemarks, and AWA hereby reserves the right to continue use of the AWA Servicemarks as AWA may desire. (f) No term or provision of this Agreement shall be construed to preclude the use of the servicemarks "AMERICA WEST EXPRESS" or the aircraft exterior color decor and patterns by other individuals or corporations not covered by this Agreement so long as such use does not place such persons so authorized in direct competition with Contractor in the markets covered by this Agreement, subject to Contractor's right of first refusal set forth in Article 2. (g) Should this Agreement be cancelled or otherwise terminated for any reason as set forth in Article 9 hereof, the AWA Servicemarks shall revert to AWA and shall not thereafter be used by Contractor in connection with any operations of Contractor. ARTICLE 12 -- ENTIRE AGREEMENT, AMENDMENT, NOTICES AND TITLES Section 12.01 Entire Agreement and Amendments (a) This Agreement represents the entire agreement between the parties hereto unless subsequently amended as hereinafter provided, and said Agreement shall not be modified or cancelled by mutual agreement or in any manner except by an instrument in writing, executed by the parties or their respective successors in interest. (b) The parties hereto may by mutual agreement amend any provision of this Agreement, or delete or add any provision to this Agreement by an instrument in writing, executed by each of the parties or their authorized representatives or successors in interest. Any amendment, deletion or additions executed as prescribed herein shall become a part of and shall be construed as part of this Agreement. 13 79 Section 12.02 Notices and Miscellaneous Provisions (a) Any and all given notices, approvals or demands required or permitted to be given by the parties hereto shall be sufficient if sent by certified mail, postage prepaid, or facsimile machine or in person to AWA addressed to: AMERICA WEST AIRLINES, INC. 4000 East Sky Harbor Boulevard Phoenix, Arizona 85034 ATTN: Peter J. Otradovec Vice President-Planning and to Contractor, addressed to: MESA AIRLINES, INC. 2325 East 30th Street Farmington, New Mexico 87401 ATTN: Larry L. Risley President/Chief Executive Officer or to such other addresses in the continental United States as the parties may specify by notice as provided herein. (b) Description titles contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. (c) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Mexico. 14 80 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be entered into and signed as of the day and year first written above. AMERICA WEST AIRLINES, INC. /s/ MICHAEL J. CONWAY -------------------------------------- Name: Michael J. Conway Title: President Attest: /s/ PETER OTRADOVEC - -------------------------------------- Peter Otradovec MESA AIRLINES, INC. /s/ LARRY L. RISLEY -------------------------------------- Name: Larry L. Risley Title: President and Chief Executive Officer Attest: /s/ GARY RISLEY - -------------------------------------- Gary Risley 15 81 EXHIBIT A AMERICA WEST EXPRESS SERVICE AGREEMENT BETWEEN AMERICA WEST AIRLINES, INC. AND MESA AIRLINES, INC. Exhibit A set forth the transition schedule for the operation of flights with an HP* code.
TRANSITION FROM ----------------------- HP TO HP* YV TO HP* --------- --------- Bullhead City, AZ................... BHC 15-Nov-92 Durango, CO......................... DRO 01-Oct-92 Farmington, NM...................... FMN 01-Oct-92 Flagstaff, AZ....................... FLG 01-Nov-92 Fort Huachuca, AZ................... FHU 01-Nov-92 Gallup, NM.......................... GUP 01-Oct-92 Grand Junction, CO.................. GJT 01-Oct-92 Kingman, AZ......................... IGM 15-Oct-92 Lake Havasu, AZ..................... HII 15-Nov-92 Palm Springs, CA.................... PSP 01-Dec-92 Prescott, AZ........................ PRC 15-Oct-92 Telluride, CO....................... TEX Seasonal Yuma, AZ............................ YUM 01-Oct-92
16 82 AMENDMENT TO AGREEMENT BETWEEN AMERICA WEST AIRLINES, INC. AND MESA AIRLINES, INC. THIS AMENDMENT entered into this 31st day of March, 1993, by and between America West Airlines, Inc. ("AWA"), Debtor-in-Possession, a Delaware corporation, having its principal place of business at 4000 East Sky Harbor Boulevard, Phoenix, Arizona, and Mesa Airlines, Inc. ("Contractor"), a New Mexico corporation, having its principal place of business at 2325 East 30th Street, Farmington, New Mexico. WHEREAS, the parties have previously entered into a Service Agreement, dated the 4th day of September, 1992 and WHEREAS, Contractor desires to expand the number of gates under its control at Sky Harbor International Airport (PHX), and AWA is agreeable to sub-leasing additional PHX facilities to Contractor, and the parties find it necessary to amend their original agreement to reflect that change, NOW, THEREFORE, for and in consideration of the foregoing premises, the parties agree to amend their original agreement as follows: (1) [CONFIDENTIAL PORTION DELETED] (2) All other provisions of the original agreement shall remain in force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be entered into and signed as of the day and year first written above. AMERICA WEST AIRLINES, INC. MESA AIRLINES, INC. By: /s/ PETER OTRADOVEC By: /s/ BLAINE JONES - --------------------------------------------- --------------------------------------------- Title: Vice President -- Planning Title: CFO/Treasurer - --------------------------------------------- ---------------------------------------------
83 SECOND AMENDMENT TO THE AGREEMENT BETWEEN AMERICA WEST AIRLINES, INC. AND MESA AIRLINES, INC. THIS AMENDMENT entered into this 31st day of July, 1993, by and between America West Airlines, Inc. ("AWA"), a Delaware corporation, Debtor-in-Possession, having its principal place of business at 4000 East Sky Harbor Boulevard, Phoenix, Arizona, and Mesa Airlines, Inc. ("Contractor"), a New Mexico corporation, having its principal place of business at 2325 East 30th Street, Farmington, New Mexico. WHEREAS, the parties have previously entered into a Service Agreement, dated the 4th day of September, 1992, which was amended on March 31, 1993, and WHEREAS, AWA and Contractor desire to establish [CONFIDENTIAL PORTION DELETED] NOW, THEREFORE, for and in consideration of the foregoing premises, the parties agree to amend their original agreement as amended, as follows: (1) Article 3 -- SUPPORT SERVICES AND FACILITIES shall be amended to include a new section 3.07. [CONFIDENTIAL PORTION DELETED] (2) All other provisions of the original agreement, as previously amended, shall remain in force and effect. IN WITNESS WHEREOF, the parties have caused this amendment to be entered into and signed as of the day and year first written above. AMERICA WEST AIRLINES, INC. MESA AIRLINES, INC. Debtor-In-Possession By: /s/ PETER OTRADOVEC By: /s/ BLAINE JONES Title: Vice President -- Planning Title: CFO/Treasurer
84 [LOGO] March 31, 1994 Mr. Larry L. Risley President and Chief Executive Officer Mesa Airlines, Inc. 2225 East 30th Street Farmington, New Mexico Re: AMERICA WEST EXPRESS CODE-SHARE AGREEMENT ADDENDUM Dear Mr. Risley: [CONFIDENTIAL PORTION DELETED] 6. The provisions of this Addendum will expire on June 30, 1994, unless the parties agree in writing to an extension or modification of these terms. 7. All other terms and conditions of the Code-Share Agreement between Mesa and AWA, as amended, shall remain in full force and effect. Sincerely, /s/ - -------------------------------------- PETER J. OTRADOVEC Agreed to by: Mesa Airlines, Inc. /s/ - -------------------------------------- By: LARRY L. RISLEY President and Chief Executive Officer Date: 4-18-94 --------------------------------- EX-10.14 5 GPA TERM SHEET 1 EXHIBIT 10.14 GPA TERM SHEET This Term Sheet, dated as of June 13, 1994, sets forth the principal terms and conditions (the "Terms and Conditions") of the treatment to be afforded to the claims and interests of GPA Group plc and its affiliates (individually and collectively, "GPA") pursuant to a joint plan of reorganization (the "Plan") of America West Airlines, Inc. (the "Company") to be proposed and sponsored by the Company in conjunction with AmWest Partners, L.P. ("AmWest") under and in accordance with the Third Revised Investment Agreement, dated as of April 21, 1994, between the Company and AmWest (the "Investment Agreement") and the Third Revised Interim Procedures Agreement, dated as of April 21, 1994, between the Company and AmWest (the "Interim Procedures Agreement"). Except as otherwise defined herein, capitalized terms used herein have the meanings stated in the Investment Agreement. Termination of Put Agreement............ On the Effective Date, GPA shall (i) cancel all rights of GPA to put any aircraft to the Company pursuant to the A320 Put Agreement, dated as of June 25, 1991, between the Company and GPA, as amended by the First Amendment thereto, dated as of September 1, 1992 (as so amended, the "Put Agreement") and the related Agreement Regarding Rights of First Refusal for A320 Aircraft, dated as of September 1, 1992 (the "First Refusal Agreement"), among the Company, GPA and Kawasaki Leasing International Inc., and (ii) waive, and covenant not to seek or assert, any and all claims of any kind or nature arising out of or in connection with the Put Agreement and/or the First Refusal Agreement, other than claims for reimbursement of expenses incurred by GPA in connection therewith. As of the date of this Term Sheet, GPA has been fully reimbursed by the Company for all expenses incurred by GPA in connection with the Put Agreement and the First Refusal Agreement. Aircraft and Engine Subleases................ On the Effective Date, the Company shall ratify (without modification or amendment) all of its obligations (including, without limitation, rental obligations) under and in connection with (i) the sixteen separate Aircraft Sublease Agreements between the Company and GPA, and (ii) the three separate Engine Sublease Agreements between the Company and GPA (in each case, as such Sublease Agreement is more fully described on Schedule I to the Put Agreement and, in each case, as such Sublease Agreement was assumed by the Company pursuant to Section 365 of the Bankruptcy Code). DIP Financing.............. On the Effective Date, all amounts due and owing by the Company under the debtor-in-possession financing provided to the Company by GPA and other debtor-in-possession lenders shall be paid in full (it being understood that, upon receipt of such amounts, GPA shall take all such actions as are required to be taken by GPA pursuant to the documents relating to such financing to cause and evidence the release of all liens securing such financing and the termination of the transactions relating to such financing). Common Stock............... On the Effective Date, GPA shall receive 900,000 shares of the Class B Common Stock of the Company (the "Class B Common Stock"), which shares shall represent two percent of the total amount of the Common Stock of the Company (without giving effect to exercise of the warrants described below and in the Investment Agreement) and which Class B 2 Common Stock shall have the terms and provisions contemplated in the Investment Agreement. Warrants................... On the Effective Date, GPA shall receive warrants to purchase up to 1,384,615 shares of Class B Common Stock, which shares shall represent 2.5% of the Common Stock of the Company on a fully diluted basis and which warrants shall be exercisable at a price determined in accordance with, and have such other terms and provisions as are described in, the Plan. Cash....................... On the Effective Date, GPA shall receive $30,525,000 in cash. Board Seat................. Pursuant to and in accordance with the terms, provisions and conditions to be contained in a Stockholders' Agreement to be entered into among the reorganized Company, AmWest, GPA and certain other parties, and for so long as GPA owns at least two percent of the voting equity securities of the Company (on a fully diluted basis), GPA shall be allocated one seat, out of a total of fifteen seats, on the Board of Directors of the reorganized Company. The member of the Board of Directors of the reorganized Company designated by GPA shall be reasonably acceptable to AmWest at the time of his or her initial designation (it being understood that each of the persons currently serving as "independent directors" of AWA, Patrick Blaney, John Tierney and Declan Traecy shall be acceptable to AmWest for such purposes). AmWest and GPA will execute a voting agreement or similar arrangement pursuant to which (i) AmWest will agree to vote in favor of GPA's nominee to the Board of Directors of the reorganized Company, and (ii) GPA will agree to vote in favor of AmWest's nine nominees to the Board of Directors of the reorganized Company, in each case, for so long as (a) AmWest owns at least five percent of the voting equity securities of the Company (on a fully diluted basis), and (b) GPA owns at least two percent of the voting equity securities of the Company (on a fully diluted basis). New Puts................... GPA will be granted the right to deliver or put to the Company, and the Company will be obligated to lease from GPA, during the period beginning not later than June 30, 1995 and ending on June 30, 1999 (the "New Put Period"), up to eight new or used aircraft of types consistent with the Company's fleet plan and requirements (such right being referred to herein as the "New Put Right"). Each lease entered into by the Company in connection with the exercise by GPA of the New Put Right shall provide for the payment by the Company of a fair market rental for the related aircraft, taking into consideration whether the related aircraft is new or used, the specifications and condition of the related aircraft and all provisions of such lease that are relevant to the overall cost to the Company of the related aircraft, and determined at or about the time of delivery of such aircraft to the Company on the basis of operating lease rentals then prevailing in the marketplace for comparable operating leases of comparable aircraft to airlines of comparable creditworthiness to the Company (at or about the time of delivery of such aircraft to the Company and without regard to the prior pendency of the Case); each such lease will be for a lease term determined as hereinafter described; and each such lease shall have such other terms and provisions and be in such form as is agreed upon by 3 the Company and GPA and attached to the agreement between the Company and GPA pursuant to which GPA is granted the New Put Right (such agreement being referred to herein as the "New Put Agreement"). The specific number, types and delivery dates for the aircraft which GPA will be entitled to deliver to the Company (and which the Company will be obligated to lease from GPA) in a particular year during the New Put Period (as well as whether such aircraft will be new or used aircraft) will be determined on the basis of mutual agreement by the Company and GPA, taking into account the Company's fleet requirements for such year, the availability to GPA for purposes of the New Put Agreement (in light of applicable commercial constraints) of aircraft during such year and the number of aircraft theretofore delivered and thereafter remaining to be delivered by GPA to the Company under the New Put Agreement; provided, however, that if, on or prior to the Mutual Agreement Deadline (as such term is hereinafter defined) for a particular year, the Company and GPA shall not have mutually agreed upon the specific number, types and delivery dates for the aircraft which GPA will be entitled to deliver to the Company (and which the Company will be obligated to lease from GPA) during such year (as well as whether such aircraft will be new or used aircraft), GPA will have the right to put to the Company (and the Company will be obligated to lease from GPA without any necessity for further agreement of the Company) up to the Maximum Number (as such term is hereinafter defined) of aircraft for such year, with (i) the specific types of such aircraft being selected by GPA from among the Eligible Types (as such term is hereinafter defined), (ii) such aircraft being new or used aircraft as selected by GPA, and (iii) the specific delivery dates for such aircraft being selected by GPA, in each case, upon at least 150 days' prior written notice by GPA to the Company; and provided further, however, that, unless GPA and the Company shall otherwise agree in writing (whether by reason of mutual agreement relevant to a particular year or otherwise), GPA will not have the right to put to the Company more than five used aircraft during the New Put Period. As used herein, the term "Mutual Agreement Deadline" means (i) with respect to each of 1995 and 1996, January 31, 1995, and (ii) with respect to each ensuing year during the New Put Period, January 1st of the preceding year. As used herein, the term "Maximum Number" means (i) with respect to 1995, two, and (ii) with respect to each ensuing year during the New Put Period, three. As used herein, and unless GPA and the Company shall otherwise agree in writing, the term "Eligible Types" means, with respect to the types of aircraft which GPA will be entitled to put to the Company without the necessity for further agreement of the Company, Boeing 737-300 aircraft, Boeing 757 aircraft and Airbus A320 aircraft. The aircraft which GPA will be entitled to deliver or put to the Company (and which the Company will be obligated to lease from GPA) may be new or used aircraft; provided, however, that unless GPA and the Company shall otherwise agree in writing, GPA will not have the right to deliver or put to the Company more than five used aircraft during the New Put Period; and provided further, however, that any such aircraft which is an Airbus A320 aircraft will (i) be new ex factory or like-new having no greater than 100 flight hours of commercial service, (ii) have 4 IAE V2500A-5 engines if (a) the Company has or is scheduled to have IAE V2500A-5 engines in its fleet on the delivery date for such aircraft, (b) the Company is scheduled to have IAE V2500A-5 engines in its fleet within 24 months of the delivery date for such aircraft, or (c) if new A320 aircraft powered with IAE V2500A-1 engines are not or are not scheduled to be generally available from the airframe and engine manufacturers on the delivery date for such aircraft, or have IAE V2500A-1 Engines (upgraded to maximum performance) if any of the conditions described in the preceding clauses (a), (b) and (c) is not fulfilled, and (iii) have such other specifications (including configuration) as are substantially the same as those of other A320 aircraft in the Company's fleet or as are otherwise mutually agreed upon by GPA and the Company and, in either case, incorporated in the New Put Agreement; and provided further, however, that any such aircraft which is not an A320 aircraft will have such specifications (including configuration and engines) as are substantially the same as those of other aircraft of the same type in the Company's fleet or as are otherwise mutually agreed upon by GPA and the Company and, in either case, incorporated in the New Put Agreement; and provided further, however, that any such aircraft which is a used aircraft will (i) be fresh from (or have no more than 150 flight hours beyond) "C" or annual check, (ii) if maintained under a program involving block "D" check, be in at least half-time condition or if maintained under a program involving segmentation of "D" check, be no more than 12 months from next scheduled major check on airframe and engines, and (iii) be in such other condition (consistent with operating lease return conditions currently prevailing in the operating lease marketplace) as is mutually agreed upon by GPA and the Company and incorporated in the New Put Agreement. The lease term shall be (i) not more than eighteen years and not less than (a) ten years for any new A320 aircraft, or (b) seven years for any other new aircraft, and (ii) not more than seven years and not less than three years for any used aircraft. Unless otherwise mutually agreed in writing by the Company and GPA, (i) the lease term for a new aircraft shall be the minimum term applicable to such aircraft, and (ii) the lease term for a used aircraft shall be five years. Conditions................. The obligation of GPA to consummate the transactions contemplated by this Term Sheet (including, without limitation, the cancellation of GPA's rights and claims under and in respect of the Put Agreement and the First Refusal Agreement) shall be subject to the satisfaction of the following conditions: (i) the Plan shall provide for, and be consummated in accordance with, all of the Terms and Conditions (it being understood that all of the Terms and Conditions are integral to the treatment of GPA's claims and interests and that no one Term or Condition is of greater significance than any other Term or Condition); (ii) the Plan shall provide for, and be consummated with, the capital structure of the reorganized Company being as described in the Investment Agreement, the consideration distributed pursuant to the Plan being as described in the Investment Agreement (except for changes approved in writing by GPA and Permitted Reallocations (as such term is hereinafter defined), and the economic interests of GPA not being diluted from those contained in the Investment Agreement and this Term Sheet; (iii) the Company shall have paid or reimbursed GPA for all expenses reasonably 5 incurred by GPA in connection with the transactions contemplated by this Term Sheet, including, without limitation, the reasonable fees and expenses of GPA's counsel and financial advisor (other than the fees of such financial advisor that are in the nature of "success fees"); (iv) there shall have been executed and delivered, in form and substance reasonably satisfactory to GPA, all such definitive documentation as is necessary or reasonably advisable to implement the transactions contemplated by this Term Sheet (including, without limitation, documentation providing to GPA such registration rights as are reasonably acceptable to GPA with respect to the securities of the reorganized Company that are acquired by GPA in the transactions contemplated by this Term Sheet); and (v) the Board of Directors of GPA (or an appropriate committee thereof) shall have approved the execution and delivery by GPA of the aforesaid definitive documentation (it being understood that, within ten business days following the date of this Term Sheet, GPA shall deliver to AmWest and the Company a certified copy of a resolution evidencing the approval by the Board of Directors of GPA (or an appropriate committee thereof) of this Term Sheet and the transactions contemplated hereby). As used herein, the term "Permitted Reallocation" shall mean changes in the allocation among the Unsecured Creditors, AmWest (and its Affiliates) and the Equity Holders of the aggregate consideration payable to such persons and entities as set forth in the Investment Agreement, without (i) increase or decrease in the aggregate amount thereof, or (ii) change in the terms and conditions of such consideration from those set forth in the Investment Agreement unless, in any such case, AmWest shall have obtained the prior written consent of GPA. The obligations of the Company and AmWest to consummate the transactions contemplated by this Term Sheet shall be subject to the satisfaction of the following conditions: (i) the transactions contemplated by the Investment Agreement (other than those contemplated by this Term Sheet) shall have been consummated; (ii) there shall have been executed and delivered, in form and substance reasonably satisfactory to the Company and AmWest, all such definitive documentation as is necessary or reasonably advisable to implement the transactions contemplated by this Term Sheet; and (iii) there shall have been delivered to the Company and AmWest a certified copy of a resolution evidencing the approval by the Board of Directors of GPA (or an appropriate committee thereof) of this Term Sheet and the transactions contemplated hereby. Other...................... Nothing contained in this Term Sheet shall limit, restrict or impair in any manner or to any extent the treatment afforded by the Plan to any allowed administrative claim of GPA arising from the fulfillment by GPA of its deficiency guarantee obligations to General Electric Capital Corporation with respect to aircraft formerly leased by the Company from General Electric Capital Corporation (it being acknowledged that such treatment shall be in accordance with Section 1129(a)(9)(A) of the Bankruptcy Code). EX-11.1 6 COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE 1 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC., D.I.P. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------------------------- 1993 ------------------------- PRO 1989 1990 1991 1992 HISTORICAL FORMA ----------- ----------- ----------- ----------- ----------- ----------- PRIMARY EARNINGS PER SHARE Computation for Statements of Operation: Income (loss) before extraordinary item............. $ 12,803 $ (76,695) $ (222,016) $ (131,761) $ 37,165 $ 19,824 Adjustment for interest on debt reduction...................... 1,414 -- -- -- 4,210 -- Preferred stock dividend requirement.................... (1,673) (1,673) (1,673) (1,672) -- -- ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item............. 12,544 (78,368) (223,689) (133,433) 41,375 19,824 Extraordinary item, tax benefit........................ 795 -- -- -- -- -- Extraordinary item, net.......... 7,215 2,024 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock................... $ 20,554 $ (76,344) $ (223,689) $ (133,433) $ 41,375 $ 19,824 ============ ============ ============ ============ ============ ============ Weighted average number of common shares outstanding............. 16,761,622 18,395,970 21,533,992 23,914,298 24,480,487 45,125,000 Assumed exercise of stock options and warrants(a)................ 3,864,273 -- -- -- 3,044,504 (d) ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted....................... 20,625,895 18,395,970 21,533,992 23,914,298 27,524,991 45,125,000 ============ ============ ============ ============ ============ ============ Primary earnings per common share: Income (loss) before extraordinary item............. $ 0.61 $ (4.26) $ (10.39) $ (5.58) $ 1.50 $ 0.44 Extraordinary item............... 0.39 0.11 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)................ $ 1.00 $ (4.15) $ (10.39) $ (5.58) $ 1.50 $ 0.44 ============ ============ ============ ============ ============ ============ Income (loss) before extraordinary item............. $ (76,695) $ (222,016) $ (131,761) Preferred stock dividend requirement.................... (1,673) (1,673) (1,672) Interest adj net of taxes........ 2,818 4,408 4,964 ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item............. (75,550) (219,281) (128,469) Extraordinary item, tax benefit........................ 1,490 2,448 2,756 Extraordinary item, net.......... 2,024 -- -- ----------- ----------- ----------- Income (loss) applicable to common stock................... $ (72,036) (216,833) $ (125,713) ============ ============ ============ Weighted average number of common shares outstanding............... 18,395,970 21,533,992 23,914,298 Assumes exercise of stock options and warrants..................... 4,922,120 6,704,746 7,383,922 ----------- ----------- ----------- Weighted average number of common shares as adjusted............... 23,318,090 28,238,738 31,298,220 ============ ============ ============ Primary earnings per common share: Income (loss) before extraordinary item............. $ (3.24) $ (7.77) $ (4.10) Extraordinary item............... 0.15 0.09 0.09 ----------- ----------- ----------- Net income (loss)(c)............... $ (3.09) $ (7.68) $ (4.01) ============ ============ ============ SIX MONTHS ENDED JUNE 30, ---------------------------------------- 1994 ------------------------- PRO 1993 HISTORICAL FORMA ----------- ----------- ----------- < PRIMARY EARNINGS PER SHARE Computation for Statements of Operation: Income (loss) before extraordinary item............. $ 12,394 $ 35,311 $ 23,991 Adjustment for interest on debt reduction...................... 2,942 2,050 -- Preferred stock dividend requirement.................... -- -- -- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item............. 15,336 37,361 23,991 Extraordinary item, tax benefit........................ -- -- -- Extraordinary item, net.......... -- -- -- ----------- ----------- ----------- Income (loss) applicable to common stock................... $ 15,336 $ 37,361 $ 23,991 ============ ============ ============ Weighted average number of common shares outstanding............. 24,202,672 25,348,572 45,125,000 Assumed exercise of stock options and warrants(a)................ 5,465,913 3,355,748 (d) ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted....................... 29,668,585 28,704,320 45,125,000 ============ ============ ============ Primary earnings per common share: Income (loss) before extraordinary item............. $ .52 $ 1.30 $ .53 Extraordinary item............... -- -- -- ----------- ----------- ----------- Net income (loss)................ $ .52 $ 1.30 $ .53 ============ ============ ============ Income (loss) before extraordinary item............. Preferred stock dividend requirement.................... Interest adj net of taxes........ Income (loss) applicable to common stock before extraordinary item............. Extraordinary item, tax benefit........................ Extraordinary item, net.......... Income (loss) applicable to common stock................... Weighted average number of common shares outstanding............... Assumes exercise of stock options and warrants..................... Weighted average number of common shares as adjusted............... Primary earnings per common share: Income (loss) before extraordinary item............. Extraordinary item............... Net income (loss)(c)...............
2 AMERICA WEST AIRLINES, INC., D.I.P. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE -- (CONTINUED) (IN THOUSANDS EXCEPT PER SHARE AMOUNT) off]
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------------------------- 1993 ------------------------- PRO 1989 1990 1991 1992 HISTORICAL FORMA ----------- ----------- ----------- ----------- ----------- ----------- FULLY DILUTED EARNINGS PER SHARE Computation for Statements of Operations: Income (loss) before extraordinary items............................ $ 12,803 $ (76,695) $ (222,016) $ (131,761) $ 37,165 $ 19,824 Adjustment for interest on debt reduction........................ 1,219 -- -- -- 5,812 -- Preferred stock dividend requirement...................... (1,673) (1,673) (1,673) (1,672) -- -- ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary items............................ $ 12,349 $ (78,368) $ (223,689) $ (133,433) $ 42,977 $ 19,824 Extraordinary items, tax benefit... 7,902 2,024 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss).................. $ 20,251 $ (76,344) $ (223,689) $ (133,433) $ 42,977 $ 19,824 ============ ============ ============ ============ ============ ============ Weighted average number of common shares outstanding............... 16,761,622 18,395,970 21,533,992 23,914,298 24,480,487 45,125,000 Assumed exercise of stock options and warrants(a).................. 3,864,273 -- -- -- 4,240,761 (d) ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted... 20,625,895 18,395,970 21,533,992 23,914,298 28,721,248 45,125,000 ============ ============ ============ ============ ============ ============ Fully diluted income (loss) per common share: Income (loss) before extraordinary items............................ $ 0.60 $ (4.26) $ (10.39) $ (5.58) $ 1.50 $ 0.44 Extraordinary items................ 0.38 0.11 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss).................. $ 0.98(b) $ (4.15) $ (10.39) $ (5.58) $ 1.50 $ 0.44 ============ ============ ============ ============ ============ ============ 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........ $ 12,803 $ (76,695) $ (222,016) $ (131,761) $ 37,165 $ 19,824 Add -- Interest on 7.75% subordinated debentures, net of taxes............................ 1,853 1,829 869 -- -- -- Add -- Interest on 7.5% subordinated debentures, net of taxes............................ 1,735 1,712 806 -- -- -- Add -- Interest on 11.5% subordinated debentures, net of taxes............................ 6,948 7,629 3,506...... -- -- -- Add interest on debt reduction, net of taxes......................... 1,219 2,777 4,352 4,964 5,812 -- ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary items as adjusted................ 24,558 (62,748) (212,483) (126,797) 42,977 19,824 Extraordinary items................ 13,828 9,399 5,293 2,756 -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss).................. $ 38,386 $ (53,349) $ (207,190) $ (124,041) $ 42,977 $ 19,824 ============ ============ ============ ============ ============ ============ SIX MONTHS ENDED JUNE 30, ---------------------------------------- 1994 ------------------------- PRO 1993 HISTORICAL FORMA ----------- ----------- ----------- < FULLY DILUTED EARNINGS PER SHARE Computation for Statements of Operations: Income (loss) before extraordinary items............................ $ 12,394 $ 35,311 $ 23,991 Adjustment for interest on debt reduction........................ 2,914 1,988 -- Preferred stock dividend requirement...................... -- -- -- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary items............................ $ 15,308 37,299 $ 23,991 Extraordinary items, tax benefit... -- -- -- ----------- ----------- ----------- Net income (loss).................. $ 15,308 $ 37,299 $ 23,991 ============ ============ ============ Weighted average number of common shares outstanding............... 24,202,672 25,348,572 45,125,000 Assumed exercise of stock options and warrants(a).................. 5,465,913 3,355,748 (d) ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted... 29,668,585 28,704,320 45,125,000 ============ ============ ============ Fully diluted income (loss) per common share: Income (loss) before extraordinary items............................ $ 0.52 $ 1.30 $ 0.53 Extraordinary items................ -- -- -- ----------- ----------- ----------- Net income (loss).................. $ 0.52(c) $ 1.30 $ 0.53 ============ ============ ============ 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........ $ 12,394 $ 35,311 $ 23,991 Add -- Interest on 7.75% subordinated debentures, net of taxes............................ -- -- -- Add -- Interest on 7.5% subordinated debentures, net of taxes............................ -- -- -- Add -- Interest on 11.5% subordinated debentures, net of taxes............................ -- -- -- Add interest on debt reduction, net of taxes......................... 2,914 1,988 -- ----------- ----------- ----------- Income (loss) before extraordinary items as adjusted................ 15,308 37,299 23,991 Extraordinary items................ -- -- -- ----------- ----------- ----------- Net income (loss).................. $ 15,308 $ 37,299 $ 23,991 ============ ============ ============
3 AMERICA WEST AIRLINES, INC., D.I.P. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE -- (CONTINUED) (IN THOUSANDS EXCEPT PER SHARE AMOUNT) off]
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------------------------- 1993 ------------------------- PRO 1989 1990 1991 1992 HISTORICAL FORMA ----------- ----------- ----------- ----------- ----------- ----------- Additional adjustment to weighted average number of shares outstanding Weighted average number of shares outstanding as adjusted per fully diluted computation above........ 20,625,895 18,395,970 21,533,992 23,914,298 28,721,248 45,125,000 Additional dilutive effect of outstanding options and warrants......................... -- 5,266,266 6,704,746 7,383,922 -- (d) Additional dilutive effect of assumed conversion of preferred stock: Series A 9.75%................... -- -- -- -- -- -- Series B 10.5%................... 1,164,596 1,164,596 1,164,596 1,164,596 851,294 -- Series C 9.75%................... 73,099 73,099 73,099 73,099 73,099 -- Additional dilutive effect of assumed conversion of 7.75% subordinated debentures.......... 2,767,111 2,735,200 2,483,528 2,278,151 2,263,007 -- Additional dilutive effect of assumed conversion of 7.5% subordinated debentures.......... 2,582,357 2,551,060 2,347,604 2,291,607 2,272,548 -- Additional dilutive effect of assumed conversion of 11.5% subordinated debentures.......... 8,995,021 9,866,509 9,081,162 7,486,391 7,328,201 -- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted... 36,208,079 40,052,700 43,388,727 44,592,064 41,509,397 45,125,000 ============ ============ ============ ============ ============ ============ Fully diluted income (loss) per common share: Income (loss) before extraordinary items............................ $ 0.68 $ (1.57) $ (4.90) $ (2.84) $ 1.04 $ 0.44 Extraordinary items................ 0.39 0.23 0.12 0.06 -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)(e)............... $ 1.07(c) $ (1.34)(c) $ (4.78)(c) $ (2.78)(c) $ 1.04 $ 0.44 ============ ============ ============ ============ ============ ============ SIX MONTHS ENDED JUNE 30, ---------------------------------------- 1994 ------------------------- PRO 1993 HISTORICAL FORMA ----------- ----------- ----------- < Additional adjustment to weighted average number of shares outstanding Weighted average number of shares outstanding as adjusted per fully diluted computation above........ 29,668,585 28,704,320 45,125,000 Additional dilutive effect of outstanding options and warrants......................... -- -- (d) Additional dilutive effect of assumed conversion of preferred stock: Series A 9.75%................... -- -- -- Series B 10.5%................... 1,164,596 -- -- Series C 9.75%................... 73,099 73,099 -- Additional dilutive effect of assumed conversion of 7.75% subordinated debentures.......... 2,268,455 2,257,558 -- Additional dilutive effect of assumed conversion of 7.5% subordinated debentures.......... 2,280,078 2,264,932 -- Additional dilutive effect of assumed conversion of 11.5% subordinated debentures.......... 7,349,425 7,306,864 -- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted... 42,804,238 40,606,773 45,125,000 ============ ============ ============ Fully diluted income (loss) per common share: Income (loss) before extraordinary items............................ $ 0.36 $ 0.92 $ 0.53 Extraordinary items................ -- -- -- ----------- ----------- ----------- Net income (loss)(e)............... $ 0.36 $ 0.92 $ 0.53 ============ ============ ============
- --------------- (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. (d) 10,384,615 warrants are available for exercise and as such the EPS calculation should follow the modified treasury stock method. However since the exercise price of the warrants will not be determined until a later date, the EPS computation is presented without the effect of the exercise of the warrants for both primary and fully diluted earnings per share. EX-12.1 7 COMPUTATION OF RATIO OF EARNINGS TI FIXED CHARGES 1 EXHIBIT 12.1 AMERICA WEST AIRLINES, INC., D.I.P. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------------- -------------------------------- 1993 1994 ---------------------- ---------------------- PRO PRO 1989 1990 1991 1992 HISTORICAL FORMA 1993 HISTORICAL FORMA -------- -------- --------- --------- ----------- -------- ------- ----------- -------- (IN THOUSANDS EXCEPT RATIO OF EARNINGS TO FIXED CHARGES) Computation of Earnings: Income (loss) before income taxes and extraordinary item................ $ 20,040 $(76,695) $(222,016) $(131,761) $ 37,924 $ 54,147 $12,647 $ 36,782 $ 50,001 Add: Interest expense including amortization of debt issuance costs............... 43,934 61,239 63,991 55,886 54,252 65,743 27,593 26,098 31,493 Interest portion of rent expense........ 58,759 77,537 106,414 102,314 81,795 80,680 42,034 39,433 38,707 -------- -------- --------- --------- ----------- -------- ------- ----------- -------- Income (loss), as adjusted.............. $122,733 $ 62,081 $ (51,611) $ 26,439 $ 173,971 $200,570 $82,274 $ 102,313 $120,201 ======== ======== ========= ========= ========= ======== ======= ========= ======== Computation of Fixed Charges: Interest expense including amortization of debt issuance costs............... $ 43,934 $ 61,239 $ 63,991 $ 55,886 $ 54,252 $ 65,743 $27,593 $ 26,098 $ 31,493 Interest portion of rent expense........ 58,759 77,537 106,414 102,314 81,795 80,680 42,034 39,433 38,707 Capitalized interest............ 7,250 6,375 6,664 -- -- -- -- -- -- -------- -------- --------- --------- ----------- -------- ------- ----------- -------- Fixed charges........... $109,943 $145,151 $ 177,069 $ 158,200 $ 136,047 $146,423 $69,627 $ 65,531 $ 70,200 ======== ======== ========= ========= ========= ======== ======= ========= ======== Ratio of earnings to fixed charges......... 1.12 (*) (*) (*) 1.28 1.37 1.18 1.56 1.71
- --------------- (*) 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 issuance costs, a portion of rent expense which is deemed to be representative of an interest factor, and capitalized interest. For the years ended December 31, 1990, 1991 and 1992 earnings were insufficient to cover fixed charges by $83,070,000, $228,680,000 and $131,761,000 respectively. EX-25.1 8 FORM T-1 FOR AMERICAN BANK NATIONAL ASSOCIATION 1 EXHIBIT 25.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------ AMERICAN BANK NATIONAL ASSOCIATION (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION (STATE OF INCORPORATION IF NOT A NATIONAL BANK) 101 EAST FIFTH STREET CORPORATE TRUST DEPARTMENT ST. PAUL, MINNESOTA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 41-0122055 (I.R.S. EMPLOYER IDENTIFICATION NO.) 55101 (ZIP CODE) ------------------------ AMERICAN BANK NATIONAL ASSOCIATION 101 EAST FIFTH STREET ST. PAUL, MINNESOTA 55101 (612) 298-6280 (EXACT NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ AMERICA WEST AIRLINES, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION) 4000 EAST SKY HARBOR BOULEVARD PHOENIX, ARIZONA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 86-0418245 (I.R.S. EMPLOYER IDENTIFICATION NO.) 85034 (ZIP CODE) % SENIOR UNSECURED NOTES DUE 2001 (TITLE OF THE INDENTURE SECURITIES) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of the Currency, Treasury Department, Washington, D.C. Federal Deposit Insurance Corporation, Washington, D.C. The Board of Governors of the Federal Reserve System, Washington, D.C. GENERAL ITEM 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. IF THE OBLIGOR OR ANY UNDERWRITER FOR THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. See Note following Item 16. ITEMS 3-15 ARE NOT APPLICABLE BECAUSE TO THE BEST OF THE TRUSTEE'S KNOWLEDGE THE OBLIGOR IS NOT IN DEFAULT UNDER ANY INDENTURE FOR WHICH THE TRUSTEE ACTS AS TRUSTEE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION. Exhibits listed below are incorporated by reference from previous filing #33-79088. American Bank National Association was formerly known as American National Bank and Trust Company. The entity has remained the same, only the name has changed as noted by the attached letter from O.C.C. Exhibit 1. Copy of Articles of Association of the trustee now in effect. Exhibit 2. a. A copy of the certificate of the Comptroller of Currency dated June 1, 1965, authorizing American Bank National Association to act as fiduciary. b. A copy of the certificate of authority of the trustee to commence business issued June 9, 1903, by the Comptroller of the Currency to American Bank National Association of St. Paul. Exhibit 3. A copy of the authorization of the trustee to exercise corporate trust powers issued by the Federal Reserve Board. Exhibit 4. Copy of By-laws of the trustee as now in effect. Exhibit 5. Copy of each Indenture referred to in Item 4. Not applicable. Exhibit 6. The consent of the trustee required by Section 321(b) of the Act. Exhibit 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 1 3 NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligor within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligor, or affiliates, are based upon information furnished to the Trustee by the obligor. While the Trustee has no reason to doubt the accuracy of any such information it cannot accept any responsibility. SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE TRUSTEE, A NATIONAL BANKING ASSOCIATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES, HAS DULY CAUSED THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE CITY OF SAINT PAUL AND STATE OF MINNESOTA ON THE 11TH DAY OF AUGUST, 1994. AMERICAN BANK NATIONAL ASSOCIATION By /s/ FRANK P. LESLIE III ------------------------------------ Frank P. Leslie III Assistant Vice President 2 4 EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, American Bank National Association, hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: August 11, 1994 AMERICAN BANK NATIONAL ASSOCIATION By /s/ FRANK P. LESLIE III Frank P. Leslie III Assistant Vice President 5 Comptroller of the Currency Administrator of National Banks Midwestern District Office 2345 Grand Avenue, Suite 700 Kansas City, Missouri 64108 July 7, 1994 Mr. Robert T. Lund Senior Vice President and General Counsel American Bank National Association 101 East Fifth Street St. Paul, Minnesota 55101-1860 Dear Mr. Lund: The Office of the Comptroller of the Currency (OCC) has received your letter concerning the title change and the appropriate amendment to the Articles of Association. The OCC has recorded that as of July 1, 1994, the title of American National Bank and Trust Company, St. Paul, Minnesota, Charter No. 6828, was changed to "American Bank National Association". As a result of Garn-St Germain Depository Institutions Act of 1982, the OCC is no longer responsible for the approval of national bank name changes nor does it maintain official records on the use of alternate titles. The use of other titles or the retention of the rights to any previously used title is the responsibility of the bank's board of directors. Legal counsel should be consulted to determine whether or not the new title, or any previously used title, could be challenged by competing institutions under the provisions of federal or state law. Sincerely, /s/ JUDITH A. BOLLIG Judith A. Bollig Analysis Specialist -----END PRIVACY-ENHANCED MESSAGE-----