Exhibit 10.17
Southwest Airlines Co.
2702 Love Field Dr.
Dallas, TX 76235
December 15, 2004
ATA Holdings Corp.
7337 West Washington Street
Indianapolis, IN 46231-1300
Re: Bid Proposal to Purchase Assets from, Provide a DIP Facility and
Exit Facility to, and Codeshare with, ATA Holdings Corp.
Ladies and Gentlemen:
Southwest Airlines Co. ("Southwest") is pleased to make the following bid
proposal (this "Bid Proposal")in connection with ATA Holdings Corp."Holdings")
and its debtor affiliates and subsidiaries'(collectively,"Debtors")filing of
petitions that are administrativelyconsolidated as In re ATA Holdings Corp. et
al., Case No.04-19866 (Bankr. S.D. Ind.)(the "Cases")for protection under
chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") to
enable such Debtors to be restructured pursuant to a Plan of Reorganization,
including the terms and conditions set forth in Annex F attached hereto (the
"Plan")
Southwest hereby commits to:
A. purchase for $40,000,000 certain of Debtors' assets (collectively,
the "Transferred Assets"), consisting of Debtors' rights to six (6)
specified gates (the "Midway Gates") at Chicago Midway Airport ("Midway"),
Debtors' rights in that certain hangar facility at Midway (the "Midway
Hangar") and miscellaneous other assets related to the foregoing on the
terms and subject to the conditions contained herein and as set forth in
Annex A attached hereto (the "Asset Acquisition Agreement");
B. provide Debtors with a debtor-in-possession loan facility of up to
$47,000,000 (the "DIP Facility") for general working capital purposes on
the terms and subject to the conditions contained herein and as set forth
in Annex B attached hereto (the "DIP Facility Term Sheet");
C. provide Debtors with post-bankruptcy financing through long-term
debt refinancing of up to $47,000,000 for amounts outstanding under the DIP
Facility upon the effective date (the "Effective Date") of the Plan and
Debtors' exit from chapter 11 protection (the "Exit Facility" and, together
with the DIP Facility, the "Facilities") on the terms and subject to the
conditions contained herein and as set forth in Annex C attached hereto
(the "Exit Facility Term Sheet");
D. purchase an additional $30,000,000 in non-voting (except on
default) convertible preferred equity (the "Equity Investment") upon or
after the Effective Date on the terms and subject to the conditions
contained herein and as set forth in Annex D attached hereto (the
"Investment Term Sheet"); and
E. codeshare with Debtors out of Midway and such other airports as
Southwest and Debtors shall mutually agree as set forth in the Codeshare
Agreement as soon as Debtors' gates have been relocated to facilities which
will reasonably accommodate passenger connections and baggage handling
between the two carriers, on the terms and subject to the conditions
contained herein and as set forth in Annex E attached hereto (the
"Codeshare Term Sheet").
1. Key Terms and Conditions. Southwest's commitment to purchase the
Transferred Assets, make the loans under the Facilities, make the Equity
Investment and enter into the codeshare arrangement shall be on and subject
to the following terms and conditions:
A. Asset Acquisition. In furtherance of Debtors' restructuring of its
operations pursuant to the Plan, Southwest agrees to buy the following
Transferred Assets from Debtors for the aggregate purchase price of
$40,000,000 (the "Acquisition Price"): (a) all of Debtors' rights,
privileges and interests in the Midway Gates through the assumption of
Debtors' leasehold interest with respect to such Midway Gates under the
Chicago Midway Airport Amended and Restated Airport Use Agreement
Facilities Lease (the "Facilities Lease") between the City of Chicago and
ATA Airlines, Inc. ("ATA"); (b) all of Debtors' rights, privileges and
interests in the Midway Hangar through the assumption of Debtors' leasehold
interest under the Lease of Hangar Facilities (the "Hangar Lease") between
the City of Chicago and ATA; and (c) miscellaneous other assets related to
the foregoing as set forth in the Asset Acquisition Agreement, in each case
free and clear of all pledges, liens, security interests, encumbrances,
claims, charges, options and interests thereon and there against (except
for the terms of the Facilities Lease and the Hangar Lease)
("Encumbrances") in accordance with Sections 363 and 365 of the Bankruptcy
Code. The purchase of the Transferred Assets shall be on the terms and
subject to the conditions contained herein and as set forth in the Asset
Acquisition Agreement.
B. DIP Facility Amount. Southwest will provide a DIP Facility to
Debtors of up to $47,000,000 in the aggregate. The DIP Facility will
provide up to $40,000,000 in cash plus a guaranty of up to $7,000,000 (the
"Chicago Guaranty") for amounts outstanding under that certain Loan
Agreement for Funding ATA Expansion Gates, dated March 17, 2003, by and
among the City of Chicago and ATA (the "Chicago Construction Loan") on the
terms and subject to the conditions contained herein and as set forth in
the DIP Facility Term Sheet. The base interest rate on amounts borrowed by
Debtors under the DIP Facility will be the greater of: (a) 8.0% per annum,
and (b) the 3-month LIBOR rate plus 5.0% per annum, paid monthly. The
Chicago Guaranty fee will be 3.0% per annum on undrawn amounts, paid
monthly.
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C. Exit Facility. Upon the Effective Date of the Plan, which Plan
shall include the terms set forth in Annex F attached hereto (the "Plan
Term Sheet"), Southwest will provide an Exit Facility to the reorganized
Holdings ("New ATA") of up to $47,000,000. The Exit Facility will provide
for long-term financing consisting of one or more 5-year notes (the
"Notes") to refinance up to $40,000,000 under the DIP Facility plus a
replacement guaranty of up to $7,000,000 of the amounts outstanding under
the Chicago Construction Loan (the "New Chicago Guaranty") on the terms and
subject to the conditions contained herein and as set forth in the Exit
Facility Term Sheet. The base interest rate on the amounts borrowed by New
ATA under the Exit Facility will be 9.5% per annum, paid semi-annually. The
New Chicago Guaranty fee will be 3.0% per annum on undrawn amounts, paid
monthly.
D. Equity Investment. Upon or after the Effective Date, Southwest will
purchase, through an additional cash investment of $30,000,000, shares of
non-voting senior convertible preferred equity (the "Preferred Equity") of
New ATA on the terms and subject to the conditions contained herein and as
set forth in the Investment Term Sheet. The Preferred Equity will be
convertible into 27.5% of the fully diluted economic ownership of New ATA,
subject to pro rata dilution for management interests. The Preferred Equity
will have voting rights only upon certain events of default, will be senior
to the common equity (the "Common Equity") of New ATA and will be
convertible into Common Equity, at Southwest's option, upon Southwest's
sale or transfer of such Preferred Equity to a third party and certain
other specified major liquidity events.
E. Codeshare and Other Support Agreements. In furtherance of Debtors'
restructuring of their operations, Southwest and Debtors will codeshare out
of Midway and such other airports as Southwest and Debtors shall mutually
agree, as specified in the Codeshare Agreement, not later than thirty (30)
days after Debtors' gates have been relocated to facilities which will
reasonably accommodate passenger connections and baggage handling between
the two carriers which shall be at least thirty (30) days after the
implementation of the Midway Codeshare on the terms and subject to the
conditions contained herein and as set forth in the Codeshare Term Sheet
and subject to applicable regulatory requirements. In addition, Debtors and
Southwest will consider entering into various agreements in support of the
codeshare arrangement and other transactions contemplated by this Bid
Proposal, including with respect to reservation and ground handling
services and sharing frequent flier programs.
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2. Credit Support Option. Southwest may opt to satisfy all or a
portion of its commitment hereunder to provide the Facilities by arranging
for third-party funding thereof (the entity providing such funding, the
"Southwest Substitute Lender"), and, if necessary, providing credit support
for the Debtors' obligations in respect of such Facilities; provided that
the all-in-cost to the Debtors of such third-party funding and credit
support does not exceed the all-in-cost that the Debtors would have
incurred had Southwest funded its commitment directly.
3. Payment of Expenses. Debtors shall reimburse Southwest up to a
maximum aggregate amount of $1,000,000 for all reasonable fees and expenses
incurred by or on behalf of Southwest in connection with the negotiation,
preparation, execution and delivery of this Bid Proposal, the Definitive
Documents and the transactions contemplated hereby and thereby, including,
but not limited to, fees and expenses of counsel and financial advisors to
Southwest and fees and expenses incurred by Southwest in connection with
any due diligence, collateral reviews and field examinations (the
"Expenses"). On the funding date of the Equity Investment, Debtors shall
pay to Southwest or its designated affiliate in immediately available funds
an amount equal to the reasonably documented Expenses incurred by Southwest
prior to the date thereof up to an aggregate amount of $1,000,000. If not
otherwise paid, expenses reimbursable hereunder shall be credited against,
and shall reduce the balance due under, such Equity Investment.
4. Payment of Arrangement Fees. In consideration of Southwest's
commitment to provide the Facilities and the Equity Investment, Debtors
shall pay to Southwest: a closing fee of 2.5% for each of the DIP Facility
(including the Chicago Guaranty) and the Equity Investment. The closing fee
for the DIP Facility will be accrued to the principal amount of the DIP
Facility. The Debtors will also pay Southwest a guaranty fee of 3.0% per
annum, paid monthly, for any amounts guaranteed but not drawn under each of
the Chicago Guaranty and the New Chicago Guaranty.
5. Covenants; Definitive Documents. If Southwest is the Successful
Bidder under the Debtors' Bid Procedures approved by the Bankruptcy Court
on November 19, 2004 (the "Bid Procedures"), Debtors and Southwest agree to
cooperate with one another and to use commercially reasonable efforts to
prepare and negotiate in good faith the agreements and other documents
necessary to consummate the transactions contemplated by this Bid Proposal
on the terms and subject to the conditions contained herein and as set
forth in the Annexes attached hereto, in form and substance satisfactory to
Southwest (the "Definitive Documents") and the documents ancillary to the
Definitive Documents as contemplated herein and to take such action as is
reasonably necessary to obtain Bankruptcy Court approval of the
transactions contemplated hereby. Southwest's obligations under this Bid
Proposal shall be subject to the Debtors and Southwest successfully
negotiating, executing and delivering legally valid and binding Definitive
Documents.
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6. Intention to Bid at Auction. In the event there is an Auction
pursuant to the Bid Procedures, Southwest intends to bid at such Auction.
7. Hart-Scott-Rodino; Regulatory Approvals. Other than the consents
required to be obtained from the City of Chicago as described in Section 9
hereof, Southwest does not anticipate additional requests for regulatory
approval (including under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 ("HSR")) with respect to the asset acquisition or the DIP Facility.
Southwest is prepared to initiate immediately all actions necessary to
obtain all applicable approvals set forth in this Bid Proposal or as may be
otherwise identified as necessary.
8. Good Faith Deposit; Financing. Simultaneous with, or prior to,
Southwest's submission of this Bid Proposal, Southwest wired $10,000,000
(the maximum amount required by the Bid Procedures) to Debtors' account in
accordance with instructions received from Debtors. Southwest has the
financial ability to purchase the Transferred Assets, make the loans under
the Facilities and make the Equity Investment using cash on hand, evidence
of which is contained in Southwest's quarterly report on Form 10-Q for the
period ending September 30, 2004, included as Exhibit A hereto (showing in
excess of $1,800,000,000 in cash and cash equivalents as of the date
thereof).
9. City of Chicago Leases; Performance. Southwest shall fully
cooperate with the Debtors (a) by complying with the applicable procedures
and information requests of the City of Chicago under Section 4.03 of the
Facilities Lease, and (b) in seeking the prior written consent of the City
of Chicago for the assignment and transfer of the Facilities Lease and
Debtors' rights thereunder with respect to the Midway Gates. Southwest
shall also cooperate with the Debtors with respect to the assignment of the
Hangar Lease and shall seek the prior written consent of the City of
Chicago for the assignment and transfer of the Hangar Lease and Debtors'
rights thereunder. Attached as Exhibit B are the Terms Applicable to
Assignment of Facilities Lease and the Economic Disclosure Statement that
were submitted to the City of Chicago on November 30, 2004 in accordance
with the Bid Procedures. Given the financial capacity of Southwest,
Southwest's provision of outstanding service at Midway for 18 years and its
history as a legacy airline at Midway, Southwest believes that it will be
fully and adequately capable of performing its obligations under any
contracts or unexpired leases, including the Facilities Lease and the
Hangar Lease, it may assume pursuant to the Asset Acquisition Agreement.
10. Company Employees. To the extent Southwest requires any employees
in addition to those already employed by Southwest (and related to its
acquisition of the Transferred Assets), Southwest agrees to interview
qualified employees of Debtors who were displaced as a result of the
transactions contemplated by this Bid Proposal on a first-priority basis.
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11. Termination. The proposals made by Southwest in this letter are
irrevocable until the earlier of (i) two (2) business days after the
closing of the Transaction(s) by which all of the Assets that are the
subject of this Bid Proposal have been transferred or disposed of to one or
more Qualified Bidders pursuant to the Bid Procedures and (ii) ninety (90)
days after the entry of an order of the Court approving a Transaction for
the transfer of such Assets. Upon such time, the proposals made by
Southwest in this letter shall expire, unless otherwise agreed by Southwest
in writing.
12. Definitions. Capitalized terms used, but not defined, herein shall
have the meanings given to such terms in the Bid Procedures.
13. Closings.
A. Asset Acquisition. The closing of the asset acquisition
pursuant to the Asset Acquisition Agreement shall occur immediately
following the fulfillment of the following two conditions: (i) the
entry of the Bankruptcy Court's enforceable order confirming Southwest
as the Successful Bidder with respect to the Transferred Assets and
approving the terms and conditions of this Bid Proposal with respect
to such Transferred Assets and the Asset Acquisition Agreement, and
(ii) the Debtors' compliance with the conditions precedent set forth
in the Asset Acquisition Agreement, including requiring the
Transferred Assets to be transferred to Southwest (with the consent of
the City of Chicago) free and clear of all Encumbrances except for the
terms of the Facilities Lease and the Hangar Lease.
B. DIP Facility. The closing and the initial funding of the DIP
Facility shall occur immediately following the fulfillment of the
following two conditions: (i) the entry of the Bankruptcy Court's
enforceable order confirming Southwest as the Successful Bidder and
approving the terms and conditions of this Bid Proposal and the
Definitive Documents, and (ii) the Debtors' compliance with the
conditions precedent set forth in the DIP Facility Term Sheet and
Definitive Documents, including, without limitation, that (a)
Southwest and the Debtors shall have entered into the Asset
Acquisition Agreement, and (b) Southwest shall have a super-priority
security interest in the assets which are to secure the DIP Facility
pursuant to an order of the Bankruptcy Court in form and substance
acceptable to Southwest in its sole discretion.
C. Codeshare. The initial loading of the codeshare schedule shall
occur as soon as practicable following the fulfillment of the
following three conditions: (i) the entry of the Bankruptcy Court's
enforceable order confirming Southwest as the Successful Bidder and
approving the terms and conditions of this Bid Proposal and the
Definitive Documents, (ii) Southwest and the Debtors shall have
entered into the Asset Acquisition Agreement and (iii) Southwest shall
have a super-priority security interest in the assets which are to
secure the DIP Facility pursuant to an order of the Bankruptcy Court
in form and substance acceptable to Southwest in its sole discretion
and the funding of the DIP Facility shall have occurred in accordance
with the DIP Facility Term Sheet and Definitive Documents.
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The obligations of Southwest to make the loans under the Facilities, make
the Equity Investment and enter into the codeshare arrangement shall be subject
to the absence of a Material Adverse Change. A "Material Adverse Change" shall
be deemed to occur upon the occurrence of, or Southwest's knowledge of, a
material adverse change in the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Debtors, taken as a
whole, since October 26, 2004 other than any change (i) of the type which
customarily occurs as a result of events leading up to and following the
commencement of a proceeding under Chapter 11 of the Bankruptcy Code and the
commencement of the Cases or (ii) disclosed in the annual report on Form 10-K
for the fiscal year ended December 31, 2003 filed by Holdings, the quarterly
report on Form 10-Q for the periods ending March 31, 2004, June 30, 2004 and
September 30, 2004 filed by Holdings or any filing made by Holdings on Form 8-K
following December 31, 2003 and prior to the date hereof; provided that
deferrals of payments to aircraft lessors or lenders with respect to grounded
aircraft and other aircraft and engines in Debtors' fleet (and any associated
ratings downgrade) shall not in and of themselves constitute a Material Adverse
Change.
The Debtors shall use their best reasonable efforts to obtain confirmation
of the Plan on or before June 30, 2005. Southwest shall not be obligated to
consummate the other transactions contemplated by the Plan if no order has been
entered by the Bankruptcy Court confirming the Plan on or before September 30,
2005, in which event the closings set forth above shall be unaffected and
Southwest shall be entitled to exercise any of the rights set forth in the DIP
Facility.
14. Comparison of Asset Acquisition Agreement to Definitive Agreement.
Attached as Annex G is an executed Asset Acquisition Agreement marked to show
modifications to the Definitive Agreement attached to the Bid Procedures.
This letter (1) supercedes all prior discussions, agreements, commitments,
arrangements, negotiations or understandings, whether oral or written, of the
parties with respect thereto, (2) shall be governed by the laws of the State of
New York, without giving effect to the conflict of laws provisions thereof,
except to the extent superceded by the Bankruptcy Code, (3) shall be binding
upon the parties and their respective successors and assigns as provided in the
Bid Procedures, (4) may not be relied upon or enforced by any other person or
entity, (5) shall not be assignable (and no obligation hereunder may be
delegated and no right hereunder may be assigned) by either party without the
written consent of the other party (except as provided herein), and (6) may be
signed in multiple counterparts, each of which shall be deemed an original and
all of which together shall constitute one and the same instrument. If this
letter becomes the subject of a dispute, each of the parties hereto hereby
waives trial by jury.
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* * * * *
[Signatures on following page]
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This letter may be amended, modified or waived only in a writing signed by
the parties hereto.
Very truly yours,
SOUTHWEST AIRLINES CO.
By: /s/ Gary C. Kelly
-----------------
Name: Gary C. Kelly
Title: Chief Executive Officer
Agreed and accepted on this
__ day of December, 2004
ATA HOLDINGS CORP.
By: /s/ Gilbert F. Viets
----------------------------
Name: Gilbert F. Viets
Title:
Annex B - DIP Facility Term Sheet
ANNEX B
SOUTHWEST AIRLINES CO.
Summary of Indicative Terms and Conditions
Up to $47,000,000 Secured Super-Priority Credit Facility
to ATA Airlines, Inc., as Debtor-in-Possession
December 15, 2004
THIS TERM SHEET IS DELIVERED PURSUANT TO THE BID PROPOSAL, DATED AS OF DECEMBER
15, 2004 (THE "BID PROPOSAL") BETWEEN THE LENDER AND THE BORROWER (AS DEFINED
BELOW).
BORROWER:
ATA Airlines, Inc., an Indiana corporation (the "Borrower"), as a debtor
and a chapter 11 debtor-in-possession in bankruptcy cases that are
administratively consolidated as In re ATA Holdings Corp. et al., Case No.
04-19866 (Bankr. S.D. Ind.) (the "Cases") under chapter 11 of title 11, United
States Code (the "Bankruptcy Code") filed in the United States Bankruptcy Court
for the Southern District of Indiana on October 26, 2004 (the "Bankruptcy
Court").
GUARANTORS:
ATA Holdings Corp., Ambassadair Travel Club, Inc., ATA Leisure Corp., Amber
Travel, Inc., American Trans Air ExecuJet, Inc., ATA Cargo, Inc., and Chicago
Express Airlines, Inc. and any other subsidiary of ATA Holdings Corp.
(collectively, the "Guarantors" and, together with the Borrower, the "Obligated
Parties"). All guaranteesshall be full and unconditional guarantees of payment
and collection.
LENDER:
Southwest Airlines Co., any of its affiliates, assignees or designees (the
"Lender").
DIP FACILITY:
The Lender shall provide to the Borrower a post-petition credit facility
(the "DIP Facility"), of up to $47,000,000 (the "Maximum Loan Amount"), and
providing for a loan in an amount equal to the lesser of (a) the Maximum Loan
Amount and (b) the amount specified in the Interim Order (as defined below). The
DIP Facility will consist of a term loan facility in the aggregate principal
amount of $40,000,000 (the "Loan Facility") and a guaranty by the Lender of the
Borrower's obligations under the Loan Agreement for Funding ATA Expansion Gates
between the Borrower and the City of Chicago, dated as of March 17, 2003 in an
amount not to exceed $7,000,000 (the "Chicago Guaranty"). Assuming all other
conditions precedent set forth herein have been met, the DIP Facility will be
funded upon the execution and delivery, or as soon as practical thereafter, of
the Asset Acquisition Agreement (the "Asset Acquisition Agreement") to be
entered into between the Lender and the Borrower and the Chicago Guaranty will
be issued upon the closing of the transaction contemplated by the Asset
Acquisition Agreement.
EXIT FACILITY; EQUITY INVESTMENT:
The Lender shall also provide to the reorganized Borrower ("New ATA") a
post-reorganization credit facility in the amount of up to $47,000,000 (the
"Exit Facility") and an equity investment (the "Equity Investment") in the
amount of $30,000,000, upon the effective date of a plan of reorganization that
is confirmed pursuant to a final, non-appealable order entered by the Bankruptcy
Court or any other court having jurisdiction in the Cases (the "Plan") in
substantially the form described in the Plan Term Sheet enclosed with the Bid
Proposal. The Exit Facility will be made in accordance with the terms of the
Exit Facility Term Sheet enclosed with the Bid Proposal and the Equity
Investment will be made in accordance with the terms of the Investment Agreement
Term Sheet enclosed with the Bid Proposal.
The Exit Facility would permit the Obligated Parties to restructure the
airplane lease agreements, labor contracts, the ATSB Loan, unsecured debt and
other liabilities in accordance with the Plan. The definitive documentation for
the Exit Facility would include, but not be limited to, the terms and conditions
(including the representations, warranties and covenants) of the DIP Facility
set forth in this Term Sheet with such changes and modifications as the Lender
may require in its sole discretion.
AVAILABILITY:
The DIP Facility and the Chicago Guaranty shall be available upon the
satisfaction of the conditions set forth below under "Conditions Precedent to
Closing" and as specified in the "DIP Facility" above. Any amount borrowed
pursuant to the immediately preceding sentence shall be immediately deposited in
an accounts with a bank acceptable to the Lender and such amount may not with
withdrawn by the Borrower until the Borrower has satisfied its obligations under
"Deposit Accounts" below.
PURPOSE:
To provide general working capital and to pay ordinary operating costs and
expenses of the Obligated Parties during the term of the DIP Facility, including
payments to third parties that are necessary to cure defaults, to the extent
permitted by the Bankruptcy Code or the Bankruptcy Court.
CLOSING DATE:
The date of satisfaction of all conditions precedent to closing (the
"Closing Date") is expected to be as soon as practicable after the entry of the
Approval Order but not later than December 23, 2004, or as otherwise agreed,
subject to entry of an appropriate enforceable order of the court authorizing
all of the terms and conditions of the DIP Facility and the execution of the
Asset Acquisition Agreement, such order to be in form and substance acceptable
to the Lender.
MATURITY:
The DIP Facility will terminate and all amounts outstanding thereunder
shall be due and payable (unless accelerated earlier following an Event of
Default) on the earliest of (i) January 31, 2005 if the Lender does not receive
a consent from the City of Chicago to the transfer of assets pursuant to the
terms of the Asset Purchase Agreement, (ii) the effective date of the Plan, or
(iii) September 30, 2005(the "Maturity Date"), subject to extension of such
Maturity Date upon terms and conditions to be agreed upon by the Lender.
INTEREST RATE:
Outstanding obligations under the DIP Facility and the Chicago Guaranty
shall bear interest at the greater of 8.0% per annum or the 3-month LIBOR rate
plus 5.0% per annum ("Base Rate") and such interest shall be payable monthly.
DEFAULT RATE:
During the continuance of an Event of Default (as defined below), all
outstanding obligations shall bear interest at 3.0% above the Base Rate. Overdue
interest, fees and other amounts shall (to the extent permitted by applicable
law) bear interest at 3.0% above the Base Rate.
FEES:
Lender shall receive the following fees: (i) a closing fee in the amount
equal to 2.5% of DIP Facility commitment (including the Chicago Guaranty) (the
"Closing Fee") which shall be accrued to the principal amount of the DIP
Facility, and (ii) a guaranty fee in the amount equal to 3.0% per annum, paid
monthly, of the Chicago Guaranty (the "Guaranty Fee") for any amounts guaranteed
but not drawn under the Chicago Guaranty. All fees shall be deemed fully earned
upon the disbursement of the DIP Facility and the delivery of the Guaranty, as
applicable, and shall accrue to principal on the disbursement of the DIP
Facility.
DEPOSIT ACCOUNTS:
The Borrower shall maintain all cash in accounts maintained with a
depository bank acceptable to the Lender (collectively, the "Controlled
Accounts"); provided that (i) the Obligated Parties shall be permitted to
maintain up to an aggregate amount of $1,000,000 in accounts that are not
Controlled Accounts but that have been disclosed to the Lender; (ii) the
Obligated Parties shall be permitted to maintain cash in Trust Accounts (as
defined below), to the extent consistent with current practices; and (iii) to
the extent consistent with agreements with any credit card companies, the
Obligated Parties shall be permitted to hold accounts with such entities so long
as the amounts on deposit in such accounts are intended solely to cash
collateralize holdback obligations.
COLLATERAL/PRIORITY:
All loans, advances and other obligations, liabilities and indebtedness to
the Lender, including interest, fees and expenses (the "Obligations") shall be
secured by (i) pursuant to section 364(c)(2) of the Bankruptcy Code, and subject
to the Carve-out (as defined as below), valid, perfected and enforceable first
priority liens and security interests in the Primary Collateral (as defined
below) and all proceeds thereof, other than Excluded Assets (as defined below)
that are not subject to valid perfected liens on the Petition Date or to valid
liens in existence on the Petition Date that are subsequently perfected pursuant
to section 546(b) of the Bankruptcy Code and (ii) pursuant to section 364(c)(3)
of the Bankruptcy Code, and subject to the Carve-out, valid, perfected and
enforceable best priority available liens and security interests in all
encumbered present and future assets of the Borrower and all proceeds thereof,
other than Excluded Assets and any Section 1110 Assets (as defined below) to the
extent the underlying lease, security agreement mortgage, trust agreement or
other applicable instrument would prohibit the Borrower's granting of a lien to
the Lender (the "Secondary Collateral" and, together with the Primary
Collateral, the "Collateral").
"Primary Collateral" shall mean:
(i) (A) All property owned or leased (except as provided below in this
clause (i) (A)) by any of the Obligated Parties as of December 22, 2004 at
the Chicago Midway Airport in which the Lender does not already hold a
valid, enforceable and perfected lien or security interest and the proceeds
therefrom; provided, however, that the Lender shall not receive liens,
security interests or operational rights in, or any reversionary interests
or any right to control or use the Chicago Midway Airport terminal
facilities which are the subject of the Chicago Midway Airport Amended and
Restated Use Agreement and Facilities Lease (the "Lease") themselves or in
the Lease for such airport terminal facilities and, (B) any interests the
Obligated Parties have in the right to receive the proceeds, if any, from
any assumption and assignment, to any person engaged in the air
transportation business and no other person, of the Lease for any Chicago
Midway Airport terminal facilities as approved by the Court and subject to
any and all City of Chicago consents as are required; provided, however,
that any such required City of Chicago consent shall be absolute, exclusive
and not subject to challenge by the Lender or the Obligated Parties
regardless of any adverse effect that the lack of, or conditions to, any
such consent may have or be claimed on the amount of proceeds resulting
from lack of consent to such an assumption and assignment. The Lender
waives any and all purported legal or equitable claims or causes of action
it may have against the Obligated Parties and any third party, including
but not limited to the City of Chicago, whose consent is required arising
from any lack of, or conditions to, such a consent, including any claims
based upon assignment under 11 U.S.C. 365, and covenants not to sue in
furtherance thereof;
(ii) any assets of the Obligated Parties, other than assets identified
in clause (i) above, constituting the collateral pledged to the State of
Indiana pursuant to the Indiana DIP, if such financing has been repaid at
any time and such collateral has been released;
(iii) all of the rights of the Obligated Parties under airport
facility leases at all out-stations of the Obligated Parties except for (A)
the out-stations at Honolulu International Airport, (B) out-stations at
airports outside of the United States and (C) assets identified in clause
(i) above, provided, however, that if any such airport facility leases
prohibit the granting of security interest in any such facilities, the
Lender's interest shall be limited to the proceeds thereof until the
Obligated Parties (using commercially reasonable efforts) shall have
obtained appropriate consents to pledge and assignment from relevant
lessors of facilities; and
(iv) a blanket lien (and/or second lien) on all other assets that have
not otherwise been pledged or which do not constitute the Secondary
Collateral, except for assets identified in clause (i) above.
For the purposes hereof, the term "Excluded Assets" shall mean (i) any
retainers paid or deposited before October 26, 2004 (the "Petition Date") by the
Obligated Parties to or with their professionals for professional services and
expense reimbursement in connection with the Cases; provided, however, that the
security interests attach automatically to any reversionary or residual interest
any Obligated Party may have in such retainer; (ii) any Trust Funds (as such
term is defined the Obligated Parties' Cash Collateral Order); (iii) Obligated
Parties' avoidance actions and proceeds thereof under Sections 544-550 of the
Bankruptcy Court or similar applicable State law, and (iv) card receivables, but
only to the extent the ATSB Lender Parties (as such term is defined in the ATSB
Cash Use Order (Docket No. 718)), do not hold a security interest therein).
The Obligations shall at all times, subject to the Carve-out (as defined
below), have priority, pursuant to Section 364(c)(1) of the Bankruptcy Code,
over any and all administrative expenses specified in Section 503(b) or 507(b)
of the Bankruptcy Code.
The Collateral shall not include: (i) any assets or property of the
Obligated Parties pledged pre-petition to the ATSB to secure the Obligated
Parties' indebtedness under the ATSB Loan and (ii) any assets or property of the
Obligated Parties upon which the Bankruptcy Court shall have granted to the ATSB
a replacement lien pursuant to the ATSB Cash Use Order to secure the Obligated
Parties' use of cash collateral under section 363 of the Bankruptcy Code (the
"ATSB Collateral"), provided, however, that in the event that any ATSB
Collateral shall be released by ATSB, the Lender shall have the best priority
interest in such released ATSB Collateral (subject only to any continuing lien
granted to the State of Indiana under the Indiana DIP Orders).
"Section 1110 Agreement" shall mean any agreement of any Obligated Party
related to Section 1110 Assets, including, without limitation, security
agreements, mortgages, trusts, leases, conditional sale agreements or other
instruments applicable to such Section 1110 Assets.
"Section 1110 Assets" means, (i) any "aircraft", "aircraft engine",
"propeller", "appliance" or "spare part" of any Obligated Party (as defined in
Section 40102 of Title 49) as those terms are used in Section 1110(a)(3)(A)(i)
of the Bankruptcy Code, (ii) all parts substitutions, renewals and replacements
of, improvements, accessions and accumulations incident to each such aircraft,
aircraft engine, appliance or spare part and all documents related to any of the
foregoing to the extent any such asset constitutes equipment within the scope of
section 1110(a) of the Bankruptcy Code; (iii) any other assets with respect to
which the granting of any such security interests would cause a default,
directly or indirectly, of any Section 1110 Agreement, other than a default
arising from a negative pledge or similar provision in any such Section 1110
Agreement with respect to otherwise unencumbered property, and (iv) any deposit
or reserve delivered by a Obligated Party to a Section 1110 Beneficiary (as
defined below) in connection with the purchase, financing or lease of a Section
1110 Asset; or reserve upon the satisfaction of the obligations secured thereby.
"Section 1110 Beneficiary" shall mean all counterparties with any of the
Obligated Parties to any such Section 1110 Agreements.
CARVE-OUT:
The superpriority claim status and liens granted under the DIP Facility
shall be subject only to a carve-out (the "Carve-out") which shall mean claims
of the following parties for payment of the following amounts arising in
connection with the Cases: (i) quarterly fees required to be paid to the United
States Trustee pursuant to 28 U.S.C. ss. 1930(a)(6) and any fees payable to the
Clerk of the Bankruptcy Court, (ii) prior to the occurrence of an Event of
Default (a) the reasonable expenses of any member of the creditors' committee
(the "Committee") which are allowed by the Bankruptcy Court and (b) unpaid
professional fees and disbursements incurred prior to the occurrence of an Event
of Default by the professionals retained, pursuant to Sections 327 or 1103(a) of
the Bankruptcy Code, by the Obligated Parties or the Committee which shall be
allowed by the Bankruptcy Court (before or after the Event of Default);
provided, that such fees and disbursements payable after an Event of Default do
not exceed the amounts included in the Borrower's Projections (as defined in
Exhibit A hereto) for the term of the DIP Facility, and (iii) following the
occurrence of an Event of Default, the reasonable expenses of any member of the
Committee and unpaid professional fees and disbursements by the professionals
retained pursuant to Sections 327 or 1103(a) of the Bankruptcy Code, by the
Obligated Parties and the Committee incurred after the occurrence of an Event of
Default which shall be allowed by the Bankruptcy Court not to exceed $500,000 in
the aggregate; provided, however, that the Carve-out shall not include any fees
or expenses incurred by any party in connection with the investigation
(including discovery proceedings), initiation or prosecution of any claims,
causes of action, adversary proceedings or other litigation against the Lender.
REPAYMENT:
All Obligations shall be payable upon the Maturity Date. Interest shall
be payable as specified under "Interest Rate" and "Default Rate" above. Fees
shall be payable as specified under "Fees" above.
OPTIONAL PREPAYMENT:
The DIP Facility may be repaid at any time in whole or in part without
premium or penalty.
CONDITIONS PRECEDENT TO CLOSING:
The closing of the DIP Facility and the issuance of the Chicago Guaranty
will be subject to satisfaction of the condition precedent customary for
financings of this type generally and appropriate for this transaction in
particular, including, but not limited to, the following:
(i) The Bid Proposal shall have been approved by the Bankruptcy
Court.
(ii) The Asset Acquisition Agreement shall have been executed by
all parties thereto.
(iii) The Lender shall have received satisfactory opinions of
counsel to the Obligated Parties (which shall cover, among other
things, authority, legality, validity, binding effect,
unenforceability of the loan documents and the granting of a security
interest and perfection of the Collateral).
(iv) No material adverse change in the business, condition
(financial or otherwise), operations, performance, properties or
prospects of the Borrower and its subsidiaries, taken as a whole,
since October 26, 2004 other than any change (x) of the type which
customarily occurs as a result of events leading up to and following
the commencement of a proceeding under chapter 11 of the Bankruptcy
Code and the commencement of the Cases or (y) disclosed in (A) the
annual report on Form 10-K for the year ended December 31, 2003 filed
by the Borrower; (B) in the quarterly report on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 2004, filed by the
Borrower or (C) in any report on Form 8-K filed by the Borrower after
December 31, 2003 and prior to the date hereof; provided that
deferrals of payments to aircraft lessors/lenders with respect to
grounded aircraft and other aircraft in the Obligated Parties' fleet
(and any associated ratings downgrade) shall not in and of themselves
constitute a material adverse change.
(v) The Lender shall have received satisfactory evidence that the
Obligated Parties shall have complied in full with the notice and
other requirements of the Bankruptcy Code in a manner acceptable to
the Lender and its counsel.
(vi) The entry of an enforceable order of the Court approving the
terms and conditions of the DIP Facility (including without
limitation, (a) the finding that the Lender is extending the credit
under the DIP Facility in "good faith" within the meaning of Section
364(e) of the Bankruptcy Code, (b) pursuant to Sections 364(c)(2) and
(c)(3) of the Bankruptcy Code, authorizing and granting the security
interests and liens upon all property of the Borrower's estate defined
under Section 541 of the Bankruptcy Code and otherwise described
above, (c) pursuant to Section 364(c)(1) of the Bankruptcy Code, the
granting of the superpriority status and liens referred to herein, and
(d) the automatic perfection of all liens referred to herein, the
payment of all fees referred to herein, the first priority lien
referred to herein and the approval of the Escrow Arrangement), such
order to be in the form and substance satisfactory to the Lender in
its sole discretion and which shall not have been reversed, modified,
amended or stayed without the prior written consent of the Lender (the
"Interim Order"). Such order shall also (a) approve the Obligated
Parties' waiver of any and all claims and causes of action against the
Lender (and its respective affiliates) directly related to the DIP
Facility or the negotiation of the terms thereof, and (b) prohibit
subsequent granting of liens or priority status superior to, or pari
passu with, those provided in connection with the DIP Facility.
(vii) The Lender's reasonable determination that all motions,
orders, and other pleadings or related documents to be filed or
submitted to the Bankruptcy Court in connection with the DIP Facility
shall be consistent with the terms of the proposed DIP Facility.
(viii) The Lender's reasonable determination that all other
related orders entered by the Bankruptcy Court in the Cases, including
without limitation any and all cash collateral orders and related
orders, are not inconsistent with the terms of the DIP Facility.
(ix) The Obligated Parties shall have paid to the Lender all fees
due and payable on the Closing Date.
(x) No material lien shall exist in connection with any ERISA
plan of the Obligated Parties.
(xi) The Obligated Parties shall have obtained all necessary
third party approvals (other than the approval of the City of Chicago
which shall be obtained by January 21, 2005 and which shall be a
condition precedent to the issuance of the Chicago Guaranty).
(xii) The completion of searches for existing liens on the
Obligated Parties' assets.
The DIP Facility and the Chicago Guaranty will be subject to satisfaction
of the following conditions precedent: (a) all of the representations and
warranties in the loan documentation shall be true and correct in all material
respects; (b) no material work disruptions or stoppages by employees of any of
the Obligated Parties shall have occurred and be continuing; and (c) the Interim
Order or the DIP Order, as applicable, shall be in full force and effect, and
shall not have been reversed, amended, supplemented, modified, stayed or
vacated.
There will be additional terms and conditions satisfactory to the Lender,
in its sole discretion, to any funding under the Exit Facility and the Equity
Investment.
REPRESENTATIONS AND WARRANTIES:
The DIP Facility shall contain representations and warranties customary for
a facility of this type, including but not limited to the following items:
(i) organization, qualification and due authorization of the
Obligated Parties; (ii) no breach of charter, by-laws, law,
regulation, judgments, or other post-petition agreements, as
applicable; (iii) no material adverse change in the business,
condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower and its subsidiaries, taken as
a whole, since the date of this Term Sheet (other than those which
customarily occur as a result of events following the commencement of
a proceeding under chapter 11 of the Bankruptcy Code); provided that
deferrals of payments to aircraft and engines lessors/lenders with
respect to grounded and other aircraft and engines in the Borrower's
fleet and other leased equipment (and any associated ratings
downgrade) shall not in and of themselves constitute a material
adverse change; (iv) enforceability of DIP Facility documentation; (v)
no material litigation or contingent obligations, except as disclosed;
(vi) compliance with laws, including air carrier status; (vii)
licenses, title to property, and related matters; (viii) outstanding
debt; (ix) filing and payments of all taxes, except where contested in
good faith by appropriate proceedings; (x) material compliance with
ERISA, environmental laws, and all other applicable laws; (xi)
utilization of slots in a manner consistent with applicable
regulations and contracts in order to preserve the collateral value of
the slots, taking into account any waivers or other relief granted to
the Borrower by the Federal Aviation Administration; (xii) receipt of
all necessary third party consents; and (xiii) status of bankruptcy
proceedings and perfection of the Lender's security interests in the
Collateral.
OPERATIONAL, COMPLIANCE AND REPORTING COVENANTS:
The DIP Facility shall contain covenants customary for a facility of this
type, including but not limited to the following items:
(i) preservation of existence and franchise; (ii) compliance with and
maintenance of all material licenses and material agreements; (iii)
compliance with laws; (iv) maintenance of insurance (including without
limitation casualty insurance on the aircraft as required by the DOT or as
customary for major U.S. carriers); (v) delivery of financial statements,
projections, and cash flow statements; (vi) payment of all taxes and other
post-petition obligations as and when due except where contested in good
faith and by appropriate proceedings if reserves maintained; (vii) at the
Borrower's expense, monitoring of collateral and, with respect to parts, in
the discretion of the Lender, and the quarterly field exams and appraisals;
(viii) access to and maintenance of records and books of account and
visitation rights; (ix) maintenance of properties expected to be material
to the reorganized business of the Obligated Parties; (x) conducting
transactions with affiliates on terms equivalent to those obtainable on an
arm's-length basis; (xi) further assurances as to perfection and priority
of security interests; (xii) maintenance of a cash management system
acceptable to the Lender; (xiii) financial and reporting requirements
including weekly 13-week cash flow forecast/reconciliation reports,
reporting against the business plan within 20 days against the business
plan and the development of flash reporting satisfactory to the Lender and
the Committee; (xiv) maintenance of perfected lien on all Collateral and
prohibition of any other liens on such Collateral; (xv) material compliance
with ERISA; (xvi) material compliance with environmental laws; (xvii)
capital expenditures in an amount to be agreed upon based on the business
plan; (xviii) the preservation of all Non-Air 21 slots at LaGuardia Airport
and Ronald Reagan Washington National Airport; (xix) compliance with
requests for additional information from ATSB in connection with ATSB's
commitment to guarantee the ATSB Loan; (xx) utilization of airport gates
sufficient to comply with applicable gate lease provisions; (xxiii) loading
of the Lender's code sharing schedule into the Obligated Parties'
reservation system; (xxiv) obtaining from the Bankruptcy Court entry of
enforceable order approving a disclosure statement and plan of
reorganization for the Cases, in each case on terms consistent with the
Plan Term Sheet enclosed with the Bid Proposal, no later than September 30,
2005; (xxv) compliance with leasehold terms; (xxvi) maintenance of air
carrier status and U.S. citizenship; (xxvii) upon an Event of Default (as
defined below), use best efforts to obtain, and to cooperate with the
Lender in obtaining, all authorizations, consents, orders and approvals of
any Governmental Authority in connection with the DIP Facility, including
the exercise of remedies upon an Event of Default; and (xxviii) limitations
on (A) debt, guaranties and other contingent liabilities; (B) liens; (C)
investments; provided that investments in the Trust Accounts will be
permitted to the extent consistent with the current practices; (D)
disposition of assets constituting Collateral for the DIP Facility,
preserving the Obligated Parties' ability to consummate one for one slot
trades, understanding that the slot received as a result of such trade is
subject in all respects to the loan documentation; (E) dividends,
distributions redemptions and repurchases; (F) mergers, consolidations and
acquisitions; (G) changes in fiscal year or accounting method; (H)
amendments of constituent documents or material agreements; and (I) changes
in conduct of business or capital structure.
The Obligated Parties also shall use their best efforts to obtain entry of
an enforceable order confirming the Plan for the Cases on or before June 30,
2005, but in no event later than September 30, 2005, in a form substantially
similar to the terms of the Plan Term Sheet.
MANAGEMENT COVENANTS:
The DIP Facility shall contain the following covenants relating to the
management of the Borrower:
(i) by no later than December 31, 2004, the Borrower shall retain a
Co-Chief Restructuring Officer whose retention shall be made in
consultation with the Lender; and
(ii) by no later than July 31, 2005, the Borrower shall retain a Chief
Executive Officer whose employment shall be subject to the approval of the
Committee and the ATSB.
FINANCIAL COVENANTS:
The DIP Facility shall contain financial covenants set forth in Exhibit A
to this Term Sheet.
DEFAULTS:
The DIP Facility shall contain defaults and events of default (the "Events
of Default") customary for a facility of this type, including but not limited to
the following items applicable to the Obligated Parties (subject to reasonable
grace periods and materiality qualifiers to be agreed upon):
(i) failure to pay principal, interest or fees when due; (ii) material
inaccuracy of representations or warranties; (iii) violation of covenants;
(iv) change of control (as defined in the Codeshare Agreement), including a
change in Board of Directors of Borrower; (v) customary ERISA defaults;
(vi) the Obligated Parties allegation in any pleading or other writing, or
the finding or conclusion by the Bankruptcy Court, that any loan or
security document pertaining to the DIP Facility is not valid, binding or
forceable, or any other event occurs or circumstance exists which cause
such loan or security document to be impaired or to not be valid, binding
and enforceable; (vii) dismissal of chapter 11 cases or conversion, to
chapter 7 cases; (viii) appointment of a chapter 11 trustee or any examiner
for the Obligated Parties; (ix) granting of relief from automatic stay to
permit foreclosure on any material assets of Obligated Parties (other than
Section 1110 Assets); (x) entry of any order, without the Lender's prior
consent, reversing, amending, supplementing, staying or vacating the
Interim Order or the DIP Order; (xi) unstayed monetary judgment defaults in
an amount to be agreed and material non-monetary judgment defaults; (xii)
payment of pre-petition debt (other than debt in respect of Section 1110
Assets), other than as approved by the Lender and the Bankruptcy Court;
(xiii) the existence of any material lien in connection with any ERISA plan
of the Obligated Parties, excluding any lien arising after the filing of
the Cases that is unperfected and wholly junior to the liens securing the
DIP Facility; (xiv) the occurrence of any event or circumstance that would
constitute a material adverse change in the business, condition (financial
or otherwise), operations, performance, properties or prospects of the
Borrower and its subsidiaries, taken as a whole (other than those which
customarily occur as a result of events following the commencement of a
proceeding under chapter 11 of the Bankruptcy Code); (xv) the submission by
the Obligated Parties of any motion or other pleading attacking the
validity or enforceability of any of the documents executed in connection
with the DIP Facility; (xvi) any default under any cash collateral order;
and (xvii) cross-defaults under material documents.
For the purposes hereof, the term "DIP Order" shall mean an
enforceable order of the Court approving the terms and conditions of the
DIP Facility substantially in the form of and containing, among other
things, the provisions present in the Interim Order (including, without
limitation, the granting of liens and the superiority status referred to
herein) and a prohibition of any claims against the Lender's collateral
pursuant to section 506(c) of the Bankruptcy Code. The DIP Order shall be
in form and substance satisfactory to the Lender in its sole discretion and
shall not have been reversed, modified, amended or stayed without the prior
written consent of the Lender.
Upon the occurrence of an Event of Default, the Lender may, at its
option, terminate the DIP Facility and declare all amounts outstanding
immediately due and payable, and upon giving of a notice required in the
Interim Order, to the Obligated Parties, the United States Trustee (the
"Trustee") and any Committee, shall be entitled to relief from stay to
exercise remedies against any collateral (including without limitation the
ability to set off amounts held in any deposit accounts with, or subject to
the control of, the Lender and apply against amounts outstanding under the
DIP Facility and then ability to require all collected funds to be tendered
to the Lender for application against such outstanding amounts).
The Obligated Parties shall waive any right to seek relief under the
Bankruptcy Code, including, without limitation, under section 105 of the
Bankruptcy Code, to the extent such relief would restrict or impair the rights
and remedies of the Lender set forth in the Interim Order, the DIP Order and in
the definitive DIP Facility documentation. In the event that any party requests
a hearing seeking to prevent the Lender form exercising any of its rights and
remedies that arise after an Event of Default, the sole issue before the Court
at such hearing shall be whether an Event of Default has occurred and has not
been cured. No other issue or argument shall be relevant to any opposition to
enforcement of the Lender's rights.
The Obligated Parties further shall waive any and all defenses in the event
the Lender seeks relief under the Bankruptcy Code, including but not limited to,
relief under sections 362, 1112, 1104, and 1121, to (i) lift the automatic stay;
(ii) convert the Cases to a case under chapter 7 of the Bankruptcy Code; (iii)
seek the appointment of a trustee or examiner; and/or (iv) terminate the
exclusive period for the Obligated Parties to file the Plan.
INDEMNITY:
The DIP Facility shall contain appropriate indemnification provisions, in
form and substance similar to the following:
Each Obligated Party shall defend (with counsel satisfactory to Lender),
protect, indemnify and hold harmless Lender, each affiliate or subsidiary of
Lender, and each of their respective shareholders, members, officers, directors,
managers, employees, attorneys, advisors and agents (each an "Indemnified
Party") from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature (including, without limitation, the disbursements and the
reasonable fees of counsel for each Indemnified Party in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnified Party shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against, any Indemnified Party (whether direct,
indirect or consequential and whether based on any federal, state or local laws
or regulations, including, without limitation, securities laws and regulations,
environmental laws and commercial laws and regulations, under common law or in
equity, or based on contract or otherwise) in any manner relating to or arising
out of the DIP Facility, or any act, event or transaction related or attendant
thereto, the making or issuance and the management of the DIP Facility or the
use or intended use of the proceeds of the DIP Facility; except to the extent
that direct damages (as opposed to special) indirect, consequential or punitive
damages (including, without limitation, any loss of products, business or
anticipated savings) are determined in a final non-appealable judgment by a
court of competent jurisdiction to have result from the willful misconduct or
gross negligence of such Indemnified Party. To the extent that the undertaking
to indemnify set forth in the preceding sentence may be unenforceable because it
is violative of any law or public policy, Borrower shall satisfy such
undertaking to the maximum extent permitted by applicable law. Any liability,
obligation, loss, damage, penalty, cost or expense covered by this indemnity
shall be paid to each Indemnified Party on demand, and, failing prompt payment,
shall, together with interest thereon at the highest rate then applicable to
Loans hereunder from the date incurred by each Indemnified Party until paid by
Borrower, be added to the Liabilities of Borrower and be secured by the
Collateral. The indemnification provisions shall survive the satisfaction and
payment of the other obligations under the DIP Facility and the termination of
this the DIP Facility conclusive agreements.
EXPENSES:
The Obligated Parties shall jointly and severally pay upon the funding of
the Equity Investment all (i) reasonable costs and expenses of the Lender
(including all reasonable fees, expenses and disbursements of outside counsel
and any appraiser retained by the Lender; provided that the Obligated Parties
shall not pay or be responsible for more than one primary counsel for the Lender
and one specialty and local counsel retained by the Lender in connection with
the preparation, execution and delivery of the loan documentation and the
funding of all loans under the DIP Facility, including, but not limited to, all
due diligence fees and reasonable expenses incurred or sustained by the Lender
in connection with this transaction or the administration, amendment or waiver
of the loan documentation, (ii) costs and expenses of the Lenders (including all
reasonable fees, expenses and disbursements of outside counsel, appraisers,
field auditors and any financial consultant retained by the Lender) in
connection with the administration of the DIP Facility after the Closing Date up
to $1,000,000 in the aggregate for all costs and expenses in connections with
all transactions contemplated by the Bid Proposal in accordance with paragraph 3
of the Bid Proposal and in clause (i) and (ii) hereof, and (iii) costs and
expenses incurred by the Lender in connection with the enforcement of any of
their rights and remedies under any of the loan documentation.
MISCELLANEOUS:
This Indicative Summary of Terms and Conditions is intended as an outline
only and does not purport to summarize all the conditions, covenants,
representations, warranties and other provisions which would be contained in
loan documentation for the DIP Financing and for the Exit Facility. The
definitive DIP Facility documentation will be governed by New York Law, subject
to applicable bankruptcy law and each of the parties thereto shall waive its
right to a trial by jury.
EXHIBIT A
TO SOUTHWEST / ATA DIP-FINANCING TERM SHEET
DIP Facility Financial Covenants
MINIMUM EBITDARR
For the period from January 1, 2005 though and including September 30, 2005, the
Borrower shall maintain a minimum monthly EBITDARR (as defined below),
calculated in the same manner as in the business plan provided to and approved
by the Lender (the "Business Plan"), at 75% of the EBITDARR stated in the
Borrowers' projections dated December 22, 2004 (the "Borrower's Projections").
In addition, for the period from January 1, 2005 though and including September
30, 2005, the Borrower shall maintain EBITDARR, calculated in the same manner as
reflected in its Business Plan, at 80% of the cumulative EBITDARR stated in the
Borrowers' Projections. (The first such test shall be for the period from
January 1, 2005 through March 31, 2005)
Min. EBITDARR Test Min. Cumulative
EBITDARR Test
Period
January 2005 75% Not tested
February 2005 75% Not tested
March 2005 75% 80%
April 2005 75% 80%
May 2005 75% 80%
June 2005 75% 80%
July 2005 75% 80%
August 2005 75% 80%
September 2005 75% 80%
EBITDARR LESS CAPITAL EXPENDITURES TEST
For the period from January 1, 2005 though and including September 30, 2005, the
Borrower shall maintain a minimum monthly EBITDARR less Capital Expenditures (as
defined below), calculated in the same manner as in the Business Plan, at 75% of
the EBITDARR less Capital Expenditures stated in the Borrower's Projections.
In addition, for the period from January 1, 2005 though and including September
30, 2005, the Borrower shall maintain a EBITDARR less Capital Expenditures,
calculated in the same manner as reflected in the Business Plan, at 80% of the
cumulative EBITDARR less Capital Expenditures stated in the Borrowers'
Projections. (The first such test shall be for the period from January 1, 2005
through March 31, 2005)
Min. EBITDARR Test Min. Cumulative
EBITDARR Test
Period
January 2005 75% Not tested
February 2005 75% Not tested
March 2005 75% 80%
April 2005 75% 80%
May 2005 75% 80%
June 2005 75% 80%
July 2005 75% 80%
August 2005 75% 80%
September 2005 75% 80%
"Capital Expenditures" means for any period, any expenditure in respect of the
purchase or other acquisition of any fixed or capital asset (excluding normal
replacements and maintenance which are properly charged to current operations).
For purposes of this definition, the purchase price of equipment that is
purchased simultaneously with, or within three months after, the trade-in of
existing equipment or with insurance proceeds shall be included in Capital
Expenditures only to the extent of the gross amount by which such purchase price
exceeds the credit granted by the seller of such equipment for the equipment
being traded in at such time or the amount of such insurance proceeds, as the
case may be.
"EBITDARR" means, for any period, for the Borrower and its Subsidiaries on a
consolidated basis, an amount equal to (i) Consolidated Net Income for such
period plus, (ii) without duplication, the following to the extent deducted in
calculating such Consolidated Net Income: (a) Consolidated Interest Charges for
such period, (b) the provision for federal, state, local and foreign income
taxes payable by the Borrower and its Subsidiaries for such period, (c) the
amount of depreciation and amortization expense, (d) administrative expenses
(including restructuring charges) incurred in connection with the Cases in the
amount provided for in the Business Plan, and (e) rents associated with aircraft
leases.
"Consolidated Interest Charges" means, for any period, for the Borrower and its
Subsidiaries on a consolidated basis, the sum of (a) all interest expense (net
of interest income), premium payments, debt discount, fees (including, without
limitation, amortization of deferred financing costs related to the Cases),
charges and related expenses of the Borrower and its Subsidiaries in connection
with borrowed money (including capitalized interest) or in connection with the
deferred purchase price of assets, in each case to the extent treated as
interest in accordance with GAAP, and (b) the portion of rent expense of the
Borrower and its Subsidiaries with respect to such period under capital leases
that is treated as interest in accordance with GAAP, it being understood that
rent expense that is treated as an operating expense in accordance with GAAP is
not included this calculation.
"Consolidated Net Income" means, for any period, for the Borrower and its
Subsidiaries on a consolidated basis, the net income of the Borrower and its
Subsidiaries (excluding extraordinary gains and extraordinary losses, in each
case, incurred in connection with the Cases) for that period.
MINIMUM CASH TEST
For the period from January 1, 2005 though and including September 30, 2005, the
Borrower shall maintain a minimum monthly cash, calculated in the same manner as
reflected in the Business Plan, at the following percentages of the level of the
amounts stated in the Borrower's Projections.
Period Min. Cash Test
January 2005 75%
February 2005 75%
March 2005 75%
April 2005 75%
May 2005 75%
June 2005 75%
July 2005 $100,000,000
August 2005 $100,000,000
September 2005 $100,000,000
Annex C - Exit Facility Term Sheet
ANNEX C
SOUTHWEST AIRLINES CO.
Exit Facility Term Sheet
December 15, 2004
Description of Notes to be Issued by New ATA
(Capitalized terms not defined herein have the meanings assigned to such terms
in the Bid Proposal)
Issuer: ATA Holdings Corp., as reorganized pursuant to the
Cases ("New ATA").
Guarantors All of the debtor affiliates and subsidiaries
of New ATA (collectively,"Debtors").
Securities Offered: 9.5% Senior Secured Notes in an aggregate principal
amount of $40,000,000 (the "Notes").
Maturity: Payable in full 5 years from the issuance date of
the Notes (the "Maturity Date").
Interest Payment Dates: Interest on the Notes shall accrue at the rate of
9.5% per annum and shall be payable in cash
semiannually starting on the first six month
anniversary of the issuance of the note.
Use of Proceeds: Proceeds from the issuance of the Notes will be
used to repay any amounts outstanding under the
DIP Facility of ATA Airlines, Inc. ("ATA") and for
working capital purposes of New ATA and its
subsidiaries. The Notes shall be issued on the
Effective Date pursuant to the terms of the
Bid Proposal.
Ranking: The Notes shall rank senior to all other
indebtedness of New ATA, other than the New
ATSB Loan, the Indiana debtor-in-possession
financing (the "Indiana DIP"), up to
$30,000,000 of pro forma secured debt of
New ATA and its subsidiaries and cash
secured letter of credit facilities not in
excess of $40,000,000 in the aggregate with
respect to which the Notes will be pari passu.
Security: Upon issuance and use of the proceeds to
repay in full the DIP Facility, the Notes
shall be secured by all Collateral (as
defined in the DIP Facility Term Sheet)
securing the DIP Facility. In the event any
of collateral securing the ATSB Loan or the
Indiana DIP has been released, the Notes
shall be secured by a first lien in such
respective collateral (collectively, the
"Exit Facility Collateral").
Chicago Guaranty: The Exit Facility shall include a guaranty of the
Chicago Construction Loan of up to $7,000,000 to
be provided by Southwest (the "New Chicago
Guaranty") which shall replace any existing
guaranty provided by Southwest to the City of
Chicago. The obligations of New ATA and ATA
arising under the New Chicago Guaranty shall be
secured by the Exit Facility Collateral, pari
passu with the Notes. New ATA shall pay to
Southwest a guaranty fee in an amount equal to
3.0% per annum, paid monthly, of the guaranteed
but not drawn obligations under the New Chicago
Guaranty. The New Chicago Guaranty shall expire
on the Maturity Date, at which time New ATA or
ATA shall repay the Chicago Construction Loan or
provide a letter of credit or other form of
assurance acceptable to the City of Chicago. The
New Chicago Guaranty may be in the form of a
separate agreement from the Notes but shall
remain pari passu with respect to the Exit
Facility Collateral.
Sinking Fund: None.
Optional Redemption by The Notes shall be redeemable in whole or in part,
Issuer : at any time, at a price equal to (i) par plus
coupon of 9.5%, such coupon reduced ratablyover
the term of the Notes, plus (ii) all accrued and
unpaid interest on the Notes up to the redemption
date (the "Optional Redemption Price").
Change of Control: Upon a Change of Control(as such term is defined
in the Codeshare Agreement), Southwest will have
the option to require New ATA to purchase all or a
portion of the Notes at the greater of (i)the
Optional Redemption Price and (ii) 101% of the
principal amount thereof plus accrued and unpaid
interest up to the purchase date.
Conditions to Closing: Southwest's commitment to make the advance under
the Note Documents shall be subject to New ATA
meeting the conditions to closing in the
Investment Agreement.
Events of Default: The following events, among others, shall
constitute events of default under the documents
governing the terms of the Notes (the
"Note Documents"):
failure to pay interest when due and payable for
over 30 days; o failure to pay principal when due
for over 5 business days;o failure to comply with
or observe any other covenant or warranty in the
Note Documents for over 30 days following the
receipt of notice of any default; and o certain
events of bankruptcy,insolvency or reorganization.
In addition, the Note Documents shall contain
other events of default normal and customary for
facilities of this type (including, but not
limited to, the relevant events of default set
forth in the DIP Facility documentation).
Affirmative Covenants: Customary and usual for facilities of this type
(including, but not limited to, the relevant
covenants set forth in the DIP Facility
documentation).
Negative (Restrictive) The Note Documents shall contain covenants that,
Covenants: among other things, shall limit New ATA's ability
to:
o incur (i) additional indebtedness,
(ii) purchase money obligations
and (iii) ordinary course
obligations, which shall be based
on minimum pro forma fixed charge
coverage ratios (and a basket to
provide general operating
flexibility) established to
correspond with the financial
projections for New ATA which are
set forth in the court-approved
disclosure statement;
o during the first three years, pay
dividends on, redeem or repurchase
capital stock, subject to an
initial basket that increases over
time based on net income and
proceeds of equity issuances;
o make restricted investments;
o create or allow certain liens;
o sell assets other than in the ordinary
course without reinvesting the proceeds
in the business or offering to retire
debt at par;
o engage in extraordinary
transactions with affiliates and
consolidate, merge or transfer all
or substantially all of New ATA's
assets without meeting certain
specific obligations; and
o utilize free cash flow other than
in accordance with the Business
Plan (as defined in the DIP
Facility Term Sheet), unless
certain unrestricted cash
parameters and Notes prepayment
obligations are met.
Governing Law: The Note Documents shall be governed by New York
law.
Trustee, Transfer Agent To be decided, if required.
and Paying Agent:
Registration Rights: The Notes shall befreely transferable by Southwest
subject to applicable securities laws.In addition,
Southwest shall be entitled to registration
rights with normal and customary terms.
Alternate Provider: The Issuer shall have the right to obtain
alternate financing on the same or better terms
in place of the Exit Facility at its option.
Annex D - Investment Term Sheet
ANNEX D
SOUTHWEST AIRLINES CO.
Investment Agreement Term Sheet
December 15, 2004
Company: ATA Holdings Corp. ("Holdings")
Investor: Southwest Airlines Co. ("Southwest")
Overview: Southwest will provide ATA Airlines, Inc. with a
debtor-in-possession loan facility of up to $47,000,000
(the "DIP Facility") for general working capital
purposes and provide Holdings with permanent financing
(through long-term debt) of up to $47,000,000 (the "Exit
Facility" and, together with the DIP Facility,
the "Facilities") as outlined in Southwest's Bid
Proposal. In connection with such Facilities, Southwest
and Holdings will also enter into an investment
agreement (the "Investment Agreement") containing the
following and other usual and customary terms and
conditions. Pursuant to the Investment Agreement, and
immediately following the effective date
(the "Effective Date") of the Plan of
Reorganization (the "Plan") of Holdings and its debtor
subsidiaries(collectively, the "Debtors")under chapter
11 of title 11 of the United State Code
(the "Bankruptcy Code"),Southwest will purchase
through an additional cash investment of $30,000,000
(the "Equity Investment") shares of non-voting senior
convertible preferred equity (the "Preferred Equity")
of reorganized Holdings ("New ATA"). The Preferred
Equity will be convertible into 27.5% of
the fully diluted economic ownership of New ATA.
Equity Investment Pursuant to the Plan, New ATA will issue a total of
Structure: [?] million shares1 of common equity (the "Common
Equity") consisting of: (i) a total of [ ] million
shares* of Common Equity (not including the Common
Equity issuable upon the conversion of
the Preferred Equity) (the "Constituent Common Equity")
and (ii) a total of [ ] million shares* of Common
Equity upon conversion of the Preferred Equity. The
Preferred Equity will convert into Common Equity, at
Southwest's option, upon Southwest's sale or transfer
of the Preferred Equity, in whole or in part, to any
party other than Southwest and certain other specified
major liquidity events.
New ATA's issuance to Southwest of the
Preferred Equity shall equal, upon conversion
of such Preferred Equity, 27.5% of the Common
Equity of New ATA on a fully diluted basis.
New ATA will reserve [ ] million shares* of
Common Equity for members of senior
management ("Management") of New ATA and will
adopt a customary incentive program for
Management, which will authorize the issuance
of options or warrants at the discretion of
the compensation committee of the Board of
Directors of New ATA, exercisable for such
Common Equity at an exercise price of not
less than 125.0% of the effective purchase
price of the Southwest Preferred Equity. The
Management Common Equity will be dilutive to
all other Common Equity on a pro rata basis,
including that to be issued upon conversion
of the Preferred Equity.
Terms of the The Preferred Equity will: be senior to the Common
Preferred Equity: Equity and junior to existing and future secured
indebtedness; contain customary anti-dilution
protection; contain subscription rights to purchase
additional equity securities in order to maintain
Southwest's ownership percentage; have a liquidation
preference equal to its face value plus accrued
dividends; and be entitled to vote only upon the
occurrence of certain events of default; provided,
however, New ATA will need to obtain the consent of
Southwest prior to issuing any additional preferred
securities while such Preferred Equity is outstanding.
The Preferred Equity will earn dividends, payable in
kind, in cash or, during the first five years, through
the issuance of additional notes under the Exit
Facility,at the option of New ATA, at the rate of 4.0%
per annum. The Preferred Equity will be entitled to
receive dividends and distributions by New ATA on its
Common Equity as if such Preferred Equity had been
converted to Common Equity.
The Preferred Equity will be convertible into Common
Equity, at Southwest's option, upon Southwest's sale or
transfer of such Preferred Equity to a third party and
certain other specified major liquidity events. If not
converted prior thereto, the Preferred Equity shall, at
the option of Southwest, either convert into Common
Equity or be redeemed at the accrued liquidation
value (including accrued dividends) on the tenth (10th)
anniversary of the Effective Date. Except as set forth
in this paragraph and the preceding paragraph, the
Preferred Equity and the Common Equity shall be
identical in all other respects.
*Amount to be determined in consultation with the Creditors Committee.
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Registration Rights: The Preferred Equity, including the Common Equity
issuable upon conversion thereof, will be freely
transferable by Southwest, subject to applicable
securities laws. In addition, promptly after the
Effective Date, New ATA will file and use its
commercially reasonable efforts to cause to be declared
effective and maintain the effectiveness of an evergreen
resale registration statement permitting free resale of
the Preferred Equity and all Common Equity to be issued
under the Plan, subject to the conditions and
limitations to be mutually agreed and set forth in the
Investment Agreement.
Representations Bring down of representationsand warranties from the
and Warranties: DIP Facility and other customary representations and
warranties, including without limitation, compliance in
all material respects with all orders of the Bankruptcy
Court and compliance with the applicable statutory,
regulatory and interpretive restrictions regarding
foreign ownership or control of U.S. air carriers.
The representations and warranties shall not survive the
Closing Date.
Conditions to Closing: Southwest's commitment to make the Equity Investment
shall be subject to, among other things:
o preparaton, negotiation and execution of
definitive legal documents necessary to consummate
the transactions contemplated herein (and
approval by the Bankruptcy Court of such documents
as necessary);
o the concurrent funding of the Exit Facility;
o entry of necessary enforceable orders
from the Bankruptcy Court to confirm
the Plan containing terms and
conditions as set forth in the Plan
Term Sheet, attached as Annex F to the
Bid Proposal;
o receipt of all necessary material governmental,
regulatory and third-party approvals;
o compliance with the applicable statutory,
regulatory and interpretive restrictions
regarding foreign ownership or control of U.S.
air carriers;
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o approval of amendments to New ATA's charter and
by-laws as necessary to effectuate the governance
and other provisions contemplated hereby;
o execution of a registration rights agreement
providing for the filing of an evergreen resale
registration statement after the Effective Date
permitting free resale of the Preferred
Equity and Common Equity to be issued under the
Plan in accordance with the conditions and
limitations set forth in the Investment Agreement;
o absence of any injunction, stay, restraining order
or decree by any court of competent jurisdiction
staying the effectiveness of any approvals or
the orders confirming the Plan in effect or
pending;
o absence of any threatened or pending suit,
action, investigation, inquiry or other
proceeding by or before any court of competent
jurisdiction (excluding the chapter 11 proceeding
or any other proceeding disclosed to Southwest
prior to the execution of the Investment Agreement
and any threatened or pending anti-trust suit,
action, investigation or inquiry) which is likely
to have a materially adverse effect on Holdings's
(or any of its subsidiaries') ability to carry on
its business as New ATA or to materially impair
Southwest's ability to realize the benefits and
value of the Equity Investment; and
o a bring-down of the representations and warranties
contained in the Facilities to the Closing Date.
Indemnification: Southwest (and its affiliates, partners, agents,
advisors and representatives) to be indemnified by New
ATA for breach of representations, warranties and
covenants set forth in the Investment Agreement.
Southwest (and its affiliates, partners, agents,
advisors and representatives) to be indemnified in
connection with the transactions contemplated hereby;
provided that New ATA shall not be required to
indemnify Southwest for losses arising solely
from a decline in the market value of the Preferred
Equity or the Common Equity.
Public Southwest's consent (as to both form and content) will
Announcements: be required prior to any public announcement concerning
the Investment Agreement or the transactions
contemplated herein, except to the extent that such
public announcement or other disclosure is
required by law.
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Fees and Expenses: New ATA will pay Southwest a closing fee equal to 2.5%
of the Equity Investment at closing.
Termination: Southwest's commitment to make the Equity Investment
shall terminate if the transactions contemplated hereby
have not been consummated within a time frame to be
specified in the definitive documents which
shall not be earlier than September 30, 2005.
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Miscellaneous: This summary of terms is intended as an outline only
and does not purport to summarize all the conditions,
covenants, representations, warranties or other
provisions which would be contained in a definitive
Investment Agreement. This document does not constitute
a definitive Investment Agreement or a commitment to
enter into a definitive Investment Agreement, except as
set forth in Southwest's Bid Proposal, and is subject in
all respects to the provisions of the definitive
Investment Agreement, if any, that may be executed.
Governing Law: New York
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Annex E - Codeshare Term Sheet
ANNEX E
SOUTHWEST AIRLINES CO.
Codeshare Term Sheet
December 15, 2004
1. Introduction
Southwest Airlines Co. ("Southwest") and ATA Holdings Corp. (though its
subsidiary ATA Airlines, Inc. ("ATA")) (each hereinafter singularly referred to
as a "Carrier" or collectively as the "Carriers") seek to enter into an
agreement ("Codeshare Agreement") to enhance each Carrier's ability to provide
competitive and cost effective air transportation services to and from Midway
International Airport in Chicago, Illinois (the "Initial Codeshare City"). This
enhancement would occur by allowing the Carrier marketing and selling the seats
(the "Marketing Carrier") to place its code on the services of the Carrier
operating the flight (the "Operating Carrier") ("Codeshare" or "Codesharing").
2. Codesharing Initiatives
Base Codeshare. Subject to any regulatory approval which may be required (as
discussed in Part III of this Term Sheet), the Carriers will Codeshare on
specific routes into and out of the Initial Codeshare City beginning on or about
February 1, 2005 as provided in the Codeshare Agreement and such other cities
specified in the Codeshare Agreement (each, including the Initial Codeshare
City, a "Codeshare City") will be added no later than thirty (30) days after
ATA's gates have been relocated to facilities which will reasonably accommodate
passenger connections and baggage handling between the two Carriers; provided,
that such additional cities shall not be added until at least thirty (30) days
after the implementation of the Codeshare in the Initial Codeshare City. The
Codeshare Agreement will outline procedures the Carriers must follow to add or
delete Codesharing routes, including specified operational issues. Initially,
ATA's international service and regional service (offered by Chicago Express
Airlines, Inc., dba ATA Connection) will not be included.
Frequent Flyer Program Participation. Each Carrier has a frequent flyer program
rewarding its customers for their loyalty ("Frequent Flyer Program(s)").
Southwest's Frequent Flyer Program is "Rapid Rewards" and ATA's Frequent Flyer
Program is "ATA Travel Awards." The Programs are not dissimilar in that they
award credits/points based on trips, not miles. The Carriers will use best
efforts to find a mutually agreeable relationship between their respective
Frequent Flyer Programs by February 2006, which will be the subject to a
separate agreement subject to the terms of the Codeshare Agreement.
8
Inventory Management, Reservations and Distribution. The Operating Carrier will
determine independently, and at its sole discretion, the number of seats in a
particular fare class on its flights that will be made available for sale by the
Marketing Carrier and will communicate the number and fare class available on
each Codeshare flight daily to the Marketing Carrier. The Carriers will agree to
use commercially reasonable efforts to pursue the best solution to sell seat
inventory to maximize revenue, maintain the integrity of the Operating Carrier's
inventory system and not compromise the Marketing Carrier's ability to sell its
product.
Marketing. Each Carrier will make its own independent decision on the level of
marketing support to be provided to the Codeshare Agreement, and there will be
no contractual minimums for marketing support. Neither Carrier will market or
sell non-stop itineraries on the other Carrier, which are not part of a
Codeshare itinerary.
Codeshare Revenue and Settlement. The Carriers will negotiate terms and
establish settlement procedures. Those terms will be contained in the Codeshare
Agreement or a separate agreement subject to the terms of the Codeshare
Agreement.
Air Cargo Service. Through the Codeshare Agreement or supplement thereto, the
Carriers will explore the possibility of an air cargo program for each of the
Codeshare Cities, addressing pro-ration of revenue, inventory management, and
other Codesharing issues applicable to air cargo service.
Quality of Customer Service. Each Carrier provides its passengers and shippers
with a pledge to provide the highest level of customer service. For Southwest,
this pledge takes the form of the Carrier's "Customer Service Commitment." For
ATA, this pledge takes the form of the Carrier's "Customer Service Plan." The
Codeshare Agreement will address the integration of these documents in an effort
to provide outstanding customer service on all Codesharing flights. In addition,
the Carriers will develop a system for resolving customer complaints regarding
Codeshare flights in an expeditious and fair manner.
Consistency of the Onboard Experience. The Carriers agree to use commercially
reasonable efforts to identify and resolve material differences between their
respective Contracts of Carriage with respect to Codeshare passengers onboard
experience. In addition, the Carriers' onboard experiences differ in four
significant ways: (a) class of service; (b) seat assignments; (c) in-flight
entertainment; and (d) meal service. To effectively implement Codesharing
between the Carriers, the Carriers will negotiate a solution to these four
differences which will be memorialized in the Codeshare Agreement.
Consistency of the Airport Experience. The Codeshare Agreement will outline
initiatives to provide seamless processing of passengers and baggage in the
Codeshare City. The Carriers will discuss several issues for possible placement
in the Codeshare Agreement, which could include: (a) co-location in a Codeshare
City with cross-utilization of each Carriers' proprietary check-in equipment
(including e-ticketing kiosks) and other airport assets; (b) mutual support for
the Carriers' passengers, baggage, and cargo customers; and (c) coordination of
government-mandated security requirements.
9
Emergency Procedures Involving Codesharing Flights. The Codeshare Agreement will
outline procedures each Carrier must follow in the event of an accident or
incident involving a Codeshare flight, including the generation of a complete
manifest on Codeshare flights.
3. Codesharing Ancillary Issues
Term and Termination. The initial term of the Codeshare Agreement will be one
(1) year. Such initial term will be automatically converted into an eight (8)
year term (seven (7) additional years) upon confirmation of an acceptable plan
of reorganization, such plan to include the terms set forth in the Plan Term
Sheet. The Codeshare Agreement will contain provisions customary to Airline
Codeshare Agreements regarding events of default including but not limited to
nonpayment, filing for bankruptcy protection, or the default of the purchase or
financing agreements. Each Carrier shall have the sole discretion to terminate
the Codeshare Agreement upon a change of control of the other Carrier (including
a change in the Board of Directors), ATA's entry into a codeshare agreement with
another party which is not permitted under the Codeshare Agreement or ATA
customer service issues.
Regulatory Requirements. The Codeshare Agreement will state that the Carriers
must identify and comply with all relevant regulatory requirements and work
together to obtain any applicable governmental approvals. Those regulatory
requirements or approvals could include, but may not be limited to, rules
promulgated by the U.S. Department of Homeland Security, the U.S. Department of
Justice and the U.S. Department of Transportation ("DOT"), including rules
governing the Carriers' advertising.
Safety Requirements. The Codeshare Agreement will provide for a safety audit
process whereby the Carriers will have mutual rights to determine whether the
other Carrier is meeting or exceeding the minimum safety requirements mandated
by any applicable regulatory authority.
Operational Control of Aircraft and Crews. The Codeshare Agreement will
expressly prohibit any subcontracting of a Codeshare flight. The Codeshare
Agreement will state that only Southwest's or ATA's aircraft and crews may be
used for a Codeshare flight.
Liability, Indemnification & Insurance Issues. The Codeshare Agreement will hold
the Operating Carrier liable for matters occurring on or arising out of a
Codeshare flight. The Operating Carrier will indemnify the Marketing Carrier for
claims or losses occurring on a Codeshare flight. The Marketing Carrier will
indemnify the Operating Carrier for claims or losses arising from the Marketing
Carrier's obligations under the Codeshare Agreement. The Codeshare Agreement
will detail the types and limits of insurance each Carrier must maintain and
will require full compliance with all legal and regulatory requirements.
10
Exclusivity. ATA will agree in the Codeshare Agreement to obtain the prior
written consent of Southwest which will not be unreasonably withheld before
entering into a Codesharing relationship or a Frequent Flyer Program which
pertains to the offering of air transportation services of another U.S.
certificated or foreign carrier.
Trademark Issues. The Codeshare Agreement will limit each Carrier's ability to
use the trademark, logo, copyright, etc., of the other Carrier without that
other Carrier's express written consent.
Relationship of Parties. Each Carrier will continue to operate as an independent
company regarding all business and competitive decisions, and the Codeshare
Agreement: (a) will not grant either Carrier the authority to approve or
disapprove any decisions of the other Carrier relating to advertising, pricing,
aircraft acquisition, new market entry and/or capacity decisions, except as may
be necessary to comply with relevant regulatory requirements; (b) will not make
either Carrier a guarantor of the other Carrier regarding outstanding financial
obligations, governmental penalties, legal obligations or customer service
disputes; and (c) will not contain any requirement for either Carrier to promote
the other Carrier's service over its own.
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Annex F - Plan Term Sheet
12
ANNEX F
SOUTHWEST AIRLINES CO.
ATA Holdings, Inc. Proposed (Joint) Plan of Reorganization
December 15, 2004
The following material terms and conditions shall be contained in the Plan of
Reorganization (the "Plan") of ATA Holdings Corp. ("Holdings") and its debtor
affiliates (collectively, "Debtors") confirmed by the Bankruptcy Court:
1. Treatment of Claims Other than Unsecured Claims
Administrative expenses (including administrative priority tax claims) and all
other allowed priority claims, excluding Section 507(a)(8) priority taxes shall
be paid in full in cash on the effective date of the Plan (the "Effective
Date").
Section 507(a)(8) priority tax claims shall be paid in full in cash on the
Effective Date or over 6 years from the date of assessment at the option of
reorganized Holdings ("New ATA").
Except with respect to de minimis secured claims, secured claims shall be
unimpaired and shall be reinstated or paid in full, together with interest, over
a period of not less than 2 years, with the retention of liens, except as set
for below relating to the Loan granted pursuant to that certain Loan Agreement
entered into on November 20, 2002 among American Trans Air, Inc., Holdings, the
Air Transportation Stabilization Board ("ATSB") and lenders party thereto (the
"ATSB Loan").
The ATSB Loan shall receive a new secured note (the "New ATSB Loan") on the
terms and subject to the conditions to be determined by the Bankruptcy Court or
as reasonably agreed pursuant to a settlement between the Creditors' Committee
and Debtors, on the one hand, and the ATSB, on the other hand.
2. General Unsecured Claims
All General Unsecured Claims shall be treated as follows:
o 100% of the Allowed Unsecured Claims shall be converted into
common equity (the "Common Equity") of New ATA; and
o a convenience class shall be created to handle claims less
than $1,000.Convenience class claims shall be payable in cash
at such discount as shall be determined in consultation with
the Creditors Committee. Creditors may elect to reduce the
entirety of their claims to $1,000 in order to qualify for
convenience class treatment.
3. Existing Equity Securities
As of the Effective Date, all previously issued and outstanding equity
securities of Holdings will be deemed void, cancelled and of no further force
and effect.
4. Means for Implementation
Southwest shall purchase (or obtain a commitment of one or more financial
institutions or accredited investors to purchase) new long-term debt of New ATA
for up to $47,000,000 on terms and subject to the conditions contained in the
Exit Facility Term Sheet, as set forth in Annex C to the Bid Proposal (the "Exit
Facility"). The proceeds from such Exit Facility will be used to repay the DIP
Facility (including a replacement of the guaranty of the Chicago Construction
Loan) and to provide additional working capital.
Southwest will also purchase non-voting senior convertible preferred equity (the
"Preferred Equity") of New ATA for $30,000,000. The Preferred Equity will be
convertible into 27.5% of the fully diluted Common Equity of New ATA, on terms
and subject to conditions contained in the Investment Term Sheet, as set forth
in Annex F to the Bid Proposal. The Preferred Equity shall convert to Common
Equity, at Southwest's option, upon Southwest's sale or transfer of such
Preferred Equity to a third party and certain other specified major liquidity
events. Pursuant to such investment, Southwest will own 27.5% of the fully
diluted economic ownership of New ATA on a converted basis.
5. Other Conditions of the Plan
The following balance sheet characteristics shall also be features of the Plan:
o other than the Exit Facility, the New ATSB Loan, the Indiana
Facility and cash secured letter of credit facilities not in
excess of $40,000,000 in the aggregate, the pro forma secured
debt of New ATA outstanding as of the Effective Date shall be
limited to $30,000,000;
o other than normal payables (including outstanding
reorganization professional fees to the extent approved by the
Bankruptcy Court) and the Chicago Construction Loan, the
unsecured debt of New ATA outstanding as of the Effective Date
shall be limited to $1,000,000;
o unrestricted cash of New ATA shall be an amount determined in
consultation with the Creditors Committee;
o aircraft lease/ rentals shall be modified pursuant to
negotiations with the lessors of such aircraft;
o the 2005 operating budget and capital expenditure plan of New
ATA shall be approved by the Board of Directors of New ATA
(the "Board") in consultation with Southwest; and
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o New ATA shall be prohibited for a period of three years from
the Effective Date from paying any dividends, other than
payment-in-kind or cash dividends on the Preferred Equity, or
making any equity redemptions.
6. Governance
The Board shall include 7 members to be appointed by the Creditors Committee in
consultation with Southwest. The Board shall be responsible for appointing the
senior management of New ATA.
7. Management Incentive Plan
Options or warrants exercisable into common equity equal to 10.0% of the Common
Equity of New ATA, excluding the Common Equity issuable upon conversion of the
Preferred Equity, shall be set aside in a management incentive plan for New ATA
management. The compensation committee of the Board of Directors of New ATA
shall be responsible for determining the allocation and distribution of the
management incentive options or warrants; provided, that the exercise price for
such options or warrants shall in no event be less than 125.0% of the effective
purchase price of the Southwest Preferred Equity.
8. Other Provisions
Procedures for Resolving Disputed Claims: Settlements approved or entered by the
Bankruptcy Court prior to the Effective Date will be binding on all parties.
During the 180 days (unless extended by the Bankruptcy Court) commencing on the
Effective Date, New ATA must file any and all objections to claims. A holder of
a claim shall not be entitled to receive or recover any amount in excess of the
amount reserved to pay such claim, as further provided in the Plan.
Treatment of Executory Contracts and Unexpired Leases: Executory contracts and
unexpired leases will be assumed, or rejected, as the case may be, as determined
by Holdings in consultation with Southwest.
9. Amendments or Modifications
The terms and conditions of this term sheet may be modified or amended with the
mutual consent of the Debtors, Creditors Committee, ATSB and Southwest Airlines
Co.
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