SCHEDULE 14C
(Amendment No. 2)
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive Information Statement
ASA Holdings, Inc.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $0.10 par value per share
(2) Aggregate number of securities to which transaction applies: up to
14,261,589 shares
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $34.00. The
proposed maximum aggregate value of the transaction listed in (4)
below is calculated by multiplying $34.00, the merger consideration to
be paid per share in the Merger, by 20,528,177, which represents the
maximum number of shares of common stock outstanding on March 19,
1999, the expiration date of Delta's tender offer (including shares
issuable in exchange for options which are vested and exercisable as
of such date, but excluding shares of common stock owned on such date
by Delta Air Lines, Inc. and its affiliates).
(4) Proposed maximum aggregate value of transaction: $720,965,818
(5) Total fee paid: $144,193
[X] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $144,193
(2) Form, Schedule or Registration Statement No.: Schedule 14D-1
(3) Filing Party: Delta Air Lines, Inc., Delta Air Lines Holdings, Inc.
and Delta Sub, Inc.
(4) Date Filed: February 22, 1999
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[LOGO]
ASA HOLDINGS, INC.
100 Hartsfield Centre Parkway
Suite 800
Atlanta, Georgia 30354
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 11, 1999
April 19, 1999
To the Shareholders of ASA Holdings, Inc.:
A special meeting of the shareholders (the "Special Meeting") of ASA
Holdings, Inc. ("ASA") will be held on Tuesday, May 11, 1999, at 10:00 a.m.,
local time, at the Delta Training Center, 1021 North Outer Loop Road, Atlanta,
Georgia 30320, for all ASA shareholders of record as of the close of business on
April 13, 1999 (the "Record Date").
As described in the enclosed Information Statement, at the Special Meeting,
you will be asked:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of February 15, 1999, as amended (the "Merger
Agreement"), among ASA, Delta Air Lines, Inc., a Delaware corporation ("Delta"),
and Delta Sub, Inc., a Georgia corporation and an indirect, wholly-owned
subsidiary of Delta ("Delta Sub"), providing for, among other things, the merger
of Delta Sub with and into ASA (the "Merger"). Following the Merger, ASA will
continue as the surviving corporation and will become an indirect, wholly-owned
subsidiary of Delta.
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Merger will constitute the second and final step of the acquisition of
ASA by Delta. The first step was a tender offer (the "Offer") commenced by Delta
Sub on February 22, 1999 for all of the outstanding shares of common stock, par
value $0.10 per share (the "Shares"), of ASA at a purchase price of $34.00 per
Share, net to the seller in cash. Pursuant to the Offer, which expired on March
19, 1999, Delta Sub accepted for payment 18,011,033 Shares (representing
approximately 88% of the Shares outstanding on such date that were not already
beneficially owned by Delta prior to commencement of the Offer).
Upon the consummation of the Merger, all Shares (other than Shares owned by
Delta or any of its affiliates, Shares held by ASA as treasury stock, or Shares
held by shareholders, if any, of ASA who are entitled to and who properly
exercise dissenters' rights under the Georgia Business Corporation Code), will
be converted into the right to receive $34.00 per Share in cash, without
interest thereon.
As of the Record Date, Delta and its affiliates own an aggregate of
26,006,033 Shares, representing approximately 91% of all Shares outstanding on
that date. A list of all shareholders who are entitled to vote will be available
for inspection at the Special Meeting. Because the approval of the holders of a
majority of all outstanding Shares is sufficient to approve and adopt the Merger
Agreement, Delta can cause the Merger to occur without the affirmative vote of
any other holder of Shares. Delta has agreed pursuant to the Merger Agreement to
vote all Shares it beneficially owns in favor of approval and adoption of the
Merger Agreement.
If the Merger is consummated, holders of Shares who do not vote in favor of
approval and adoption of the Merger Agreement and who otherwise comply with the
requirements of Article 13 of the Georgia Business Corporation Code (a copy of
which is attached as Annex B to this Information Statement) will be entitled to
receive such consideration as may be determined to be due under such provisions.
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Whether or not you plan to attend the Special Meeting, please read the
attached Information Statement carefully. ASA is not asking you for a proxy and
you are requested not to send a proxy.
Please do not send in your Share certificates at this time. If the Merger
is consummated, you will be sent a letter of transmittal for that purpose as
soon as reasonably practicable thereafter.
By Order of the ASA Board,
/s/ Maurice W. Worth
----------------------------------------
Maurice W. Worth
Chairman of the Board
Atlanta, Georgia
April 19, 1999
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ASA HOLDINGS, INC.
100 Hartsfield Centre Parkway
Suite 800
Atlanta, GA 30354
-----------------------
INFORMATION STATEMENT
-----------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 11, 1999
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
This Information Statement is being furnished to the holders of common
stock, par value $0.10 per share (the "Shares") of ASA Holdings, Inc., a Georgia
corporation ("ASA"), in connection with the Special Meeting of shareholders of
ASA (the "Special Meeting") to be held on Tuesday, May 11, 1999 at 10:00 a.m.,
local time, at the Delta Training Center, 1021 North Outer Loop Road, Atlanta,
Georgia 30320, including any adjournments or postponements thereof. The Board of
Directors of ASA (the "ASA Board") has fixed the close of business on April 13,
1999 as the record date (the "Record Date") for the Special Meeting.
At the Special Meeting, the holders of Shares will consider and vote upon a
proposal to approve and adopt the proposed merger (the "Merger") of Delta Sub,
Inc. ("Delta Sub"), a Georgia corporation and an indirect, wholly-owned
subsidiary of Delta Air Lines, Inc. ("Delta"), with and into ASA, pursuant to an
Agreement and Plan of Merger dated as of February 15, 1999, as amended (the
"Merger Agreement"), among ASA, Delta and Delta Sub. Pursuant to the Merger
Agreement, upon consummation of the Merger, (i) Delta Sub will be merged with
and into ASA, with ASA continuing as the surviving corporation (the "Surviving
Corporation"), and (ii) each outstanding Share (other than Shares owned by Delta
or any of its affiliates, Shares held by ASA as treasury stock, or Shares held
by shareholders, if any, of ASA who are entitled to and who properly exercise
dissenters' rights under the Georgia Business Corporation Code (the "GBCC"))
would be converted into the right to receive $34.00 in cash, without interest
thereon (the "Merger Consideration").
The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition by Delta of the entire equity interest in ASA. The
first step was a tender offer (the "Offer") commenced by Delta Sub on February
22, 1999 for all of the outstanding Shares of ASA, at a purchase price of $34.00
per Share, net to the seller in cash (the "Offer Price"). Pursuant to the Offer,
which expired on March 19, 1999, Delta Sub purchased 18,011,033 Shares
(representing approximately 88% of the Shares outstanding on such date that were
not already beneficially owned by Delta prior to commencement of the Offer).
As of the Record Date, Delta and its affiliates own an aggregate of
26,006,033 Shares, representing approximately 91% of all Shares outstanding on
that date. Because the approval of the holders of a majority of all outstanding
Shares is sufficient to approve and adopt the Merger Agreement, Delta can cause
the Merger to occur without the affirmative vote of any other holder of Shares.
Delta has agreed pursuant to the Merger Agreement to vote all Shares it
beneficially owns in favor of approval and adoption of the Merger Agreement.
Whether or not you plan to attend the Special Meeting, please read this
Information Statement carefully. This Information Statement is first being
mailed to ASA shareholders on or about April 19, 1999.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------------------
The date of this Information Statement is April 19, 1999.
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TABLE OF CONTENTS
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PAGE
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SUMMARY.......................................................................1
INFORMATION CONCERNING THE SPECIAL MEETING....................................5
Time, Place, Date..........................................................5
Purpose of the Special Meeting.............................................5
Record Date; Quorum; Outstanding Shares Entitled to Vote...................5
Vote Required..............................................................5
Exchange and Payment Procedures............................................6
THE MERGER....................................................................7
Background of the Offer and the Merger.....................................7
Recommendation and Reasons of the ASA Board...............................13
Opinion of Financial Advisor to the ASA Board.............................17
Position of Delta and Delta Sub Regarding Fairness of the Merger..........20
Purpose and Structure of the Merger; Reasons of Delta for the Merger......21
Plans for ASA after the Merger............................................21
Accounting Treatment......................................................21
Merger Agreement..........................................................22
Certain Consequences of the Merger........................................26
Certain Litigation........................................................26
Regulatory Approvals......................................................27
Financing of the Offer and the Merger.....................................27
INTERESTS OF CERTAIN PERSONS IN THE MERGER...................................29
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES........................33
DISSENTERS' RIGHTS...........................................................34
CERTAIN INFORMATION CONCERNING ASA AND THE SHARES............................35
CERTAIN INFORMATION CONCERNING DELTA AND DELTA SUB...........................37
OWNERSHIP OF SHARES..........................................................37
INDEPENDENT PUBLIC ACCOUNTANTS...............................................38
ADDITIONAL AND AVAILABLE INFORMATION.........................................38
OTHER MATTERS................................................................39
ANNEX A--Opinion of Morgan Stanley & Co. Incorporated dated
February 15, 1999........................................A-1
ANNEX B--Article 13 of the Georgia Business Corporation Code
Relating to Dissenting Shareholders......................B-1
ANNEX C--Annual Report of ASA on Form 10-K for the Year Ended
December 31, 1998........................................C-1
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Information Statement. This summary is not intended to be complete and
is qualified in its entirety by the more detailed information contained in this
Information Statement and the Annexes hereto, to which reference is made for a
complete statement of the matters discussed below. Capitalized terms used and
not defined in this summary have the meaning set forth elsewhere in this
Information Statement. Shareholders are urged to read this Information Statement
and the Annexes hereto in their entirety.
Transaction Parties
Delta Air Lines, Inc. Delta is a Delaware corporation with its principal
offices located at Hartsfield Atlanta International Airport, 1030 Delta
Boulevard, Atlanta, Georgia 30320. Delta is a major air carrier providing
scheduled air transportation for passengers, freight and mail. See "Certain
Information Concerning Delta and Delta Sub."
Delta Sub, Inc. Delta Sub is a Georgia corporation established on February
11, 1999. It has not carried on any activities other than the execution of the
Merger Agreement and documents related to the consummation of the transactions
contemplated thereby. Its principal offices are located at Hartsfield Atlanta
International Airport, Post Office Box 20706, Atlanta, Georgia 30320. Delta Sub
is an indirect, wholly-owned subsidiary of Delta. See "Certain Information
Concerning Delta and Delta Sub."
ASA Holdings, Inc. ASA is a Georgia corporation with its principal offices
located at 100 Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354. ASA
is a holding company the principal assets of which are the shares of its wholly
owned subsidiaries Atlantic Southeast Airlines, Inc., a Georgia corporation
("Atlantic Southeast"), and ASA Investments, Inc., a Delaware corporation. ASA
considers the airline business of Atlantic Southeast to be its only industry
segment. See "Certain Information Concerning ASA and the Shares."
The Transaction
The Merger will constitute the second and final step of the acquisition of
ASA by Delta. The first step was the Offer commenced by Delta Sub on February
22, 1999 for all of the outstanding Shares for $34.00 per Share, net to the
seller in cash (the "Offer Price"). Pursuant to the Offer, which expired on
March 19, 1999, Delta Sub purchased 18,011,033 Shares (representing
approximately 88% of the Shares outstanding on such date that were not already
beneficially owned by Delta prior to commencement of the Offer). The 26,006,033
Shares which Delta beneficially owns after consummation of the Offer represent
approximately 91% of all outstanding Shares as of the Record Date. In accordance
with the Merger Agreement, Delta has agreed to vote all Shares beneficially
owned by it in favor of the Merger and to cause Delta Sub to merge with and into
ASA. Upon consummation of the Merger, all Shares (other than Shares owned by
Delta or any of its affiliates, Shares held by ASA as treasury stock, or Shares
held by shareholders, if any, of ASA who are entitled to and who properly
exercise dissenters' rights under the GBCC), will be converted into the right to
receive $34.00 per Share in cash, net to the seller, without interest thereon
(the "Merger Consideration").
Special Meeting
Date, Time and Place. Tuesday, May 11, 1999 at 10:00 a.m., local time, at
the Delta Training Center, 1021 North Outer Loop Road, Atlanta, Georgia 30320.
Purpose. To consider and act upon a proposal to adopt the Merger Agreement
and approve the Merger. See "The Merger."
Record Date. The close of business on April 13, 1999.
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Vote Required. The affirmative vote of a majority of the votes entitled to
be cast by the holders of all outstanding Shares as of the Record Date will be
required to adopt the Merger Agreement. Delta has agreed to vote all Shares it
beneficially owns in favor of adoption of the Merger Agreement. Because Delta
and its affiliates own on the Record Date approximately 91% of the outstanding
Shares, ADOPTION OF THE MERGER AGREEMENT IS ASSURED WITHOUT THE VOTE OF ANY
OTHER SHAREHOLDER. YOU ARE NOT BEING ASKED FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND ONE. Shareholders of record may vote their shares, if they so wish, by
attending the Special Meeting in person. See "Information Concerning the Special
Meeting."
Background of the Merger
See "The Merger--Background of the Offer and the Merger."
Recommendation of the ASA Board
The ASA Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby and determined that the Merger Agreement and
the transactions contemplated thereby, including the Merger, are fair to, and in
the best interests of, the holders of Shares. The ASA Board recommends that ASA
Shareholders approve and adopt the Merger Agreement. See "The
Merger--Recommendation and Reasons of the ASA Board."
In reaching its decision to approve and adopt and to recommend that ASA
Shareholders approve and adopt the Merger Agreement, the ASA Board considered a
number of factors. See "The Merger -- Recommendations and Reasons of the ASA
Board."
Opinion of Financial Advisor to the ASA Board
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), ASA's financial
advisor, has delivered to the ASA Board its written opinion, dated as of
February 15, 1999, that, as of the date of such opinion, the cash consideration
to be received by the holders of the Shares in the Offer and the Merger is fair
from a financial point of view to such shareholders (other than Delta and its
affiliates.) A copy of the full text of the written opinion of Morgan Stanley,
which sets forth, among other things, the opinion expressed, assumptions made,
procedures followed, matters considered, and limitations of review undertaken in
connection with such opinion, is attached hereto as Annex A and should be read
in its entirety. See "The Merger--Opinion of Financial Advisor to the ASA
Board."
Interests of Certain Persons in the Merger
Delta, as well as some of the officers and directors of ASA, have interests
in the Merger that are different from the interests of other ASA shareholders.
See "Interests of Certain Persons in the Merger."
Effective Time of the Merger
The Merger shall become effective at such time as the Merger is approved by
the ASA shareholders and the Articles of Merger are duly filed with the
Secretary of State of the State of Georgia (the "Effective Time"). See "The
Merger."
Conditions to the Merger
Consummation of the Merger is subject to certain conditions. See "The
Merger--Merger Agreement."
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Termination of the Merger Agreement
The Merger Agreement may be terminated by either Delta or ASA under certain
circumstances. See "The Merger--Merger Agreement."
Effects of the Merger
After consummation of the Merger, ASA will become an indirect, wholly-owned
subsidiary of Delta and the former holders of Shares will no longer possess any
interest in ASA. Promptly upon consummation of the Merger, ASA will terminate
the registration of the Shares under Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). In addition, upon termination of the
registration of the Shares under the Exchange Act, the Shares will no longer be
eligible for inclusion in the NASDAQ National Market System. See "The
Merger--Certain Consequences of the Merger."
The Merger Consideration
Pursuant to the Merger, each Share (other than Shares held by Delta or any
of its affiliates, Shares held by ASA as treasury stock, or Shares held by
shareholders, if any, of ASA who are entitled to and who properly exercise
dissenters' rights under the GBCC) will be converted into and represent the
right to receive the Merger Consideration. A letter of transmittal for use in
surrendering Share certificates and obtaining payment for surrendered Shares
will be mailed to shareholders promptly following the Effective Time. See "The
Merger." CERTIFICATES REPRESENTING ASA SHARES SHOULD NOT BE SENT IN UNTIL YOU
RECEIVE THE LETTER OF TRANSMITTAL AND ACCOMPANYING INSTRUCTIONS, AND THEN SHOULD
BE SURRENDERED ONLY IN ACCORDANCE WITH SUCH INSTRUCTIONS.
Federal Income Tax Consequences
The receipt of cash by an ASA shareholder pursuant to the Merger will be a
taxable transaction for federal income tax purposes and may also be taxable
under applicable state, local and foreign tax laws. See "Certain United States
Federal Income Tax Consequences." ALL SHAREHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS.
Regulatory Approvals
Delta and ASA filed the required Notification and Report Forms with
respect to the Offer and the Merger with the Antitrust Division and the FTC on
February 17, 1999, and February 18, 1999, respectively. A request was made for
early termination of the waiting period applicable to the Offer and, on February
25, 1999, ASA and Delta were informed that such request had been granted. See
"The Merger--Regulatory Approvals."
ASA and Delta believe that there are no other material regulatory or
governmental approvals required in order for the Merger to be consummated.
Certain Litigation
A purported class action complaint on behalf of ASA shareholders was filed
against ASA, ASA's directors and Delta on February 25, 1999, alleging certain
breaches of fiduciary duties. Although ASA and Delta believe the complaint to be
wholly without merit, counsel for plaintiffs and defendants entered into a
Memorandum of Understanding on March 9, 1999 in which the parties agreed in
principle to settle all claims arising in connection with the Offer or the
Merger. See "The Merger-- Certain Litigation."
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Accounting Treatment
The Merger will be accounted for under the "purchase" method of accounting.
See "The Merger--Accounting Treatment."
Dissenters' Rights
Pursuant to the GBCC, ASA shareholders are entitled to dissenters'
rights in connection with the Merger. Any record holders of Shares who (i) do
not vote in favor of the Merger at the Special Meeting and (ii) prior to the
Special Meeting, deliver to ASA written notice of such shareholders' intent to
demand dissenters' rights if the Merger is consummated, may elect to have their
Shares appraised under the procedures set forth in Article 13 of the GBCC.
Pursuant to Article 13 of the GBCC, the appraised value of dissenters' Shares
will be the Shares' fair value immediately before the consummation of the
Merger, excluding any appreciation or depreciation in anticipation of the
Merger. An appraisal proceeding may result in a determination of fair value less
than or greater than the value of the Merger Consideration that would have been
payable in respect of such Shares had the shareholder not elected to perfect
dissenters' rights. See "Dissenters' Rights."
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INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place, Date
This Information Statement is being furnished to the holders of outstanding
Shares in connection with the Special Meeting to be held on Tuesday, May 11,
1999 at 10:00 a.m. local time, at the Delta Training Center, 1021 North Outer
Loop Road, Atlanta, Georgia 30320, including any adjournments or postponements
thereof.
Purpose of the Special Meeting
At the Special Meeting, shareholders of ASA will consider and vote upon a
proposal to approve and adopt the Merger Agreement, pursuant to which Delta Sub
will be merged with and into ASA, with ASA as the Surviving Corporation at and
after the Effective Time. Shareholders will also consider such other business as
may properly come before the meeting. Additional information concerning the
Special Meeting and the Merger Agreement is set forth below.
Record Date; Quorum; Outstanding Shares Entitled to Vote
The Record Date for the Special Meeting has been fixed as the close of
business on April 13, 1999 (the "Record Date"). Only holders of record of Shares
on the Record Date are entitled to notice of and to vote at the Special Meeting.
Holders of Shares on the Record Date are entitled to one vote on matters
properly presented at the Special Meeting for each Share held. A list of ASA
shareholders will be available for examination by holders of Shares, for any
purpose related to the Special Meeting, during the 20-day period preceding the
Special Meeting, at the offices of ASA Holdings, Inc., 100 Hartsfield Centre
Parkway, Suite 800, Atlanta, Georgia, 30354, telephone (404) 766-1400.
On the Record Date, there were 28,523,177 Shares outstanding, held of
record by approximately 470 registered holders. The presence in person of
holders of a majority of the Shares entitled to vote will constitute a quorum
for the transaction of business at the Special Meeting. Because the Shares owned
by Delta and its affiliates will be represented at the Special Meeting, a quorum
will be present, even if no other holders of Shares are present.
Vote Required
Pursuant to the GBCC, the Merger Agreement must be approved and adopted by
the affirmative vote of the holders of a majority of the total number of
outstanding Shares. Abstentions of Shares that are present at the Special
Meeting and broker non-votes will each have the same effect as a vote against
approval and adoption of the Merger Agreement. Pursuant to the Merger Agreement,
Delta and its affiliates are required to vote their Shares for approval and
adoption of the Merger Agreement. As of the Record Date, Delta and its
affiliates beneficially own 26,006,033 Shares (approximately 91% of all
outstanding Shares). Because the approval of the holders of a majority of all
outstanding Shares is sufficient to approve and adopt the Merger Agreement,
Delta can cause the Merger to occur without the affirmative vote of any other
holder of Shares. YOU ARE NOT BEING ASKED FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND ONE. You may vote your Shares, if you so wish, by attending the Special
Meeting in person.
A shareholder who wishes to exercise dissenters' rights under the GBCC must
not vote his or her Shares in favor of adoption of the Merger Agreement. An
abstention or broker non-vote will not constitute a waiver of a shareholder's
dissenters' rights, but also shall not constitute the written notice of intent
to exercise dissenters' rights required under Article 13 of the GBCC. See
"Dissenters' Rights."
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Exchange and Payment Procedures
As soon as practicable after the Effective Time, Harris Trust Company of
New York (the "Exchange Agent") will mail to each record holder of an
outstanding Share certificate a letter of transmittal and instructions for use
in effecting the surrender of such certificate in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a certificate
representing a Share, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such certificate shall be entitled to receive $34.00 per Share in
cash, without interest thereon. Until surrendered in accordance with the
foregoing instructions, each certificate representing a Share will represent for
all purposes only the right to receive the Merger Consideration.
ASA shareholders should not send their Share certificates to the Exchange
Agent at the present time. Share certificates should be sent to the Exchange
Agent only pursuant to instructions set forth in a letter of transmittal to be
mailed to shareholders as soon as practicable after the Effective Time. In all
cases, the Merger Consideration will be provided only in accordance with the
procedures set forth in this Information Statement, the Merger Agreement and
such letter of transmittal.
Any Merger Consideration made available to the Exchange Agent that remains
unclaimed by shareholders for six months after the Effective Time will be
delivered to Delta, and any shareholders who have not theretofore made an
exchange must thereafter look to Delta for payment of their claim for Merger
Consideration.
Any questions concerning exchange and payment procedures and requests for
letters of transmittal may be addressed to the Exchange Agent at (212) 701-7624.
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THE MERGER
Background of the Offer and the Merger
1996 Reorganization of ASA
ASA Holdings, Inc. ("ASA Holdings") is a holding company, the principal
assets of which are the shares of its wholly-owned subsidiaries, Atlantic
Southeast Airlines, Inc. ("Atlantic Southeast"), a Georgia corporation, and ASA
Investments, Inc. ("ASA Investments"), a Delaware corporation. Atlantic
Southeast is the operating company which conducts all airline operations. ASA
Holdings became the direct parent of Atlantic Southeast and ASA Investments
pursuant to a corporate reorganization which became effective December 31, 1996.
Pursuant to the reorganization, Atlantic Southeast was merged into a subsidiary
of ASA Holdings, and shareholders of Atlantic Southeast received shares of
common stock of ASA Holdings in exchange for their shares of common stock of
Atlantic Southeast. The effect of the reorganization was to replace the publicly
traded shares of Atlantic Southeast with publicly traded shares of ASA Holdings.
As such, all references herein to "Shares" shall refer, as to periods before the
reorganization, to shares of common stock of Atlantic Southeast, par value $0.10
per share, and, as to periods including and after the reorganization, to shares
of common stock of ASA Holdings, par value $0.10 per share. All references
herein to "ASA" refer, as the context may require, either individually to ASA
Holdings or collectively to ASA Holdings, Atlantic Southeast and ASA
Investments.
Marketing and Code Sharing Arrangements Between Delta and ASA
ASA has operated in Atlanta since 1984, and in Dallas/Fort Worth since
late-1986 as a "Delta Connection" carrier pursuant to a marketing agreement with
Delta (the "Delta Connection Agreement"). The Delta Connection Agreement was
originally entered into on August 6, 1984 and was restated or amended several
times subsequently. Since December 31, 1994, the Delta Connection Agreement has
been terminable, without restriction, by either party thereto upon 30 days'
prior written notice. Under the Delta Connection program, all ASA flights are
promoted as part of the Delta route network in computer systems used by travel
agents and in advertising and published timetables, and all ASA flights carry
the Delta designator code. ASA flights are sold on Delta ticket stock, and all
revenue from ASA ticket sales by travel agents are remitted to Delta. Delta
handles ASA reservations calls. Customer payments for tickets purchased from
agents or at Delta city ticket offices for ASA flights are remitted to Delta.
ASA and Delta split revenues (less cost of sales) in accordance with a revenue
proration arrangement. Under this arrangement, ASA is paid all revenue (less
agreed expenses) for tickets sold to passengers not connecting to a
Delta-operated flight (i.e., local traffic). Revenue for passengers traveling on
a ticket with an ASA flight connecting to a Delta-operated flight are prorated
between Delta and ASA using a proration methodology that considers the mileage
of the flight segments flown and the relative cost of the service provided,
minus the cost of sales, with adjustments made for international tickets.
During 1998, approximately 80% of ASA's passengers connected with or from
Delta flights at the Atlanta or Dallas/Fort Worth hubs, and ASA derived
substantially all of its operating revenues from its marketing and code sharing
arrangements with Delta. The Delta Connection program generated revenues for ASA
of approximately $321.7 million and $348.4 million in 1997 and 1998,
respectively. In addition, pursuant to separate arrangements, ASA leases
reservation equipment and certain facilities from Delta, and Delta provides
certain services to ASA including reservation and ground handling services.
Expenses under these arrangements in 1997 and 1998 were approximately $11.7
million and $11.8 million, respectively.
Delta Ownership of ASA Shares; Stock Agreement
On June 19, 1986, Delta purchased from ASA 2,665,000 Shares pursuant to a
stock purchase agreement dated May 28, 1986 (the "Original Stock Agreement")
between the two companies. Delta made this investment for the purposes of
obtaining a significant equity interest in ASA, and to enhance ASA's continuing
participation in the "Delta Connection" program. After giving effect to the
issuance of these Shares, Delta's investment represented approximately 20% of
the then outstanding number of Shares. On December 27, 1989, Delta assigned and
transferred to Delta Air
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Lines Holdings, Inc. ("Delta Holdings") all of the Shares then owned by Delta.
On March 17, 1997, following a reorganization of ASA and its subsidiaries, Delta
and ASA and certain of their subsidiaries entered into an amended and restated
stock agreement (the "Stock Agreement"), containing terms and conditions which
are substantially the same as those contained in the Original Stock Agreement.
Pursuant to the Stock Agreement, for so long as Delta beneficially owns at least
10% of the outstanding Shares, it or its subsidiary, Delta Air Lines Holdings,
Inc. ("Delta Holdings") has the right to cause ASA (i) to include in its slate
of nominees for election to the ASA Board at least two designees of Delta or
Delta Holdings who are reasonably acceptable to ASA, and (ii) to use its
reasonable best efforts to assure that these individuals are elected to the ASA
Board. The Stock Agreement also grants Delta and Delta Holdings certain demand
and piggyback registration rights and pre-emptive rights, and grants ASA a right
of first refusal in respect of certain sales by Delta or Delta Holdings of
Shares to persons pursuant to a demand registration or in a private sale. Other
than pursuant to the Original Stock Agreement and in connection with the
consummation of the Offer on March 19, 1999, neither Delta nor any of its
subsidiaries has acquired or disposed of any Shares since 1986. As of February
19, 1999, Delta beneficially owned 7,995,000 of the 28,523,177 outstanding
Shares, representing approximately 28% of the Shares then outstanding. The
increase since 1986 in the number of Shares beneficially owned by Delta, and in
its relative percentage ownership of Shares, is the result of stock splits and
the repurchase by ASA of a total of 13,093,060 Shares since that time. ASA has
not, however, repurchased any Shares at any time after the possibility of an
acquisition by Delta was first raised in late-January 1999.
Certain Contacts and Negotiations Between Delta and ASA Relating to the
Offer and Merger
Since December 31, 1994, the date on which the Delta Connection Agreement
became terminable on 30 days' notice by either party, Delta and ASA have had
various discussions about aspects of their marketing alliance, and from time to
time have had discussions regarding the renewal of the Delta Connection
Agreement. In March 1995, Delta forwarded drafts of proposed renewal agreements
to each of its connection carriers, including ASA. The draft agreement forwarded
to ASA proposed increases and other changes to a number of the fees charged by
Delta to ASA under the Delta Connection Agreement. While ASA did not accept this
draft agreement, Delta and ASA subsequently agreed to certain increases in fees
associated with marketing-related activities.
In the spring of 1997, Delta began to reassess its connection carrier
strategy generally. On March 31, 1997, Delta decided to remove its one remaining
designee from the ASA Board. Delta also withdrew its designees from all of the
other connection carriers on which it had the right to board representation.
Delta's decision to withdraw its designees from the boards of ASA and Delta's
other connection carriers was motivated by Delta's intention to seek
modification of the terms of its marketing and other arrangements with each such
carrier, and its desire to minimize the potential for, or the perception of, any
conflict of interest between Delta and such connection carriers that could
otherwise arise in such a context. Since March 31, 1997, notwithstanding its
right under the Stock Agreement to nominate two designees for election to the
ASA Board, neither Delta nor any of its affiliates have nominated any designees
to, or had any representatives on, the ASA Board. In June 1997, Delta
representatives met with representatives from its various connection carriers,
including ASA, to inform them that Delta intended to seek modifications to their
respective marketing arrangements.
On September 25, 1997, Bryan LaBrecque, Director of Connection Carriers of
Delta, wrote to John W. Beiser, President of ASA, with a proposal to revise the
companies' arrangements to permit Delta to recover certain of its costs relating
to ASA's operations, and to introduce a royalty fee for ASA's use of the Delta
designator code. In subsequent meetings between Messrs. LaBrecque and Beiser,
Mr. Beiser expressed his dissatisfaction with these proposals and stated that,
on the basis of the revised cost structure proposed by Delta, it would be
uneconomical for ASA to continue providing service at Delta's Dallas / Fort
Worth hub. On November 10, 1997, at ASA's request, Delta withdrew its proposal,
pending further discussions.
In late 1997, Delta raised with ASA certain concerns about various ASA
customer service issues. These customer service issues were, in part,
attributable to significant attrition among ASA's mechanics and the difficulties
associated with negotiating a new collective bargaining agreement with ASA's
pilots union. Discussions were held throughout the spring of 1998 between ASA
and Delta regarding various customer service issues. On July 21, 1998, Maurice
W.
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Worth, Chief Operating Officer of Delta, met with Mr. Beiser to discuss
Delta's concerns about ASA's service. Mr. Worth informed Mr. Beiser that if
service did not improve significantly within the next 45 days, Delta would need
to reevaluate its alternatives for Delta connection service on certain routes.
On July 27, 1998, Mr. Worth and Leo F. Mullin, President and Chief Executive
Officer of Delta, met with Mr. Beiser and George F. Pickett, Chairman and Chief
Executive Officer of ASA, to continue discussions regarding the need for
improvements in ASA's service. On September 8, 1998, Mr. Worth wrote to Mr.
Beiser, acknowledging ASA's significant progress in addressing its service
problems and noting that Delta looked forward to continued improvement by ASA.
In July and September 1998, ASA management indicated to Delta that they
were interested in expanding ASA's connecting operations into several new
markets. Although Delta noted that ASA had been making progress in improving
customer service levels, Delta nonetheless rejected expansion into these new
markets in large part on the basis of its continued concerns over ASA's service.
During regular meetings between Delta and ASA representatives over the course of
the fourth quarter of 1998, Delta noted ASA's progress in addressing certain
service issues, but also continued to express concern about a number of other
service issues.
On January 18, 1999, Mr. LaBrecque wrote to Mr. Beiser, reiterating Delta's
concerns about ASA's customer service and the appropriate sharing of costs
between the two carriers, as well as certain other issues. On January 20, 1999,
Mr. Worth met with Messrs. Beiser and Pickett to discuss the subjects covered in
Mr. LaBrecque's January 18 letter. At that meeting, Mr. Worth repeated Delta's
concerns about ASA's customer service. He said that, as a result, Delta was
considering providing another Delta Connection carrier with code sharing
opportunities on certain Atlanta routes. He also stated that Delta considered
the existing revenue allocation arrangement between Delta and ASA to be
inequitable to Delta, and believed that it needed revisiting. Messrs. Pickett
and Beiser acknowledged that ASA had experienced service problems in the first
half of 1998, but reminded Mr. Worth of the significant progress that ASA had
made since agreeing to a new collective bargaining agreement with its pilots
union in July 1998. Mr. Worth acknowledged this, but noted that there were still
significant ongoing service concerns that needed to be addressed. The parties
agreed to meet in the near future to further discuss these matters and to
establish a more specific agenda for renegotiating the companies' commercial
arrangements.
On January 25, 1999, Mr. Beiser called Mr. Worth to ask whether Delta was
still considering bringing another Delta Connection carrier into the Atlanta
market. Mr. Worth replied that no decision had yet been made on that issue.
Later that day, ASA delivered to Delta Mr. Beiser's written response to Mr.
LaBrecque's January 18 letter. In his response, Mr. Beiser clarified ASA's
position with respect to the concerns identified by Mr. LaBrecque, in particular
by stressing the significant improvements in service achieved by ASA in the
second half of 1998. Mr. Beiser reiterated ASA's desire to meet with Delta to
work out satisfactory solutions to all issues. He also requested an immediate
meeting with Mr. Mullin or Frederick W. Reid, Executive Vice President and Chief
Marketing Officer of Delta. Upon receipt of this letter, Mr. Mullin promptly
called Mr. Pickett and suggested that they meet on January 28.
On January 28, 1999, Mr. Mullin met with Mr. Pickett pursuant to the
request in Mr. Beiser's January 25 letter. Mr. Mullin assured Mr. Pickett that
Delta had made no decision to bring any other Delta Connection carrier into the
Atlanta market. However, he reiterated the concerns raised in Mr. LaBrecque's
letter, and Delta's desire to change the revenue allocation between Delta and
ASA. He stated that it was important to Delta that these issues be addressed
promptly. Mr. Pickett expressed ASA's readiness to explore all avenues that
might improve ASA's relationship with Delta. Mr. Mullin then asked Mr. Pickett
whether ASA would be interested in the parties exploring the possibility of
Delta acquiring ASA. He went on to say that if ASA believed such an approach to
be desirable, Delta would be receptive to exploring that possibility. Mr.
Pickett responded that he would be interested in exploring this alternative. Mr.
Mullin stated that while the feasibility of the acquisition alternative was
being explored, the parties should continue the discussions concerning the
renegotiation of their marketing arrangements. The parties agreed that separate
teams from each carrier should meet as soon as possible to discuss each
alternative.
On February 4, 1999, representatives of Delta and ASA met to discuss and
define the possible terms of a new marketing arrangement between the companies.
Delta outlined its proposals, which related primarily to revenue allocation,
cost sharing, financial incentives and penalties tied to ASA's operational
performance, franchise fees,
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facilities and scheduling (including the introduction of ASA service into new
markets). Representatives of Delta and ASA discussed the relative merits to
Delta and ASA of Delta's proposed new markets for ASA service, and Delta
representatives suggested that the proposed expansions to ASA's route system
should, where such service replaced or supplemented existing Delta service,
involve profit-sharing between Delta and ASA if ASA achieved greater than a
certain threshold operating margin. In a call to Mr. Beiser later that day, Mr.
LaBrecque also outlined Delta's proposal that it assume responsibility for ASA's
revenue management, with the goal of increasing total revenue for both
companies. Mr. Beiser stated that he did not think that Delta's revenue
management proposal would be beneficial to ASA and therefore rejected it. In
response to one of Mr. Beiser's questions, Mr. LaBrecque then observed that
Delta estimated that Delta's proposals with respect to revenue allocation could
have a negative aggregate impact on ASA's revenues of $40 million to $50 million
per year. Mr. Beiser agreed that further discussions between the companies on
Delta's proposals on matters other than revenue management could be pursued.
On February 5, 1999, Mr. Mullin telephoned Mr. Pickett to inform him that
ASA could contact Warren C. Jenson, Chief Financial Officer of Delta, to discuss
logistics concerning the acquisition discussions. ASA then contacted Mr. Jenson,
who met with Messrs. Pickett and Beiser later that day to discuss process and
timing issues relating to both the renegotiation of the marketing arrangement
and the acquisition alternative. Mr. Jenson emphasized that Delta was willing to
pursue either of these alternatives. The parties agreed that Delta would need to
conduct some preliminary due diligence on ASA's business and operations, and the
ASA executives stated that ASA would retain lawyers and bankers as soon as
possible to assist ASA in its analysis and exploration of the acquisition
alternative.
Over the next several days, Messrs. Pickett and Beiser contacted each of
the other ASA directors individually and informed them of the discussions that
had occurred with Delta regarding a possible acquisition of ASA, and the steps
that were being taken by ASA in preparation.
On February 7, 1999, in order to better assess the feasibility of the
acquisition alternative, Delta submitted a due diligence document request list
to ASA, and representatives from each of Delta and ASA had a preliminary
discussion of the mechanics and timing of the due diligence process.
On February 8, 1999, an informal telephonic meeting was held among all the
directors of ASA except Alan Voorhees. Messrs. Pickett and Beiser reviewed for
the directors participating in this meeting the contacts between ASA and Delta
that had led to the exploration of the acquisition alternative by Delta and to
the discussions relating to the renegotiation of the marketing arrangements
between Delta and ASA. Messrs. Pickett and Beiser also reviewed for the ASA
Board the current status of both tracks. The directors were informed that ASA
was seeking to retain a nationally-recognized investment bank and legal counsel
in connection with its evaluation of the acquisition alternative.
On February 8, 1999, ASA retained outside legal counsel. On February 9,
1999, ASA retained Morgan Stanley to be its financial advisor and Delta and ASA
entered into a Confidentiality Agreement (the "Confidentiality Agreement")
pursuant to which Delta agreed to keep ASA Confidential Information (as defined
in the Confidentiality Agreement) confidential, not to use such material to the
detriment of ASA, and to return all such material to ASA promptly upon ASA's
request. Representatives of Delta began to conduct due diligence on ASA on
February 10.
On February 9, 1999, Morgan Stanley called Delta's financial advisor,
Goldman, Sachs, to initiate discussions about an acquisition alternative. During
that call, Goldman, Sachs and Morgan Stanley also discussed briefly the nature
of the commercial relationship between Delta and ASA, as well as the recent
talks between the two companies with respect thereto. A telephonic meeting of
the ASA Board was held on February 10, 1999 to ratify the selection of Morgan
Stanley as ASA's investment banker and Sullivan & Cromwell as its legal counsel.
The ASA Board was also presented with an update on developments generally.
On February 11, 1999, Goldman, Sachs and Morgan Stanley had a discussion in
which Morgan Stanley indicated that it thought that premiums historically
received in the sale of public companies were a relevant consideration in any
valuation of an acquisition transaction. Goldman, Sachs responded that Delta was
still considering the feasibility of an acquisition and that it was premature to
discuss Delta's estimate of value ranges. Goldman, Sachs did, however,
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indicate that the then-current market price of ASA Shares was not an appropriate
measure of the future value of ASA, taking into account the fact that the
marketing arrangements between Delta and ASA were being renegotiated. Goldman,
Sachs confirmed its understanding that, in the discussions between Delta and
ASA, Delta had told ASA that in the past, in light of Delta's concerns over
ASA's service, Delta had considered the possibility of having other regional
carriers provide connecting service at Delta's Atlanta hub. Goldman, Sachs also
reiterated Delta's willingness to continue discussions to determine whether a
satisfactory agreement could be reached to modify the companies' existing
commercial arrangements. Later that day, Goldman, Sachs indicated in a call with
Morgan Stanley that if the parties were to proceed with the acquisition
alternative, Delta's current valuation work suggested that any acquisition would
have to be somewhere in the general vicinity of the then-current market price of
ASA's Shares.
Also on February 11, 1999, Mr. Worth met with Messrs. Pickett and Beiser to
discuss the treatment of ASA management and employees if the acquisition
alternative were to be pursued. Later that day, representatives of Delta and ASA
once again met to continue their discussions concerning the renegotiation of
their existing marketing arrangements. The ASA representatives asserted that
Delta was using an incorrect methodology for evaluating revenue allocation
between the carriers. Delta stated that sampling differences could lead to
different conclusions. The Delta representatives noted that, irrespective of the
methodologies employed, Delta had to consider the fact that it could enter into
arrangements with other carriers to serve the Atlanta market on a basis more
favorable to Delta than the current arrangements with ASA. The Delta
representatives further observed that, if ASA were to remain competitive, the
revenue allocation between ASA and Delta would have to be modified. The Delta
representatives acknowledged that, as a result of such modification, ASA would
probably experience reduced revenues aggregating $40 million to $50 million per
year. The ASA representatives acknowledged that their own estimates of the
effects of Delta's proposals on ASA's revenues were similar to, or even slightly
higher than, Delta's estimates.
Later that evening, an informal telephonic meeting was held among all of
the ASA directors except George Berry and Parker Petit. Representatives of
Morgan Stanley and Sullivan & Cromwell were introduced to the directors. Morgan
Stanley informed the directors of its discussions with Goldman, Sachs and of the
valuation range that Goldman, Sachs believed Delta was considering for ASA.
Messrs. Pickett and Beiser informed the directors of developments of the meeting
held earlier that day between Delta and ASA representatives regarding the
renegotiation of the existing marketing arrangements with Delta. The directors
did not believe that an offer at below market price was appropriate and Morgan
Stanley was instructed to return to Goldman, Sachs to establish that Delta was
not contemplating a below market price, and to negotiate for a higher price that
offered ASA shareholders a premium.
On February 12, 1999, Morgan Stanley called Goldman, Sachs to clarify
Delta's position on the value of any offer and to inquire whether Goldman, Sachs
could confirm that any offer that Delta might make would be at market price or
above. After consultation with its clients, Goldman, Sachs confirmed that Delta
would probably not present ASA with a below market offer, but that a premium, if
any, would be modest.
A telephonic meeting of ASA Board was held later in the day on February 12,
1999, during which Morgan Stanley reported on its conversations on ASA's behalf
with Goldman, Sachs. Following, among other things, a discussion of the
alternatives available to the Company, including the consideration of the effect
of the Delta proposal to renegotiate the existing marketing arrangements with
ASA, the Board instructed Morgan Stanley to propose to Goldman, Sachs a
transaction that would permit ASA shareholders to elect to receive in exchange
for their ASA Shares either common stock of Delta, on a tax-free basis, or cash
at a price of $33.00 per Share.
In the evening of February 12, 1999, Morgan Stanley indicated to Goldman,
Sachs that the ASA Board would be prepared to move forward with a transaction at
a price of $33.00 per Share, that would permit ASA shareholders to elect to
receive merger consideration in the form of Delta stock on a tax-free basis to
such shareholders. After further consultation with Delta, Goldman, Sachs advised
Morgan Stanley that Delta was not interested in pursuing a stock transaction,
but stated that Delta would be willing to consider a cash transaction at the
price ASA had suggested.
On February 13, 1999, Morgan Stanley reported to Goldman, Sachs that it had
reviewed the matter further with representatives of the ASA Board and that ASA
would be prepared to go forward with an all-cash tender offer of $35.00
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per Share, and requested that Delta not insist on preclusive termination fees or
lock-ups. After consultation with Delta management, Goldman, Sachs responded to
Morgan Stanley, informing them that Delta believed that it could agree to a
price at the midpoint of a range between $33.00 and $35.00 if all of the
documentation issues were satisfactorily resolved. After consultation with its
client, Morgan Stanley indicated that, if all the documentation was
satisfactory, a $34.00 offer would be acceptable. That afternoon, Delta's
counsel provided a draft merger agreement to ASA's counsel. Counsel for Delta
and ASA met over the next two days to negotiate the terms of the transaction,
including, among other things, the conditions to the offer and ASA's right to
terminate the Merger Agreement if a third party were to make a superior
proposal. These negotiations and the Merger Agreement included the parties'
agreement on a $5,000,000 termination fee to be paid to Delta in the event that
the ASA Board were to receive and accept a superior proposal.
A telephonic meeting of the ASA Board was held on February 14, 1999, during
which Morgan Stanley reported on its discussions on ASA's behalf with Goldman,
Sachs since the time of the February 12, 1999, ASA Board meeting. Sullivan &
Cromwell then reported on the status of the draft merger agreement and the
negotiations with Delta's legal counsel.
At a meeting on February 14, 1999, Delta's Board of Directors heard
presentations from Delta management regarding the implications of the proposed
transaction for Delta. Management reported that an acquisition of ASA would
enable Delta to realize revenue gains from factors such as more efficient
operations, market growth, better utilization of aircraft at both airlines and
improved business functions. The Delta Board approved the proposed acquisition
on the terms under consideration and authorized a Committee consisting of
Messrs. Mullin and Grinstein to be available to consider any changes in those
terms that might arise as the final issues were negotiated.
At a meeting held on the afternoon of February 15, 1999, in Atlanta,
Georgia, the ASA Board gave further consideration to the proposed transaction.
Among other things, management reported on the substantial negative impact that
the Delta proposals for renegotiating ASA's marketing arrangement with Delta
would have on the future financial performance of ASA and Morgan Stanley
expressed its view that, as of the date of such opinion and based on and subject
to the matters described therein, the consideration to be received by ASA's
shareholders in the Offer and the Merger was fair, from a financial point of
view, to ASA shareholders (other than Delta and its affiliates). The ASA Board
did not consider an alliance with another major air carrier as a viable option
to mitigate the anticipated effects of a renegotiation of the Delta Connection
Agreement since the ASA Board understood, among other things, that in light of
the concentration of ASA's operations in the Southeastern United States and
Atlanta, in particular, such an alliance would not have as high a value to a
major carrier that did not have as significant an operating presence in Atlanta
as Delta. For this reason, the ASA Board did not authorize Morgan Stanley to
solicit interest from any party other than Delta, and the ASA Board did not,
within the most recent two fiscal years of ASA, have discussions with any person
other than Delta with respect to the acquisition of ASA or substantially all of
its assets. The ASA Board unanimously approved the proposed transaction and the
Merger Agreement. The Merger Agreement was signed that evening and the
transaction was announced on the morning of February 16, 1999.
Delta Sub commenced the Offer on February 22, 1999. Pursuant to the Offer,
which expired on March 19, 1999, Delta Sub purchased 18,011,033 Shares
(representing approximately 88% of the Shares outstanding on such date that were
not already beneficially owned by Delta prior to commencement of the Offer).
After giving effect to this purchase, Delta beneficially owned approximately 91%
of all outstanding Shares. Shortly thereafter, Messrs. G. Pickett, J. Beiser, A.
Voorhees, R. Voorhees and G. Berry resigned from the ASA Board and Maurice W.
Worth, Malcolm B. Armstrong, Vicki B. Escarra, Warren C. Jenson and Frederick W.
Reid were elected as directors of ASA.
Contacts or Negotiations between Delta and Other Persons With Respect to
ASA
On December 18, 1998, certain Delta representatives met with
representatives of Comair Holdings, Inc. ("Comair"), a Delta Connection carrier
in which Delta has an approximately 21% beneficial ownership interest. At that
meeting, the parties discussed various aspects of the relationship between Delta
and Comair, and exchanged views as to the strategic direction of the regional
commuter market and the Delta Connection program. This included an
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exploratory discussion of the concept of a joint venture that would include
certain of Delta's, ASA's and Comair's operations. Delta subsequently informed
Comair that Delta was considering various alternatives with respect to its
relationship with ASA and it did not at such time intend to pursue further
discussions with Comair concerning such a concept.
The Shareholders Agreement
Delta entered into a shareholders agreement, dated as of February 15, 1999
(the "Shareholders Agreement"), with George F. Pickett, John W. Beiser,
Elizabeth H. Pickett and Maureen W. Beiser (collectively, the "Interested
Shareholders"). Pursuant to the Shareholders Agreement, each Interested
Shareholder agreed to tender, or cause to be tendered, upon the request of Delta
(and agreed that, subject to applicable law, he or she will not withdraw),
pursuant to and in accordance with the terms of the Offer, all outstanding
Shares beneficially owned by such Interested Shareholder. Further, the
Interested Shareholders agreed not to vote any Shares in favor of the approval
of any (i) Acquisition Proposal, (ii) reorganization, recapitalization,
liquidation or winding up of ASA or any other extraordinary transaction
involving ASA, (iii) corporate action the consummation of which would frustrate
the purposes, or prevent or delay the consummation, of the transactions
contemplated by the Merger Agreement or (iv) other matter relating to, or in
connection with, any of the foregoing matters.
The foregoing description of the Shareholders Agreement does not purport to
be complete and is qualified in its entirety by reference to the Shareholders
Agreement which is filed as Exhibit (c)(6) to Delta's Tender Offer Statement on
Schedule 14D-1 filed on February 22, 1999 (the "Delta Schedule 14D-1") and is
incorporated herein by reference.
The Confidentiality Agreement
On February 9, 1999, Delta and ASA entered into the Confidentiality
Agreement, under which ASA agreed to provide certain confidential information
relating to its operations to Delta. Pursuant to the Confidentiality Agreement,
Delta agreed that Delta and its representatives would hold non-public
information received from ASA under the Confidentiality Agreement in confidence,
except to the extent that disclosure is legally mandated or compelled by any
court, tribunal or governmental authority. The Confidentiality Agreement does
not limit Delta's use of any information which (i) was previously known by Delta
or its representatives, (ii) was independently developed by Delta or its
representatives, (iii) was acquired by Delta or its representatives from a third
party which is not obligated by ASA not to disclose such information or (iv)
which is or becomes publicly available through no breach by Delta of its
obligations under the Confidentiality Agreement. The foregoing description of
the Confidentiality Agreement does not purport to be complete and is qualified
in its entirety by reference to the Confidentiality Agreement which is filed as
exhibit 19 to ASA's Solicitation/Recommendation Statement on Schedule 14D-9
dated February 22, 1999 (the "ASA Schedule 14D-9"), and is incorporated herein
by reference.
Recommendation and Reasons of the ASA Board
Recommendation of the ASA Board
At a meeting of the ASA Board on February 15, 1999, the ASA Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby and determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to, and in
the best interests of, the holders of Shares. The ASA Board recommends that
ASA's shareholders approve the Merger and adopt the Merger Agreement.
Reasons for the Recommendation of the ASA Board
In reaching its conclusions with respect to the Offer, the Merger and the
Merger Agreement, the ASA Board considered a number of factors, including the
following:
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(1) The familiarity of the ASA Board with the financial condition, results
of operations, business and prospects of ASA (as reflected in ASA's historical
and projected financial information), current economic and market conditions
generally and in the airline industry specifically;
(2) That ASA's financial condition, results of operations, business and
prospects were substantially dependent on ASA's relationship with Delta and
ASA's role as a Delta Connection carrier and that the Delta Connection Agreement
was terminable by Delta upon 30 days' notice;
(3) That Delta had advised ASA that it was dissatisfied with ASA's
performance and service levels;
(4) That discussions between Delta and ASA's management with respect to
revenue reallocation and cost sharing arrangements proposed by Delta as part of
the negotiation for renewing the Delta Connection Agreement would, in the view
of ASA's management, be likely to reduce ASA's net income by approximately $21
million in 1999 and by approximately $45-$55 million in each year thereafter
from the net income of ASA previously projected by ASA's management, and the
fact that ASA's management did not believe it could negotiate terms that would
be materially more favorable to ASA;
(5) That Delta had proposed other changes to its commercial relationship
with ASA, the effect of which ASA's management could not readily quantify at the
time but which ASA's management believed would adversely affect further the
future financial performance of ASA, including Delta's proposals to impose upon
ASA new charges for the payment of overrides to travel agents' commissions, to
specify markets into which ASA's regional jets would be deployed, and to impose
fees for passengers not connecting with Delta flights and service performance
penalties;
(6) That the $34.00 per Share in cash to be paid in the Offer and the
Merger would represent a significant premium to the price at which the Shares
would likely trade once the anticipated renegotiated Delta Connection Agreement
provisions became effective and publicly known;
(7) That ASA's relationship with Delta within the Southeastern United
States was not exclusive and that Delta could at any time bring in other Delta
Connection carriers into markets served by ASA;
(8) That Delta had rejected recent proposals for ASA to introduce service
into new markets as a Delta Connection carrier, using Delta's designator code,
which severely restricted ASA's ability to expand its operations on a profitable
basis;
(9) The opinion of ASA's financial advisor, Morgan Stanley, that as of the
date of such opinion, the $34.00 per Share to be offered to the shareholders of
ASA pursuant to the Offer and the Merger is fair from a financial point of view
to such shareholders (other than Delta and its affiliates) (see "--Opinion of
Financial Advisor to the ASA Board");
(10) The fact that the Merger Agreement provides for a first-step cash
tender offer for all outstanding Shares thereby enabling all shareholders who
tender their Shares to receive promptly $34.00 per Share in cash, and that
shareholders who do not tender their Shares will receive the same cash price in
the subsequent Merger;
(11) The other terms and conditions of the Offer, the Merger and the Merger
Agreement, including the fact that the Merger Agreement does not preclude the
ASA Board from considering other bids that could reasonably lead to a Superior
Proposal (as defined below). In particular, the Merger Agreement permits the ASA
Board (i) to furnish information to, and engage in discussions or negotiations
with, third parties who make a proposal to acquire or invest in ASA or engage in
any other business combination or similar transactions with ASA if the ASA Board
reasonably believes in good faith, after consultation with an investment bank of
nationally recognized reputation and outside legal counsel, that such proposal
is bona fide and could reasonably lead to the delivery of a proposal to acquire
at least a majority of the outstanding Shares that the ASA Board determines in
good faith,
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after consulting with an investment bank of nationally recognized reputation
reputation and its outside legal counsel, would result in a transaction, if
consummated, that is more favorable to ASA's shareholders (other than Delta and
its affiliates), from a financial point of view (a "Superior Proposal") and
that furnishing such information or engaging in such discussions or
negotiations is required for the ASA Board to comply with its fiduciary duties
under applicable law and (ii) after receipt of a Superior Proposal, to
terminate the Merger Agreement and enter into a binding agreement with respect
to such a Superior Proposal after providing Delta with two business days'
notice of its intention to do so, specifying the material terms and conditions
of such Superior Proposal, considering in good faith any revised proposal that
Delta may make, and paying Delta a termination fee of $5,000,000;
(12) A review of possible alternatives to the Offer and the Merger, the
range of possible benefits and risks to the shareholders of such alternatives,
the timing and likelihood of accomplishing any such alternatives, and the effect
of Delta's ownership of approximately 28% of the Shares and commercial
relationship with ASA on ASA's ability to pursue any of these alternatives; and
(13) The likelihood that the Offer and the Merger will be consummated,
including the fact that the obligations of Delta and Delta Sub are not
conditioned upon obtaining any financing.
On March 10, 1999, Delta, Delta Sub and ASA entered into an amendment to
the Merger Agreement to eliminate the $5,000,000 termination fee payable by ASA
to Delta if ASA or Delta were to terminate the Merger Agreement as a result of
ASA's receiving and accepting a Superior Proposal.
The foregoing discussion of the information and factors considered and
given weight by the ASA Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger Agreement, the ASA Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the ASA Board
may have given different weights to different factors.
The ASA Board did not consider an alliance with another major air carrier
as a viable option to mitigate the anticipated effects of a renegotiation of the
Delta Connection Agreement since the ASA Board understood, among other things,
that in light of the concentration of ASA's operations in the Southeastern
United States and Atlanta, in particular, such an alliance would not have as
high a value to a major carrier that did not have as significant an operating
presence in Atlanta as Delta.
On behalf of ASA, the ASA Board hired an independent financial advisor,
Morgan Stanley, in connection with the evaluation and negotiation of the terms
of the Offer, the Merger and other matters arising in connection therewith. At
the time the Merger Agreement was entered into, none of the members of the ASA
Board were affiliated with Delta or Delta Sub and five of the seven members of
the ASA Board were nonemployees of ASA.
In reaching its conclusions with respect to the Offer and the Merger
Agreement, the ASA Board adopted the conclusions reached by Morgan Stanley,
ASA's financial advisor, in its opinion to the ASA Board of February 15, 1999.
In light of the nature of ASA's business, the ASA Board did not deem net book
value or liquidation value to be relevant indicators of the value of Shares.
Certain Projections for ASA
The following sets forth certain financial projections (the "Projections")
for ASA for the fiscal years ending December 31, 1999 through 2003 and includes
ASA management's best estimate as to the effect of Delta's proposed revenue
reallocation and cost sharing arrangements upon ASA's revenues and income during
this period. ASA does not in the ordinary course publicly disclose projections
as to future revenues or earnings and the Projections were not prepared with a
view to public disclosure. These Projections were not prepared in accordance
with generally accepted accounting principles and ASA's independent accountants
have not examined or compiled any of the following Projections or expressed any
conclusion or provided any other form of assurance with respect to such
Projections.
15
<PAGE>
Accordingly, ASA's independent accountants assume no responsibility for such
Projections. The Projections were delivered to Morgan Stanley solely in
connection with their due diligence investigation of ASA in order for them to
prepare the financial analysis described below in connection with the Offer and
the Merger. The Projections were prepared with a limited degree of precision,
and were not prepared with a view to compliance with the guidelines established
by the American Institute of Certified Public Accountants regarding projections,
which would require more complete presentation of data than as shown below.
Adjusted Projected Income Statement
(all amounts in millions of dollars, except for per Share data and percentages)
<TABLE>
1998(A) 1999(E) 2000(E) 2001(E) 2002(E) 2003(E)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Passenger Revenue (a)......... 400.2 461.2 539.9 591.1 613.5 637.1
Revenue Reallocation (b)(c)... -- (25.0) (58.6) (64.1) (66.6) (69.1)
Other Revenue................. 9.7 7.2 8.4 9.2 9.6 9.9
Adjusted Revenue.............. 409.9 443.4 489.8 536.2 556.5 578.0
Operating Expense............. 313.8 360.5 418.8 461.9 482.8 499.0
Incremental Cost Sharing (c).. 8.0 9.4 10.3 10.6 11.1
Adjusted Operating Expense.... 313.8 368.5 428.2 472.2 493.4 510.0
Operating Income.............. 96.1 74.8 61.6 64.0 63.0 67.9
Operating Margin.............. 23.4% 16.9% 12.6% 11.9% 11.3% 11.8%
Non-Operating Income.......... 10.2 10.5 9.9 12.7 15.3 17.6
Pre-Tax Income................ 106.3 85.3 71.5 76.7 78.3 85.5
Pre-Tax Margin................ 25.9% 19.2% 14.6% 14.3% 14.1% 14.8%
Income Tax Provision.......... 40.1 32.2 27.0 28.9 29.6 32.3
Net Income.................... 66.1 53.1 44.5 47.7 48.8 53.2
Net Margin.................... 16.1% 12.0% 9.1% 8.9% 8.8% 9.2%
Shares Outstanding............ 29.7 28.7 28.7 28.7 28.7 28.7
Adjusted Earnings Per Share... $2.22 $1.85 $1.55 $1.66 $1.70 $1.86
Unadjusted Earning Per Share.. $2.22 $2.61 $3.12 $3.42 $3.58 $3.85
Difference.................... ($0.76) ($1.57) ($1.76) ($1.88) ($1.99)
% Decrease.................... (29.1)% (50.3)% (51.4)% (52.5)% (51.8)%
- -------------------
(a) Projections for passenger revenue assume growth in available seat miles
consistent with ASA's projected fleet plan, a constant passenger load
factor of 56.8% and a yield that declines to 33.5 cents per passenger mile
in 2001.
(b) Projections with respect to revenue reallocation were calculated based on
$50 million or 10.85% of estimated passenger revenue for 1999. A pro rata
percentage of 10.85% was used for 2000 through 2003 and a percentage of
5.425% was used for 1999 since the revenue reallocation was to phase in
during 1999.
(c) Of the Delta Connection renegotiation items, only the financial impact of
revenue reallocation and incremental cost sharing (of computer reservation
service fees) were included in ASA management's projections. (See number
(5) under "--Recommendation and Reasons of the ASA Board" for other cost
elements that were not readily quantifiable by management).
</TABLE>
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Opinion of Financial Advisor to the ASA Board
ASA retained Morgan Stanley to act as its financial advisor in connection
with the Offer and the Merger and related matters based upon Morgan Stanley's
qualifications, expertise and reputation. On February 15, 1999, Morgan Stanley
delivered its oral opinion to the ASA Board that, as of such date and based upon
the procedures and subject to the assumptions and qualifications described to
ASA Board and later set forth in the written opinion of Morgan Stanley dated
February 15, 1999, the consideration to be received by the holders of Shares
pursuant to the Merger Agreement was fair from a financial point of view to such
holders (other than Delta and its affiliates).
The full text of Morgan Stanley's written opinion dated as of February 15,
1999, which sets forth, among other things, assumptions made, matters
considered, and scope and limitations on the review undertaken (the "Morgan
Stanley Opinion"), is attached as Annex A hereto and is incorporated herein by
reference. Holders of Shares are urged to, and should, read the Morgan Stanley
Opinion carefully and in its entirety. The Morgan Stanley Opinion is directed to
the ASA Board and the fairness of the consideration, from a financial point of
view, to the holders of Shares (other than Delta and its affiliates) pursuant to
the Merger Agreement and it does not address any other aspect of the Merger. The
summary of the Morgan Stanley Opinion set forth herein is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, Morgan Stanley (i) reviewed certain publicly
available financial statements and other information of ASA; (ii) reviewed
certain internal financial statements and other financial and operating data
concerning ASA prepared by the management of ASA; (iii) analyzed certain
financial projections prepared by the management of ASA; (iv) discussed the past
and current operations and financial condition and the prospects of ASA,
including ASA's expected future relationship with Delta, with senior executives
of ASA; (v) reviewed the reported prices and trading activity for the Shares;
(vi) compared the financial performance of ASA and the prices and trading
activity of the Shares with that of certain other comparable publicly-traded
companies and their securities; (vii) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives of ASA
and Delta and their financial and legal advisors; (ix) reviewed the Merger
Agreement and certain related documents; and (x) performed such other analyses
and considered such other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of the Morgan Stanley Opinion. With
respect to the financial projections, Morgan Stanley assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of ASA. In addition, Morgan
Stanley assumed that the Offer and the Merger would be consummated on the terms
set forth in the Merger Agreement. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities of ASA, nor was Morgan
Stanley furnished with any such appraisals. The Morgan Stanley Opinion was
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date of the Morgan
Stanley Opinion.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any party, nor did it have discussions with
any party other than Delta with respect to the acquisition of ASA or any of its
assets.
Below is a brief summary of certain analyses performed by Morgan Stanley
and reviewed with the ASA Board on February 15, 1999 in connection with the
preparation of the Morgan Stanley Opinion and with its oral presentation to the
ASA Board on such date. Due to the anticipated revenue reallocation and cost
sharing arrangements proposed by Delta as part of the negotiations for the
renewal of the Delta Connection Agreement between ASA and Delta, ASA adjusted
its financial projections to reflect ASA management's best estimate of certain
of such arrangements and provided the projections as of February 11, 1999 to
Morgan Stanley. The Projections are set out above under "Recommendation and
Reasons of the ASA Board-- Certain Projections for ASA". As such, the unaffected
market price of the Shares on the business day prior to the announcement of the
Merger Agreement was not an appropriate
17
<PAGE>
means of valuation because it did not reflect the impact of the Projections and,
consequently, Morgan Stanley based its analyses on the Projections.
Value Impact of Projections. Using the market price of the Shares on
February 12, 1999 of $31.94 and median IBES earnings per share estimates as of
February 12, 1999, Morgan Stanley calculated (i) the multiple of the current
market price per common share to earnings per share estimates for 1999 of 12.0x
and (ii) the multiple of the current market price per common share to earnings
per share estimates for 2000 of 10.4x. Applying these multiples to the
Projections of earnings for 1999 and 2000, Morgan Stanley calculated adjusted
estimated Share prices of $15.60 and $16.12, respectively.
Comparable Public Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of ASA with corresponding publicly
available information of a group of five publicly-traded regional airline
companies that Morgan Stanley considered comparable in certain respects with ASA
(the "Comparable Public Companies"), which group included: Comair; Mesa Air
Group, Inc.; Atlantic Coast Airlines Holdings, Inc.; SkyWest, Inc.; and Mesaba
Holdings, Inc.
Morgan Stanley analyzed the relative performance of ASA by comparing
certain market trading statistics for ASA with those of the Comparable Public
Companies. The market trading information used in ratios provided below is as of
February 12, 1999. The market trading information used in the valuation analysis
was (i) market price to estimated earnings per share for 1999 and (ii) market
price to estimated earnings per share for 2000. Earnings estimates for ASA were
based on the Projections. Earnings per share estimates for the Comparable Public
Companies were based on median IBES estimates as of February 12, 1999. An
analysis of the multiples for the Comparable Public Companies yielded (i)
multiples of the current market price per common share to earnings per share
estimates for 1999 of 12.2x to 16.6x, with a mean of 15.1x and a median of 15.3x
and (ii) multiples of the current market price per common share to earnings per
share estimates for 2000 of 9.4x to 14.4x, with a mean of 12.4x and a median of
12.1x. Applying (i) multiples of 12.0x to 16.5x to 1999 estimated earnings of
ASA and (ii) multiples of 10.5x to 14.5x to 2000 estimated earnings of ASA,
Morgan Stanley calculated ranges of implied equity share values for the Shares
of $16 to $22 and $16 to $23, respectively, and an overall mean range of $16 to
$22.
Precedent Transaction Analysis. Using publicly available information,
Morgan Stanley performed an analysis of two precedent transactions (the
"Precedent Airline Transactions") in the regional air carrier business segments
that Morgan Stanley deemed comparable to the Offer and the Merger. The two
transactions constituting the Precedent Airline Transactions were
(acquiror/acquiree): American Airlines, Inc./Reno Air, Inc. and Mesa Air Group
Inc./CCAir, Inc. Morgan Stanley calculated that the premium to unaffected stock
price in the American Airlines, Inc./Reno Air, Inc. and Mesa Air Group
Inc./CCAir, Inc. transactions was 51.9% and 24.4%, respectively, with a mean of
38.2% and a median of 38.2%. After combining the results of the Precedent
Airline Transactions with data from Securities Data Corporation indicating that
the mean and medium premiums paid in certain "going private" transactions during
the past five years was 43.0% and 30.0%, respectively, Morgan Stanley calculated
a range of implied equity value share values of $21 to $32 based on a range of
premiums from 30.0% to 45.0% applied to the values derived from the Comparable
Public Company analysis.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis of ASA for the fiscal years ended 1999 through 2003 based on the
Projections. Unlevered free cash flows of ASA were calculated as net income plus
depreciation and amortization plus deferred taxes plus other non-cash expenses
plus after-tax net interest expense less capital expenditures less investment in
working capital. Morgan Stanley calculated terminal values by applying a range
of perpetual growth rates to the unlevered free cash flows in fiscal 2003 from
3.0% to 5.0%, representing estimated ranges of long-term cash flow growth rates
for ASA. The unlevered cash flow streams and terminal values were then
discounted to the present using a range of discount rates from 11.0% to 12.0%,
representing an estimated weighted average cost of capital range for ASA. The
discounted values representing the aggregate values were then adjusted by adding
cash and subtracting debt to arrive at implied equity values. Based on this
analysis, Morgan Stanley calculated implied per share equity values for ASA
ranging from $20 to $25.
18
<PAGE>
No company or transaction used in the Comparable Public Company and
Precedent Transaction is identical to ASA or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating characteristics
of ASA and other general business, economic, market, or financial factors that
could affect the public trading value of the companies to which they are being
compared. Mathematical analysis (such as determining the average or the median)
is not itself a meaningful method of using comparable public company data.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analysis as a whole and did not attribute any particular weight to any analysis
or factor considered by it. Morgan Stanley believes that selecting any portion
of Morgan Stanley's analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of ASA.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ASA. The analyses
performed by Morgan Stanley are not necessarily indicative of actual value,
which may be significantly more or less favorable than suggested by such
analyses. Such analyses were performed solely as part of Morgan Stanley's
analysis of whether the consideration to be received by the holders of Shares
pursuant to the Merger Agreement was fair from a financial point of view to such
holders (other than Delta and its affiliates), and were conducted in connection
with the delivery of the Morgan Stanley Opinion. The analyses do not purport to
be appraisals or to reflect the prices at which ASA might actually be sold.
As described above, the Morgan Stanley Opinion provided to the ASA Board
was one of a number of factors taken into consideration by the ASA Board in
making its determination to recommend adoption of the Merger Agreement and the
transactions contemplated thereby. Consequently, the Morgan Stanley analyses
described above should not be viewed as determinative of the opinion of the ASA
Board or the view of the management with respect to the value of ASA.
The consideration to be received by the holders of Shares pursuant to the
Merger Agreement was determined through negotiations between ASA and Delta and
was approved by the entire ASA Board.
The ASA Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of business and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuation for estate, corporate and other purposes. Morgan Stanley has
advised ASA that, in the ordinary course of its business, Morgan Stanley and its
affiliates may actively trade the debt and equity securities or senior loans of
ASA and Delta for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short term position in such
securities. In the past, Morgan Stanley has provided investment banking services
to Delta unrelated to the Offer and Merger, for which services Morgan Stanley
has received compensation. In December 1998, Morgan Stanley acted as agent in
connection with a private placement of Delta notes for which Delta paid Morgan
Stanley a fee not in excess of $200,000, and such fee was the only fee paid by
Delta to Morgan Stanley in 1998. No fees have been paid by Delta to Morgan
Stanley in 1999. Morgan Stanley and its affiliates may maintain relationships
with ASA and Delta in the future.
Pursuant to a letter agreement between ASA and Morgan Stanley, dated
February 11, 1999, ASA has agreed to pay Morgan Stanley: (A) if no Merger
Agreement is entered into, an "Advisory Fee" calculated to be approximately
$100,000, (B) if the Merger Agreement is entered into or the Offer is commenced,
an "Agreement Fee" equal to $1,500,000 or (C) if the Offer is consummated, a
"Transaction Fee" equal to $5,000,000 against which any Advisory Fee or
Agreement Fee will be credited. The full amount of the Transaction Fee is to be
paid by ASA when control of
19
<PAGE>
50% or more of the Shares changes hands. In addition to any fees for
professional services, Morgan Stanley will also be reimbursed for expenses
incurred in connection with Morgan Stanley's representation of ASA. ASA has also
agreed to indemnify Morgan Stanley and its affiliates against certain
liabilities, including liabilities under the federal securities laws, related
to, arising out of or in connection with the engagement of Morgan Stanley by
ASA.
The foregoing summary does not purport to be a complete description of the
analyses performed by Morgan Stanley and is qualified in its entirety by
reference to the Morgan Stanley Opinion attached as Annex A hereto.
Position of Delta and Delta Sub Regarding Fairness of the Merger
Delta and Delta Sub believe that the consideration to be received by ASA's
shareholders pursuant to the Merger is fair to such shareholders. Delta and
Delta Sub base their belief on the following facts:
(i) the fact that the ASA Board concluded that the Offer and the
Merger are fair to, and in the best interests of, ASA's shareholders;
(ii) notwithstanding the fact that Morgan Stanley's opinion was
addressed to the ASA Board and that neither Delta nor Delta Sub is entitled
to rely on such opinion, the fact that the ASA Board received an opinion
from Morgan Stanley that, as of the date of such opinion and based on and
subject to certain matters stated in such opinion, the consideration to be
paid in the Offer and the Merger is fair to the holders of Shares (other
than Delta and its affiliates) from a financial point of view;
(iii) the long-term value and prospects of ASA given the fact that the
marketing arrangements between Delta and ASA are terminable on 30 days'
written notice and hence subject to renegotiation;
(iv) the fact that the Offer constitutes a 6.5% premium over the
closing market price of ASA's Shares on February 12, 1999, the business day
immediately prior to the date on which the Offer was announced;
(v) the fact that the same consideration will be paid in both the
Offer and the Merger;
(vi) the fact that the Offer and the Merger will each provide
consideration to ASA's shareholders entirely in cash;
(vii) the fact that, because of the current marketing alliance between
Delta and ASA pursuant to the Delta Connection Agreement, ASA has a higher
value to Delta than it holds for any other potential bidder; and
(viii) the terms and conditions of the Offer, the Merger and the
Merger Agreement, including the fact that the Merger Agreement does not
preclude the ASA Board from considering other bids that could reasonably
lead to a Superior Proposal, and the ASA Board's right to terminate the
Merger Agreement upon the payment of only a $5,000,000 termination fee in
order to enter into a superior proposal.
On March 10, 1999, Delta, Delta Sub and ASA entered into an amendment to
the Merger Agreement to eliminate the $5,000,000 termination fee payable by ASA
to Delta if ASA or Delta were to terminate the Merger Agreement as a result of
ASA's receiving and accepting a Superior Proposal.
Delta and Delta Sub did not find it practicable to assign, nor did they
assign, relative weights to the individual factors considered in reaching its
conclusion as to fairness. In light of the nature of ASA's business, Delta and
Delta Sub did not deem net book value or liquidation value to be relevant
indicators of the value of the Shares.
20
<PAGE>
Purpose and Structure of the Merger; Reasons of Delta for the Merger
The purpose of the Merger is for Delta to increase Delta's ownership of ASA
from approximately 91% to 100%. Upon consummation of the Merger, ASA will become
an indirect, wholly-owned subsidiary of Delta. The acquisition of the Shares not
owned by Delta and its affiliates was structured as a cash tender offer followed
by a cash merger so as to effect a prompt and orderly transfer of ownership of
ASA from ASA's public shareholders to Delta and Delta Sub, and so as to provide
such shareholders with cash for all of their Shares.
Under the GBCC, the approval of the ASA Board and the affirmative vote of a
majority of the votes entitled to be cast by the holders of all the outstanding
Shares as of the Record Date are required to approve and adopt the Merger
Agreement. The ASA Board has approved and adopted the Merger Agreement and the
transactions contemplated thereby, and the only remaining required corporate
action of ASA is the approval and adoption of the Merger Agreement by a majority
vote of ASA shareholders. Delta has agreed to vote all Shares it beneficially
owns in favor of adoption of the Merger Agreement. Because Delta and its
affiliates own approximately 91% of the outstanding Shares as of the Record
Date, adoption of the Merger Agreement is assured without the vote of any other
shareholder.
Delta has decided to acquire ASA at this time to improve customer service
and to strengthen its financial position. Delta believes customer service
improvements will result from more closely integrated flight schedules between
the two airlines, new service opportunities and the implementation at ASA of
operational improvements and efficiencies that Delta has developed in the last
few years. Delta also believes that the acquisition will generate revenue
benefits through more efficient operations, market growth, better utilization of
aircraft at both airlines and improved business functions such as integrated
scheduling, market planning and revenue management.
Plans for ASA after the Merger
After the Merger, it is expected that W. E. Barnette, who is currently
Vice President-Atlanta Worldport of Delta, will serve as President of ASA;
Ronald V. Sapp, who is currently Chief Financial Officer and Senior Vice
President-Finance of ASA, will continue to serve in those positions; and
Edward J. Paquette, who is currently Senior Vice President-Operations of ASA,
will continue to serve in the same position.
Except for the transactions contemplated by the Merger Agreement, Delta has
no current plans or proposals which relate to or would result in: (a) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving ASA; (b) a sale or transfer of a material amount of assets
of ASA; (c) any change in the management of ASA or any change in any material
term of the employment contract of any executive officer; or (d) any other
material change in ASA's corporate structure or business.
Nevertheless, Delta may initiate a review of ASA and its assets, corporate
structure, capitalization, operations, properties, policies, management and
personnel to determine what changes, if any, would be desirable following the
Merger in order best to organize and coordinate the activities of ASA and Delta.
Furthermore, in connection with its ongoing review of its long term strategy
with respect to the utilization of regional jets in Delta's route network, Delta
may, in the future, consider transactions such as the disposition or acquisition
of material assets, alliances, joint ventures, other forms of co-operation with
third parties or other extraordinary transactions affecting ASA or its
operations.
Accounting Treatment
The Merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. Therefore, the
purchase price will be allocated based upon the fair value of assets acquired
and liabilities assumed.
21
<PAGE>
Merger Agreement
The following is a summary of the material provisions of the Merger
Agreement, as amended through the date hereof, which relate to the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is filed as Exhibit 4 to the ASA
Schedule 14D-9, and Amendment No. 1 to the Merger Agreement, which is filed as
Exhibit 23 to the ASA Schedule 14D-9, as amended through the date hereof, and
each of which is incorporated herein by reference. Shareholders are urged to
read the Merger Agreement in its entirety and to consider it carefully.
Appointment of ASA Directors by Delta
The Merger Agreement provides that, effective upon the acceptance for
payment by Delta Sub of any Shares pursuant to the Offer, Delta will be entitled
to designate the number of directors, rounded up to the next whole number, on
the ASA Board that equals the product of the total number of directors on the
ASA Board (giving effect to the election of any additional directors pursuant to
this provision) multiplied by the percentage that the number of Shares
beneficially owned by Delta (including Shares accepted for payment) bears to the
total number of Shares outstanding. In furtherance thereof, ASA will take all
action necessary to cause Delta's designees to be elected or appointed to the
ASA Board, including, without limitation, increasing the number of directors and
seeking and accepting resignations of incumbent directors. Effective upon such
acceptance for payment, ASA will use its best efforts to cause individuals
designated by Delta to constitute the same percentage as such individuals
represent on the ASA Board of (i) each committee of the Board and (ii) each
board of directors (and committee thereof) of each subsidiary of ASA.
Notwithstanding the foregoing, prior to the Effective Time, ASA will use its
reasonable best efforts to cause at least two persons who are not employees of
ASA or affiliated with Delta (the "Independent Directors") to be members of the
ASA Board.
Pursuant to these provisions, shortly after Delta Sub had purchased Shares
in the Offer which, together with the other Shares already beneficially owned by
Delta on such date, comprised approximately 91% of all outstanding Shares, all
members of the ASA Board except for Messrs. P. Petit and J. Mori resigned, and
Messrs. Worth, Armstrong, Jenson and Reid and Ms. Escarra were elected as
directors of ASA.
The Merger
The Merger Agreement provides that as promptly as practicable after all
conditions to the Merger set forth therein have been satisfied or, to the extent
permitted thereunder, waived, Delta Sub will be merged with and into ASA in
accordance with the GBCC. As a result of the Merger, the separate existence of
Delta Sub will cease and ASA will continue as the Surviving Corporation. At the
Effective Time, each Share outstanding immediately prior to the Effective Time
(other than Shares held in the treasury of ASA, Shares owned by Delta and its
affiliates or Shares as to which dissenters' rights have been exercised) will be
converted into the right to receive the Merger Consideration.
Merger Consideration
In the Merger, each outstanding Share will be converted, by virtue of the
Merger and without any action on the part of the ASA shareholders, into the
right to receive $34.00 per Share in cash, without interest thereon.
Effective Time
The Merger shall become effective at such time as the Merger Agreement is
approved by ASA shareholders and the Articles of Merger are duly filed with the
Secretary of State of the State of Georgia (the "Effective Time").
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<PAGE>
Exchange and Payment Procedures
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each record holder of an outstanding certificate representing a Share
immediately prior to the Effective Time, a letter of transmittal and
instructions for use in effecting the surrender of such certificate in exchange
for the Merger Consideration. Upon surrender to the Exchange Agent of a
certificate representing a Share, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such certificate shall be entitled to receive the Merger
Consideration. Until surrendered in accordance with the foregoing instructions,
each certificate representing a Share will represent for all purposes only the
right to receive the Merger Consideration. Any Merger Consideration made
available to the Exchange Agent that remains unclaimed by shareholders for six
months after the Effective Time will be delivered to Delta, and any ASA
shareholders who have not theretofore made an exchange must thereafter look to
Delta for payment of their claim for Merger Consideration.
Transfer of Shares
No transfer of Shares will be made on the share transfer books of ASA after
the Effective Time. If, at or after the Effective Time, certificates of Shares
are presented, they will be canceled and exchanged for the right to receive
$34.00 in cash per Share as provided in "--Exchange and Payment Procedures."
Stock Options
At the Effective Time, each option to purchase Shares outstanding under any
stock option or compensation plan or arrangement of ASA that is vested and
exercisable (including any option that becomes vested and exercisable by its
terms as a result of the transactions contemplated in the Merger Agreement),
shall be canceled, and in consideration thereof, Delta will pay to the holder of
each such option promptly after the Effective Time an amount in cash determined
by multiplying (i) the excess, if any, of the amount of the Merger Consideration
over the applicable per Share exercise price of such option by (ii) the number
of Shares to which such option relates.
Representations and Warranties
The Merger Agreement contains various customary representations and
warranties of the parties thereto, including, without limitation,
representations (i) by ASA, Delta and Delta Sub as to their respective corporate
status, the authorization and the enforceability of the Merger Agreement against
each such party, the information to be provided by each such party for inclusion
in Commission filings related to the Offer and the Merger, finders' fees and
noncontravention and (ii) by ASA as to its capitalization, its subsidiaries, the
accuracy of its financial statements and filings with the Commission, compliance
with laws, the absence of undisclosed material liabilities, the absence of
certain changes or events concerning ASA's business from December 31, 1997 to
the date of the Merger Agreement, the absence of material litigation, certain
tax matters, certain employee benefit and pension plan matters, certain
environmental matters, assets, certain labor matters, insurance, the
inapplicability of Georgia anti-takeover statutes, year 2000 compliance and the
identification of and absence of material adverse changes with respect to its
material contracts. The representations and warranties contained in the Merger
Agreement will not survive the Effective Time.
Covenants
The Merger Agreement contains various customary covenants of the parties
thereto. A description of certain of these covenants follows:
Shareholder Meeting. Unless a shareholder vote is not required under
Georgia Law, ASA will cause a meeting of its shareholders to be duly called
and held as soon as reasonably practicable following the consummation of
the Offer for the purpose of voting on the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. In connection
with such meeting, ASA (i) will use its reasonable best efforts to obtain
the necessary approvals by its shareholders of the Merger Agreement and the
transactions contemplated thereby
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(subject to fiduciary duties under applicable law) and (ii) will otherwise
comply with all legal requirements applicable to such meeting.
The ASA Board will recommend approval and adoption of the Merger
Agreement and the transactions contemplated thereby by ASA's shareholders
(the "Recommendation"), and neither the ASA Board nor any committee thereof
will amend, modify, withdraw, condition or qualify the Recommendation in a
manner adverse to Delta or take any action or make any statement
inconsistent with the Recommendation unless (i) the ASA Board determines in
good faith, after consultation with outside legal counsel, that it must
take such action(s) to comply with its fiduciary duties under applicable
law, (ii) a Superior Proposal (as defined below) is pending at the time the
ASA Board determines to take any such action(s) and (iii) ASA has provided
reasonable prior notice advising Delta that it intends to take such action.
Nothing contained in the Merger Agreement shall prevent the ASA Board from
complying with Rule 14e-2 under the Exchange Act with respect to any
Acquisition Proposal (as defined below).
As of February 15, 1999, ASA is obligated to immediately cease and
cause its advisors, agents and other intermediaries to cease any and all
existing activities, discussions or negotiations with any parties conducted
prior to such date with respect to any of the foregoing, and must use its
reasonable best efforts to cause any such parties in possession of
confidential information about ASA that was furnished by or on behalf of
ASA in connection with any of the foregoing to return or destroy all such
information in the possession of any such party or in the possession of any
agent or advisor of any such party.
Reasonable Best Efforts. Subject to the terms and conditions of the
Merger Agreement, each party to the Merger Agreement will use its
reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated
by the Merger Agreement; provided that nothing in the Merger Agreement
shall oblige Delta or ASA or any of its affiliates to agree to dispose of,
agree to cease operating or agree to hold separate any business, properties
or assets which are material to the business or operations, as such
business or operations are currently conducted, of ASA or of Delta and its
subsidiaries (including, in either case, without limitation, any gates at
Hartsfield Atlanta International Airport).
Public Announcements. Delta and ASA will consult with each other
before issuing any press release or making any public statement with
respect to the Merger Agreement and the transactions contemplated thereby.
Indemnification of ASA Directors and Officers. For six years after the
Effective Time, and for so long thereafter as any claim asserted prior to
such date has not been fully adjudicated, Delta will cause the Surviving
Corporation to indemnify and hold harmless the present and former officers
and directors of ASA in respect of acts or omissions occurring prior to the
Effective Time to the extent provided under the Articles of Incorporation
and Bylaws of Delta Sub in effect on February 15, 1999 (which shall become
the Articles of Incorporation and Bylaws of the Surviving Corporation
pursuant to the Merger) and Delta agrees to cause the provisions of such
Articles of Incorporation and Bylaws, insofar as they relate to such
matters, to continue in full force and effect for such period of time
without any amendment thereof; provided that such indemnification and such
obligation shall be subject to any limitation imposed from time to time
under applicable law. Delta guarantees irrevocably and unconditionally the
obligations of the Surviving Corporation under this paragraph and such
Articles of Incorporation and Bylaws. Furthermore, for six years after the
Effective Time, and for so long thereafter as any claim asserted prior to
such date has not been fully adjudicated, Delta will cause the Surviving
Corporation to use its best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such person currently covered by ASA's
officers' and directors' liability insurance policies on terms with respect
to coverage and amount no less favorable than the aggregate coverage and
amounts of such policies in effect on February 15, 1999.
Employee Benefits. During the period commencing on the Effective Time
and ending on the second anniversary thereof, Delta shall provide or cause
to be provided to employees of ASA salary and benefits no less
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favorable, in the aggregate, to the salary and benefits provided such
employees immediately prior to the Effective Time (disregarding for this
purpose any stock options or other equity-based compensation provided such
employees prior to the Effective Time).
Conditions to the Merger
The Merger Agreement provides that the obligations of ASA, Delta and Delta
Sub to consummate the Merger are subject to the satisfaction of the following
conditions: (a) if required by Georgia Law, the Merger Agreement shall have been
adopted by the shareholders of ASA in accordance with such law; (b) any
applicable waiting period under the HSR Act relating to the Merger shall have
expired or been terminated; (c) no provision of any applicable law or regulation
and no judgment, injunction, order or decree shall prohibit the consummation of
the Merger; and (d) Delta or its affiliates shall have purchased Shares pursuant
to the Offer in sufficient number to satisfy the Minimum Condition.
Termination
The Merger Agreement provides, in relevant part, that the Merger Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time (notwithstanding any approval of the Merger Agreement by the
shareholders of ASA) under the following circumstances:
(i) by mutual written consent of ASA and Delta;
(ii) by either ASA or Delta, (A) if Delta Sub shall not have purchased
Shares pursuant to the Offer by the Expiration Date; provided that (x) the
right to terminate the Merger Agreement under this subparagraph shall not
be available to any party whose breach of any provision of the Merger
Agreement has been the cause of, or resulted in, the failure of such
purchase to be made on or before the Expiration Date or (y) if the waiting
period (and any extension thereof) applicable to the consummation of the
Offer under the HSR Act shall expire or terminate less than ten business
days prior to the Expiration Date, the right to terminate the Merger
Agreement pursuant to this subparagraph shall not become effective until
the tenth business day following the Expiration Date; or (B) if there shall
be any law or regulation that makes consummation of the Offer or the Merger
illegal or otherwise prohibited or if any judgment, injunction, order or
decree enjoining Delta, Delta Sub or ASA from consummating the Offer or the
Merger is entered and such judgment, injunction, order or decree shall
become final and unappealable;
(iii) by Delta, (A) if the ASA Board shall or shall resolve to (x) not
recommend, or withdraw its approval or recommendation of, the Offer, the
Merger, the Merger Agreement or any of the transactions contemplated
thereby, (y) modify such approval or recommendation in a manner adverse to
Delta or Delta Sub or (z) approve, recommend or fail to take a position
that is adverse to any proposed Acquisition Proposal; (B) if Delta shall
have terminated the Offer without purchasing any Shares thereunder or
failed to purchase any Shares prior to the Expiration Date in accordance
with the terms of the Merger Agreement, in either case due to any event or
circumstance that would result in a failure to satisfy any of the
conditions to Delta's Offer; or
(iv) by ASA, (A) if Delta shall have failed to commence the Offer in
accordance with the terms of the Merger Agreement; or (B) if Delta shall
have terminated the Offer without purchasing any Shares due to any event or
circumstance, unless such termination shall have been caused by or resulted
from the failure of ASA to perform in any material respect any material
obligation contained in the Merger Agreement.
The Merger Agreement provides that if the Merger Agreement is terminated,
it will become void and of no effect with no liability on the part of any party
thereto, except that termination of the Merger Agreement shall be without
prejudice to any rights ASA, Delta or Delta Sub may have under the Merger
Agreement against any other party to the Merger Agreement for wilful breach of
the Merger Agreement. The agreements contained in this paragraph and under
"Certain Fees and Expenses" and relating to confidentiality of information, the
obligations of Delta Sub, the liability
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of directors and officers of ASA, governing law, third party beneficiaries and
jurisdiction shall survive the termination of the Merger Agreement.
Certain Fees and Expenses
Except as provided below, all costs and expenses incurred in connection
with the Merger Agreement will be paid by the party incurring such cost or
expense. Pursuant to the Merger Agreement, ASA will pay Delta in immediately
available funds a termination fee of $5,000,000 (the "Termination Fee") if, (i)
the Merger Agreement is terminated by Delta pursuant to clauses (A) or (B) of
paragraph (iii) under "--Termination" above; or (ii) within six months after
termination of the Merger Agreement pursuant to clause (A) of paragraph (ii)
under "-- Termination" above, ASA enters into an agreement to consummate an
Acquisition Proposal with any Third Party and such Acquisition Proposal is
subsequently consummated. If ASA fails to promptly pay any amount due described
in this paragraph and, in order to obtain such payment, Delta commences a suit
which results in a judgment against ASA for the fees set forth in this
paragraph, ASA will also pay to Delta its costs and expenses incurred in
connection with such litigation.
Amendments and Waivers
Any provision of the Merger Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by ASA, Delta and Delta Sub or in the case
of a waiver, by the party against whom the waiver is to be effective; provided
that (i) after such time that designees of Delta constitute a majority of the
ASA Board, such amendment or waiver shall be approved by a majority of the
Independent Directors (if any Independent Directors are on the ASA Board at such
time) and (ii) after the adoption of the Merger Agreement and approval of the
Merger by the shareholders of ASA, no such amendment or waiver shall, without
the further approval of such shareholders, alter or change (x) the amount or
kind of consideration to be received in exchange for any Shares, (y) any term of
the Articles of Incorporation of the Surviving Corporation or (z) any of the
terms or conditions of the Merger Agreement if such alteration or change would
adversely affect the holders of any Shares.
Certain Consequences of the Merger
Following the Merger, the holders of Shares (other than Delta and its
affiliates) will cease to participate in future earnings or growth, if any, of
ASA or benefit from any increases, if any, in the value of ASA, and they no
longer will bear the risk of any decreases in the value of ASA. Because the
Shares will be canceled as a result of the Merger, the Shares will be delisted
from the NASDAQ National Market System.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act will be terminated and ASA will be relieved of
the obligation to comply with the public reporting requirements of the Exchange
Act, including the obligation to comply with the proxy rules of Regulation 14A
and 14C under the Exchange Act. Accordingly, less information will be required
to be made publicly available to holders of Shares than presently is the case.
Certain Litigation
On February 25, 1999, Mala Nebenzahl and Alex Pappas, on behalf of
themselves and other ASA shareholders, filed a purported class action complaint
in the Superior Court of Fulton County in the state of Georgia against ASA's
directors, ASA (collectively, the "ASA Defendants") and Delta (together with the
ASA Defendants, the "Defendants"). The complaint seeks (i) to enjoin the Offer
and the Merger or to rescind these transactions if either is consummated, (ii)
unspecified compensatory and rescissory damages and (iii) costs and
disbursements of the action. The complaint alleges, among other things, that (i)
the ASA Defendants violated their fiduciary duties to ASA shareholders by
entering into the Merger Agreement and recommending the Offer and the Merger and
(ii) Delta is a controlling shareholder of ASA, has violated its fiduciary
duties to ASA shareholders because it "wrongfully used its superior position and
control
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to bring to bear pressure on the [ASA Board]" and caused the ASA Defendants to
accept an inadequate price for the Shares.
On March 9, 1999, counsel for the parties to the litigation entered into a
memorandum of understanding (the "Memorandum of Understanding") setting forth
the parties' agreement-in-principle to the terms of a proposed settlement of
that action. Under the Memorandum of Understanding, which was agreed to by the
Defendants solely to avoid the burden, expense and distraction of further
litigation, Defendants agreed to amend the Merger Agreement to eliminate the
$5,000,000 Termination Fee payable to Delta if ASA were to receive and accept a
Superior Proposal, and further agreed to provide plaintiffs' counsel with an
opportunity to review and comment upon the disclosure contained in ASA's
Information Statement prior to its dissemination to ASA shareholders. This
amendment to the Merger Agreement was effectuated on March 10, 1999. The
settlement contemplated in the Memorandum of Understanding is subject to a
number of conditions, including consummation of the Merger; completion by
plaintiffs of appropriate discovery reasonably satisfactory to plaintiffs'
counsel; drafting and execution of definitive settlement documents; and final
court approval of the settlement following notice and a hearing regarding its
fairness and adequacy to ASA shareholders other than the Defendants. If the
Court approves the settlement that is contemplated in the Memorandum of
Understanding, the Defendants and certain other parties will be released and
discharged from all claims that were or could have been raised against them in
the action and the action will be dismissed with prejudice as to a class
consisting of all ASA shareholders (other than Defendants) for the period from
February 15, 1999 through and including the Effective Time. In connection with
Court approval of the settlement contemplated in the Memorandum of
Understanding, plaintiffs' counsel intend to apply to the Court for an award of
fees and expenses to be paid by ASA or its successor corporation up to an
aggregate amount of $400,000, which Defendants have agreed in principle not to
oppose. The descriptions of the complaint and the terms of the proposed
settlement are qualified in their entirety by reference to the complaint and the
Memorandum of Understanding, copies of which comprise Exhibits 22 and 24 to the
ASA Schedule 14D-9, as amended through the date hereof, and are incorporated
herein by reference.
Regulatory Approvals
Delta and ASA filed the required Notification and Report Forms under the
HSR Act with respect to the Offer and the Merger with the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") on February 17, 1999, and February 18, 1999,
respectively. A request was made for early termination of the waiting period
applicable to the Offer and such request was granted by the FTC on February 25,
1999.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Delta's acquisition of ASA. At any
time before or after the Merger, the FTC or the Antitrust Division could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking the divestiture of Shares purchased by Delta Sub or the divestiture of
substantial assets of Delta, ASA or their respective subsidiaries. Private
parties and state attorneys general may also bring legal action under federal or
state antitrust laws under certain circumstances. There can be no assurance that
a challenge to the Merger on antitrust grounds will not be made or, if such a
challenge is made, of the result thereof.
ASA and Delta believe that there are no other material regulatory or
governmental approvals required in order for the Merger to be consummated.
Financing of the Offer and the Merger
The total amount of funds required by Delta and Delta Sub to consummate the
Offer and the Merger and to pay related fees and expenses is estimated to be
approximately $727.5 million. The Merger is not conditioned on obtaining
financing. Delta financed the consummation of the Offer and intends to finance
the consummation of the Merger through (i) its issuance on March 2, 1999 of $300
million aggregate principal amount of medium term notes (described below) and
(ii) a $500 million loan facility dated as of March 22, 1999 (described below).
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Medium Term Notes
On March 2, 1999, Delta issued $300 million aggregate principal amount of
its Medium-Term Notes, Series C (the "Notes") in an underwritten public
offering. The Notes were sold at an initial public offering price of 99.924% of
their aggregate principal amount; bear interest at the rate of 6.65% per annum,
payable semi-annually commencing September 15, 1999; and mature on March 15,
2004. The net proceeds to Delta of approximately $298 million from the sale of
the Notes were used to pay a portion of the funds required by Delta and Delta
Sub to consummate the Offer.
The Notes were issued under an Indenture dated as of May 1, 1991 (the
"Indenture"), between Delta and The Bank of New York, successor to The Citizens
and Southern National Bank of Florida, as trustee (the "Trustee"). The Notes
constitute a single series of unsecured and unsubordinated debt securities of
Delta which rank on a parity with all other unsecured and unsubordinated
indebtedness of Delta. The Notes are not subject to any negative covenants. The
Indenture includes the following events of default with respect to the Notes:
(i) failure to pay principal on the Notes within 5 business days of their
maturity; (ii) failure to pay interest on the Notes within 30 days of when due;
(iii) failure to perform any covenant of Delta in the Indenture for 60 days
after written notice is provided to Delta of such violation; (iv) a default
under any indebtedness for money borrowed by Delta or certain of its
subsidiaries which either (x) results from the failure of Delta or such
subsidiary to repay the principal amount due upon maturity in an amount in
excess of $75 million or (y) results in the acceleration of such indebtedness in
an amount in excess of $75 million, and in either case such indebtedness has not
been discharged or such acceleration has not been rescinded or annulled within
10 days after written notice is provided to Delta by the Trustee or the holders
of 25% or more of the principal amount of the Notes; and (v) certain events of
bankruptcy, insolvency or reorganization involving Delta. The Indenture also
provides that Delta may, without the consent of Noteholders, consolidate with,
or merge into, or transfer or lease its assets substantially as an entirety to,
any person, if (a) the successor person to such transaction is organized under
the laws of any U.S. jurisdiction and assumes Delta's obligations under the
Notes and (b) no default would exist and be continuing under the Notes after
giving effect to such transaction. The foregoing summary of certain provisions
of the Indenture does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Indenture, a copy of which is
filed as Exhibit (b)(2) to the Delta Schedule 14D-1.
Term Loan Facility
As of March 22, 1999, Delta entered into a $500 million loan facility with
The Chase Manhattan Bank, as administrative agent, and various lenders (the
"1999 Credit Agreement"). A summary of the principal terms of the loans under
the 1999 Credit Agreement follows.
The loans are structured to be funded in two drawings. The first drawing
occurred on March 22, 1998 following the consummation of the Offer (the "First
Drawdown Date"). The second drawing will occur in connection with the
consummation of the Merger (the "Second Drawdown Date"). Notwithstanding the
foregoing, all unfunded commitments under the 1999 Credit Agreement shall
automatically terminate on the 120th day after the First Drawdown. All
borrowings will mature on March 22, 2001. All amounts outstanding will bear
interest, at Delta's option, at the base rate plus an applicable margin or at
the Eurodollar rate plus an applicable margin (such Eurodollar borrowings being
available to Delta in interest periods of one, two, three or six months).
Interest payments on base rate borrowings shall be made quarterly in arrears,
whereas interest payments on Eurodollar borrowings shall be made at the end of
the interest period designated by Delta (but not less than once every three
months, in the case of six-month interest periods). The applicable margin for
base rate and Eurodollar borrowings will vary between 0% and 1.00% (in the case
of base rate borrowings) and between .625% and 2.00% (in the case of Eurodollar
borrowings), in each case depending on the rating applicable to Delta's long
term senior unsecured debt as established from time to time by Standard & Poor's
and Moody's Investors Service. If such ratings are below BBB- (in the case of
Standard & Poor's) and Baa3 (in the case of Moody's Investor Service), then
Delta shall be required to maintain as of the last day of each fiscal quarter a
ratio (determined on a rolling four-quarter basis) of (i) Consolidated EBITDA
(as defined in the 1999 Credit Agreement) plus Consolidated Aircraft Rentals (as
defined in the 1999 Credit Agreement) to (ii) Consolidated Interest Expense (as
defined in the 1999 Credit Agreement) plus Consolidated Aircraft Rentals, of not
less than 1.5 to 1.
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The banks' obligation to fund Delta on the Second Drawdown Date is
contingent upon the consummation of the Merger (with the aggregate cash
consideration paid to ASA shareholders in the Offer and the Merger not exceeding
$750,000,000) and other customary conditions, including the absence of any
default and the reaffirmation of representations and warranties, except
representations and warranties relating to material adverse change and certain
other matters. Delta may prepay the loans in whole or in part at any time,
subject to payment by Delta of customary "broken funding" costs, if any,
associated with any prepayment of a Eurodollar loan other than at the end of the
applicable interest period. The 1999 Credit Agreement also provides that Delta
shall pay to the banks a commitment fee of 0.20% per annum on all unfunded
commitments thereunder for the period beginning March 22, 1999 and ending on the
date on which no unfunded commitments remain in place.
The 1999 Credit Agreement contains certain covenants that restrict Delta's
ability to grant liens, to incur or guarantee debt and to enter into flight
equipment leases. It also provides that upon the occurrence of a Change of
Control of Delta (as defined in the 1999 Credit Agreement), the banks'
obligation to extend credit pursuant to the 1999 Credit Agreement terminates and
any amounts outstanding become immediately due and payable.
At April 13, 1999, borrowings of $400 million were outstanding under the
1999 Bank Credit Agreement. The foregoing summary of certain provisions of the
1999 Credit Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the 1999 Credit Agreement, a copy of
which is filed as Exhibit (a)(4) to Delta's and ASA's Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Joint Schedule 13E-3"), dated March 18, 1999.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Prior Relationships Between ASA and Delta
See "The Merger -- Background of the Offer and the Merger -- Marketing and
Code Sharing Arrangements Between ASA and Delta" and "-- Delta Ownership of ASA
Shares; Stock Agreement."
Employment and Consulting Agreements
On February 15, 1999, ASA and Messrs. George F. Pickett and John W. Beiser
(each an "Executive") agreed pursuant to certain memorandum agreements (each a
"Memorandum Agreement") with Delta to negotiate in good faith to enter into
formal written employment and consulting agreements incorporating the terms
described below, with the intention that such employment and consulting
agreements will be executed prior to the Effective Time.
Pursuant to the terms of the Memorandum Agreements, Mr. Pickett is to serve
as Chief Executive Officer of ASA and Mr. Beiser is to serve as President and
Secretary of ASA from February 15, 1999 until the Effective Time or such shorter
period as provided by Memorandum Agreements (the "Employment Term") and each is
to serve as a non-employee consultant of ASA from the Effective Time until the
180th day following the Effective Time or such shorter period as provided by the
Memorandum Agreements (the "Consulting Term"). During the Employment Term and
the Consulting Term, ASA is to pay Messrs. Pickett and Beiser base salaries at
the rate in effect as of February 15, 1999 and each is to continue to earn an
annual bonus entitlement equal to 40% of his respective base salary on the same
terms that currently apply to such officer under ASA's annual bonus plan. As of
the 180th day following the Effective Time, ASA shall pay to Mr. Pickett and to
Mr. Beiser a lump sum payment (the "Special Consideration") of $427,267 and
$416,896, respectively, (provided, however, that such payment is subject to a
reduction, if necessary, if it would be treated as an "excess parachute payment"
under Section 280G of the Internal Revenue Code, as amended (the "Code")), as
consideration for each officer's agreement to render services and honor the
non-competition covenant in the Memorandum Agreements.
Pursuant to terms of the Memorandum Agreements, from February 15, 1999
until the second anniversary of the Effective Time, neither Mr. Pickett nor Mr.
Beiser may (i) directly or indirectly provide management or executive
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services to any person or entity operating a commuter airline using planes with
a capacity of less than 70 seats in an market in which ASA currently operates or
(ii) solicit or hire any employee of ASA to perform a service on behalf of a
competitor similar to any service performed by such employee on behalf of ASA.
If the Executive's employment or consulting services are terminated without
Cause (as defined in the Memorandum Agreements) or because of death or
disability during the Employment Term or Consulting Term, the Executive will
receive accrued salary, a pro rata bonus and the Special Consideration.
The foregoing description of the Memorandum Agreements for Messrs. Pickett
and Beiser does not purport to be complete and is qualified in its entirety by
reference to the Memorandum Agreements which are filed as Exhibits 7 and 8 to
the ASA Schedule 14D-9, and are incorporated herein by reference.
Special Severance Plan
On February 15, 1999, ASA adopted the ASA Holdings, Inc. Special Severance
Plan (the "Severance Plan"). Generally, the Severance Plan provides that if ASA
terminates the employment of an eligible executive (which includes certain
senior officers other than Mr. Pickett and Mr. Beiser) without "Cause" or the
executive terminates for "Good Reason" within two years of a "Change in
Control," the executive will receive an amount in cash equal to either 18 or 24
months of the executive's highest annual rate of base salary in effect during
the twelve-month period immediately prior to termination plus an average of the
executive's bonus for the last two years, subject to a reduction, if necessary,
if the payments thereunder would be treated as "excess parachute payments" under
Section 280G of the Code. In addition, the executive will also receive continued
coverage under ASA's medical, dental and life insurance plans for the same
number of months. In the event the executive cannot continue to participate in
such plans, ASA will otherwise provide such benefits on the same after-tax basis
as if continued participation had been permitted. "Cause," "Good Reason" and
"Change in Control" are defined as set forth in the Severance Plan. Consummation
of the Offer constituted a Change of Control under the Severance Plan.
The foregoing description of the Severance Plan does not purport to be
complete and is qualified in its entirety by reference to the Special Severance
Plan which is filed as Exhibit 9 to the ASA Schedule 14D-9 and is incorporated
herein by reference.
Retention Agreements
On February 15, 1999, ASA entered into retention agreements (each a
"Retention Agreement") with each of Ronald V. Sapp and Edward J. Paquette. Mr.
Sapp's Retention Agreement provides that if Mr. Sapp is still employed with ASA
on the six month anniversary of the closing of the Offer, Mr. Sapp will receive
a lump sum amount equal to approximately three times the annual base salary
payable to Mr. Sapp for the 1999 calendar year (provided, however, that such
payment is subject to a reduction, if necessary, if it would be treated as an
"excess parachute payment" under Section 280G of the Code). Mr. Paquette's
Retention Agreement provides that if Mr. Paquette is still employed with ASA on
the six month anniversary of the closing of the Offer, Mr. Paquette will receive
a lump sum amount equal to the annual base salary payable to him for the 1999
calendar year. The Retention Agreements also provide that each of Messrs. Sapp
and Paquette will receive such amount if ASA terminates the employee's
employment without "Cause" or the employee terminates for "Good Reason" prior to
the six month anniversary of the closing of the Offer. "Cause" and "Good Reason"
are defined as set forth in the Retention Agreements.
The foregoing description of the Retention Agreements does not purport to
be complete and is qualified in its entirety by reference to the forms of
Retention Agreement for Messrs. Sapp and Paquette which are filed as Exhibits 10
and 11 to the ASA Schedule 14D-9 and are incorporated herein by reference.
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Amendment to ASA's 1997 Nonqualified Stock Option Plan
On February 15, 1999, ASA amended the ASA Holdings, Inc. 1997 Nonqualified
Stock Option Plan (the "1997 Plan") to provide that in the event of a Change in
Control, all options granted under the 1997 Plan will become fully vested and
immediately exercisable. "Change in Control" is defined as set forth in the
amendment to the 1997 Plan. The foregoing description of the 1997 Plan does not
purport to be complete and is qualified in its entirety by reference to the 1997
Plan and the amendment to the 1997 Plan which are filed as Exhibit 12 to the ASA
Schedule 14D-9 and are incorporated herein by reference. Consummation of the
Offer constituted a Change of Control under the 1997 Plan.
Executive Deferred Compensation Plan
Pursuant to the Atlantic Southeast Airlines, Inc. Executive Deferred
Compensation (Retirement) Plan, as amended on February 15, 1999 (the "Deferred
Plan"), each month the Employer (defined as either ASA or Atlantic Southeast)
contributes an amount equal to 15% of the compensation of a Class A participant
(senior executive officer designated by the ASA Board) and 10% of the
compensation of a Class B participant (officer designated by the ASA Board), to
a fund established to receive and invest such contributions. No employee
contributions are allowed. Employees may direct the investment of their
accounts. If a participant's employment is terminated without Cause or if the
participant terminates employment for Good Reason within two years after a
Change in Control, the participant will have a nonforfeitable vested interest in
all benefits accrued under the terms of the Deferred Plan. "Change in Control,"
"Cause" and "Good Reason" are defined as set forth in the Deferred Plan. The
definition of "Change in Control" was amended on February 15, 1999 to conform to
the definition of "Change in Control" in the 1997 Plan. The consummation of the
Offer constituted a Change in Control under the Deferred Plan.
The foregoing description of the Deferred Plan does not purport to be
complete and is qualified in its entirety by reference to the Executive Deferred
Compensation (Retirement) Plan which is filed as Exhibit 13 to the ASA Schedule
14D-9 and is incorporated herein by reference.
Supplemental Executive Retirement Plan
ASA's Supplemental Executive Retirement Plan (the "SERP") is described
under the heading "Supplemental Executive Retirement Plan" in ASA's Proxy
Statement for the Annual Meeting of Shareholders on May 21, 1998 (the "Proxy
Statement"). A copy of the relevant portion of the Proxy Statement is filed as
Exhibit 1 to the ASA Schedule 14D-9 and is incorporated herein by reference
thereto. On February 15, 1999, the SERP was amended to change the "Change in
Control" definition to have the same meaning as in the 1997 Plan. The foregoing
description of the amendment to the SERP does not purport to be complete and is
qualified in its entirety by reference to the Second Amendment to the SERP which
is filed as Exhibit 20 to the ASA Schedule 14D-9 and is incorporated herein by
reference thereto.
Indemnity Agreements of Executive Officers and Directors
On February 15, 1999, the Board of Directors authorized ASA to enter into
an Indemnity Agreement (each an "Indemnity Agreement of Executive Officer") with
each of six of its executive officers, including George F. Pickett, John W.
Beiser, Edward J. Paquette, Ronald V. Sapp, R. Mark Bole and Renee Skinner. The
Indemnity Agreement of Executive Officer provides the Indemnitee with specific
contractual assurance that indemnification protection provided under ASA's
Bylaws will be available to Indemnitee regardless of, among other things, any
amendment to or revocation of the Company's Articles or Bylaws or a Change in
Control of ASA. The Indemnity Agreement of Executive Officer further provides
that ASA has purchased and maintains directors' and officers' insurance
consisting of a primary policy providing $15 million in aggregate coverage and a
supplemental policy providing $15 million in aggregate coverage, and that ASA
will maintain such insurance coverage for so long as Indemnitee shall continue
to serve as an executive officer of ASA or thereafter shall be subject to any
possible Claim or threatened, pending or completed litigation. "Indemnitee",
"Change in Control" and "Claim" are defined as set forth in the form of
Indemnity Agreement of Executive Officer.
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<PAGE>
On February 15, 1999, the Board of Directors authorized ASA to enter into
an Indemnity Agreement (each an "Indemnity Agreement of Director") with each of
its directors, which included at such time George F. Pickett, John W. Beiser,
Jean A. Mori, Parker H. Petit, Alan M. Voorhees, Ralph M. Voorhees and George
Berry. The terms of the Indemnity Agreement of Director are substantially
similar to the terms of the Indemnity Agreement of Executive Officer described
above.
The foregoing descriptions of the Indemnity Agreement of Executive Officer
and the Indemnity Agreement of Director do not purport to be complete and are
qualified in their entirety by reference to the forms of the Indemnity Agreement
of Executive Officer and the Indemnity Agreement of Director which are filed as
Exhibits 15 and 16, respectively, to the ASA Schedule 14D-9 and are incorporated
herein by reference thereto.
Amended and Restated Founding Officer Agreements
ASA, Atlantic Southeast and George F. Pickett and John W. Beiser,
respectively, are parties to Amended and Restated Founding Officer Agreements,
each dated April 16, 1997, as further amended on February 15, 1999, pursuant to
which if Mr. Pickett or Mr. Beiser, as the case may be, ceases to be an employee
of the Company within two years after a Change in Control, Atlantic Southeast
and ASA will pay Mr. Pickett or Mr. Beiser, as applicable, the lesser of (i) two
times gross compensation accrued in the last twelve months or (ii) the maximum
amount which may be paid to Mr. Pickett or Mr. Beiser, as applicable, which is
deductible to the Company under Section 280G of the Code. "Change in Control" is
defined as set forth in the Amended and Restated Founding Officer Agreement.
The foregoing description of the Amended and Restated Founding Officer
Agreements does not purport to be complete and is qualified in its entirety by
reference to the Amended and Restated Founding Officer Agreements for Mr.
Pickett and Mr. Beiser which are filed as Exhibits 17 and 18, respectively, to
the ASA Schedule 14D-9 and are incorporated herein by reference thereto.
Certain Travel Benefits
On February 15, 1999, in recognition of Mr. Pickett's and Mr. Beiser's
founding ASA and of their service to ASA, the ASA Board granted lifetime travel
privileges to Mr. Pickett and his wife and to Mr. Beiser, his wife and Mr.
Beiser's dependent children, respectively, on all Atlantic Southeast Airlines
flights.
Stock Options
ASA previously granted to certain employees options to purchase Shares
under the ASA 1997 Plan. As discussed above, the 1997 Plan provides that all
options granted under the plan will become fully exercisable upon a Change in
Control of ASA. The consummation of the Offer constituted a Change in Control
for these purposes. ASA has also previously granted to certain directors of ASA
options to purchase Shares under the ASA 1998 Nonqualified Stock Option Plan for
Non-Employee Directors, all of which options are fully exercisable by their
terms. Under the terms of the Merger Agreement, each of the employee and
director stock options outstanding as of the Effective Time will be cancelled in
return for a cash payment to the option holder equal to the product of (A) the
Merger Consideration minus the per Share exercise price of the option,
multiplied by (B) the numbers of Shares subject to the option.
The table below sets forth for each of Messrs. Pickett, Beiser, Sapp and
Paquette and for all other executive officers and non-employee directors as a
group: (i) the number of stock options held as of March 30, 1999 and (ii) the
aggregate value of such options based on the spread between the exercise price
of such options and the Merger Consideration:
32
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Aggregate
Value of
Options Based
on Merger
Name Stock Options Consideration
- ---- ------------- -------------
George F. Pickett................................ 459,500 $4,126,275
John W. Beiser................................... 321,700 1,882,763
Ronald V. Sapp................................... 119,100 638,250
Edward J. Paquette............................... 103,900 491,700
Other Executive Officers as a Group.............. 324,000 805,462
Non-Employee Directors as a Group................ 10,000 18,435
On January 26, 1999 the ASA Board granted to certain persons who were
executive officers at that time options to purchase Shares under the 1997 Plan
as follows:
Outstanding
Options at Exercise
Name Grant Date Price
- ---- ---------- --------
George F. Pickett.................................. 102,000 $ 30.25
John W. Beiser..................................... 100,000 30.25
Ronald V. Sapp..................................... 40,000 30.25
Edward J. Paquette................................. 40,000 30.25
Samuel J. Watts.................................... 21,000 30.25
John P. McBryan.................................... 10,000 30.25
Charles J. Thibaudeau.............................. 24,000 30.25
John A. Bedson..................................... 22,000 30.25
Mark W. Fischer.................................... 10,000 30.25
Renee H. Skinner................................... 14,000 30.25
R. Mark Bole....................................... 16,000 30.25
W. Grant Nichols................................... 13,000 30.25
James J. Cerniglia................................. 20,000 30.25
On January 15, 1999, the ASA Board granted to certain persons who were
non-employee directors at that time options to purchase Shares under ASA's 1998
Nonqualified Stock Option Plan for Non-Employee Directors as follows:
Outstanding
Options at Exercise
Name Grant Date Price
- ---- ---------- --------
Alan M. Voorhees................................... 2,500 $ 30.313
Ralph W. Voorhees.................................. 2,500 30.313
Parker H. Petit.................................... 2,500 30.313
Jean A. Mori....................................... 2,500 30.313
George Berry....................................... 2,500 30.313
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The summary of Federal income tax consequences set forth below is for
general information only and is based on the law as currently in effect. The tax
consequences to each shareholder will depend in part upon such shareholder's
particular situation. Special tax consequences not described herein may be
applicable to particular classes of taxpayers, such as financial institutions,
insurance companies, broker-dealers, traders that mark to market, tax exempt
organizations, foreign corporations, foreign partnerships or other foreign
entities, individuals who are not citizens or residents of the United States and
shareholders who acquired their Shares through the exercise of an employee stock
option or otherwise as compensation or through a qualified retirement plan. ALL
SHAREHOLDERS SHOULD
33
<PAGE>
CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS AND
CHANGES IN SUCH TAX LAWS.
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for Federal income tax purposes under the Internal Revenue Code of
1986, as amended, and may also be a taxable transaction under applicable state,
local or foreign income tax laws. Generally, for Federal income tax purposes, a
shareholder will recognize gain or loss in an amount equal to the difference
between the cash received by the shareholder pursuant to the Merger and the
shareholder's adjusted tax basis in the Shares purchased pursuant to the Merger.
For Federal income tax purposes, such gain or loss will be a capital gain or
loss if the Shares are a capital asset in the hands of the shareholder and will
be long term capital gain or loss if the Shares have been held for more than one
year. Long term capital gain of an individual shareholder is generally subject
to maximum tax rate of 20%. Shareholders are urged to consult with their own tax
advisors concerning the limitations on the deductibility of capital losses.
A shareholder that receives Merger Consideration in respect of any Shares
may be subject to backup withholding unless the shareholder provides its
taxpayer identification number and certifies that such number is correct or
properly certifies that it is awaiting a TIN, or unless an exemption applies. A
shareholder who does not furnish its taxpayer identification number may be
subject to a penalty imposed by the Internal Revenue Service.
If backup withholding applies to a shareholder, the Exchange Agent is
required to withhold 31% from payments to such shareholder. Backup withholding
is not an additional tax. Rather, the amount of the backup withholding can be
credited against the Federal income tax liability of the person subject to the
backup withholding; provided that the required information is given to the
Internal Revenue Service. If backup withholding results in an overpayment of
tax, a refund can be obtained by the shareholder upon filing an appropriate
income tax return.
DISSENTERS' RIGHTS
If the Merger is consummated, shareholders of record of ASA at the time of
the Merger who (i) do not vote their Shares in favor of the Merger Agreement and
(ii) have, prior to the Special Meeting at which the Merger is approved,
delivered to ASA written notice of their intention to demand dissenters' rights
if the Merger is effectuated, will have the right under the GBCC to demand and
receive payment in cash of the fair value of their Shares outstanding
immediately prior to the effective date of the Merger in accordance with Part 2
of Article 13 of the GBCC.
Under the GBCC, within ten days of the later of (i) the date of the
consummation of the Merger and (ii) receipt of a payment demand from a
dissenting shareholder, by notice to each dissenting shareholder who complied
with the statutory requirements, ASA is required to offer to pay each such
dissenting shareholder the amount ASA estimates to be the fair value of the
Shares owned by such dissenting shareholder, plus accrued interest thereon, and
send to the dissenting shareholder certain other statutorily required
information with respect to ASA and its estimate of the fair value of the
Shares. If ASA does not offer payment for such Shares within the required time
period, the dissenting shareholder may (i) demand from ASA the information
required to accompany a company's offer of payment under the GBCC and (ii)
notify ASA of its own estimate of the fair value of the Shares and demand
payment thereof with respect to Shares owned by him or her. If the dissenting
shareholder fails to respond within 30 days of ASA's offer to pay, the
dissenting shareholder will be deemed to have accepted ASA's offer. If the
dissenting shareholder accepts or is deemed to have accepted ASA's offer, ASA
shall make payment for such dissenting shareholder's Shares within 60 days of
the later of (i) the making of the offer to pay and (ii) consummation of the
Merger.
If ASA and the dissenting shareholder cannot settle on a payment amount,
ASA shall commence a court proceeding within 60 days after receiving the
dissenting shareholder's payment demand in order to determine the fair value of
the Shares and accrued interest thereon. Shareholders who properly demand
payment and otherwise comply with the applicable statutory procedures will be
entitled to receive a judicial determination of the fair value of their
34
<PAGE>
Shares (exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash.
Any such judicial determination of the fair value of such Shares could be based
upon considerations other than or in addition to the price paid in the Offer and
the Merger and the market value of the Shares. Shareholders should recognize
that the value so determined could be higher than, lower than or equal to the
price per Share paid pursuant to the Offer or the consideration per Share to be
paid in the Merger.
If any holder of Shares who demands payment for his or her Shares under the
GBCC fails to perfect, or effectively withdraws or loses his dissenters' rights,
as provided in the GBCC, the Shares of such holder will be converted into the
Merger Consideration in accordance with the Merger Agreement. A shareholder may
withdraw his demand for payment by delivery to Delta of a written withdrawal of
his demand for payment and acceptance of the Merger.
The foregoing summary of the rights of shareholders does not purport to be
a complete statement of the procedures to be followed by shareholders desiring
to exercise any available dissenters' rights. The preservation and exercise of
dissenters' rights require strict adherence to the applicable provisions of the
GBCC, which are attached as Annex B hereto, and which are incorporated herein by
reference. Failure to follow the procedures set forth in such provisions may
result in a loss of such rights.
CERTAIN INFORMATION CONCERNING ASA AND THE SHARES
General
ASA is a Georgia corporation with its principal offices located at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354; telephone (404)
766-1400. ASA is a holding company the principal assets of which are the shares
of its wholly-owned subsidiaries Atlantic Southeast Airlines, Inc. ("Atlantic
Southeast"), a Georgia corporation, and ASA Investments, Inc., a Delaware
corporation. ASA considers the airline business of Atlantic Southeast to be its
only industry segment.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of ASA and certain other information are set forth in Schedule I to the
ASA Schedule 14D-9, which is incorporated herein by reference.
Selected Financial Information
Set forth below is certain selected financial information relating to ASA
which has been excerpted or derived from the audited financial statements
contained in ASA's Annual Report on Form 10-K for each of the fiscal years ended
December 31, 1998 and 1997 (collectively, the "ASA 10-Ks"). The financial
information that follows is qualified in its entirety by reference to the ASA
10-Ks.
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
(audited)
(In Thousands Except
Per Share Amounts)
Operating Revenues..................... $409,859 $385,289
Operating Income....................... 96,031 79,585
Income before Income Taxes............. 106,245 86,841
Net Income............................. 66,137 54,512
Earnings per Common Share:
Primary............................... 2.24 1.82
Diluted............................... 2.22 1.81
Dividends declared per Share........... 0.44 0.40
At end of period:
Working capital....................... 132,636 129,978
35
<PAGE>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
(audited)
(In Thousands Except
Per Share Amounts)
Total assets........................ 499,769 505,960
Long-term debt...................... 54,063 72,792
Shareholders' equity................ 309,774 295,925
Additional Data:
Book value per share................ 10.85 9.95
Ratio of earnings to fixed charges.. 3.2 3.0
Repurchases of Shares by ASA
ASA has made the following repurchases of Shares since January 1, 1997:
Amount of Average
Shares Range of Purchase
Purchased Prices Paid Price
----------- ------------- --------
1997
First Quarter................... 125,000 $21.38-$22.75 $ 22.07
Second Quarter.................. 70,000 $20.25-$21.25 $ 20.82
Third Quarter................... -- -- --
Fourth Quarter.................. 346,000 $27.38-$29.88 $ 28.97
1998
First Quarter................... 182,100 $35.13-$37.50 $ 36.19
Second Quarter.................. 50,000 $35.97-$36.13 $ 35.05
Third Quarter................... 375,000 $34.50-$41.38 $ 36.65
Fourth Quarter.................. 998,000 $22.13-$39.50 $ 32.37
1999
First Quarter................... 20,000 $30.63 $ 30.63
Second Quarter (through
April 13, 1999)............... -- -- --
Price Range of Shares; Dividends
The Shares are traded in the over-the-counter market and are quoted on the
NASDAQ National Market System under the symbol ASAI.
The following table sets forth for the periods indicated (i) the high and
low sale prices per Share as reported on the NASDAQ National Market System and
(ii) the cash dividends paid per Share:
Market Price
-------------------- Dividend
High Low Declared
------- ------- --------
1997
First Quarter.................. $ 25.63 $ 19.63 $ 0.10
Second Quarter................. 28.63 20.13 0.10
Third Quarter.................. 31.13 26.75 0.10
Fourth Quarter................. 31.75 26.50 0.10
------
Total....................... $ 0.40
======
1998
First Quarter.................. $ 40.89 $ 28.25 $ 0.11
Second Quarter................. 51.00 35.63 0.11
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<PAGE>
Market Price
-------------------- Dividend
High Low Declared
------- ------- --------
Third Quarter.................. 50.25 31.50 0.11
Fourth Quarter................. 40.00 21.75 0.11
-----
Total....................... $0.44
=====
1999
First Quarter.................. $ 34.19 $ 28.13 $0.12
Second Quarter (through 33.80 33.50 --
April 13, 1999)
On February 11 and 12, 1999, the two business days immediately preceding
the public announcement of the Offer, the closing price of the Shares was $31.13
and $31.94, respectively.
CERTAIN INFORMATION CONCERNING DELTA AND DELTA SUB
Delta is a Delaware corporation with its principal offices located at
Hartsfield Atlanta International Airport, 1030 Delta Boulevard, Atlanta, Georgia
30320. Delta is a major air carrier providing scheduled air transportation for
passengers, freight and mail.
Delta's total operating revenues for the years ended June 30, 1998 and
1997, were $14.1 billion and $13.6 billion, respectively, while total operating
revenues for the six months ended December 31, 1998 and 1997 were approximately
$7.3 billion and approximately $7.0 billion, respectively. Its pre-tax income
for the year ended June 30, 1998 was $1.6 billion, yielding net income of $1.0
billion, while its pre-tax income for the year ended June 30, 1997 was $1.4
billion, resulting in net income of $854 million. For the six months ended
December 31, 1998, Delta's pre-tax income was $858 million, resulting in net
income of $520 million, while pre-tax income for the similar period in 1997 was
$730 million, resulting in net income for such period of $443 million.
At December 31, 1998, Delta had total assets of $14.7 billion and
shareholders' equity of $4.1 billion, compared with total assets of $13.1
billion and shareholders' equity of $3.4 billion as at December 31, 1997.
Delta Sub is a Georgia corporation established on February 11, 1999. It has
not carried on any activities other than the execution of the Merger Agreement
and certain other documents related to the consummation of the transactions
contemplated thereby. Its principal offices are located at Hartsfield Atlanta
International Airport, Post Office Box 20706, Atlanta, Georgia 30320. Delta Sub
is a direct, wholly-owned subsidiary of Delta Air Lines Holdings, Inc., and an
indirect, wholly-owned subsidiary of Delta.
As of March 31, 1999, Delta beneficially owned 26,006,033 of the 28,523,177
Shares outstanding, representing approximately 91% of all Shares then
outstanding.
OWNERSHIP OF SHARES
As of April 13, 1999, there were 28,523,177 Shares outstanding. The
following table sets forth the beneficial ownership of Shares as of April 13,
1999 by (i) each person known by ASA to own more than 5% of the outstanding
Shares, (ii) each of the directors and executive officers of ASA as at such date
and (iii) all executive officers and directors of ASA as at such date, as a
group. Unless otherwise indicated, each of the shareholders named below has sole
voting and investment power with respect to the Shares beneficially owned:
37
<PAGE>
Shares Beneficially Owned(1)
----------------------------
Percent of
Number Outstanding
of Shares Shares
---------- ------------
5% Shareholders
Delta Air Lines, Inc........................... 26,006,033 91.2%
Hartsfield Atlanta International Airport
1030 Delta Boulevard
Atlanta, GA 30320
Directors and Executive Officers
George F. Pickett.............................. 459,500(2) 1.6%
John W. Beiser................................. 321,703(2) 1.1%
Ronald V. Sapp................................. 119,100(2) *
R. Mark Bole................................... 33,200(2) *
Jean A. Mori................................... 5,000(3) *
Parket A. Petit................................ 10,000(3) *
Edward J. Paquette............................. 103,900(2) *
Maurice W. Worth............................... -- --
Malcolm B. Armstrong........................... -- --
Vicki B. Escarra............................... -- --
Warren C. Jenson............................... -- --
Frederick W. Reid.............................. -- --
All directors and executive officers as
a group (12 persons)......................... 1,052,403 3.7%
- -------------------
* Represents less than 1% of the outstanding Shares
(1) Information with respect to beneficial ownership is based upon information
furnished by each owner. Percent of Class is based on 28,523,177 Shares
outstanding as of April 13, 1999 (excluding treasury shares).
(2) Consisting of Shares that the individual has the right to acquire, on or
before June 12, 1999 (60 days from April 13, 1999), through the exercise
of options granted under the 1997 Plan.
(3) Includes 5,000 Shares that the individual has the right to acquire, on or
before June 12, 1999 (60 days from April 13, 1999), through the exercise of
stock options granted under ASA's Nonqualified Stock Option Plan for
Non-Employee Directors.
INDEPENDENT PUBLIC ACCOUNTANTS
No representatives of ASA's independent public accountants will be present
at the Special Meeting.
ADDITIONAL AND AVAILABLE INFORMATION
Pursuant to the requirements of Section 13(e) of the Exchange Act, and Rule
13e-3 promulgated thereunder, ASA filed with the Commission on February 22, 1999
a Schedule 14D-9 in connection with the Offer (the "ASA Schedule 14D-9"), and
Delta filed with the Commission on February 22, 1999 a Tender Offer Statement on
14D-1 (the "Delta Schedule 14D-1") and a Transaction Statement on Schedule 13E-3
(the "Delta Schedule 13E-3"), in each case relating to the Offer. In addition,
Delta and ASA jointly filed on March 18, 1999 a second Schedule 13E-3 relating
to the Merger (the "Joint Schedule 13E-3"). As permitted by the rules and
regulations of the Commission, this Information Statement omits certain
information, exhibits and undertakings contained in the Joint Schedule 13E-3,
Delta Schedule 13E-3, Delta Schedule 14D-1 and ASA Schedule 14D-9. Such
additional information can be inspected at and obtained from the Commission and
ASA in the manner set forth below. Statements contained herein concerning
certain documents are not necessarily complete and, in each instance, reference
is made to the copy of such document filed
38
<PAGE>
as an exhibit to the Joint Schedule 13E-3, Delta Schedule 13E-3, Delta Schedule
14D-1 or ASA Schedule 14D-9, as applicable. Each such statement is qualified in
its entirety by such reference.
The Annual Report of ASA on Form 10-K for the fiscal year ended December
31, 1998 is attached hereto as Annex C.
All documents filed by Delta or ASA pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Information Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Information Statement and to be a part hereof from the dates
of filing such documents or reports. Any statement contained herein or in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Information Statement to the extent that a
statement contained herein or in any other subsequently filed document which is
also incorporated or deemed to be incorporated herein modifies or supercedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Information Statement.
Delta and ASA are each subject to the informational filing requirements of
the Exchange Act and, in accordance therewith, are each required to file
periodic reports, proxy statements and other information with the Commission
relating to their respective business, financial condition and other matters.
Such reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Information regarding the public reference facilities may be
obtained from the Commission by telephoning 1-800-SEC-0330. Delta's and ASA's
filings are also available to the public on the Commission's internet site
(http://www.sec.gov). Copies of such materials may also be obtained by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain reports and other
information concerning Delta may also be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Information Statement incorporates documents by reference which are
not included in their entirety. Copies of any such documents, other than
exhibits to such documents which are not specifically incorporated by reference
therein, are available without charge to any person, including any beneficial
owner, to whom this Information Statement is delivered, upon written or oral
request to ASA Holdings, Inc., 100 Hartsfield Centre Parkway, Suite 800,
Atlanta, Georgia, 30354, Telephone (404) 766-1400, Attention: Public Relations.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF ASA, DELTA OR DELTA SUB NOT CONTAINED HEREIN OR IN
THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
OTHER MATTERS
ASA does not intend to hold a 1999 Annual Meeting prior to the scheduled
consummation of the Merger. If the Merger is not consummated and ASA does hold a
1999 Annual Meeting, ASA will notify its shareholders of such meeting, including
the date by which shareholder proposals must be received at ASA's executive
offices in order to be considered for inclusion in the proxy materials relating
to such meeting.
ASA does not intend to bring any other matters before the Special Meeting,
and is not aware of any other matters that are expected to be brought properly
before the Special Meeting.
39
<PAGE>
ANNEX A
OPINION OF MORGAN STANLEY & CO. INCORPORATED
February 15, 1999
Board of Directors
ASA Holdings, Inc.
100 Hartsfield Centre Parkway
Suite 800
Atlanta, GA 30354-1356
Members of the Board
We understand that ASA Holdings, Inc. ("ASA" or the "Company"), Delta Air
Lines, Inc. ("Delta") and Delta Sub, Inc., a wholly owned subsidiary of Delta
("Acquisition Sub"), propose to enter into an Agreement and Plan of Merger dated
as of February 15, 1999 (the "Merger Agreement"), which provides, among other
things, for (i) the commencement by Acquisition Sub of a tender offer (the
"Tender Offer") for all outstanding shares of common stock, par value $0.10 per
share, of ASA (the "Common Stock") for $34.00 per share net to the seller in
cash, and (ii) the subsequent merger (the "Merger") of Acquisition Sub with and
into ASA. Pursuant to the Merger, ASA will become a wholly owned subsidiary of
Delta and each outstanding share of Common Stock of ASA, other than shares held
in treasury or held by Delta or any subsidiary of Delta or as to which
dissenters' rights have been perfected, will be converted into the right to
receive $34.00 per share in cash. The terms and conditions of the Tender Offer
and the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders (other than
Delta and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared
by the management of the Company;
(iii) analyzed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company, including the
Company's expected future relationship with Delta, with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the
prices and trading activity of the Common Stock with that of
certain other comparable publicly-traded companies and their
securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among
representatives of the Company and Delta and their financial
and legal advisors;
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(ix) reviewed the Merger Agreement and certain related documents;
(x) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have assumed that the Tender Offer and the Merger will be
consummated on the terms set forth in the Merger Agreement. We have not made any
independent valuation or appraisal of the assets or liabilities of the Company,
nor have we been furnished with any such appraisals. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party, nor did we have discussions with any party
other than Delta with respect to the acquisition of the Company or any of its
assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
addition, Morgan Stanley provides no advice or recommendation as to whether or
not holders of shares of Common Stock should participate in the Tender Offer. In
the past, Morgan Stanley has provided financial advisory and financing services
for Delta and has received fees for the rendering of these services.
Based on the foregoing we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement is fair from a financial point of view to such holders
(other than Delta and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Mark D. Eichorn
-------------------------------
Mark D. Eichorn
Principal
A-2
<PAGE>
ANNEX B
ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE
RELATING TO DISSENTING SHAREHOLDERS
TITLE 14, CHAPTER 2, ARTICLE 13
DISSENTERS' RIGHTS
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the
corporate action until the date of payment, at a rate that is fair and
equitable under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation
is required for the merger by Code Section 14-2-1103 or the articles
of incorporation and the shareholder is entitled to vote on the
merger; or
(
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(B) If the corporation is a subsidiary that is merged
with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote
on any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with similar
voting rights;
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so
created is to be acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the
shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
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<PAGE>
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenter' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
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<PAGE>
(2) Inform holders of uncertificated shares to what extent transfer
of th shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after
the date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this Article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay the amount the corporation estimates to be the
fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements, if
any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
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<PAGE>
(c) If the shareholder accepts the corporation's offer by written notice
to the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within such 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed acting, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after receipt
of a written demand for the information; and
(2) The shareholder may at any time, subject to the limitations
period of Code Section 14-2-1332, notify the corporation of his own
estimate of the fair value of his shares and the amount of interest due
and demand payment of his estimate of the fair value of his shares and
interest due.
PART 3
JUDICIAL APPRAISAL OF SHARES
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the
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<PAGE>
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the 60 day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these attorneys reasonable fees to be paid
out of the amounts awarded the dissenters who were benefitted.
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<PAGE>
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
B-7
<PAGE> 1
ANNEX C
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 0-29558
ASA HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2258221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 HARTSFIELD CENTRE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30354
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 766-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.10 PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 2, 1999, the aggregate market value of voting stock held
by non-affiliates of the Registrant, based on the $33.563 closing sales price
of such stock on The Nasdaq Stock Market's National Market on that date, was
approximately $551,535,845.
As of March 2, 1999, the Registrant had 28,523,177 shares of Common
Stock outstanding.
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S>? <C> <C>
Part I
Item 1. Business................................................................ 1
Factors That May Affect Future Performance.............................. 17
Item 2. Properties.............................................................. 21
Item 3. Legal Proceedings....................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders..................... 23
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................. 24
Item 6. Selected Financial Data................................................. 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............. 36
Item 8. Financial Statements and Supplementary Data............................. F-1
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure................................................ 38
Part III
Item 10. Directors and Executive Officers of the Registrant...................... 39
Item 11. Executive Compensation.................................................. 42
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 49
Item 13. Certain Relationships and Related Transactions.......................... 51
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 53
</TABLE>
<PAGE> 4
PART I
ITEM 1. BUSINESS
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements made in this Report and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements made by the Company or its officers,
directors or employees, may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify such forward-looking statements; however, this Report also contains
other forward-looking statements in addition to historical information. Such
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation, those
discussed in "Business--Factors That May Affect Future Performance" herein.
Many of such factors are beyond the Company's ability to control or predict,
and readers are cautioned not to put undue reliance on such forward-looking
statements. The Company disclaims any obligation to update or revise any
forward-looking statements contained in this Report, whether as a result of new
information, future events or otherwise.
GENERAL
ASA Holdings, Inc. ("ASA Holdings") is a corporation existing under
the laws of the State of Georgia. Its principal offices are located at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354 and its telephone
number is (404) 766-1400.
ASA Holdings is a holding company the principal assets of which are
the shares of its wholly owned subsidiaries Atlantic Southeast Airlines, Inc.,
a Georgia corporation ("ASA"), and ASA Investments, Inc., a Delaware
corporation ("ASA Investments"). ASA Holdings became the parent holding company
for ASA and ASA Investments pursuant to a corporate reorganization that was
effective after the close of business on December 31, 1996 (the
"Reorganization"). ASA Holdings considers the airline business of ASA to be its
only industry segment. All references herein to the "Company" shall refer
collectively to ASA Holdings, ASA and ASA Investments, unless the context
indicates otherwise.
ASA is a certificated air carrier providing regularly scheduled, high
frequency airline service between (i) Hartsfield Atlanta International Airport
in Atlanta, Georgia (the "Atlanta hub") and 40 other airports in Alabama,
Arkansas, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Michigan,
Mississippi, New York, North Carolina, Ohio, South Carolina, Tennessee,
Virginia and West Virginia and (ii) Dallas/Fort Worth International Airport in
Dallas, Texas (the "Dallas/Fort Worth hub") and 21 other airports in Arkansas,
Kansas, Louisiana, Mississippi, Oklahoma and Texas. ASA is the largest regional
carrier serving Hartsfield Atlanta International Airport with more flights per
week than any other regional carrier. ASA currently operates
<PAGE> 5
approximately 4,160 flights per week. A majority of ASA's flights are utilized
by business, government and military passengers to make connections with
flights operated by Delta Air Lines, Inc. ("Delta") and other air carriers from
the Atlanta and Dallas/Fort Worth hubs. Since 1984, ASA has operated as a
"Delta Connection" carrier.
The sole business of ASA Investments is to manage certain cash assets
contributed to it by ASA Holdings and its other subsidiary.
RECENT DEVELOPMENTS
AGREEMENT AND PLAN OF MERGER
On February 15, 1999, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Delta and its wholly-owned indirect
subsidiary Delta Sub, Inc. ("Purchaser"). The Merger Agreement provides for the
acquisition of all of the common stock of the Company by Purchaser at a price
of $34.00 per share, net to the seller in cash (the "Offer Price"). Pursuant to
the Merger Agreement, Purchaser commenced a tender offer (the "Offer") for all
outstanding shares of the Company's common stock, which Offer expired at
midnight on March 19, 1999. As a result of the Offer, Purchaser acquired
approximately 18 million shares of the Company's common stock (about 88% of the
outstanding shares not already beneficially owned by Delta prior to the
beginning of the Offer).
The Merger Agreement provides, among other things, that, upon the
terms and subject to the conditions set forth in the Merger Agreement,
following the purchase of shares pursuant to the Offer, Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, Purchaser will cease to exist and the Company will continue as the
surviving corporation (the "Surviving Corporation") and a wholly-owned indirect
subsidiary of Delta.
At the effective time of the Merger (the "Effective Time"), each share
outstanding immediately prior to the Effective Time (other than shares held by
the Company as treasury stock or owned by Delta or any of its subsidiaries or
shares as to which dissenters' rights have been exercised under the Georgia
Business Corporation Code ("Excluded Shares")) will be converted automatically
into the right to receive $34.00 in cash, without interest.
The consummation of the Merger is subject to the satisfaction or
waiver of certain conditions, including, if required under the Georgia Business
Corporation Code, the adoption of the Merger Agreement by the affirmative vote
of the shareholders of the Company holding a majority of the outstanding
shares. The Company has agreed to convene a special meeting of its shareholders
as promptly as practicable for such purpose. As a result of the consummation of
the Offer, Purchaser has sufficient voting power to adopt the Merger Agreement
without the vote of any other shareholder.
As a result of the consummation of the Offer, Delta is entitled
pursuant to the Merger Agreement to designate a certain number of directors to
the Company's Board. The Merger
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<PAGE> 6
Agreement also provides that the Company will use its reasonable best efforts
to cause at least two persons who are not employees of the Company or
affiliated with Delta to be members of the Company's Board until the Merger is
consummated. Pursuant to the foregoing provisions, all incumbent directors of
the Board except for Messrs. Parker H. Petit and Jean A. Mori are expected to
resign effective the close of business on March 25, 1999, and the following
five designees of Delta will be appointed and elected to fill these vacancies
on the Board effective March 26, 1999: Messrs. Maurice W. Worth, Malcolm B.
Armstrong, Warren C. Jenson and Frederick W. Reid and Ms. Vicki B. Escarra.
COMMERCIAL ARRANGEMENTS BETWEEN DELTA AND THE COMPANY
The following summarizes the existing relationship between the Company
and Delta.
MARKETING AND CODE SHARING ARRANGEMENTS BETWEEN THE COMPANY AND DELTA
ASA has operated from a hub in Atlanta since 1984 and a hub in
Dallas/Fort Worth since late 1986 as a "Delta Connection" carrier pursuant to a
marketing agreement with Delta (the "Delta Connection Agreement"). The Delta
Connection Agreement was originally entered into on August 6, 1984 and was
restated or amended several times subsequently. The Delta Connection Agreement
was originally terminable by either party upon 180 days' advance written
notice; however, since December 31, 1994, the Delta Connection Agreement has
been terminable by either party thereto on 30 days' prior written notice.
Under the Delta Connection program, all of ASA's flights are promoted
as part of the Delta route network in computer systems used by travel agents and
in advertising and published timetables, and all ASA flights carry the Delta
designator code. ASA flights are sold on Delta ticket stock, and all revenue
from ASA ticket sales by travel agents are remitted to Delta. Delta handles
ASA's reservations calls. Customer payments for tickets purchased from agents or
at Delta city ticket offices for ASA's flights are remitted to Delta. ASA and
Delta split revenues (less certain costs of sales) in accordance with an
agreed-upon revenue proration arrangement. Under this arrangement, ASA is paid
all revenue (less agreed expenses) for tickets sold to passengers not connecting
to a Delta-operated flight (i.e. local traffic). Revenue for passengers
traveling on a ticket with an ASA flight connecting to a Delta-operated flight
are prorated between Delta and ASA using a proration methodology that considers
the mileage of the flight segments flown and the relative cost of the service
provided, minus certain costs of sales, with adjustments made for international
tickets.
Delta and the Company have had various discussions in the past
regarding certain aspects of the revenue allocation and cost sharing
arrangements related to their marketing alliance. Prior to the parties'
execution of the Merger Agreement, Delta proposed significant changes to the
revenue reallocation and cost sharing arrangements, which, if implemented,
would have a substantial negative impact on the future financial performance of
the Company. See "Factors That May Affect Future Performance -- Relationship
with Delta."
-3-
<PAGE> 7
DELTA OWNERSHIP OF SHARES; STOCK AGREEMENT
On June 19, 1986, Delta purchased from Atlantic Southeast Airlines,
Inc. 2,665,000 shares pursuant to a stock purchase agreement dated May 28, 1986
(the "Original Stock Agreement") between the two companies. After giving effect
to the issuance of these shares, Delta's investment represented approximately
20% of the then outstanding number of shares. On December 27, 1989, Delta
assigned and transferred to Delta Air Lines Holdings, Inc. ("Delta Holdings")
all of the shares then owned by Delta. On March 17, 1997, following the
Company's 1996 Reorganization, the Company, Atlantic Southeast Airlines, Inc.,
Delta and Delta Holdings entered into an amended agreement (the "Stock
Agreement"), containing terms and conditions which are substantially the same
as those contained in the Original Stock Agreement. At December 31, 1998, after
giving effect to previous stock splits and share repurchases, Delta held
7,995,000 shares, or approximately 28% of the Company's outstanding shares.
Pursuant to the Stock Agreement, as long as Delta beneficially owns at
least 10% of the outstanding shares of the Company's common stock, either Delta
or Delta Holdings has the right to cause the Company (i) to include in its
slate of nominees for election to the Company's Board of Directors (the "Board
of Directors" or the "Board") at least two designees of Delta or Delta Holdings
who are reasonably acceptable to the Company, and (ii) to use its reasonable
best efforts to assure that these individuals are elected to the Board. Delta's
only designee to the Board resigned from that position effective March 31,
1997, and since that time, notwithstanding its right under the Stock Agreement
to nominate two designees for election to the Board, neither Delta nor any of
its affiliates have nominated any designees to, or had any representatives on,
the Board. The Stock Agreement also grants Delta and Delta Holdings certain
demand and piggyback registration rights and preemptive rights, and grants the
Company a right of first refusal in respect of certain sales by Delta or Delta
Holdings of shares of the Company's common stock to persons pursuant to a
demand registration or in a private sale.
ROUTE SYSTEM
As of March 2, 1999, ASA's route system included service between the
Atlanta hub and 40 other airports in Alabama, Arkansas, Florida, Georgia,
Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, New York, North
Carolina, Ohio, South Carolina, Tennessee, Virginia and West Virginia. ASA also
operates a similar hub and spoke operation in Dallas/Fort Worth. As of March 2,
1999, ASA provided service from the Dallas/Fort Worth hub to 21 airports in
Arkansas, Kansas, Louisiana, Mississippi, Oklahoma and Texas. For information
regarding ASA's operating fleet, see "Flight Equipment."
ASA's flight schedules are structured to facilitate the connection of
its passengers with Delta's flights at the Atlanta and Dallas/Fort Worth hubs.
Approximately 84% of ASA's passengers connected with or from Delta flights at
the Atlanta or Dallas/Fort Worth hubs. See "Delta Connection."
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<PAGE> 8
The following tables describe ASA's route system as of March 2, 1999:
ATLANTA HUB
<TABLE>
<CAPTION>
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
- ------------------------------------------------------------------------------
<S> <C> <C>
Albany, GA 146 8/1/82
Alexandria, LA 500 12/1/95
Asheville, NC 164 8/1/82
Augusta, GA 143 4/24/83
Brunswick, GA 238 6/1/81
Charleston, WV 363 2/1/86
Charlotte, NC 227 4/1/91
Chattanooga, TN 106 6/1/91
Cleveland, OH 554 11/1/97
Columbus, GA 83 6/27/79
Columbus, MS 241 12/15/84
Detroit, MI 594 12/1/97
Dothan, AL 171 10/31/82
Evansville, IN 350 6/1/89
Fayetteville, AR 589 3/2/99
Fayetteville, NC 331 11/1/85
Florence, SC 273 9/11/92
Fort Walton Beach, FL 250 11/15/82
Gainesville, FL 300 10/1/85
Greensboro/High-Point/
Winston-Salem, NC 306 6/1/91
Greenville/Spartanburg, SC 153 4/25/82
Gulfport/Biloxi, MS 352 3/2/91
Jackson, MS 341 4/4/93
Jacksonville, NC 399 12/15/92
Lafayette, LA 503 12/1/95
Lexington, KY 303 12/15/90
Louisville, KY 321 4/4/93
Lynchburg, VA 389 7/1/94
Macon, GA 79 3/20/80
Meridian, MS 267 11/1/84
Montgomery, AL 147 6/1/82
Myrtle Beach, SC 317 9/1/86
New York, NY - JFK*
Cleveland, OH 425 11/1/97
Detroit, MI 508 12/1/97
Panama City, FL 247 3/1/84
Roanoke, VA 357 12/15/85
Tallahassee, FL 223 12/15/85
</TABLE>
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<PAGE> 9
ATLANTA HUB
<TABLE>
<CAPTION>
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
- ------------------------------------------------------------------------------
<S> <C> <C>
Tri-Cities, TN 227 10/31/82
Valdosta, GA 208 9/9/81
Wichita, KS 781 3/2/99
Wilmington, NC 377 9/17/90
</TABLE>
- ----------------
* New York is served from the Cleveland and Detroit airports.
DALLAS/FORT WORTH HUB
<TABLE>
<CAPTION>
Air Mileage From
Dallas/Fort Worth Date Service
Airport Served Hub Commenced
- ------------------------------------------------------------------------------
<S> <C> <C>
Alexandria, LA 285 10/1/87
Amarillo, TX 313 7/1/93
Beaumont/Port Arthur, TX 270 2/1/87
Columbus, MS 491 12/1/95
Corpus Christi, TX 354 6/1/93
Fayetteville, AR 270 12/15/86
Fort Smith, AR 227 12/15/86
Houston, TX (Intercontinental) 224 10/1/93
Houston, TX (Hobby) 247 5/1/94
Killeen, TX 130 5/1/87
Lafayette, LA 351 12/15/87
Lawton, OK 140 2/1/87
Lubbock, TX 282 7/1/93
Meridian, MS 485 12/1/95
Oklahoma City, OK 175 7/1/93
San Antonio, TX 247 10/1/93
Shreveport, LA 190 12/1/95
Texarkana, AR 181 12/15/86
Tulsa, OK 237 6/1/93
Wichita, KS 328 7/1/93
Wichita Falls, TX 113 12/15/86
</TABLE>
ASA provides service on all of its routes every weekday with reduced
service on weekends.
-6-
<PAGE> 10
FARES
ASA derives its revenues primarily from local fares and through fares.
Local fares are those fares for one way and round trips that are not combined
with the fare of another air carrier. Through fares are fares for
transportation provided jointly by ASA and another carrier.
Revenues derived from through fares are distributed among the
participating air carriers using various proration formulas. The most widely
used method of settlement involves a straight rate prorate division, unless the
carriers enter into agreements using variations to this proration formula. The
various pricing structures generally are presented in the Airline Tariff
Publishing Company's electronic tariff, Passenger Interline Pricing Prorate
System (PIPPS).
ASA operates as a Delta Connection carrier pursuant to a marketing
program with Delta. In addition to the Delta Connection Agreement, ASA is a
party to interline passenger, reservation, ticketing and baggage agreements
with each of the other major air carriers with which ASA transacts any
significant amount of business. These agreements permit each carrier to reserve
seats and sell tickets for flights on the other contracting carrier, provide
that each carrier will honor ticket forms of the other carriers and provide for
an interline baggage exchange system at airport terminals.
Air carriers are permitted to set domestic ticket prices without
governmental regulation. See "Regulation." As a result, the industry generally
is subject to substantial price competition. See "Competition and Industry
Considerations."
The aviation trust fund tax, a 10% federal excise tax on tickets sold,
expired effective January 1, 1996, was reinstated effective August 27, 1996,
expired again effective January 1, 1997, and was reinstated again effective
March 7, 1997 through September 30, 1997. Congress recently passed legislation
reimposing and significantly modifying the ticket tax. The legislation includes
the imposition of new excise tax and segment fee tax formulas to be phased in
over several years, an increase in the international departures tax, the
imposition of a new arrivals tax, and the extension of the ticket tax to cover
items such as frequent flyer miles. The federal excise tax in effect from
October 1, 1997 through September 30, 1998 was 9% on domestic tickets plus
$1.00 per segment flown for non-rural domestic airports. A segment is defined
as a take-off and a landing. Effective October 1, 1998 and for the period
through September 30, 1999, the federal excise tax is 8% on domestic tickets
plus $2.00 per segment flown for non-rural domestic airports. In addition,
legislation that was effective in 1992 allows public airports to impose
passenger facility charges of up to $3.00 per departing or connecting
passenger. Price competition may have an impact on ASA's ability to pass these
charges on to its customers. See "Competition and Industry Considerations."
FLIGHT EQUIPMENT
As of March 2, 1999, ASA's operating fleet consisted of 71 turboprop
airplanes, 12 of which seat 66 passengers and the remaining 59 of which seat 30
passengers, and 19 jets which
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<PAGE> 11
seat 50 passengers each. The age of this fleet ranged from less than one year
to 14 years. The following table describes ASA's current operating fleet as of
March 2, 1999:
<TABLE>
<CAPTION>
Number of Number of
Aircraft Type Aircraft Owned Aircraft Leased Average Age
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ATR-72 Turboprop 4 8 5.4 years
(66 passenger capacity)
Embraer Brasilia 57 2 9.8 years
Turboprop (EMB-120)
(30 passenger capacity)
Canadair Regional Jet-200 -- 19 .9 years
(50 passenger capacity)
</TABLE>
ASA's Embraer Brasilia EMB-120 turboprop aircraft ("Brasilias")
operate on mainly medium to long-haul routes from the Atlanta and Dallas/Fort
Worth hubs. ASA's Brasilias are very fuel efficient and, because of their
operating economy, can provide high frequency service in markets with
relatively low volumes of passenger traffic. These aircraft are powered by two
Pratt & Whitney turboprop engines and accommodate 30 passengers. ASA leases two
of the Brasilias pursuant to operating leases, which expire in June 1999 and
December 1999, respectively.
As of March 2, 1999, ASA operated 12 ATR-72 turboprop aircraft
("ATRs") from the Atlanta hub. ASA initially used the ATRs to replace smaller
aircraft in order to increase capacity in existing markets and more recently
has used the ATRs to replace its BAe Jets discussed below. The ATRs are
66-passenger aircraft, powered by two Pratt & Whitney turboprop engines, and
are built by Avions de Transport Regional, a joint enterprise involving
Alenia-Aeritalia & Selenia S.P.A., an Italian aircraft manufacturer, and
Aerospatiale Societe Nationale Industrielle, a French aircraft manufacturer.
ASA leases eight ATRs pursuant to a lease with a seven-year term expiring in
June 2002. ASA also owns four ATRs, the majority of the purchase price of which
was provided by bank financing. ASA has an option to acquire 16 additional
ATRs, which must be exercised and aircraft delivered before December 31, 2000.
In 1997, ASA exercised its option for the early return of all five
British Aerospace BAe 146-200 jets ("BAe Jets"), and they were removed from
operation and returned to the lessor by the end of the first quarter of 1998.
In April 1997, ASA executed an acquisition agreement with Bombardier,
Inc. ("Bombardier") for 30 Canadair Regional Jet-200 aircraft ("CRJ-200"), a
50-passenger jet, with options to acquire an additional 60 aircraft. Delivery
of these aircraft began in August 1997, and ASA acquired a total of 17 CRJ-200
aircraft as of December 31, 1998 through operating leases with 16.5 year terms.
The 13 remaining aircraft are scheduled to be delivered at a rate of one per
month until January 2000. On September 3, 1998, ASA entered into an amendment
to this acquisition agreement with Bombardier. Under the terms of the
amendment, ASA exercised
-8-
<PAGE> 12
options to acquire 15 additional CRJ-200 aircraft. Delivery of the 15
additional CRJ-200s is scheduled to start in February 2000 and continue through
June 2001 at an approximate rate of one aircraft per month.
ASA obtained a commitment from the Export Development Corporation
(EDC) of Canada to provide financing to ASA for up to approximately 85% of the
purchase price of each of the 45 CRJ-200 aircraft. This facility, which ASA is
not obligated to use for its acquisition of all or any of the CRJs, is
available on an aircraft by aircraft basis in the form of either direct loans
or leases, with interest payable at various interest rate options determined by
reference to U.S. treasury rates or LIBOR, and on various repayment terms. ASA
may finance the CRJ-200 aircraft as well as other anticipated expenditures
through a combination of existing cash reserves, internally generated funds and
lease and debt financing. Given the nature of the considerations relevant to
the determination of the most advantageous form of financing at a given time,
the Company cannot predict with any certainty the anticipated amount of funds
which may be provided from such possible financing sources.
On September 3, 1998, ASA entered into a second acquisition agreement
with Bombardier for 12 Canadair Regional Jet-700 aircraft ("CRJ-700"), a
70-passenger jet. Delivery of the CRJ-700 aircraft is scheduled to commence in
the fourth quarter of 2001 and be completed in the first quarter of 2003. The
value including spares of the additional 15 CRJ-200 and the 12 CRJ-700
aircraft is approximately $575 million. ASA plans to use the new CRJs for
growth in new long-haul markets as well as to replace some turboprop aircraft
on existing routes from its Atlanta hub.
As of December 31, 1998, ASA pledged 30 of the Brasilias it owns and
all four of the ATRs it owns, as well as a portion of its spare parts, to
secure long-term indebtedness of ASA.
PERSONNEL AND OPERATIONS
ASA's employees perform a substantial portion of ASA's operations,
including ticketing, maintenance, ground and in-flight service and training.
Substantially all the maintenance and repairs on ASA's aircraft (except for
major engine, propeller and component overhauls as well as major airframe
checks) are performed by ASA's maintenance personnel. As of March 2, 1999, ASA
had approximately 2,669 employees, of which 1,253 were flight personnel, 974
were ground service personnel, 306 were maintenance personnel and the remainder
were management, supervisory and clerical employees. As of March 2, 1999, ASA
Holdings had three employees, all of whom provide management services for ASA
Holdings' subsidiaries, and ASA Investments had two employees, both of whom
were management employees.
Approximately 24% of ASA's workforce are members of unions
representing pilots and flight attendants. In September 1988, ASA's flight
attendants voted to be represented by the Association of Flight Attendants
("AFA"). The current collective bargaining agreement between ASA and AFA was
entered into in September 1997 and is amendable in 2002. In 1987, the Air Line
Pilots Association ("ALPA") was certified to represent ASA's pilots. The
current collective bargaining agreement between ASA and ALPA became effective
September 15, 1998 and is
-9-
<PAGE> 13
amendable in September 2002. On November 10, 1998, the Transport Workers Union
was certified to represent ASA's dispatchers. Negotiations for an initial
collective bargaining agreement have not yet begun. ASA is aware that the
International Association of Machinists and Aerospace Workers is currently
soliciting employees in a purported craft or class of ramp workers employed by
ASA for purposes of submitting a petition to represent such workers, although
to the knowledge of representatives of ASA, no such petition is currently
pending. See "Regulation--Labor Regulation" regarding the procedures applicable
to the negotiation of such collective bargaining agreements. There are no union
affiliations with any other groups of employees of ASA, ASA Holdings or ASA
Investments.
ASA operates as a Delta Connection carrier pursuant to a marketing
program with Delta. See "Commercial Arrangements Between Delta and the
Company." ASA is also a party to interline passenger, reservation, ticketing
and baggage agreements with each of the other major air carriers with which ASA
transacts any significant amount of business. See "Fares."
In addition to carrying passengers, ASA carries mail, freight and
small packages on its flights.
MAINTENANCE
ASA is subject to the jurisdiction of and regulation by the FAA with
respect to ASA's maintenance and operations. See "Regulation." ASA's aircraft
and engines are maintained in accordance with the standards and procedures
recommended and approved by the manufacturers and the FAA.
ASA provides maintenance for its aircraft using its own personnel,
facilities and parts. ASA employs personnel with appropriate FAA Airframe and
Powerplant licenses to ensure adequate maintenance of its aircraft. ASA employs
major outside repair agencies to perform its engine overhauls, most individual
component repairs or overhauls, and major checks on aircraft.
ASA's FAA-approved maintenance program specifies the number of days,
hours or operating cycles between inspections and overhauls of the airframes
and their component parts. The nature and extent of each inspection and
overhaul is specifically prescribed by the approved maintenance program. ASA
uses an FAA approved alternative for overhauls on each of its three engine
types: Pratt & Whitney PW118 engines on the Brasilias, Pratt & Whitney PW127
engines on the ATRs, and General Electric CF34-3B1 engines on the CRJs. "On
condition" engine overhaul intervals are set by engine condition monitoring and
continuous airworthiness maintenance programs. In addition, all engines contain
time-limited components, each of which has a maximum amount of time (measured
by operating hours) or a maximum number of operating cycles (measured by
takeoffs and landings) after which the component must be removed from the
engine assembly and overhauled or scrapped.
From time to time, the FAA issues airworthiness directives ("ADs") and
other regulations relating to, among other things, retirement of older
aircraft, collision avoidance systems, airborne windshear avoidance systems,
noise abatement, aircraft safety and increased inspections and
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<PAGE> 14
maintenance procedures. Some of these ADs require air carriers to undertake
inspections and to make unscheduled modifications and improvements on aircraft,
engines and related components and parts. The ADs sometimes cause ASA to incur
substantial, unplanned expense and, occasionally, aircraft or engines must be
removed from service prematurely in order to undergo mandated inspections or
modifications on an accelerated basis.
Since 1988 various air carriers, in cooperation with the FAA, have
been engaged in an in-depth review of the adequacy of existing maintenance
procedures applicable to older versions of most of the aircraft types in
general use in the industry. To date, this review has not included aircraft
used by ASA. While certain of these potential aging aircraft ADs may, at some
time in the future, necessitate unscheduled removals from service and increased
maintenance costs, ASA does not anticipate that compliance with such potential
ADs will have a material adverse impact on costs or operations.
AVIATION FUEL
ASA's operations are significantly affected by the availability and
price of aviation fuel. Fuel costs, including taxes and "into plane" fees,
constituted 9.29% of the Company's operating costs in 1998. Based on ASA's
fiscal 1998 fuel consumption, every $0.01 change in the average annual price
per gallon of aviation fuel caused an approximate $374,000 change in ASA's
annual fuel expense. The following table shows ASA's fuel consumption and costs
for fiscal years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Average Price Percent of
Fiscal Year Gallons Consumed Cost Per Gallon Operating Expense
- ----------- ---------------- ---- ------------- -----------------
<S> <C> <C> <C> <C>
1998 46,439,341 $29,141,584 $0.63 9.29%
1997 44,872,864 $32,988,262 $0.74 10.79%
1996 43,356,461 $33,479,356 $0.77 11.54%
</TABLE>
Aircraft fuel expense decreased 11.7% in 1998 compared with 1997,
primarily because the average fuel price per gallon decreased 14.9% to $0.63
cents per gallon and aircraft fuel consumption increased 3.5%. See "Financial
Statements and Supplementary Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Changes in aviation fuel prices have an industry-wide impact and will
tend to affect ASA's competitors in the same manner as ASA. There can be no
assurance that ASA will be able to increase its fares in response to any future
increases in fuel prices. See "Competition and Industry Considerations."
ASA currently obtains approximately 49% of its fuel requirements from
Chevron USA, Inc. at the Atlanta hub and approximately 22% of its fuel
requirements from various fuel suppliers at the Dallas/Fort Worth hub. ASA
obtains the rest of its fuel requirements from various suppliers at other
airports.
-11-
<PAGE> 15
ASA's fuel contracts do not provide protection against price increases
or for assured availability of supplies. Although ASA is currently able to
obtain adequate supplies of fuel, it is impossible to predict the future
availability or price of fuel. Political disruptions involving oil producing
countries; changes in government policy concerning aircraft fuel production,
transportation or marketing; changes in the fuel tax; changes in aircraft fuel
production capacity; environmental concerns and other unpredictable events may
result in fuel supply shortages and fuel price increases in the future. ASA's
business could be significantly adversely affected by such shortages and price
increases. See "Factors That May Affect Future Performance -- Fuel Cost and
Supply."
The Omnibus Budget Reconciliation Act of 1993 imposed a 4.3 cent per
gallon tax on commercial aviation fuel purchased for use in domestic
operations. Air carriers were exempt from this tax until October 1995. While
additional exemptions have been proposed, there can be no assurance that ASA
will not continue to be required to pay this tax.
MARKETING
ASA markets its passenger, air freight and small package services
primarily through direct sales activity and cooperative advertising programs.
The direct sales activity focuses on high-volume sources of business, such as
travel agencies and ticketing outlets located on major military installations.
Since 1984, ASA operated from the Atlanta and Dallas/Fort Worth hubs
as a Delta Connection carrier pursuant to a marketing agreement with Delta.
Cooperative advertising programs with Delta, such as Delta's frequent flyer
program and Delta Dream Vacations, are used to promote ASA's flights to the
Atlanta and Dallas/Fort Worth hubs, and Delta's services from Atlanta and
Dallas/Fort Worth to various long-haul destinations.
ASA's passengers accrue mileage in Delta's frequent flyer program,
which offers incentives to maximize travel on flights offered by Delta and
Delta Connection carriers. This program allows participants to accrue mileage
for award travel while flying on Delta, Delta Connection carriers and other
participating air carriers. Mileage credits may also be accrued for the use of
certain services offered by program partners such as hotels, car rental
agencies and credit card companies. Mileage vouchers can be redeemed for free
or upgraded travel on Delta, Delta Connection carriers and other participating
air carriers and for other program partner awards. Delta has reserved the right
to terminate the frequent flyer program with six months advance notice and to
change the program's terms and conditions at any time without notice.
ASA does not accrue for incremental costs associated with the Delta
frequent flyer program's mileage accumulation because the impact is immaterial
both on a quarterly and annual basis. ASA's management believes that the low
percentage of free passenger miles, its load factor and the restrictions
applied to free travel awards minimize the displacement of revenue passengers
and that the displacement that occurs is not significant. ASA expenses all
incremental costs of providing earned free travel awards under Delta's frequent
flyer program as incurred. ASA makes payments to Delta for Delta frequent flyer
mileage earned by passengers
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<PAGE> 16
flying on ASA's routes where those passengers do not connect to Delta flights.
ASA does not receive any payments related to providing carriage to passengers
utilizing frequent flyer mileage earned on Delta flights.
COMPETITION AND INDUSTRY CONSIDERATIONS
Management of ASA believes that its services are utilized primarily by
business, government and military travelers. ASA competes primarily with other
air carriers and, particularly with respect to its shorter flights, with ground
transportation such as automobiles and buses.
Delta provides air service from the Atlanta hub to approximately 28%
of the airports served by ASA out of Atlanta. Under the Delta Connection
program, ASA's flights are coordinated for timely connections with Delta. The
flights provided by Delta and ASA to the same markets are scheduled at
different times. ASA generally provides service to these markets at times when
ASA can more efficiently serve the market. Other air carriers provide service
from the Atlanta hub to approximately 13% of the airports served by ASA.
ASA competes with American/American Eagle in all of the Company's
markets operated from the Dallas/Fort Worth hub.
The airline industry historically has been highly competitive. ASA's
management believes that its ability to compete with ground transportation and
other air carriers depends upon the public acceptability of its aircraft and
ASA's provision of convenient, frequent and reliable service to its markets at
reasonable rates.
Air carriers' profit levels are highly sensitive to, and during recent
years have been impacted by, changes in fuel costs, fare levels and passenger
demand. Passenger demand and fares can be affected by, among other things, the
general state of the economy, international events and actions taken by other
air carriers with respect to fares. See "Economy" and "Seasonality."
Air carriers are permitted to set domestic ticket prices without
governmental regulation. As a result, the industry generally is subject to
substantial price competition. ASA has in the past both responded to
discounting actions taken by other carriers and initiated discounting actions
itself. ASA's management expects that low-fare competition is likely to
continue from time to time in its markets. If price reductions are not offset
by increases in revenue passenger miles, ASA's operating results could be
adversely affected.
ECONOMY
The airline industry is a highly volatile industry. The state of the
economy is the primary determinant of the level of passenger travel. Leisure
travel is highly discretionary and can easily be postponed during economic
down-turns or no growth economic periods. While business
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<PAGE> 17
travel is not as discretionary, business travel generally diminishes in
uncertain times as business tends to tighten cost controls.
SEASONALITY
ASA's operations at the Atlanta and Dallas/Fort Worth hubs are
primarily dependent upon business, government and military related travel and
generally are not subject to wide seasonal variations. However, some seasonal
decline in business travel does occur at these hubs during holiday periods and
during portions of the winter months (i.e., December, January and February).
ASA estimates that leisure travel accounted for approximately 20% of ASA's
passengers during 1998. Leisure travel generally increases during the summer
months and at holiday periods. Demand for air travel, especially by leisure and
other discretionary customers, is also affected by factors such as favorable
economic conditions and fare levels. See "Fares" and "Economy." ASA's
operations are also unfavorably affected by inclement weather which results in
canceled flights, particularly during winter months.
The following chart indicates the number of passengers carried by ASA
by quarter during its last three fiscal years:
<TABLE>
<CAPTION>
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998 869,162 1,061,502 1,061,926 1,034,356
1997 836,455 992,521 989,255 956,386
1996 836,902 985,747 931,812 877,660
</TABLE>
REGULATION
Historically, the U.S. Department of Transportation ("DOT") and the
FAA have exercised regulatory authority over the operations of all air carriers
pursuant to the Federal Aviation Act of 1958, as amended (the "1958 Act"). Most
domestic economic regulation of passenger and freight services was eliminated
pursuant to the Airline Regulation Act of 1978 and other legislation amending
the 1958 Act (collectively, the "Act"). The FAA's jurisdiction extends
primarily to the safety and operational provisions of the Act. The DOT's
responsibility primarily involves regulation of the economic and consumer
protection aspects of airline operation.
Both the DOT and the FAA have authority to institute administrative
and judicial proceedings to enforce federal aviation laws and their own
regulations, rules and orders. Civil and criminal sanctions may be assessed for
violations.
ASA is also subject to various other federal, state and local laws and
regulations affecting its operations. The United States Postal Service has
authority over certain aspects of the transportation of mail. The
Communications Act of 1934, as amended, governs ASA's use and operation of
radio facilities. Labor relations are generally governed by the Railway Labor
Act. Environmental matters (including noise pollution) are governed by various
federal, state and local governmental entities. The United States Department of
Justice has jurisdiction over
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<PAGE> 18
mergers and acquisitions involving air carriers. Because it carries military
passengers, ASA is also subject to review by the Department of Defense.
DOT REGULATION. Because of the economic deregulation of the airline
industry, unrestricted authority to operate domestic air transportation
(including the carrying of passengers and cargo) is available to any air
carrier the DOT determines is "fit" to operate. The DOT also has jurisdiction
over economic and consumer protection matters such as advertising, denied
boarding compensation, baggage handling, smoking aboard aircraft, handicapped
access, computer reservation systems, enforcement of minimum standards of
customer service, regulation of federal compensation payments for essential air
service, and ownership and control of air carriers. The DOT is also authorized
to prohibit unjust discrimination and to require periodic reports from air
carriers. The DOT has authorized ASA's flight operations pursuant to a
Certificate of Public Convenience and Necessity (a "401 Certificate") issued
under Part 401 of the Act during the first quarter of 1993. The 401 Certificate
requires ASA to maintain DOT-prescribed minimum levels of insurance and to
comply with all applicable statutes, rules and regulations, and subjects ASA to
expanded reporting requirements. The DOT must issue a 401 Certificate to an air
carrier before it will be permitted to operate aircraft with more than 60
seats. ASA initiated the use of larger aircraft having more than 60 seats
during the second quarter of 1993. Prior to receiving the 401 Certificate, ASA
qualified as a commuter air carrier that was exempt from certain provisions of
the Act and certain regulatory functions of the DOT.
On December 20, 1995, a new federal regulation was issued by the FAA
which required all air carriers to accomplish the following by March 20, 1997
(earlier in certain instances): (a) establish a director of safety, and (b) for
those air carriers operating aircraft under Part 135 of the Act (30 seats or
less), re-certify their operation of those aircraft in accordance with Part 121
of the Act. Prior to March 20, 1997, Part 135 carriers did not have to dispatch
all their aircraft or train their pilots to the higher Part 121 standards.
Beginning in 1982, ASA operated as both a Part 135 and a Part 121 carrier
because it operated aircraft in both categories. ASA began training all of its
pilots under Part 121 in 1993, although it was not required to do so. ASA was
certified to operate the Brasilias under Part 121 on March 18, 1997.
Under the Act, the DOT has the authority to designate ASA as an
"essential air carrier" in any community in which it is the only carrier
providing service and that is an "essential air service community." Except for
such "essential air carrier" service, the economic deregulation of the airline
industry permits unrestricted competition with respect to ASA's routes,
services, fares and rates. An air carrier that serves an "essential air service
community" is required to give advance notice to the DOT if it plans to
terminate service to that community. ASA is currently the only air carrier that
provides service between the Atlanta hub and the following "essential air
service communities:" Albany, Brunswick, Columbus, Macon and Valdosta, Georgia;
Columbus, Gulfport and Meridian, Mississippi; Asheville, North Carolina;
Dothan, Alabama; and Fort Walton Beach, Gainesville and Panama City, Florida.
The service provided by ASA to these "essential air service communities" is on
an unsubsidized basis.
FAA REGULATION. As part of its safety and operational regulatory
authority, the FAA regulates flying operations generally, including, among
other things, control of navigable air
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<PAGE> 19
space; airport access; aircraft certification and maintenance; equipment and
ground facilities; flight operations dispatch and other communications; weather
observation; the training and qualifications of flight, maintenance and other
operational and technical personnel; record keeping and other matters affecting
air safety generally.
To ensure compliance with its regulations, the FAA requires air
carriers to obtain operating, airworthiness and other certificates that are
subject to suspension or revocation for cause. ASA holds a valid air carrier
operating certificate issued by the FAA. ASA's certificates have never been
suspended and, to the knowledge of ASA's management, it is in compliance with
all applicable FAA regulations.
LABOR REGULATION. The Railway Labor Act ("RLA") governs the labor
relations of air carriers and employees in the airline industry. Comprehensive
provisions are set forth in the RLA establishing the right of airline employees
to organize and bargain collectively along craft or class lines and imposing a
duty upon air carriers and their union represented employees to make reasonable
efforts to make and maintain collective bargaining agreements. ASA has
collective bargaining agreements with two unions which represent its pilots and
flight attendants. Negotiations for an initial collective bargaining agreement
with the Transport Workers Union, which has been certified to represent ASA's
dispatchers, have not yet begun. See "Personnel and Operations." Under the RLA,
collective bargaining agreements do not terminate, but instead become amendable
on a particular date agreed upon by the air carrier and the union. The existing
collective bargaining agreement remains in force while a new collective
bargaining agreement is being negotiated. Should the parties be unsuccessful in
achieving a new amended collective bargaining agreement through direct
negotiations, either party may petition the National Mediation Board ("NMB")
for the appointment of a federal mediator to assist the parties with their
negotiations. Following appointment by the NMB of a mediator to assist the
parties, the parties are required to remain in mediation under the auspices of
the NMB until the parties reach a new agreement or the NMB determines, in its
sole discretion, that the parties will be unable to reach a new agreement
through mediation. Upon making such a determination, the NMB will proffer
arbitration to the parties for the purpose of resolving their negotiating
differences. If either party rejects the proffer of arbitration, the parties
will enter a thirty day "cooling off period" during which the status quo must
be maintained. At the end of the thirty day cooling off period, unless a
Presidential Emergency Board has been convened, the parties are free to engage
in economic self help. For the union, this includes the right to strike. For
the carrier, this may include the right, depending upon the circumstances, to
impose new terms and conditions of employment on the employees.
ENVIRONMENTAL REGULATION. The United States Environmental Protection
Agency ("EPA") is authorized to regulate aircraft emissions. ASA's management
believes that the engines on ASA's current aircraft and on all aircraft ASA has
ordered comply with applicable EPA standards.
Federal and state environmental laws require that underground storage
tanks be upgraded to new construction standards and equipped with leak
detection. These requirements were phased into effect based on the age,
construction and use of existing tanks. Federal and state environmental laws
also govern the use and operation of above ground storage tanks. ASA
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<PAGE> 20
operates no underground or above ground storage tanks for the storage of fuels.
ASA pays fixed base operators at various airports to store fuels. ASA's
management believes it is otherwise in compliance with these laws.
NOISE REGULATIONS. The FAA requires air carriers to comply with
certain noise restrictions concerning their aircraft. Air carriers must bring
existing aircraft into compliance with these regulations by retrofit or engine
replacement. ASA's current aircraft and all aircraft ASA has ordered are in
compliance with these regulations. In addition, several state legislatures and
other governmental administrative bodies have, from time to time, considered
noise reduction measures of various sorts. At the present time, ASA's aircraft
meet all applicable noise regulations.
INSURANCE
For the fiscal year ended December 31, 1998, ASA maintained insurance
coverage with major insurance carriers with coverage up to $30 million for
damage per aircraft and $500 million of third party liability per occurrence
(for personal injury and property damage). The per aircraft deductibles range
from $50,000 to $250,000 depending on the type of aircraft. In addition, ASA
carries Hull War Risk coverage on certain aircraft where ASA believes, based on
information currently available to it, such insurance is necessary to protect
it and its property against material loss. ASA also maintains workers
compensation insurance in compliance with state law in each state in which ASA
operates. ASA does not maintain business interruption insurance.
In the opinion of management, the Company maintains insurance policies
of types customary in the airline industry and in amounts and with insurance
carriers it believes, based on information currently available to it, are
adequate to protect it and its property against material loss. There can be no
assurance, however, that the amount of insurance carried by the Company will be
sufficient to protect it from material loss.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
RELATIONSHIP WITH DELTA
A substantial portion of the Company's business is dependent on the
Company's relationship with Delta. The Delta Connection Agreement is subject to
termination by either party for any reason or no reason upon 30 days' written
notice to the other party. The termination of the Delta Connection Agreement or
any material modification of its terms may have a material adverse effect on
the Company. The Company is particularly dependent on the proration methodology
by which the Company and Delta share revenues and the markets in which Delta
allows the Company to operate using the "DL" designator code. As a result of
the Delta Connection Agreement, the Company's business is sensitive to events
and risks affecting Delta. Delta's decisions regarding flight routes, marketing
programs and other operational matters, or the occurrence of any event
adversely affecting Delta, could have a material adverse effect on the Company.
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<PAGE> 21
Based upon discussions between Delta and the Company's management with
respect to revenue reallocation and cost sharing arrangements proposed by Delta
as part of the negotiation for renewing the Delta Connection Agreement with the
Company, the terms proposed by Delta would, in management's view, be likely to
reduce the Company's net income approximately $21 million in 1999 and
approximately $45-55 million in each of the four years thereafter from the net
income the Company previously projected. In addition, Delta proposed other
changes which would adversely affect the future financial performance of the
Company, including proposals to impose upon the Company new charges for the
payment of overrides to travel agents' commissions, to specify markets into
which the Company's regional jets would be deployed, and to impose fees for
passengers not connecting with Delta flights and service performance penalties.
If the transactions contemplated by the Merger Agreement are not consummated, a
renegotiation of the Delta Connection Agreement to include such proposed terms
would have a material adverse effect on the Company and its results of
operations.
FUEL COSTS AND SUPPLY
Fuel costs represented 9.29% of the Company's total operating expenses
in 1998. Fuel prices, which can be volatile and are largely outside of ASA's
control, can have a significant impact on the Company's operating results. At
ASA's current rate of consumption, every $0.01 increase in the price paid for
fuel represents an approximate $374,000 increase in ASA's annual operating
expenses. ASA's fuel supply contracts do not assure the price or availability of
fuel. ASA enters into fuel swap contracts to manage risk associated with changes
in aircraft fuel prices. Under these contracts, ASA receives or makes payments
based on differences between fixed and variable prices for certain fuel
commodities. Gains or losses from fuel swap contracts are deferred and
recognized as a component of fuel expense when the underlying fuel being hedged
is used. At December 31, 1998, ASA had a contract covering approximately 10% of
its projected 1999 aircraft fuel requirements. Historically, the Company has not
closed any contracts prior to the execution of the underlying purchase
transactions, nor have any of the purchase transactions failed to occur. At
December 31, 1998, the fair value of ASA's swap contract, representing the
amount ASA would pay if the contract was closed, was immaterial. Increases in
the price of fuel or reductions in the availability of fuel supplies, as well as
ASA's inability to pass on increased fuel costs to consumers due to economic or
competitive conditions, could have a material adverse effect on the Company's
financial condition and results of operations.
AIRCRAFT FLEET
As of March 2, 1999, ASA's aircraft fleet consisted of 12 ATRs, 59
Brasilias and 19 CRJ aircraft. ASA's operations could be materially adversely
affected by the failure of the respective suppliers of these aircraft to
provide additional aircraft, parts or related support services on a timely
basis. In addition, the issuance of FAA airworthiness directives affecting
ASA's aircraft or the need for unanticipated fleet maintenance could interrupt
ASA's fleet service, which could have a material adverse effect on the Company.
In 1997, ASA exercised its option to return all five of its BAe jets in
connection with its proposed acquisition of the new CRJ aircraft. While ASA
expects to take delivery of remaining CRJ aircraft under the terms of its
agreement with
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<PAGE> 22
Bombardier, ASA's operations could be materially adversely affected by
Bombardier's failure to deliver such future shipments of the CRJs on a timely
basis.
FINANCIAL AND OPERATING LEVERAGE
As is characteristic of the airline industry, ASA operates with a high
degree of financial and operating leverage. As of December 31, 1998, ASA had
$72.8 million in outstanding long-term debt, with annual payments of
approximately $18.7 million committed to such obligations in 1999. Payments
committed to aircraft operating leases in 1999 amount to approximately $30.3
million. In addition, the Company's acquisition of additional aircraft,
including the CRJs, will result in increased leverage in the form of additional
operating lease obligations. ASA's leverage will require significant periodic
cash payments and may make ASA more vulnerable to the cyclical and seasonal
nature of the airline industry. Unlike the revenues generated by any particular
flight, the expenses incurred by ASA do not always vary proportionately with
the number of passengers carried and the fares charged for each flight.
Accordingly, decreases in the number of passengers carried could cause a
significant decrease in profits if not offset by higher fares.
BRAZILIAN DEFAULT RISK
In connection with its acquisition of the Brasilia aircraft, ASA
negotiated to obtain the right to receive interest rate subsidies from the
Federative Republic of Brazil under the country's export support program. From
1996 to 1998, these subsidies represented an average of approximately $2.2
million in annual credits against ASA's interest payment obligations related to
debt associated with the Brasilia aircraft, and such subsidies would be
jeopardized if the government of Brazil fails to meet its obligations under the
export support program. From time to time, the Brazilian government has
experienced economic conditions that have impaired the creditworthiness of such
governmental obligations. There can be no assurance that a default on the
subsidies will not occur under the export support program.
COMPETITION
The airline industry is highly competitive and industry earnings are
volatile. Since the deregulation of the airline industry in 1978, the industry
has consolidated and has integrated major and regional carriers, which in turn
has enhanced the competitive environment. Airlines compete on the basis of
pricing, scheduling, public perception, on-time performance, frequent flyer
programs and other services. While ASA has positioned itself to benefit from
these and other factors, there can be no assurance that the Company will not be
adversely affected by the introduction of new carriers in ASA's existing
markets, the institution of deeply discounted fares by competitors, changes in
ASA's ability to react to competitive pressures or other events.
GOVERNMENT REGULATION
ASA is subject to regulation by several governmental authorities,
including the DOT and the FAA. These authorities regulate flight operations,
safety and economic aspects of air
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<PAGE> 23
transportation providers. ASA is also subject to laws relating to environmental
protection, radio communications, labor relations, employment practices and
other matters. ASA incurs substantial costs in maintaining its certifications
with federal regulators and otherwise complying with the laws and regulations
to which it is subject. Although ASA has all certifications it believes to be
necessary for continued operations and believes it is in compliance with all
applicable requirements necessary to maintain its operating authority in good
standing, any modification, suspension or revocation of ASA's DOT or FAA
certifications or authorizations, as well as the failure or inability of ASA to
maintain such compliance, could have a material adverse effect on the Company
and its operations.
ECONOMIC CONDITIONS AND SEASONAL NATURE OF AIRLINE BUSINESS
Although ASA's operations at its main hubs are dependent primarily on
business, governmental and military related travel, ASA generally experiences
lower demand during holiday periods and portions of the winter months. ASA's
operations are also unfavorably affected by inclement weather, particularly in
the winter months, which may result in canceled flights. In addition, downturns
in the economy generally may lower demand for travel by leisure and other
discretionary customers and may have a material adverse effect on the Company's
financial results.
LABOR RELATIONS
Approximately 24% of ASA's workforce are members of the unions
representing pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable. In September 1997, ASA
and AFA, the flight attendants' union, entered into a new collective bargaining
agreement that is amendable in 2002. In August 1998, ASA and the pilots' union,
ALPA, approved a new collective bargaining agreement that became effective
September 15, 1998 and is amendable in September 2002. On November 10, 1998,
the Transport Workers Union was certified to represent ASA's dispatchers.
Negotiations for an initial collective bargaining agreement between ASA and
that union have not yet begun. ASA is aware that the International Association
of Machinists and Aerospace Workers is currently soliciting employees in a
purported craft or class of ramp workers employed by ASA for purposes of
submitting a petition to represent such workers, although to the knowledge of
representatives of ASA, no such petition is currently pending. See
"Regulation--Labor Regulation." There can be no assurance that ASA will be able
to settle any future contract negotiations without wage increases, work rule
changes or other provisions that could have a material adverse effect on the
Company's operations or financial performance. In addition, any cessation or
disruption of operations due to any strike or work action could have a material
adverse effect on the Company and its financial performance.
RISKS RELATING TO YEAR 2000 ISSUES
The Year 2000 issue refers generally to the data structure and
processing problems that may prevent systems from properly processing
date-sensitive information when the year changes to 2000. The Year 2000 problem
could result in system failures or miscalculations, causing disruptions of a
company's operations. As a result, in less than a year, certain information
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<PAGE> 24
technology ("IT") and non-IT systems may need to be upgraded to address Year
2000 problems. IT and non-IT systems are critical to the Company's operations.
The Company believes completed and planned modifications and conversions of its
internal systems and equipment will allow it to resolve material problems
created by the Year 2000 issue in a timely manner. However, there can be no
assurance that the Company's systems will properly address Year 2000 issues
prior to December 31, 1999, or that the failure of any such system will not
have a material adverse effect on the Company's business, operating results and
financial condition. To the extent the Year 2000 problem has a material adverse
effect on the business, operations or financial condition of third parties with
whom the Company has material relationships, such as Delta, vendors, suppliers
and customers, the Year 2000 problem could have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, customers may alter their travel arrangements at the end of 1999 and
the beginning of 2000 due to concerns regarding risks and problems related to
flying at the turn of the millennium. To the extent travelers are reluctant to
fly during fourth quarter 1999 and first quarter 2000, the Year 2000 issue
could have a material adverse effect on the Company's business, results of
operations and financial condition.
ITEM 2. PROPERTIES
ASA entered into agreements with other air carriers to provide ground
handling services (either directly or through outside vendors) to ASA in 25 of
the cities it serves. In addition, ASA performs ground handling services for
other air carriers at eight airports. ASA maintains ticketing, gate and baggage
claim facilities at each of the other airports it serves pursuant to direct
leases or use agreements with local airport authorities or other carriers. ASA
leases its apron, gate, ticketing and baggage claim facilities at the
Dallas/Fort Worth hub from Delta pursuant to a Ground Service Agreement. At 20
airports, ASA operates under month-to-month use agreements. ASA is currently
negotiating seven other leases that have expired. ASA is operating month to
month at these airports. The leases or use agreements at the remaining airports
have remaining terms generally ranging from one month to 12 years.
Substantially all the maintenance and repairs on ASA's aircraft
operating from the Atlanta hub (except for major engine, propeller and
component overhauls as well as major airframe checks) are performed at ASA's
79,000 square foot hangar and maintenance facility in Macon, Georgia. ASA
leases the hangar facilities pursuant to a 30-year lease with renewal options
until the year 2028.
ASA also maintains a limited inventory of spare parts and has
maintenance personnel at the Atlanta hub in a facility located near ASA's ramp
and gate space that is leased from the City of Atlanta.
ASA's lease of a maintenance facility in Texarkana, Arkansas has
expired, and ASA currently is a tenant at will with respect to this facility.
Substantially all the maintenance and repairs on ASA's aircraft operating from
the Dallas/Fort Worth hub are performed at this facility (except for major
engine, propeller and component overhauls as well as major airframe checks).
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<PAGE> 25
In addition, ASA maintains a limited inventory of spare parts and has
maintenance personnel at the Dallas/Fort Worth hub.
During 1996, ASA relocated all of its operations to 15 gates on
Concourse C North at the Atlanta hub. The relocation has significantly enhanced
the convenience of connections between flights operated by ASA and Delta in
Atlanta.
ASA Holdings and ASA maintain their principal offices and ASA's
training center in approximately 45,000 square feet of office space at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia, under a lease expiring
on March 31, 2006.
ASA's operations control center, located at its principal offices in
Atlanta, provides weather information, fuel information, weight limitations,
routing instructions and other information to ASA's pilots.
ITEM 3. LEGAL PROCEEDINGS
On February 25, 1999, Mala Nebenzahl and Alex Pappas ("Plaintiffs"), on
behalf of themselves and other shareholders of the Company, filed a putative
class action complaint in the Superior Court of Fulton County in the State of
Georgia against the Company and its directors (collectively, the "ASA
Defendants") and Delta, seeking, among other things, to enjoin the Offer and
Merger or to rescind the Offer or Merger transactions if either is consummated.
On March 9, 1999, the parties entered into a memorandum of understanding setting
forth the terms of an agreement-in-principle to settle this litigation,
including the payment of Plaintiffs' legal fees up to $400,000, subject to court
approval. Pursuant to the memorandum of understanding, the Company, Delta and
Purchaser have amended the Merger Agreement to eliminate the $5 million break-up
fee that would otherwise have been payable to Delta if the Merger Agreement were
to be terminated as a result of the Company receiving and accepting a superior
offer for its shares. The proposed settlement is subject to the approval of the
Fulton County Superior Court.
On March 18, 1999, the Company received a letter from Private Capital
Management, Inc. ("PCM"), a company claiming to exercise discretionary control
over 246,300 shares of Company stock. The letter contends that one of PCM's
clients may have initiated a lawsuit in connection with the Offer and/or the
Merger. The Company, however, has not received any summons in respect of, nor
does it have any knowledge of, any legal action relating to the Offer or the
Merger being taken other than the lawsuit initiated by Mala Nebenzahl and Alex
Pappas which is described above.
There are no other material legal proceedings pending in which the
Company is a party or to which any of the Company's property is subject. In
addition, in the opinion of its management, ASA maintains insurance policies of
types customary in the airline industry and in amounts and with insurance
carriers it believes, based on information currently available to it, are
adequate to protect it and its property against material loss. There can be no
assurance, however,
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<PAGE> 26
that the amount of insurance carried by the Company will be sufficient to
protect it from material loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of ASA
Holdings during the fourth quarter of the fiscal year covered by this Report.
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<PAGE> 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of ASA Holdings is regularly quoted on the Nasdaq
National Market under the symbol ASAI. The following table sets forth, for the
periods indicated, the high and low sales prices of the common stock and the
quarterly cash dividends per share:
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
----------------------------------------
<S> <C> <C> <C>
1998
1st Quarter $40.88 $28.25 $0.11
2nd Quarter 51.00 35.63 0.11
3rd Quarter 50.25 31.50 0.11
4th Quarter 40.00 21.75 0.11
1997
1st Quarter $25.63 $19.63 $0.10
2nd Quarter 28.63 20.13 0.10
3rd Quarter 31.13 26.75 0.10
4th Quarter 31.75 26.50 0.10
</TABLE>
As of March 2, 1999, there were approximately 868 shareholders of
record.
Certain of ASA's credit agreements contain restrictive covenants which
limit ASA's ability to transfer funds to ASA Holdings in the form of cash
dividends, loans or advances. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes B and H of the Notes
to Consolidated Financial Statements herein regarding such restrictions.
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<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA
ASA HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Total Operating Revenues $409,859 $385,290 $375,300 $328,725 $312,090 $288,463
Total Operating Expenses 313,828 305,705 290,148 252,850 227,818 210,843
Income from Operations 96,031 79,585 85,152 75,875 84,272 77,620
Total Non-Operating (Income) Expense (10,214) (7,257) (5,955) (4,899) (1,348) 198
Income before Taxes and Accounting Change 106,245 86,842 91,107 80,774 85,620 77,422
Income Taxes 40,108 32,330 34,494 29,637 32,964 31,090
Cumulative Effect of Accounting Change -- -- -- -- -- 4,212
Net Income $ 66,137 $ 54,512 $ 56,613 $ 51,137 $ 52,656 $ 50,544
Earnings per Common Share * $ 2.24 $ 1.82 $ 1.83 $ 1.55 $ 1.54 $ 1.47
Weighted Average Common Shares Outstanding (000) * 29,561 29,910 30,914 32,889 34,140 34,290
Earnings per Common Share - Diluted * $ 2.22 $ 1.81 $ 1.83 $ 1.55 $ 1.54 $ 1.47
Weighted Average Common Shares and Share
Equivalents Outstanding (000) * 29,729 30,092 30,991 32,964 34,188 34,395
OTHER FINANCIAL DATA
Working Capital $132,636 $129,978 $147,719 $141,677 $140,391 $126,975
Total Assets $499,769 $505,960 $486,237 $512,699 $519,684 $474,599
Long-Term Debt, excluding Current Portion $ 54,063 $ 72,792 $ 94,618 $120,210 $152,610 $135,963
Total Liabilities $189,995 $210,035 $226,021 $259,844 $272,214 $249,512
Shareholders' Equity $309,774 $295,925 $260,216 $252,855 $247,470 $225,087
Shareholders' Equity per Share * $ 10.85 $ 9.95 $ 8.68 $ 7.98 $ 7.45 $ 6.55
Return on Average Shareholders' Equity 22% 20% 22% 20% 22% 25%
Shareholders' Equity to Total Liabilities 163% 141% 115% 97% 91% 90%
Cash Dividends Declared per Share * 44c. 40c. 38c. 34c. 32c. 28c.
Long-Term Debt to Shareholders' Equity 17% 25% 36% 48% 62% 60%
Shares Outstanding at End of Year (000) * 28,543 29,731 29,994 31,704 33,224 34,340
STATISTICAL DATA
Revenue Passengers Carried (000) 4,027 3,775 3,632 3,067 3,120 2,661
Revenue Passenger Miles (000,000) 1,041 924 874 763 780 641
Available Seat Miles (000,000) 1,865 1,813 1,781 1,688 1,654 1,367
Yield per Revenue Passenger Mile 38.5c. 40.9c. 42.0c. 41.7c. 39.2c. 44.2c.
Operating Cost per Available Seat Mile 16.8c. 16.9c. 16.3c. 15.0c. 13.8c. 15.4c.
Passenger Load Factor 55.8% 51.0% 49.1% 45.2% 47.2% 46.9%
Break-Even Load Factor 41.3% 39.5% 37.2% 34.1% 34.2% 34.3%
Average Passenger Trip Length (miles) 258 245 241 249 250 241
Flights per Week (end of period) 3,965 3,942 3,814 3,886 4,163 4,087
<CAPTION>
1992 1991 1990 1989
<S> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Total Operating Revenues $235,579 $221,916 $187,229 $180,130
Total Operating Expenses 174,765 169,388 147,363 136,160
Income from Operations 60,814 52,528 39,866 43,970
Total Non-Operating (Income) Expense 1,497 932 (1,124) (566)
Income before Taxes and Accounting Change 59,317 51,596 40,990 44,536
Income Taxes 22,250 19,093 15,600 16,924
Cumulative Effect of Accounting Change -- -- -- --
Net Income $ 37,067 $ 32,503 $ 25,390 $ 27,612
Earnings per Common Share * $ 1.09 $ 0.96 $ 0.73 $ 0.76
Weighted Average Common Shares Outstanding (000) * 34,097 33,942 34,748 36,105
Earnings per Common Share - Diluted * $ 1.09 $ 0.95 $ 0.73 $ 0.76
Weighted Average Common Shares and Share Equivalents
Outstanding (000) * 34,165 34,050 34,938 36,299
OTHER FINANCIAL DATA
Working Capital $ 93,372 $ 78,721 $ 59,590 $ 55,525
Total Assets $430,752 $377,603 $325,311 $287,971
Long-Term Debt, excluding Current Portion $145,804 $139,356 $127,724 $111,749
Total Liabilities $252,013 $229,683 $204,956 $179,613
Shareholders' Equity $178,738 $147,910 $120,355 $108,358
Shareholders' Equity per Share * $ 5.23 $ 4.35 $ 3.57 $ 3.07
Return on Average Shareholders' Equity 23% 24% 22% 28%
Shareholders' Equity to Total Liabilities 71% 64% 59% 60%
Cash Dividends Declared per Share * 24c. 20c. 15.9c. 8c.
Long-Term Debt to Shareholders' Equity 82% 94% 106% 103%
Shares Outstanding at End of Year (000) * 34,180 34,034 33,750 35,314
STATISTICAL DATA
Revenue Passengers Carried (000) 2,417 2,251 2,002 2,001
Revenue Passenger Miles (000,000) 547 501 427 413
Available Seat Miles (000,000) 1,077 1,020 856 791
Yield per Revenue Passenger Mile 42.2c. 43.2c. 43.2c. 42.9c.
Operating Cost per Available Seat Mile 16.2c. 16.6c. 17.2c. 17.2c.
Passenger Load Factor 50.8% 49.2% 49.9% 52.3%
Break-Even Load Factor 38.0% 37.7% 39.0% 39.3%
Average Passenger Trip Length (miles) 226 223 213 207
Flights per Week (end of period) 3,507 3,360 3,124 3,033
</TABLE>
* Adjusted for stock splits on November 26, 1991 and
February 18, 1993
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<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K, including Management's Discussion and
Analysis which follows, contains forward-looking statements in addition to
historical information, including but not limited to statements regarding the
Company's views with respect to future events, trends, market conditions and
financial performance. Without limiting the generality of the foregoing, the
words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate,"
and similar expressions, when used in this Report and in such other statements,
are intended to identify forward-looking statements. Such forward-looking
statements are subject to certain factors that could cause actual results to
differ materially from historical results or anticipated events, trends or
results. These factors include, but are not limited to, material changes in the
Company's relationship with Delta Air Lines, Inc. (Delta); the cost and supply
of aviation fuel; the acquisition and phase-in of new aircraft; competitive
pressures on pricing; changes in regulations affecting the Company; potential
adverse effects of the Year 2000 computer problem; and seasonal factors and
general economic conditions affecting demand for air transportation. These and
other factors affecting the Company's future performance are further detailed
in publicly available reports filed from time to time by the Company with the
Securities and Exchange Commission.
ASA Holdings, Inc. (ASA Holdings) is a holding company the principal
assets of which are the shares of its wholly owned subsidiaries Atlantic
Southeast Airlines, Inc. (ASA) and ASA Investments, Inc. (ASA Investments). All
references to the Company contained in this section refer collectively to ASA
and its subsidiaries, ASA Holdings and ASA Investments, prior to December 31,
1996, and to ASA Holdings and its subsidiaries, ASA and ASA Investments,
beginning December 31, 1996. All significant intercompany transactions have
been eliminated.
Recent Developments
On February 15, 1999, the Company entered into the Merger Agreement
with Delta and Purchaser. The Merger Agreement provides for the acquisition of
all of the outstanding shares of common stock of the Company not owned by Delta
or its affiliates for a total consideration of approximately $700 million. See
"Recent Developments -- Agreement and Plan of Merger." As a result of the
consummation of the Offer, Delta has sufficient voting power to approve the
Merger without the vote of any other shareholder. Prior to entering into the
Merger Agreement, Delta and the Company had various discussions regarding
certain aspects of the revenue allocation and cost sharing arrangements related
to their marketing alliance. See "Business -- Factors That May Affect Future
Performance -- Relationship with Delta."
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<PAGE> 30
Liquidity and Capital Resources
The Company's working capital increased slightly to $132.6 million at
December 31, 1998 compared with $130.0 million at December 31, 1997. The
current ratio was 2.8 at December 31, 1998 and 1997, respectively. Cash, cash
equivalents and investments in marketable securities increased by $2.0 million
primarily due to $100.4 million in cash from operations, $8.9 million from the
exercise of stock options, an $11.8 million reclassification of long-term
investments to short-term marketable securities, and $4.9 million in proceeds
from the sale of aircraft equipment. These increases were partially offset by a
$37.8 million investment in property and equipment ($16 million of which was
Canadair Regional Jet aircraft pre-delivery deposits), $13.1 million of
dividends paid, $51.4 million of common stock repurchases and a $21.9 million
net decrease in long-term debt.
At December 31, 1998, the Company had two unsecured lines of credit
totaling $108.0 million with several banks. During the second quarter of 1998,
ASA Holdings established a new $100 million unsecured credit facility to
enhance the Company's flexibility for future growth. The facility is guaranteed
by ASA and ASA Investments. The current pricing is LIBOR plus 27.5 basis
points. In addition, the Company pays a facility commitment fee of 12.5 basis
points on the amount of the revolving commitment regardless of whether, and to
what extent, the revolving commitment is utilized. The new line of credit has a
five year term which expires on June 26, 2003 and contains customary financial
covenants. At December 31, 1998, only $.7 million of one line was committed to
support two letters of credit and there were no outstanding amounts against
these lines of credit. In connection with the Merger Agreement, the $100
million unsecured credit facility was terminated effective March 22, 1999. The
remaining line of credit is available for general corporate purposes.
The Company's percentage of long-term debt to equity decreased to 17%
at December 31, 1998 compared with 25% at the end of 1997. Long-term debt
decreased to $54.1 million from $72.8 million at the end of 1997. The current
portion of long-term debt decreased by $3.1 million from December 31, 1997.
Thirty EMB-120 Brasilia aircraft and four ATR-72 aircraft, as well as a portion
of ASA's spare parts, are pledged to secure long-term debt.
Current maturities of long-term debt, aircraft lease payments, costs
of compliance with FAA directives and other capital expenditures were funded
from the Company's cash reserves and internally generated funds during fiscal
1998.
Shareholders' equity per share increased to $10.85 at December 31,
1998 from $9.95 at the end of 1997. Net worth increased $13.8 million in 1998
primarily due to earnings of $66.1 million and $12.3 million from the exercise
of stock options, offset by $13.1 million of dividends paid and $51.4 million
of common stock repurchases.
During the second quarter of 1998, ASA entered into fuel swap
contracts to manage risk associated with changes in aircraft fuel prices. Under
these contracts, ASA receives or makes payments based on differences between
fixed and variable prices for certain fuel commodities.
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<PAGE> 31
Gains and losses from fuel swap contracts are deferred and recognized as a
component of fuel expense when the underlying fuel being hedged is used. At
December 31, 1998, ASA had a contract outstanding covering approximately 10% of
its projected fiscal 1999 aircraft fuel requirements. At December 31, 1998, the
fair value of the ASA swap contract, representing the amount ASA would pay if
the contract were closed, was immaterial.
During 1996, ASA renegotiated the restrictive covenants in its credit
agreements due to the reorganization. ASA Holdings and ASA Investments are not
subject to the restrictive covenants in ASA's credit agreements except to the
extent that ASA is restricted in its ability to transfer funds to ASA Holdings
or ASA Investments in the form of cash dividends, loans or advances. ASA's
dividend to ASA Holdings of all of the shares of ASA Investments' capital stock
in connection with the reorganization provided ASA Holdings with net assets that
are free of the restrictive covenants in ASA's credit agreements. At
December 31, 1998, the net assets of subsidiaries subject to these restrictions
approximated $238 million. At December 31, 1998, approximately $60 million of
net assets was available for distribution by ASA to ASA Holdings under the most
restrictive of these agreements.
The net number of shares of common stock outstanding decreased by 1.2
million to 28.5 million at December 31, 1998 compared with the number
outstanding at December 31, 1997. The number of shares decreased by 1,555,100
due to the repurchase of common stock, offset by 367,400 shares issued in
connection with the exercise of stock options. During 1996, ASA's Board of
Directors authorized ASA to repurchase up to $50.0 million of its common stock
on the open market at any time on or before December 31, 1996. ASA repurchased
approximately $37.4 million of its common stock during 1996. In connection with
the Reorganization on December 31, 1996, all of the shares of ASA treasury
stock were canceled. In January 1997, ASA Holdings' Board of Directors
authorized the Company to repurchase up to $50.0 million of its common stock on
the open market at any time on or before December 31, 1997. During 1997, the
Company repurchased a total of approximately $14.2 million of its common stock.
In February 1998, ASA Holdings' Board of Directors authorized ASA to repurchase
up to $50.0 million of its common stock on the open market during the following
twelve month period. In November 1998, ASA Holdings announced that its Board of
Directors authorized the repurchase of up to an additional $50.0 million of its
common stock on the open market through January 2000. During 1998, the Company
repurchased a total of approximately $51.4 million of its common stock. The
repurchased shares will be held as treasury stock and used for general
corporate purposes or will be canceled. Repurchases are subject to market
conditions. The Company paid dividends in the amount of $13.1 million, $12.0
million and $11.7 million on its outstanding stock in 1998, 1997 and 1996,
respectively.
In April 1997, ASA executed an acquisition agreement with Bombardier,
Inc. (Bombardier) for 30 Canadair Regional Jet-200 aircraft (CRJ-200)
aggregating approximately $600 million with options to acquire an additional 60
aircraft. Delivery of these aircraft began in August 1997, and ASA had acquired
a total of 17 CRJ-200 aircraft as of December 31, 1998 through operating leases
with 16.5 year terms. The 13 remaining aircraft are scheduled to be delivered
at a rate of one per month until January 2000. On September 4, 1998, ASA
announced that it had executed an amendment to this acquisition agreement with
Bombardier. Under the terms of the amendment, ASA exercised options to acquire
15 additional 50-passenger CRJ-200 aircraft. Delivery of the 15 additional
CRJ-200 aircraft is scheduled to start in February 2000 and
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<PAGE> 32
continue through June 2001. As of December 31, 1998, ASA had ordered a total of
45 CRJ-200 aircraft (17 have been delivered as of December 31, 1998). ASA
obtained a commitment from the Export Development Corporation (EDC) of Canada to
provide financing to ASA for up to approximately 85% of the purchase price of
the 45 CRJ-200 aircraft. This facility, which ASA is not obligated to use for
its acquisition of all or any of the CRJs, is available on an aircraft by
aircraft basis in the form of either direct loans or leases, with interest
payable at various interest rate options determined by reference to either U.S.
treasury rates or LIBOR, and on various repayment terms. As of March 1, 1999,
ASA acquired its eighteenth and nineteenth CRJ-200, also through operating
leases with 16.5 year terms. ASA is scheduled to acquire its next two CRJ-200s,
also under operating lease arrangements, by May 1999. Future deliveries of the
remaining 24 CRJ-200s are anticipated to be at an approximate rate of one
aircraft per month and the financing arrangements have not yet been determined.
On September 4, 1998, ASA also announced that it had executed a second
acquisition agreement with Bombardier for 12 CRJ-700 aircraft. Delivery of the
CRJ-700 aircraft is scheduled to commence in the fourth quarter of 2001 and be
completed in the first quarter of 2003, and the financing arrangements have not
yet been determined. The list value including spares of the additional 15
CRJ-200 and the 12 CRJ-700 aircraft is approximately $575 million. ASA may
finance the 24 CRJ-200s and 12 CRJ-700s, as well as other anticipated
expenditures, through a combination of existing cash reserves, internally
generated funds and lease and debt financing, which may include loans from
Delta. Given the nature of the considerations relevant to the determination of
the most advantageous form of financing at a given time, the Company cannot
predict with any certainty the anticipated amount of funds which may be provided
from such possible sources.
Approximately 24% of ASA's workforce are members of the unions
representing pilots and flight attendants. In September 1997, following direct
negotiations and federal mediation, ASA and the flight attendants' union entered
into a new collective bargaining agreement that is amendable in 2002. On August
26, 1998, ASA announced that its pilots ratified a new four-year collective
bargaining agreement effective September 15, 1998. On November 10, 1998, the
Transport Workers Union was certified to represent ASA's dispatchers.
Negotiations for an initial collective bargaining agreement have not yet begun.
ASA is aware that the International Association of Machinists and Aerospace
Workers is currently soliciting employees in a purported craft or class of ramp
workers employed by ASA for purposes of submitting a petition to represent such
workers, although to the knowledge of representatives of ASA, no such petition
is currently pending.
ASA negotiated to receive interest rate subsidies on certain
indebtedness through the export support program of the Federative Republic of
Brazil. Outstanding debt aggregating approximately $41.8 million at December
31, 1998 is subject to subsidy payments which reduce the stated interest rates
on such debt to an average of approximately 2.89%. Of this amount, subsidies on
outstanding debt aggregating approximately $39.2 million are at risk to ASA if
the Federative Republic of Brazil does not meet its obligations under the
export support program. For the remaining debt that is subject to such
subsidies, the lenders have assumed such risk by building such subsidy payments
into ASA's payment obligations. During 1998, 1997 and 1996, ASA reduced its
interest expense by approximately $1.6 million, $2.2 million and $2.8 million,
respectively, as a result of these interest rate subsidies. As indicated above,
there can be no assurance that ASA will continue to receive such subsidy
payments.
In 1984, ASA and Delta implemented a marketing program called the
"Delta Connection." At December 31, 1998, Delta Air Lines Holdings, Inc. (an
affiliate of Delta)
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<PAGE> 33
owned approximately 28% of ASA Holdings' outstanding common stock. Delta leases
reservation equipment and terminal facilities to ASA, and provides certain
services to ASA, including reservation and ground handling services. Given ASA's
relationship with Delta, ASA's results of operations and financial condition may
be favorably or adversely impacted by Delta's decisions regarding flight routes,
revenue proration methodology and other operational matters. ASA has
historically benefited from its relationship with Delta, but there can be no
assurance that such benefits will continue in the future. As noted above under
"Recent Developments," Delta and the Company have entered into the Merger
Agreement. Pursuant to the Merger Agreement, Purchaser commenced the Offer,
which expired at midnight on March 19, 1999. As a result of the consummation of
the Offer, Delta beneficially owned approximately 91% of the total number of
outstanding shares of the Company's common stock as of March 22, 1999. Following
the consummation of the Merger, which will be preceded by approval of the Merger
by holders of a majority of the Company's outstanding common stock, the Company
will become a wholly-owned subsidiary of Delta. Purchaser has sufficient voting
power to approve the Merger without the vote of any other shareholder.
Based on information currently available to it, the Company believes
that available resources will be sufficient to meet its existing expenditure
commitments (including current maturities of long-term debt and aircraft lease
payments) as well as its anticipated capital expenditures and other working
capital requirements for the foreseeable future. As previously indicated,
financial resources anticipated to be available to the Company for such
purposes include existing cash reserves, internally generated funds, existing
lines of credit, and short and long-term financing arrangements that the
Company believes are available to it.
Because the Company became an indirect, 91% owned subsidiary of Delta
on March 22, 1999, certain negative covenants and change of control provisions
contained in Delta's existing credit facilities which are applicable to Delta
and its subsidiaries may become applicable to the Company or ASA or have an
impact on its future financial condition, liquidity or results of operations.
Delta has an unsecured revolving credit facility with a group of banks under
which it may borrow up to $1.25 billion until May 1, 2002, subject to compliance
with certain conditions (the "1997 Bank Credit Agreement"). Delta also has a
credit agreement with a group of banks which provides for the issuance of
letters of credit for up to $500 million in stated amount (the "Letter of Credit
Facility") to credit enhance the Delta Family-Care Savings Plan's Series C
Guaranteed Serial ESOP Notes, which are guaranteed by Delta. On March 22, 1999,
Delta entered into an unsecured revolving credit facility with a group of banks
(the "1999 Credit Agreement") pursuant to which Delta may borrow until the
earlier of the effective date of the Merger or 120 days after March 22, 1999, up
to $500 million to provide financing for a portion of the Merger consideration
required to be paid in connection with the acquisition of the Company's common
stock by Delta and its affiliates.
The 1997 Bank Credit Agreement, the Letter of Credit Facility and the
1999 Credit Agreement each contain similar covenants that restrict Delta's and
its subsidiaries' ability to grant liens, to incur or guarantee debt and to
enter into flight equipment leases. These agreements also provide that if there
is a change in control (as defined therein) of Delta, the banks' obligations to
extend credit terminate, any amounts outstanding become immediately due and
payable, and Delta must immediately deposit cash collateral with the banks in an
amount equal to all outstanding letters
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<PAGE> 34
of credit. At March 22, 1999, no borrowings or letters of credit were
outstanding under the 1997 Bank Credit Agreement; $445 million face amount of a
letter of credit was issued under the Letter of Credit Facility; and $400
million was outstanding under the 1999 Credit Agreement and payable on March 22,
2001. The acquisition by Delta of a controlling interest in the Company,
however, did not violate any of the covenants contained in these credit
agreements.
Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
1999. Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a significant
effect on earnings or the financial position of the Company.
Results of Operations
The Company set new records in passenger traffic, operating revenues
and net income in 1998. Total operating revenues were $409.9 million in 1998
compared with $385.3 million in 1997 and $375.3 million in 1996. Operating
revenues were up 6% in 1998 primarily due to a 13% increase in revenue
passenger miles (RPMs) flown to 1,041 million. RPMs were higher in 1998 due to
the number of passengers carried increasing by 7% to 4.0 million while the
average passenger trip length increased by 5% to 258 miles. ASA's load factor
for 1998 was 55.8% compared with 51.0% for 1997. The average passenger yield
(passenger revenue divided by RPMs) decreased by 5.9% to 38.5 cents in 1998
compared with 40.9 cents in 1997, while the average passenger fare was down .8%
to $99.36 in 1998 compared with $100.19 in 1997. Passenger fares vary based on
a number of factors including competition, fare discounting and economic
conditions. Operating revenues in 1997 increased 3% over 1996 primarily due to
a 6% increase in RPMs offset by a 2.6% decrease in the average passenger yield.
ASA's average load factor in 1997 was 51.0%, up from 49.1% in 1996.
For the year ended December 31, 1998, net income increased by 21% to
$66.1 million compared with $54.5 million for 1997. Diluted earnings per common
share for 1998 increased approximately 23% to $2.22 on 29.7 million weighted
average shares outstanding compared with $1.81 on 30.1 million weighted average
shares outstanding for 1997. The decrease in the average number of shares
outstanding was due to the stock repurchase program noted above in "Liquidity
and Capital Resources" offset by shares issued in connection with the exercise
of stock options. The financial results in 1997 included a one-time after-tax
charge of $1.2 million or $.04 per share related to ASA's decision during 1997
to exercise its option for the early return of all BAe 146 aircraft to their
lessor, as well as after-tax expense of $.7 million or $.02 per share incurred
related to training and start-up expenses associated with the introduction of
the new CRJ aircraft. Included in 1997 and 1996 are after-tax accruals of $1.6
million or $.05 per share and $.5 million or $.01 per share associated with the
Company's former Stock Appreciation Rights (SARs) Plan that were due to
increases in the price of the Company's stock during the existence of that
plan. On May 21, 1997, the Company's shareholders approved the cancellation of
all outstanding SARs and the adoption of a Nonqualified Stock Option Plan
(Option Plan). Excluding these non-
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recurring expenses, 1997 diluted earnings per common share would have been
$1.92 compared to $1.84 for fiscal 1996.
Operating expenses increased 3% in 1998 and 5% in 1997. The Company's
cost per available seat mile (ASM) flown remained relatively constant at 16.8
cents in 1998 compared with 16.9 cents in 1997. Capacity (the number of ASMs)
was up 3% in 1998 due to changes in aircraft as described in "Liquidity and
Capital Resources" above. Operating expenses in 1997 included $2.6 million of
expense related to the Company's SARs plan due to a 13% increase in the
Company's stock price and additional vesting, while 1996 included $.7 million
of expense associated with SARs due to a 2% increase in the stock price and
additional vesting. Included in operating expenses for 1997 was $1.9 million
related to ASA's decision to exercise its option for the early return of all
BAe 146 aircraft to their lessor and approximately $1.1 million of start-up
expenses associated with adding the CRJ aircraft to the fleet. Excluding the
effect of the SARs expense, BAe 146 return costs and CRJ start-up costs,
operating expenses would have increased 4% in 1997 compared with 1996 and are
higher primarily due to increased maintenance costs for the EMB-120 Brasilia
turboprop fleet as well as rent on the CRJ jet aircraft.
The following table compares components of operating cost per ASM for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Labor and related 4.6c. 4.4c. 4.2c.
Fuel 1.6 1.8 1.9
Direct maintenance 2.8 2.9 2.6
Passenger related 1.8 2.0 2.1
Depreciation and aircraft rent 2.6 2.5 2.4
Other 3.4 3.3 3.1
---- ---- ----
Total operating expense per ASM 16.8c. 16.9c. 16.3c.
</TABLE>
The following table presents various components of operating expense
as a percentage of total operating expense for the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Labor and related 27% 26% 25%
Fuel 9 11 12
Direct maintenance 17 17 16
Passenger related 11 12 13
Depreciation and aircraft rent 16 15 15
Other 20 19 19
--- ---- ----
Total operating expense per ASM 100% 100% 100%
</TABLE>
The Company's break-even load factor was 41.3% in 1998 compared with
39.5% in 1997 and 37.2% in 1996. The higher break-even load factor in 1998 was
primarily the result of a
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<PAGE> 36
lower average passenger yield. The higher break-even load factor in 1997
compared with 1996 was primarily the result of higher operating expenses and
the adjustments for SARs, the BAe 146 return and the CRJ start-up costs.
Labor and related costs were $85.4 million in 1998, $78.9 million in
1997 and $74.2 million in 1996. The average number of employees in 1998 was
2,566, an increase of 3% over 1997 which contributed to higher labor and
related costs. The increase in 1998 was due primarily to the additional
headcount as well as higher salaries and costs of benefits. As mentioned above,
1997 included $2.6 million of expense related to the SARs plan in comparison
with $.7 million of such expense in 1996. Excluding SARs expense, labor and
related costs per ASM would have been 4.2 cents for 1997 and 4.1 cents for
1996, compared with 4.4 cents and 4.2 cents, respectively.
Fuel expense was $29.1 million, $33.0 million and $33.5 million in
1998, 1997 and 1996, respectively. Fuel consumption increased 3% in 1998 while
the average fuel price per gallon, including taxes and into plane fees,
decreased 15% in 1998 to 62.8 cents from 73.5 cents in 1997 due primarily to
the decrease in crude oil prices during 1998. The average price per gallon,
including taxes and into plane fees, decreased in 1997 compared with 1996 by 5%
to 73.5 cents from 77.2 cents, due primarily to the decrease in crude oil
prices during 1997. Changes in the cost and supply of aviation fuel have an
industry wide impact and will tend to affect ASA's competitors in the same
manner as ASA.
Direct maintenance expense, excluding labor and related costs,
remained constant at $52.8 million in 1998 and 1997, compared with $46.2
million in 1996. Direct maintenance cost decreased to 2.8 cents per ASM in 1998
compared with 2.9 cents per ASM in 1997. Maintenance expense increased in 1998
due to 3% higher capacity, increased maintenance inspections and overhauls of
time controlled components and more frequent maintenance on aging EMB-120
Brasilia aircraft, offset by the addition of the new 50-passenger CRJ-200s. As
with any air carrier, as ASA's fleet of aircraft ages, it requires more
frequent maintenance. The addition of the new CRJ aircraft, which are expected
to be used over longer routes, should create a higher capacity over which
maintenance costs can be distributed. The 14% increase in 1997 was primarily
due to charges for the return of the BAe 146 aircraft, start-up costs related
to the CRJ aircraft, a 2% increase in capacity and increased maintenance
inspections and overhauls of time controlled components.
Passenger related expenses, which include a majority of the expenses
under the caption "reservation, commission and other" on the Company's
Consolidated Statements of Income, were $33.8 million, $35.9 million and $36.8
million in 1998, 1997 and 1996, respectively. The decrease in 1998 compared
with 1997 was primarily attributable to lower rates for travel agency
commissions. Passenger related expenses were approximately 8% of passenger
revenue in 1998 and 10% of passenger revenue in 1997 and 1996.
Aircraft rental costs were approximately $24.7 million in 1998,
compared with $18.3 million in 1997 and $16.9 million in 1996. The higher
expense in 1998 was due primarily to the acquisition of five CRJ-200s during
the last half of 1997 and an additional 12 CRJ-200s during 1998, offset by a
reduction in rent expense on the BAe-146 aircraft which were returned to their
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<PAGE> 37
lessor. The increased expense in 1997 compared with 1996 was primarily
attributable to the acquisition of five new CRJ-200s during the last half of
1997. Depreciation expense decreased to $24.8 million in 1998 compared with
$27.4 million and $26.5 million for 1997 and 1996, respectively. This decrease
in 1998 was primarily due to fixed assets that have become fully depreciated.
Other expenses increased to $63.2 million in 1998 compared with $59.4
million in 1997 and $56.1 million in 1996. The increase in 1998 was primarily
attributable to higher station rental and passenger-related expenses, and costs
associated with negotiations related to the pilot contract. The increase in
1997 was partially attributable to costs associated with the negotiations
related to the pilot and flight attendant contracts.
Interest expense decreased to $2.7 million in 1998 compared with $3.8
million in 1997 and $5.9 million in 1996. The decrease in 1998 and 1997 was
attributable to less total debt outstanding and the recording of $1.9 million
and $1.1 million, respectively, in capitalized interest related to the deposits
on the CRJ aircraft. Interest income was $11.1 million in 1998 compared with
$10.9 million in 1997 and $10.7 million in 1996. Other non-operating income was
$1.8 million in 1998 compared with $.2 million in 1997 and $1.1 million in
1996. Other non-operating income in 1998 and 1996 was higher due primarily to
gains on the sale of aircraft equipment in those periods.
The Company's effective income tax rate differs from the statutory
rate of 35% due primarily to the impact of state income taxes, net of federal
tax benefit. In 1997, ASA received a tax refund related to certain amended
prior years' state tax returns and, accordingly, reduced income tax expense by
approximately $500,000.
Year 2000
The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly recognizing dates
after the year 1999. The Year 2000 issue affects information technology ("IT")
systems, such as computer programs and various types of electronic equipment
that process date information by using only two digits rather than four digits
to define the applicable year, and thus may recognize a date using "00" as the
year 1900 rather than the year 2000. The issue also affects some non-IT
systems, such as devices which rely on a microcontroller to process date
information. The Year 2000 issue could result in system failures or
miscalculations, causing disruptions of a company's operations.
The Company's State of Readiness
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company's Year 2000 compliance program has four
phases: (1) identification, (2) assessment (including prioritization), (3)
remediation (including modification, upgrading, replacement and testing by
third parties) and (4) contingency planning.
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Safety of Flight Systems. The Company has completed its review of the
impact of Year 2000 issues on its aircraft fleet and onboard flight support
systems (including a review of both IT and non-IT systems) and has determined
that there are no safety-of-flight issues with respect to such systems. The
Company has completed the identification phase with respect to the review of
its onboard flight management systems, which maximize operating efficiency but
are not essential to the safe operation of flights, and expects to complete the
assessment phase during second quarter 1999 and the remediation phase during
third quarter 1999. The Company also uses ground-based, safety-related computer
systems and equipment which are vital to the maintenance of aircraft and the
control of flight operations. The Company has completed the remediation phase
with respect to such systems and equipment.
Internal Business Systems. The Company's material internal business
systems and equipment include computer hardware, software and related
equipment, which are essential for flight scheduling and seat inventory
management, finance systems (such as revenue management, revenue accounting and
payroll) and other functions (such as internal voice and data communications,
aircraft ground handling and baggage handling). The Company has completed the
identification phase, and has started the assessment phase, for all of its
material internal business systems and equipment. The assessment phase and the
remediation phase with respect to such systems and equipment are expected to be
completed during the second quarter 1999.
Year 2000 Issues Relating to Third Parties. The Company is reviewing,
and has initiated formal communications with, third parties which provide goods
or services which are essential to its operations in order to determine the
extent to which the Company is vulnerable to any failure by such material third
parties to remediate their respective Year 2000 problems and resolve such
problems to the extent practicable. These entities include other airlines,
suppliers of infrastructure systems critical to the airline industry (such as
the air traffic control and related systems of the U.S. Federal Aviation
Administration and international aviation authorities, the U.S. Department of
Transportation and local airport authorities), and suppliers of aircraft fuel,
utilities and communication services. The Company has completed the
identification phase, and has started the assessment phase, with respect to
such third-party systems. The assessment phase and the remediation phase with
respect to such third-party systems are expected to be completed during the
second and third quarter 1999, respectively.
To the extent the Year 2000 problem has a material adverse effect on
Delta's business, operations or financial condition, such Year 2000 problem
could have a material adverse effect on the Company's business, results of
operations and financial condition. Delta leases reservation equipment and
terminal facilities to the Company, and provides certain services to the
Company, including reservation and ground handling services. The Company has
had formal communications with Delta regarding its Year 2000 compliance program
and expects to complete the assessment and remediation phases with respect to
Delta's systems at the same time it completes such phases with respect to other
material third-party systems.
-35-
<PAGE> 39
Costs to Address the Company's Year 2000 Issues
The Company estimates that the total cost of achieving Year 2000
readiness for its internal systems and equipment will be less than $1.0
million. However, the Company's Year 2000 compliance program is an ongoing
process involving continual evaluation and may be subject to change in response
to new developments, which may result in increased costs.
The Company's Contingency Plans
The Company is revising its existing business interruption contingency
plans to address internal and external issues specific to the Year 2000
problem, to the extent practicable. Such revisions are expected to be completed
by third quarter 1999. These plans, which are intended to enable the Company to
continue to operate to the extent that it can do so safely, include performing
certain processes manually; repairing or obtaining replacement systems; and
changing suppliers. The Company believes, however, that due to the widespread
nature of potential Year 2000 issues, the contingency planning process is an
ongoing one which will require further modifications as the Company obtains
additional information regarding the Company's internal systems and equipment
during the assessment and remediation phases of its Year 2000 program and the
status of third-party Year 2000 readiness.
The Risks of the Company's Year 2000 Issues
The Company believes completed and planned modifications and
conversions of its internal systems and equipment will allow it to resolve
material problems created by the Year 2000 issue in a timely manner. However,
there can be no assurance that the Company's systems will properly address Year
2000 issues prior to December 31, 1999, or that the failure of any such system
will not have a material adverse effect on the Company's business, operating
results and financial condition. In addition, to the extent the Year 2000
problem has a material adverse effect on the business, operations or financial
condition of third parties with whom the Company has material relationships,
such as Delta, vendors, suppliers and customers, the Year 2000 problem could
have a material adverse effect on the Company's business, results of operations
and financial condition. While the Company does not currently expect any
significant modification of its operations in response to the Year 2000 issue,
in a worst case scenario the Company could be required to alter or curtail its
operations significantly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risks Associated With Financial Instruments
The risk inherent in the Company's market risk sensitive instruments
and positions is the potential loss arising from adverse changes in the price
of fuel and interest rates as discussed below. The sensitivity analyses
presented do not consider the effects that such adverse changes may have on the
overall economic activity, nor do they consider additional actions management
-36-
<PAGE> 40
may take to mitigate its exposure to such changes. Actual results may differ.
See Note E to the consolidated financial statements for accounting policies and
additional information.
Commodity Price Risk
The Company's results of operations are significantly impacted by
changes in the price of aircraft fuel. During fiscal 1998, aircraft fuel
accounted for 9.3% of the Company's operating expenses. Based on the Company's
fiscal 1999 projected aircraft fuel consumption of 60.7 million gallons, every
one-cent change in the average annual price per gallon of aircraft fuel would
impact ASA's annual aircraft fuel expense by approximately $0.5 million. The
Company uses fuel swap contracts to manage aircraft fuel price risk. At December
31, 1998, the Company had entered into a swap contract for 10% of its projected
fiscal 1999 aircraft fuel requirements. (See Note E of Notes to Consolidated
Financial Statements.)
Interest Rate Risk
The Company's earnings are also affected by changes in interest rates
due to the impact those changes have on its interest income from cash and
short-term investments and its interest expense from variable-rate debt
instruments. If interest rates increased by 1.0% in 1999 as compared to 1998,
the Company's interest expense would increase by approximately $540,000 and
interest income from cash and short-term investments would increase by
$1,840,000. These amounts are determined by considering the impact of the
hypothetical interest rates on the Company's variable-rate long-term debt and
cash and short-term investment balances at December 31, 1998. The Company has
no fixed-rate long- term debt.
At December 31, 1998, the Company operated 27 aircraft under operating
leases at rates that are fixed. As defined in Item 305, leases are not market
risk sensitive financial instruments and, therefore are not included in the
interest rate sensitivity analysis above. Commitments related to leases are
disclosed in Note G to the Consolidated Financial Statements.
-37-
<PAGE> 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASA HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1998
and 1997...................................................................... F-2
Consolidated Statements of Income for the
Years Ended December 31, 1998, 1997 and 1996................................... F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996................................... F-5
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Report of Independent Auditors...................................................... F-23
Report of Management................................................................ F-24
</TABLE>
F-1
<PAGE> 42
ASA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $130,553,224 $112,393,109
Marketable securities 55,291,576 71,486,542
Receivables, less allowance for uncollectible
accounts of $143,204 in 1998 and $294,989
in 1997 - Note K 8,529,052 6,662,587
Expendable parts, less allowance for obsolescence
of $4,701,567 in 1998 and $4,939,950 in 1997 6,982,087 6,544,564
Other current assets 3,246,457 3,683,059
------------ ------------
204,602,396 200,769,861
Property and Equipment - Note B
Flight equipment 468,927,148 468,666,479
Other property and equipment 18,645,955 16,766,413
Advance payments on property and equipment 43,039,311 26,167,400
------------ ------------
530,612,414 511,600,292
Less accumulated depreciation and amortization 247,549,235 231,045,066
------------ ------------
283,063,179 280,555,226
Other Assets
Investments -- 11,777,109
Other 12,103,074 12,857,537
------------ ------------
12,103,074 24,634,646
TOTAL ASSETS $499,768,649 $505,959,733
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 43
ASA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 18,723,997 $ 21,851,783
Accounts payable - Note K 34,831,048 25,410,523
Air traffic liability 5,597,386 2,407,711
Accrued compensation and related expenses 8,654,701 11,148,483
Accrued interest payable 747,303 1,057,520
Other accrued expenses 1,524,284 2,520,476
Income taxes payable 1,887,781 6,395,077
------------ ------------
71,966,500 70,791,573
Long-Term Debt - Note B 54,062,622 72,791,614
Other Non-Current Liabilities 2,737,514 2,231,668
Deferred Income Taxes - Note F 61,228,464 64,219,476
Commitments and Contingencies - Notes B, C and G
Shareholders' Equity - Notes A, H and I
Common stock, $.10 par; authorized -
150,000,000 shares, issued and outstanding -
28,543,177 and 29,730,877 shares, respectively 2,854,318 2,973,088
Retained earnings 306,981,836 292,936,988
Accumulated other comprehensive income (62,605) 15,326
------------ ------------
Total Shareholders' Equity 309,773,549 295,925,402
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $499,768,649 $505,959,733
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 44
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
REVENUES
Operating Revenues:
Passenger $400,128,103 $378,167,801 $367,250,428
Other 9,731,000 7,121,652 8,049,998
------------ ------------ ------------
Total Operating Revenues 409,859,103 385,289,453 375,300,426
EXPENSES
Operating Expenses:
Flying operations 94,397,953 87,454,721 85,074,131
Maintenance 68,934,447 68,614,905 61,376,727
Passenger service 20,195,771 18,547,370 18,664,839
Aircraft and traffic servicing 51,500,669 45,551,823 45,390,058
Reservation, commission and other 37,717,940 38,529,361 39,344,575
General and administrative 13,756,128 17,590,431 12,078,785
Depreciation, amortization and obsolescence 25,867,047 28,686,264 27,534,057
Other 1,458,234 729,840 684,815
------------ ------------ ------------
Total Operating Expenses (including
payments to Delta Air Lines, Inc. of $11.5
million, $11.7 million and $11.9 million) 313,828,189 305,704,715 290,147,987
Income from Operations 96,030,914 79,584,738 85,152,439
Non-Operating (Income) Expenses:
Interest:
Income (11,163,240) (10,920,403) (10,672,964)
Expense 2,720,920 3,834,454 5,862,866
Other, net (1,771,547) (170,628) (1,143,983)
------------ ------------ ------------
(10,213,867) (7,256,577) (5,954,081)
Income before Income Taxes 106,244,781 86,841,315 91,106,520
Income Taxes - Note F:
Current 43,098,512 37,744,997 34,058,554
Deferred (2,991,012) (5,415,297) 435,246
------------ ------------ ------------
40,107,500 32,329,700 34,493,800
------------ ------------ ------------
NET INCOME $ 66,137,281 $ 54,511,615 $ 56,612,720
============ ============ ============
EARNINGS PER COMMON SHARE $ 2.24 $ 1.82 $ 1.83
============ ============ ============
Weighted Average Number of Common Shares
Outstanding 29,560,513 29,909,654 30,914,246
============ ============ ============
EARNINGS PER COMMON SHARE - DILUTED $ 2.22 $ 1.81 $ 1.83
============ ============ ============
Weighted Average Number of Common Shares
and Common Share Equivalents Outstanding 29,728,630 30,091,877 30,990,599
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 45
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 66,137,281 $ 54,511,615 $ 56,612,720
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 24,822,751 27,351,713 26,518,027
Amortization and provision for obsolescence 1,044,296 1,334,551 1,016,030
Amortization of engine overhauls 7,453,515 7,381,705 6,656,680
Deferred income taxes (2,991,012) (5,415,297) 435,246
Other 1,183,580 2,051,505 (107,722)
Changes in Operating Assets and Liabilities:
Receivables (1,886,465) (229,971) 5,187,991
Expendable parts (681,850) 863,596 (1,859,712)
Other assets 463,160 (5,517,143) 742,274
Accrued compensation and related expenses (1,987,936) 4,330,204 983,488
Accrued interest payable (310,217) (261,030) (1,622,461)
Accounts payable and other liabilities 11,614,008 4,515,089 (1,213,312)
Income taxes payable (4,507,296) 6,395,077 --
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 100,353,815 97,311,614 93,349,249
INVESTING ACTIVITIES:
Purchase of Marketable Securities and Investments (105,192,501) (179,617,608) (189,882,992)
Proceeds from Sale of Marketable Securities and
Investments 133,152,469 149,001,159 258,806,167
Purchases of Property and Equipment, including
Advance Payments (37,838,072) (46,188,478) (15,321,851)
Other 5,126,947 698,075 5,699,260
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (4,751,157) (76,106,852) 59,300,584
FINANCING ACTIVITIES:
Principal Payments on Long-Term Debt (21,856,778) (25,550,693) (32,405,997)
Dividends Paid (13,095,039) (11,969,851) (11,731,958)
Purchase of Common Stock (51,401,512) (14,240,313) (37,445,781)
Proceeds from Exercise of Stock Options 8,910,786 5,480,413 --
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (77,442,543) (46,280,444) (81,583,736)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 18,160,115 (25,075,682) 71,066,097
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 112,393,109 137,468,791 66,402,694
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR $130,553,224 $112,393,109 $137,468,791
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 46
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Capital in Other Treasury Stock
-------------------- Excess Retained Comprehensive -------------------------
Shares Amount of Par Earnings Income Shares Amount
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 34,386,670 $3,438,667 $45,887,347 $258,857,819 $ 72,444 (2,683,100) $(55,400,800)
Net Income 56,612,720
Dividends Paid (38(cent)per share) (11,731,958)
Purchase of Common Stock (1,710,000) (37,445,781)
Cancellation of Treasury Stock (4,393,100) (439,310) (45,887,347) (46,519,924) 4,393,100 92,846,581
Unrealized Holding Loss on
Investments, Net (74,562)
Comprehensive Income
----------------------------------------------------------------------------------------------
Balance, December 31, 1996 29,993,570 2,999,357 -- 257,218,657 (2,118) -- --
Net Income 54,511,615
Dividends Paid (40(cent)per share) (11,969,851)
Purchase of Common Stock (541,000) (54,100) (7,362,780) (6,823,433)
Exercise of Stock Options and
Stock Appreciation Rights 278,307 27,831 7,362,870
Unrealized Holding Gain on
Investments, Net 17,444
Comprehensive Income
----------------------------------------------------------------------------------------------
Balance, December 31, 1997 29,730,877 2,973,088 -- 292,936,988 15,326 -- --
Net Income 66,137,281
Dividends Paid (44(cent)per share) (13,095,039)
Purchase of Common Stock (1,555,100) (155,510) (12,248,608) (38,997,394)
Exercise of Stock Options 367,400 36,740 12,248,608
Unrealized Holding Loss on
Investments, Net (77,931)
Comprehensive Income
----------------------------------------------------------------------------------------------
Balance, December 31, 1998 28,543,177 $2,854,318 $ -- $306,981,836 ($62,605) -- $ --
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
Comprehensive Shareholders'
Income Equity
------------------------------------
<S> <C> <C>
Balance, January 1, 1996 $252,855,477
Net Income $56,612,720 56,612,720
Dividends Paid (38(cent)per share) (11,731,958)
Purchase of Common Stock (37,445,781)
Cancellation of Treasury Stock 0
Unrealized Holding Loss on
Investments, Net (74,562) (74,562)
-----------
Comprehensive Income $56,538,158
===========-----------------
Balance, December 31, 1996 260,215,896
Net Income $54,511,615 54,511,615
Dividends Paid (40(cent)per share) (11,969,851)
Purchase of Common Stock (14,240,313)
Exercise of Stock Options and
Stock Appreciation Rights 7,390,611
Unrealized Holding Gain on
Investments, Net 17,444 17,444
-----------
Comprehensive Income $54,529,059
===========-----------------
Balance, December 31, 1997 295,925,402
Net Income $66,137,281 66,137,281
Dividends Paid (44(cent)per share) (13,095,039)
Purchase of Common Stock (51,401,512)
Exercise of Stock Options 12,285,348
Unrealized Holding Loss on
Investments, Net (77,931) (77,931)
-----------
Comprehensive Income $66,059,350
===========-----------------
Balance, December 31, 1998 $309,773,549
============
</TABLE>
F-6
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note A - Summary of Significant Accounting Policies
Basis of Consolidation and Business: ASA Holdings, Inc. (ASA Holdings)
is a holding company the principal assets of which are the shares of its wholly
owned subsidiaries, Atlantic Southeast Airlines, Inc. (ASA) and ASA
Investments, Inc. (ASA Investments). ASA Holdings became the parent holding
company for ASA and ASA Investments pursuant to a corporate reorganization (the
Reorganization) which was effective after the close of business on December 31,
1996.
Pursuant to the Reorganization, ASA merged with a wholly owned
subsidiary of ASA Holdings. As part of the merger, each issued and outstanding
share of ASA's common stock (other than treasury stock, which was canceled) was
converted into one share of ASA Holdings' common stock. Immediately after the
merger on December 31, 1996, ASA effected a dividend to ASA Holdings of all of
the capital stock of ASA Investments. As a result of the Reorganization, ASA
and ASA Investments became wholly owned subsidiaries of ASA Holdings. There was
no significant impact on the consolidated financial statements as a result of
these transactions.
All references to the Company contained herein refer collectively to
ASA and its subsidiaries, ASA Holdings and ASA Investments, prior to December
31, 1996, and to ASA Holdings and its subsidiaries, ASA and ASA Investments,
beginning December 31, 1996. All significant intercompany transactions have
been eliminated.
ASA, ASA Holdings' principal operating subsidiary, is a large regional
airline serving airports primarily in the Southeastern and Southwestern United
States. ASA derives its revenues primarily through the air transportation of
passengers and cargo in scheduled airline service under a marketing agreement
with Delta Air Lines, Inc. (Delta). Under this agreement, ASA's flights are
listed on reservation systems as connecting Delta flights. Delta Air Lines
Holdings, Inc., a subsidiary of Delta, owns approximately 28% of ASA Holdings'
common stock (See Note K).
ASA Investments operates as an investment entity which manages cash
assets contributed to it by ASA Holdings or its other subsidiaries.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results inevitably will
differ from those estimates, and such differences may be material to the
financial statements.
F-7
<PAGE> 48
Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Such investments include municipal obligations, corporate commercial paper and
overnight repurchase agreements. The Company believes that the credit risk is
minimal.
Marketable Securities: The Company's investment in marketable
securities consists of debt instruments of U.S. Government agencies and
municipal authorities, bank certificates of deposit, medium term notes and
corporate commercial paper. All such marketable securities have a maturity of
less than one year. At December 31, 1997, long-term investments consisted of
municipal bonds with a maturity of more than one year. All of these investments
are classified as available for sale and reported at fair market value.
Expendable Parts: Flight equipment expendable parts are valued at
average cost less an allowance for obsolescence. Expendable parts are charged to
maintenance expense as used.
Property, Equipment and Depreciation: Flight equipment and other
property and equipment are stated at cost. Major additions, betterments and
renewals are capitalized. The Company capitalizes interest in connection with
deposits made under aircraft acquisition agreements. During the years ended
December 31, 1998 and 1997, respectively, $1,935,000 and $1,137,000 of interest
was capitalized. Depreciation of costs less estimated residual values is
computed on the straight-line basis over the estimated useful lives of the
related assets as follows:
<TABLE>
<S> <C>
Flight equipment 3 - 20 years
Other property and equipment 1 - 28 years
</TABLE>
For income tax purposes, accelerated depreciation methods are used.
Maintenance: Routine costs for aircraft and engine maintenance are
generally expensed as incurred. The cost of major engine overhauls for aircraft
is generally capitalized and amortized to maintenance expense over the
estimated overhaul life.
Intangibles: Excess of cost over fair value of tangible assets
acquired is amortized by the straight-line method over a 40-year period. Also
included in other assets are deferred financing fees and deferred gate
assignment costs. These deferred assets are amortized over periods from one to
20 years. Accumulated amortization for these intangible assets and deferred
costs at December 31, 1998 and 1997 was $4,010,088 and $3,492,975,
respectively. Also included in other assets is restricted cash which serves as
collateral for a portion of ASA's financings (See Note B). The cost of routine
development of new or extended routes and the pre-operating costs incurred in
connection with aircraft acquisitions are charged to expense as incurred.
Asset Impairment: The Company generally accounts for long-lived asset
impairment under Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used be reviewed for
F-8
<PAGE> 49
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset. If the sum of the estimated expected future cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is based on the estimated fair value
of the asset. Long-lived assets to be disposed of are generally recorded at the
lower of their carrying amount or estimated fair value less cost to sell.
Passenger Revenue Recognition: ASA issues Delta ticket stock for
passenger sales. Passenger revenues are recognized at the time transportation
is provided. ASA derives its revenues primarily from local fares and through
fares. Local fares are those fares for one way and round trips that are not
combined with the fare of another air carrier. Through fares are fares for
transportation provided jointly by ASA and another carrier. Revenues derived
from through fares are distributed among the participating air carriers using
the straight rate prorate division method or agreed variations to this
proration formula. Included in air traffic liability are cargo liabilities and
amounts resulting from timing differences in billings with Delta. As a "Delta
Connection" carrier, ASA participates in Delta's frequent flyer incentive
program. ASA does not accrue for incremental costs associated with the
program's mileage accumulation since the impact is immaterial both on a
quarterly and annual basis.
Income Taxes: The Company uses the liability method of accounting for
income taxes. Deferred income taxes are provided for temporary differences in
the recognition of income and expenses for financial reporting and income tax
reporting.
Recent Pronouncements: In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
which is required to be adopted in years beginning after June 15, 1999. SFAS
133 permits early adoption as of the beginning of any fiscal quarter after its
issuance. SFAS 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company is currently evaluating the impact of SFAS 133 to the Company's
financial condition or results of operations.
F-9
<PAGE> 50
Note B - Long-Term Debt
ASA's long-term debt was as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $9,412,258 as collateral. Payments are due in semi-annual
installments plus interest at 6.5% to 1999. $ 756,981 $3,409,280
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $8,661,588 as collateral. Payments are due in semi-annual
installments plus interest at 6.125% to 6.4375% to 1999. 1,565,923 3,856,556
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $5,408,508 as collateral. Payments are due in quarterly
installments plus interest at 7% to 1999. 649,571 1,817,634
Notes payable to bank. ASA pledged aircraft and support equipment with a net
book value of $9,447,404 as collateral. Payments are due in semi-annual
installments plus interest at 5.35% to 5.7875% to 2000. 2,629,991 4,470,410
Floating rate note payable to bank. ASA pledged aircraft and support equipment
with a net book value of $3,327,785 as collateral. Payments are due in
semi-annual installments plus interest based on floating six month LIBOR to
2000. Rate at December 31, 1998 was 5.739%. 1,058,460 1,587,690
Floating rate note payable to bank. ASA pledged a Euro-time deposit of an equal
amount as collateral. Payments are due in semi-annual installments plus
interest based on floating six month LIBOR to 2000. Rate at December 31, 1998
was 6.0594%. 1,059,705 1,589,556
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $14,323,946 as collateral. Payments are due in
semi-annual installments plus interest based on floating six month LIBOR to
2001. Rates at December 31, 1998 were 6.60%. 5,346,637 7,485,289
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $15,092,430 as collateral. Payments are due in
semi-annual installments plus interest based on floating six month LIBOR to
2002. Rates at December 31, 1998 were 6.0313% or 6.3438%. 5,777,000 7,879,428
</TABLE>
F-10
<PAGE> 51
<TABLE>
<S> <C> <C>
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $42,684,109 as collateral. Payments are due in
semi-annual installments plus interest based on floating six month LIBOR to
2003. Rates at December 31, 1998 were 5.7831% or 6.375%. 22,937,851 28,392,338
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $37,449,751 as collateral. Payments are due in
mortgage style semi-annual installments plus interest based on floating six
month LIBOR to 2006. Rates at December 31, 1998 were 5.585% to 5.84375%. 31,004,500 34,155,216
----------- -----------
72,786,619 94,643,397
Less current portion 18,723,997 21,851,783
----------- -----------
$54,062,622 $72,791,614
----------- -----------
</TABLE>
As of December 31, 1998, maturities on long-term debt were:
<TABLE>
<S> <C>
1999 $18,723,997
2000 15,423,506
2001 11,661,178
2002 9,761,738
2003 5,400,604
After 2003 11,815,596
-----------
$72,786,619
-----------
</TABLE>
Certain of ASA's credit agreements contain restrictive covenants that,
among other things, limit the sale or lease of assets and the acquisition of
stock of other entities; establish a minimum ratio of total liabilities to
tangible net worth; and require maintenance of minimum tangible net worth and
funds flow coverage. In addition, the transfer of funds by ASA in the form of
cash dividends, loans or advances is limited solely to the extent that the
payment of such transfers would cause ASA to breach other financial covenants.
ASA Holdings and ASA Investments are not subject to the restrictive covenants
of ASA's credit agreements, except to the extent that ASA is restricted in its
ability to transfer funds to ASA Holdings or ASA Investments in the form of
cash dividends, loans or advances. At December 31, 1998, the net assets of
subsidiaries subject to these restrictions approximated $238 million. At
December 31, 1998, approximately $60 million of net assets was available for
distribution by ASA to ASA Holdings under the most restrictive of these
provisions.
ASA negotiated to receive interest rate subsidies on certain
indebtedness through the export support program of the Federative Republic of
Brazil. Outstanding debt aggregating $41,782,120 at December 31, 1998 is
subject to subsidy payments which reduce the stated interest rates on such debt
to an average of approximately 2.89%. However, subsidies on an aggregate of
$39,152,129 of such outstanding debt are at risk to ASA if the Federative
Republic of Brazil does not meet its obligations under the export support
program. For the remaining debt that is subject to such subsidies, the lenders
have assumed such risk by building such subsidy
F-11
<PAGE> 52
payments into ASA's payment obligations. During 1998, 1997 and 1996, ASA reduced
its interest expense by $1,578,513, $2,175,601 and $2,826,564, respectively, as
a result of these interest rate subsidies. The amount of net interest paid
during 1998, 1997 and 1996 was $4,460,091, $5,075,122 and $7,314,112,
respectively. As indicated above, ASA is at risk with respect to certain of
these subsidy payments. While the Company has no reason to believe, based on
information currently available to it, that ASA will not continue to receive
such subsidy payments from the Federative Republic of Brazil in the future,
there can be no assurance that a default will not occur under the export support
program.
Note C - Aircraft Commitments
In April 1997, ASA announced that it had executed an acquisition
agreement with Bombardier, Inc. (Bombardier) for 30 Canadair Regional Jet-200
aircraft (CRJ-200) aggregating approximately $600 million with options to
acquire an additional 60 aircraft. Delivery of these aircraft began in August
1997, and ASA acquired a total of 17 CRJ-200 aircraft as of December 31, 1998
through operating leases with 16.5 year terms. The 13 remaining aircraft are
scheduled to be delivered at a rate of one per month until January 2000. On
September 4, 1998, ASA announced that it executed an amendment to this
acquisition agreement with Bombardier. Under the terms of the amendment, ASA
exercised options to acquire 15 additional 50-passenger CRJ-200 aircraft.
Delivery of the 15 additional CRJ-200 aircraft is scheduled to start in
February 2000 and continue through June 2001. As of December 31, 1998, ASA had
ordered a total of 45 CRJ-200 aircraft (17 have been delivered as of December
31, 1998). ASA obtained a commitment from the Export Development Corporation
(EDC) of Canada to provide financing to ASA for up to approximately 85% of the
purchase price of the 45 CRJ-200 aircraft. This facility, which ASA is not
obligated to use for its acquisition of all or any of the CRJs, is available on
an aircraft by aircraft basis in the form of either direct loans or leases,
with interest payable at various interest rate options determined by reference
to either U.S. treasury rates or LIBOR, and on various repayment terms. Future
deliveries of the remaining 28 CRJ-200s are anticipated to be at an approximate
rate of one aircraft per month, and four of these CRJ-200 aircraft are expected
to be financed under the same arrangements as previously received aircraft. On
September 4, 1998, ASA also announced that it executed a second acquisition
agreement with Bombardier for 12 CRJ-700 aircraft. Delivery of the CRJ-700
aircraft is scheduled to commence in the fourth quarter of 2001 and be
completed in the first quarter of 2003, and the financing arrangements have not
yet been determined. The list value including spares of the additional 15
CRJ-200 and the 12 new CRJ-700 aircraft is approximately $575 million.
Note D - Lines of Credit
As of December 31, 1998, the Company had two unsecured lines of credit
totaling $108.0 million with several banks. During the second quarter of 1998,
ASA Holdings established a new $100 million unsecured credit facility to
enhance the Company's flexibility for future growth. The facility is guaranteed
by ASA and ASA Investments. The current pricing on a loan is LIBOR plus 27.5
basis points. In addition, the Company pays a facility commitment fee of 12.5
basis points on the amount of the revolving commitment regardless of whether,
and to what extent, the revolving commitment is utilized. The new line of
credit has a five year term which expires on
F-12
<PAGE> 53
June 26, 2003 and contains customary financial covenants. At December 31, 1998
and 1997, there was $.7 million of one line committed to support two letters of
credit and there were no outstanding amounts against these lines of credit. In
connection with the Merger Agreement, the $100 million unsecured credit facility
was terminated effective March 22, 1999. The remaining line of credit is
available for general corporate purposes on an as needed basis.
Note E - Risk Management
ASA, upon its determination of the nature of financing for aircraft
acquisitions, may enter into interest rate lock agreements in order to fix the
underlying interest rate index upon which the financing rate is determined.
Under these arrangements, the Company makes or receives payments based upon the
differential between a specified rate and a market interest rate on a notional
principal amount on a certain date. In 1997, the Company paid approximately $4
million upon maturity to settle interest rate locks applicable to certain
aircraft acquisitions. These amounts are being amortized as an increase to lease
expense over the term of the related financing. No unsettled interest rate lock
agreements were outstanding as of December 31, 1998.
ASA enters into fuel swap contracts to manage risk associated with
changes in aircraft fuel prices. Under these contracts, ASA receives or makes
payments based on differences between fixed and variable prices for certain
fuel commodities. Gains and losses from fuel swap contracts are deferred and
recognized as a component of fuel expense when the underlying fuel being hedged
is used. The changes in market value of such agreements have a high correlation
to the price changes recognized as a component of fuel expense when the
underlying fuel being hedged is used. Gains and losses on fuel hedging
agreements would be recognized immediately should the changes in the market
value of the agreements cease to have a high correlation to the price changes
of the fuel being hedged. At December 31, 1998, ASA had a contract outstanding
covering 1,000,000 gallons per month through June 30, 1999, representing
approximately 10% of its projected fiscal 1999 aircraft fuel requirements which
effectively fixes the Company's cost of this fuel at $0.4595 per gallon.
Historically, the Company has not closed any contracts prior to the execution
of the underlying purchase transactions, nor have any of the underlying
purchase transactions failed to occur. At December 31, 1998, the fair value of
ASA's swap contract, representing the amount ASA would pay if the contract were
closed, was immaterial.
F-13
<PAGE> 54
Note F - Income Taxes
Deferred income taxes reflect the net income tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred income tax liabilities and
assets as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation $66,862,979 $69,569,768
Other 1,473,662 737,973
----------- ------------
Total deferred income tax liabilities 68,336,641 70,307,741
Deferred income tax assets:
Inventory reserves 1,015,922 1,156,869
Other 6,092,255 4,931,396
----------- -----------
Total deferred income tax assets 7,108,177 6,088,265
----------- -----------
Net deferred income tax liabilities $61,228,464 $64,219,476
----------- -----------
</TABLE>
For financial reporting purposes, the provision for income taxes
includes the following components for the years ended December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current $39,219,612 $34,347,947 $30,993,254
Deferred (2,721,812) (4,927,897) 396,046
----------- ----------- -----------
36,497,800 29,420,050 31,389,300
----------- ----------- -----------
State:
Current 3,878,900 3,397,050 3,065,300
Deferred (269,200) (487,400) 39,200
----------- ----------- -----------
3,609,700 2,909,650 3,104,500
----------- ----------- -----------
$40,107,500 $32,329,700 $34,493,800
----------- ----------- -----------
</TABLE>
A reconciliation of the provision for income taxes at the applicable
federal statutory income tax rate to the income tax expense as reported is as
follows for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense, at statutory rate $37,185,673 $30,394,460 $31,887,282
State income taxes, net of federal
tax benefit 2,478,930 1,978,194 2,004,211
Other 442,897 (42,954) 602,307
----------- ----------- -----------
Income tax expense $40,107,500 $32,329,700 $34,493,800
----------- ----------- -----------
</TABLE>
F-14
<PAGE> 55
In 1997, ASA received an income tax refund related to certain amended
prior years' state income tax returns and, accordingly, reduced the provision
for income taxes by approximately $500,000.
The Company paid income taxes in the amount of $45,725,336 in 1998,
$32,384,060 in 1997 and $33,389,841 in 1996.
Note G - Commitments and Contingencies
ASA leases facilities from local airport authorities or other carriers
as well as office space for its corporate headquarters and hangar facilities.
These leases are operating leases and have terms ranging from one month to 20
years. The Company leases a number of its aircraft under operating leases. The
aircraft lease agreements contain certain provisions which allow for renewals
at then current market rates and purchase options at various dates. ASA's fleet
at December 31, 1998 includes the following aircraft under operating leases:
<TABLE>
<CAPTION>
Initial Non-Cancelable
# of Aircraft Type of Aircraft Lease Term
------------- ---------------- ----------------------
<S> <C> <C>
8 ATR-72 7 years
2 EMB-120 3.1 - 4.4 years
17 CRJ-200 16.5 years
</TABLE>
Total rental expense on operating leases for the years ended December
31, 1998, 1997 and 1996 was $33,016,464, $25,695,796 and $24,041,093,
respectively.
Minimum future lease payments under all non-cancelable operating
leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C>
1999 $ 35,232,840
2000 34,130,453
2001 33,645,937
2002 28,338,444
2003 23,942,556
After 2003 242,236,643
------------
$397,526,873
</TABLE>
Approximately 24% of ASA's workforce are members of the unions
representing pilots and flight attendants. In September 1997, ASA and the flight
attendants' union entered into a new collective bargaining agreement that is
amendable in 2002. On August 26, 1998, ASA announced that its pilots ratified a
new four-year collective bargaining agreement effective September 15, 1998. On
November 10, 1998, the Transport Workers Union was certified to represent ASA's
dispatchers. Negotiations for an initial collective bargaining agreement have
not yet begun. ASA is aware that the International Association of Machinists and
Aerospace Workers is currently soliciting employees in a purported craft or
class of ramp workers employed by ASA for purposes of submitting a petition to
represent such workers, although to the knowledge of representatives of ASA, no
such petition is currently pending.
F-15
<PAGE> 56
Note H- Common Stock Transactions
Pursuant to its stock repurchase programs, the Company purchased
$51,402,000, $14,240,000 and $37,446,000 of its common stock in 1998, 1997 and
1996, respectively. In February 1998, ASA Holdings announced that its Board of
Directors authorized the repurchase of up to $50,000,000 of its common stock on
the open market during 1998. All of this authorization was used and in November
1998, ASA Holdings announced that its Board of Directors authorized the
repurchase of up to an additional $50,000,000 of its common stock on the open
market through January 2000.
Note I - Stock Plans
In May 1997, the shareholders of ASA Holdings approved the adoption of
a Nonqualified Stock Option Plan (Option Plan). In connection with the adoption
of the Option Plan, the Stock Appreciation Rights (SARs) Plan was terminated
and all SARs outstanding on May 21, 1997 were canceled, in exchange for options
covering the same number of shares with the same exercise prices and expiration
dates. Grants of options are made by a committee of the Board of Directors of
ASA Holdings and the exercise price is set at the time of each option grant.
SARS transactions are as follows:
<TABLE>
<CAPTION>
Number of SARs Grant Price
-------------- ---------------
<S> <C> <C>
Outstanding at January 1, 1996 790,400 $17.13 - $36.75
Outstanding at December 31, 1996 790,400 $17.13 - $36.75
Exercised (10,000) 17.13
Granted 414,100 22.38
Granted 53,600 21.25
---------- ---------------
Canceled at May 21, 1997 1,248,100 $17.13 - $36.75
---------- ---------------
</TABLE>
Option transactions are as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Options Exercise Price
---------- -----------------
<S> <C> <C>
Granted at May 21, 1997 1,248,100 $23.18
Exercised (276,900) 19.79
---------- ------
Outstanding at December 31, 1997 971,200 24.14
Granted 413,600 40.60
Exercised (367,400) 24.25
---------- ------
Outstanding at December 31, 1998 1,017,400 $30.79
---------- ------
</TABLE>
F-16
<PAGE> 57
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Date of Grant Number of Options Exercise Price
------------- ----------------- ---------------
<S> <C> <C>
May 21, 1997 121,200 $36.75
May 21, 1997 325,500 $22.38
May 21, 1997 26,800 $21.25
May 21, 1997 130,300 $17.13
February 11, 1998 391,800 $40.63
March 2, 1998 21,800 $40.13
----------- ---------------
Total 1,017,400 $17.13 - $40.63
----------- ---------------
</TABLE>
The weighted average remaining contractual life of the stock options
outstanding at December 31, 1998 was 2.9 years. Of the 1,017,400 options
outstanding at December 31, 1998, 577,000 with a weighted average exercise
price of $24.21 were fully vested. At May 21, 1997, the Company reserved
2,500,000 shares of common stock for issuance under the Option Plan. At
December 31, 1998, 838,300 shares remained available for future grants. In
January 1999, an additional 432,000 options were granted under the Option Plan
at an exercise price of $30.25.
During 1997, SARs increased general and administrative expense by
approximately $2,600,000. The SARs expense of $2,600,000 was reversed upon
cancellation of the SARs, but an equivalent amount of compensation expense
related to the new options issued under the Option Plan was recorded due to the
one-time issuance of options with exercise prices less than the market price of
the Company's stock on May 21, 1997. In 1996, SARs increased expense by
approximately $729,000. In connection with the exercise of SARs, the Company
made cash payments of $21,018 and issued 1,407 shares of common stock in 1997.
In May 1998, the Company's shareholders approved a Nonqualified Stock
Option Plan for Non-Employee Directors. The Company reserved 250,000 shares of
common stock for issuance under this option plan. During 1998, 12,500 options
were granted at an exercise price of $37.03 and were fully vested. In January
1999, another 12,500 options were granted under this plan with an exercise
price of $30.31.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its SARs. However, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
requires pro forma information regarding net income and earnings per share as
if the Company had accounted for its SARs/options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
of these SARs/options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for grants made in 1998 and
1997, respectively: a risk-free interest rate of 5% and 6%; a dividend yield of
1% and 2%; a volatility factor of the expected common stock market price of .41
and .4; and a weighted-average expected life of the SARs/options of five years.
The weighted average fair values of the options granted in 1998 and 1997 were
computed to be $15.78 and $8.36, respectively. The Black-Scholes option
valuation model was
F-17
<PAGE> 58
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including expected
stock price volatility. Because the Company's employee stock options and
previous SARs have characteristics significantly different from those of traded
options and changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options or previous SARs. For purposes of pro forma disclosures, the estimated
fair value of the SARs/options is amortized over the relevant vesting period.
The Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below (in thousands except per share information):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income - as reported $66,137 $54,512 $56,613
Net Income - pro forma $63,167 $52,883 $56,524
Earnings per Common Share - Diluted
as reported $2.22 $1.81 $1.83
Earnings per Common Share - Diluted
pro forma $2.12 $1.76 $1.82
</TABLE>
Note J - Employee Benefit Plans
All employees of the Company who have completed one year of employment
are generally eligible to participate in ASA's Investment Savings Plan. For
each dollar of salary reduction elected by an employee (up to 6% of an
employee's earnings), the Company has made a matching contribution of 20 cents
to 50 cents (depending on the number of years of participation for each
participant). After 7 years of service by an employee, the Company will make a
matching contribution of 75 cents for each dollar of salary reduction elected
by an employee. The amounts contributed by the Company for 1998, 1997 and 1996
were approximately $1,355,000, $882,000 and $920,000, respectively.
The Company has an Executive Deferred Compensation Plan for certain
employees, as designated by a committee of the Board of Directors. The Company
contributes from 10% to 15% of each participant's base salary to the plan.
Approximately $180,000, $120,000 and $126,000 were contributed in 1998, 1997
and 1996, respectively.
The Company has an unfunded Supplemental Executive Retirement Plan
(SERP). The SERP provides supplemental retirement income to certain key
executive employees at the time of their retirement or termination of
employment from the Company, on or after the attainment of age 55. During 1998,
1997 and 1996, respectively, the Company accrued to general and administrative
expense approximately $172,000, $160,000 and $142,000 related to the SERP. At
F-18
<PAGE> 59
December 31, 1998 and 1997, respectively, other non-current liabilities
included approximately $1,500,000 and $1,219,000 related to the SERP.
Note K - Related Party Transactions
At December 31, 1998 Delta Air Lines Holdings, Inc. (a subsidiary of
Delta) owned 7,995,000 shares or approximately 28% of ASA Holdings' outstanding
common stock. ASA leases reservation equipment and certain terminal facilities
from Delta and Delta provides certain services to ASA including reservation and
ground handling services. Expenses under these agreements were approximately
$11,812,000 in 1998, $11,686,000 in 1997, and $11,883,000 in 1996. Other
information related to Delta is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accounts Receivable from Delta at December 31: $ 225,000 $ 205,000
Accounts Payable to Delta at December 31: $2,068,000 $1,725,000
</TABLE>
Given ASA's relationship with Delta, ASA's results of operations and
financial condition may be favorably or adversely impacted by Delta's decisions
regarding its flight routes, revenue proration methodology and other
operational matters. ASA's flight schedules are structured to facilitate the
connection of its passengers with Delta flights at ASA's Atlanta and
Dallas/Fort Worth hubs. ASA has historically benefited from its relationship
with Delta, but there can be no assurance that such benefits will continue in
the future.
Note L - Marketable Securities and Fair Value Information
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates its fair value.
Marketable securities and long-term investments: Short-term
investments in marketable securities are classified as available for sale and
reported at fair value (estimated based on quoted market prices). Gross
unrealized holding losses of $99,616 as of December 31, 1998 and $9,457 as of
December 31, 1997 are reflected as adjustments to shareholders' equity, net of
related income taxes. Realized gains and losses other than interest income were
not material.
Long-term investments are classified as available for sale and
reported at fair value (estimated based on quoted market prices). The gross
unrealized holding gain of $33,034 as of December 31, 1997 is reflected as an
adjustment to shareholders' equity, net of related income taxes. The maturity
of these investments ranged from July 1998 to February 1999.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's estimate
of current borrowing rates for
F-19
<PAGE> 60
credit facilities with maturities which approximate the weighted average
maturities for its existing long-term debt.
Off-balance sheet financial instruments: The Company receives interest
rate subsidies on certain long-term debt instruments (See Note B). The fair
values of these off-balance sheet instruments are estimated using discounted
cash flow analyses based on the Company's estimate of current borrowing rates.
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Amounts Estimated Fair Value
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash and cash equivalents $130,553,224 $112,393,109 $130,553,224 $112,393,109
Marketable securities 55,291,576 71,486,542 55,291,576 71,486,542
Long-term investments -- 11,777,109 -- 11,777,109
Total long-term debt
(including current maturities) (72,786,619) (94,643,397) (72,825,281) (94,608,577)
Off-balance sheet financial
instruments -- -- 2,253,821 1,478,273
</TABLE>
Note M - Earnings per Common Share
The following table sets forth the computation of earnings per common
share:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net Income $66,137,281 $54,511,615 $56,612,720
----------- ----------- -----------
Denominator:
For Earnings per Common Share:
Weighted Average Common Shares
Outstanding 29,560,513 29,909,654 30,914,246
Effect of Dilutive Securities:
Stock Options/SARs 168,117 182,223 76,353
----------- ----------- -----------
For Earnings per Common Share -
Diluted:
Weighted Average Common Shares
and Share Equivalents Outstanding 29,728,630 30,091,877 30,990,599
----------- ----------- -----------
Earnings per Common Share $ 2.24 $ 1.82 $ 1.83
----------- ----------- -----------
Earnings per Common Share - Diluted $ 2.22 $ 1.81 $ 1.83
----------- ----------- -----------
</TABLE>
F-20
<PAGE> 61
SARs/options to purchase 235,700 shares of common stock at $36.75 per
share were outstanding during 1997 and 1996, but were not included in the
computation of diluted earnings per share because the exercise price of the
SARs/options was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
In January 1999, the Company issued an additional 432,000 options at an
exercise price of $30.25 and 12,500 options at an exercise price of $30.31.
Note N - Acquisition by Delta
On February 15, 1999, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Delta which provides for Delta's acquisition of
the 72% of the Company's common stock which Delta did not already own for a
total consideration of approximately $700 million. Under the terms of the
agreement, a newly formed Delta subsidiary made a tender offer (the Offer) to
purchase all outstanding shares of common stock of the Company for $34 per share
in cash. Delta commenced the Offer on February 22, 1999 and it expired at 12:00
midnight, Eastern Standard Time, on March 19, 1999. As a result of the
consummation of the Offer, Delta beneficially owned approximately 91% of the
total number of outstanding shares of the Company's common stock as of March 22,
1999. Following the consummation of the Merger, which will be preceded by the
approval by holders of a majority of the Company's outstanding common stock, the
Delta subsidiary will be merged with and into the Company, and the Company will
be a wholly-owned subsidiary of Delta. Delta has sufficient voting power to
approve the Merger without the vote of any other shareholder.
In connection with the Agreement a putative class action complaint was
filed in the Superior Court of Fulton County in the State of Georgia against the
Company and its directors and Delta, seeking, among other things, to enjoin the
Offer and Agreement or to rescind the Offer and Agreement if either is
consummated. On March 9, 1999, the parties entered into a memorandum of
understanding, setting forth the terms of an agreement-in-principle to settle
this litigation, including the payment of Plaintiffs' legal fees up to $400,000,
subject to court approval. Pursuant to the memorandum of understanding, the
Company and Delta have amended the Merger Agreement to eliminate the $5 million
break-up fee that would otherwise have been payable to Delta if the Merger
Agreement were to be terminated as a result of the Company receiving and
accepting a superior offer for its shares. The proposed settlement is subject to
the approval of the Fulton County Superior Court.
On March 18, 1999, the Company received a letter from Private Capital
Management, Inc. ("PCM"), a company claiming to exercise discretionary authority
over 246,300 shares of Company stock. The letter contends that one of PCM's
clients may have initiated a lawsuit in connection with the Offer and/or the
Merger. The Company, however, has not received any summons in respect of, nor
does it have any knowledge of, any legal action relating to the Offer or the
Merger being taken other than the lawsuit which is discussed above. It is
possible that other legal actions may be filed with respect to the Offer or the
Merger. The Company is unable to determine the outcome of any such matters, if
any.
The Company accrued approximately $7 million in the first quarter of
1999 related to certain investment banking and legal fees incurred in connection
with the Agreement.
In recent discussions with Delta, the Company believes Delta may make
adjustments to the revenue proration methodology currently in use. In addition,
Delta proposed other changes which would adversely affect the future financial
performance of the
F-21
<PAGE> 62
Company, including proposals to impose upon the Company new charges for the
payment of overrides to travel agents' commissions, to specify the markets into
which the Company's regional jets would be deployed, and to impose fees for
passengers not connecting with Delta flights and service performance penalties.
If such adjustments are made there could be a material adverse change to the
Company's consolidated financial position and results of operations.
F-22
<PAGE> 63
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
ASA Holdings, Inc.
We have audited the accompanying consolidated balance sheets of ASA
Holdings, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ASA
Holdings, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 1, 1999
except for Notes D and N as to
which the date is March 22, 1999
F-23
<PAGE> 64
ASA HOLDINGS, INC.
REPORT OF MANAGEMENT
The management of ASA Holdings, Inc. is responsible for the
preparation, content, integrity and objectivity of the financial statements and
other information presented in this report. The financial statements, which
were prepared in conformity with generally accepted accounting principles
applied on a consistent basis, have been audited by Ernst & Young LLP,
independent auditors.
The Company maintains a system of internal controls that provides
reasonable assurance as to the integrity and reliability of the financial
statements, that its assets are safeguarded against loss or unauthorized use
and that fraudulent financial reporting is prevented and detected.
The Board of Directors pursues its responsibilities through its Audit
Committee composed entirely of directors who are not employees of the Company.
The Audit Committee meets periodically and privately with the Company's
independent auditors and Company management to review accounting, auditing,
internal control and financial reporting matters.
/s/ George F. Pickett
- -----------------------------------
GEORGE F. PICKETT
Chairman of the Board and
Chief Executive Officer
/s/ Ronald V. Sapp
- -----------------------------------
RONALD V. SAPP
Chief Financial Officer and
Senior Vice President -- Finance
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<PAGE> 65
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(in thousand except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
<S> <C> <C> <C> <C> <C>
1998
Operating Revenues $93,748 $106,667 $105,003 $104,441 $409,859
Operating Income 19,359 28,863 25,870 21,939 96,031
Income before Income Taxes 21,407 31,391 29,186 24,261 106,245
Net Income $13,326 $ 19,541 $ 18,168 $ 15,102 $ 66,137
Earnings per Common Share $ 0.45 $ 0.65 $ 0.61 $ 0.52 $ 2.24
Weighted Average Common Shares
Outstanding 29,839 29,839 29,804 28,769 29,561
Earnings per Common Share - Diluted $ 0.44 $ 0.65 $ 0.61 $ 0.52 $ 2.22
Weighted Average Common Shares and
Share Equivalents Outstanding 30,023 30,016 29,979 28,906 29,729
1997
Operating Revenues $89,615 $ 99,638 $ 99,023 $ 97,014 $385,290
Operating Income 15,750 21,234 22,784 19,817 79,585
Income before Income Taxes 17,028 23,027 24,742 22,045 86,842
Net Income $10,732 $ 14,772 $ 15,340 $ 13,668 $ 54,512
Earnings per Common Share $ 0.36 $ 0.50 $ 0.51 $ 0.46 $ 1.82
Weighted Average Common Shares
Outstanding 29,971 29,813 29,870 29,985 29,910
Earnings per Common Share - Diluted $ 0.36 $ 0.49 $ 0.51 $ 0.45 $ 1.81
Weighted Average Common Shares and
Share Equivalents Outstanding 30,031 30,003 30,102 30,201 30,092
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 66
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to the directors,
executive officers and other significant employees of ASA Holdings, Inc. as of
February 18, 1999:
George F. Pickett, age 57, is ASA Holdings' and ASA's Chairman of the
Board and Chief Executive Officer and is a member of the Board of Directors of
both companies. He has served as Chairman of the Board and Chief Executive
Officer of ASA since February 1994 and of ASA Holdings since its inception in
September 1996. From ASA's inception in 1979 until February 1994, he served as
ASA's President and Chief Executive Officer. Mr. Pickett has been a member of
the Board of Directors of both ASA and ASA Holdings since their respective
inceptions.
John W. Beiser, age 58, is ASA Holdings' and ASA's President and is a
member of the Board of Directors of both companies. He has served as President
of ASA since February 1994 and of ASA Holdings since its inception in September
1996. He has served as Secretary of both companies since their respective
inception. In addition, Mr. Beiser was ASA's Vice President from its inception
until 1985 when he was designated as ASA's Senior Vice President-Sales and
Services. Mr. Beiser has been a member of the Board of Directors of ASA since
1982 and of ASA Holdings since its inception.
Ronald V. Sapp, age 54, is ASA Holdings' and ASA's Senior Vice
President-Finance and Chief Financial Officer. Mr. Sapp was named Senior Vice
President-Finance and Chief Financial Officer in May 1997. Mr. Sapp served as
Vice President-Finance and Chief Financial Officer for ASA from 1985 until May
1997 and for ASA Holdings from the time of the Reorganization until May 1997.
He served as ASA's Treasurer from 1985 until February 1997 and as ASA Holdings'
Treasurer between September 1996 and February 1997. From 1983 to 1985, Mr. Sapp
served as Vice President-Finance and Treasurer of Air Atlanta, Inc., a
scheduled passenger airline. From 1979 to 1983, Mr. Sapp served as Vice
President and Controller of Air California, Inc., a scheduled passenger
airline.
R. Mark Bole, age 40, was named ASA Holdings' and ASA's Assistant Vice
President-Treasurer in February 1997. He was ASA's Assistant Vice
President-Assistant Treasurer from February 1996 until February 1997 and held
the same positions with ASA Holdings from the effective date of the
Reorganization until February 1997. Mr. Bole served as a Vice President of
Wachovia Bank of Georgia, N.A. from May 1991 until February 1996.
Edward J. Paquette, age 48, was named ASA's Senior Vice
President-Operations in April 1997. From May 1996 until April 1997, he served
as Vice President-Operations of In-Flight Phone Corporation. From November 1994
to May 1996, he served as Vice President-Ground Operations at Ogden Aviation
Services. Mr. Paquette served in various capacities at
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Trans World Airlines from 1969 through 1994, including Senior Vice
President-Maintenance and Engineering and Senior Vice President-Operations.
Charles J. Thibaudeau, age 52, has served as ASA's Vice
President-Human Resources since November 1998. Mr. Thibaudeau has approximately
20 years of experience in the human resources and employee relations areas from
his tenure at Trans World Airlines.
James J. Cerniglia, age 56, has served as ASA's Assistant Vice
President-Flight Systems Controls since March 1998. Mr. Cerniglia has held
positions with or served as a consultant to a number of airlines since 1986. He
served as the Director-Flight Control of Trump Shuttle, Inc. ("Trump") from
February 1989 until September 1991 and as Senior Director-Sales and Marketing
of Trump from September 1991 until March 1992. Mr. Cerniglia served as Vice
President-Operations of Jet Express/USAir from March 1992 until July 1993, as
an independent airline consultant from July 1993 until May 1996, as
Director-Operations Control of Pan American World Airways, Inc. from May 1996
until September 1997, and as an independent airline consultant from that time
until he joined ASA.
Mark W. Fischer, age 40, has served as the Vice President-Customer
Service of ASA since November 1997. From 1992 until joining ASA, Mr. Fischer
served as the Vice President-Customer Service for Piedmont Airlines, Inc., and
from 1987 until 1992, he served as Vice President-Customer Service for Midway
Airlines, Inc. Mr. Fischer previously held a number of positions with Fischer
Bros. Aviation, Inc. from 1987 until 1992.
John P. McBryan, age 50, who has served as Vice President-Technical
Services of ASA since December 1997, has 27 years of experience in the aviation
industry. He was Vice President-Maintenance for Air Wisconsin, Inc. from 1988
until 1992, and served as Director of Maintenance for Allegheny Airlines, Inc.
from 1992 until 1993. Mr. McBryan served as Vice President-Operations of
Dyn-Air Tech, an aircraft repair station, from 1993 until 1994, and as Manager
of Industrial Engineering of The Dee Howard Company, another repair station,
from 1994 through 1996. Prior to joining ASA, he was the Director-Programs and
Planning for Miami Air International.
John A. Bedson, age 43, has been ASA's Vice President-Flight
Operations since November 1998. From 1994 until 1998, Mr. Bedson was Vice
President-Operations Support for British Aerospace, North America, Inc. Prior
to that time, he was Director-Flight Operations for Trans World Express from
1990 to 1994, and held the positions of Director-Flight Operations, Chief Pilot
and Chief Instructor at PanAm Express from 1985 to 1990.
Renee H. Skinner, age 42, is ASA Holdings' and ASA's Assistant Vice
President-Controller. She has held these positions with ASA since 1994 and with
ASA Holdings since the Reorganization was effective. Ms. Skinner served as
ASA's Manager of Accounting from 1986 through 1994.
Samuel J. Watts, age 51, who has served as Vice President-Sales and
Corporate Communications of ASA since July 1997, has been employed by ASA in
customer service
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positions since 1983. From 1985 to 1994, he was ASA's Vice President-Customer
Services. In 1994, he was elected as ASA's Vice President-Sales and Customer
Services. Mr. Watts was employed by Southeastern Airlines, a regional airline,
from 1982 to 1983 as its Vice President-Marketing. From 1972 to 1982, Mr. Watts
worked for Eastern Airlines, Inc., a major airline, in various line and staff
positions.
W. Grant Nichols, age 34, has served as ASA's Assistant Vice
President-Market Development since 1997. Mr. Nichols previously served as the
Manager of Revenue Control from 1989 until 1997. Prior to 1989, Mr. Nichols
held various positions with ASA from 1985 to 1989.
George Berry, age 61, has served for the past eight years as Senior
Vice President of Cousins Properties Incorporated, a publicly-held real estate
investment trust. Mr. Berry also serves as a director of Community Trust
Financial Services Corporation. From 1983 to 1990, he served as Commissioner of
Industry, Trade and Tourism for the State of Georgia. From 1962 to 1983, Mr.
Berry served in the administrations of four mayors of the City of Atlanta, and
was appointed as Chief Administrative Officer under two mayoral
administrations. His responsibilities with the Atlanta administration included
an appointment as Commissioner of Aviation, in which capacity he supervised a
major expansion of Hartsfield Atlanta International Airport.
Jean A. Mori, age 62, has been a member of ASA Holdings' Board of
Directors since September 30, 1996, and was a member of ASA's Board of
Directors from 1994 until December 31, 1996. Mr. Mori is Chairman of the Board
and President of Mori Luggage & Gifts, Inc., a retail chain of 29 stores
throughout the Southeast specializing in luggage, business cases, leather goods
and gifts. He has held this position since the founding of Mori Luggage &
Gifts, Inc. in 1971. Mr. Mori served as the President of the National Luggage
Dealers Association from 1986 to 1988 and has served on its Board of Directors
since 1980.
Parker H. Petit, age 59, has been a member of ASA Holdings' Board of
Directors since September 30, 1996, and was a member of ASA's Board of
Directors from 1982 until December 31, 1996. Mr. Petit has served as Chairman
of the Board of Directors of Matria Healthcare, Inc. ("Matria"), a disease
management services company, since March 1996. He was the founder of
Healthdyne, Inc. and acted as its Chairman and Chief Executive Officer from
1970 until Healthdyne and Tokos Medical Corporation (Delaware) merged with and
into Matria in March 1996. Mr. Petit also serves as a director of HIE, Inc.,
Intelligent Systems, Inc., Norrell Corporation and Logility, Inc.
Alan M. Voorhees, age 76, has been a member of ASA Holdings' Board of
Directors since September 30, 1996, and was a member of ASA's Board of
Directors from 1979 until December 31, 1996. Mr. Voorhees was Chairman of the
Board of ASA from 1979 until February 1994. Mr. Voorhees is Chairman of the
Board of Summit Enterprises, Inc. of Virginia, an investment management firm
organized by Mr. Voorhees in 1979. Mr. Voorhees has served as a director of
Micros Systems, Inc., an electronic cash register manufacturer for the
hospitality industry, since 1982.
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<PAGE> 69
Ralph W. Voorhees, age 72, has been a member of ASA Holdings' Board of
Directors since September 30, 1996, and was a member of ASA's Board of
Directors from 1979 until December 31, 1996. Mr. Voorhees has been Senior Vice
President-Investments with PaineWebber Incorporated, an investment banking
firm, since 1973.
As a result of the consummation of the Offer, Delta is entitled
pursuant to the Merger Agreement to designate a certain number of directors to
the Company's Board. The Merger Agreement also provides that the Company will
use its reasonable best efforts to cause at least two persons who are not
employees of the Company or affiliated with Delta to be members of the
Company's Board until the Merger is consummated. Pursuant to the foregoing
provisions, all incumbent directors of the Board except for Messrs. Parker H.
Petit and Jean A. Mori are expected to resign effective the close of business
on March 25, 1999, and the following five designees of Delta will be appointed
and elected to fill these vacancies on the Board effective March 26, 1999:
Messrs. Maurice W. Worth, Malcolm B. Armstrong, Warren C. Jenson and Frederick
W. Reid and Ms. Vicki B. Escarra.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During 1998, the Company's directors who were employees of the Company
and its subsidiaries received no additional or special remuneration for serving
as members of the Board of Directors. The compensation for each member of the
Company's Board of Directors who was not also an officer or employee of the
Company or its subsidiaries was set at $2,500 per quarter plus $1,000 for each
meeting of the Board of Directors and $500 for each meeting of a committee of
the Board of Directors that he attended. All members of the Company's Board of
Directors were reimbursed for their expenses associated with attendance at
formal Board meetings during 1998.
Pursuant to the Company's 1998 Nonqualified Stock Option Plan for
Non-Employee Directors (the "Directors Plan"), each member of the Board of
Directors who qualifies as an Outside Director (as defined in the Directors
Plan) on December 31st of any year receives an option to purchase 2,500 shares
of the Company's Common Stock. In addition, the Board may grant options on a
discretionary basis under the Directors Plan to Outside Directors. The
following directors are Outside Directors for purposes of the Directors Plan:
George Berry, Jean A. Mori, Parker H. Petit, Alan M. Voorhees and Ralph W.
Voorhees.
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<PAGE> 70
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and each of the three
other executive officers of the Company serving as of December 31, 1998 whose
total salary and bonus for 1998 exceeded $100,000 (these four individuals are
referred to collectively as the "named executive officers"). The table reflects
all compensation received by each such executive officer for services rendered
in all capacities to the Company and its subsidiaries that was paid or accrued
during the fiscal years ended December 31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- -----------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) (1) OPTIONS/SARS(#)(2) COMPENSATION ($)
- --------------------------- ----- ---------- --------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
George F. Pickett............... 1998 $294,540 $118,000 $ 1,290 94,300 $44,181 (3)
Chairman of the Board and 1997 283,200 113,000 1,473 132,900 42,480 (3)
Chief Executive Officer 1996 271,020 108,000 13,278 -- 40,653 (3)
John W. Beiser.................. 1998 287,520 115,000 1,260 92,000 43,128 (4)
President and Secretary 1997 276,480 111,000 1,650 129,700 41,472 (4)
1996 264,600 106,000 2,617 -- 39,690 (4)
Ronald V. Sapp.................. 1998 165,800 65,000 -- 37,100 23,255 (5)
Senior Vice President-- 1997 127,800 51,000 -- 42,000 17,230 (5)
Finance and Chief 1996 116,160 50,000 -- -- 15,116 (5)
Financial Officer
Edward J. Paquette (6).......... 1998 165,800 65,000 -- 37,100 18,072 (7)
Senior Vice President-- 1997 155,000 62,000 -- 53,600 10,810 (7)
Operations of ASA
</TABLE>
- -------------------------
(1) At the end of fiscal 1995, ASA's Compensation Committee authorized ASA
to pay to each of Messrs. Pickett and Beiser annually reimbursements
to cover Medicare tax liability with respect to the vested portion of
his respective interest in the SERP. Messrs. Pickett and Beiser
received such reimbursements in 1996, 1997 and 1998. Such
reimbursements were disclosed as additional salary in the Summary
Compensation Table in prior years.
(2) For grants in periods prior to May 21, 1997, reflects shares
underlying SARs granted in the respective year, all of which were
canceled on May 21, 1997 and replaced on a one-for-one basis by stock
options with the same basic terms as the outstanding SARs. For grants
in periods after May 21, 1997, reflects shares underlying options.
(3) Includes contributions by the Company of $44,181 and $42,480 to the
Deferred Compensation Plan in 1998 and 1997, respectively; and
contributions by ASA of $40,653 to the Deferred Compensation Plan in
1996.
(4) Includes contributions by the Company of $43,128 and $41,472 to the
Deferred Compensation Plan in 1998 and 1997, respectively; and
contributions by ASA of $39,690 to the Deferred Compensation Plan in
1996.
(5) Includes contributions by the Company of $16,580 and $12,780 to the
Deferred Compensation Plan, and $6,675 and $4,450 by ASA to the
Savings Plan in 1998 and 1997, respectively; and contributions by ASA
of $11,616 to the Deferred Compensation Plan and $3,500 to the Savings
Plan in 1996.
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<PAGE> 71
(6) Mr. Paquette was named as Senior Vice President--Operations of ASA on
April 21, 1997. The Company's Board of Directors designated Mr.
Paquette as an "executive officer" of the Company on May 21, 1997
because he performs policy-making functions for the Company.
(7) Includes contributions by ASA of $16,580 and $10,810 to the Deferred
Compensation Plan in 1998 and 1997, respectively; and contributions by
ASA of $1,492 to the Savings Plan in 1998.
STOCK OPTION GRANTS AND RELATED INFORMATION
The following table sets forth information concerning all options
granted in 1998 to the named executive officers. No other options were granted
to the named executive officers in 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
---------------------------------------------------------------
NUMBER OF % OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION ---------------------------
NAME (#) (1) IN 1998 ($/SH) DATE 5% 10%
- ----------------------- -------------- ----------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George F. Pickett..... 94,300 22.8% $40.625 2/11/03 $1,058,518 $2,339,112
John W. Beiser........ 92,000 22.2% $40.625 2/11/03 $1,032,700 $2,282,060
Ronald V. Sapp........ 37,100 9.0% $40.625 2/11/03 $ 416,448 $ 920,266
Edward J. Paquette.... 37,100 9.0% $40.625 2/11/03 $ 416,448 $ 920,266
</TABLE>
- -------------------------
(1) The options granted become exercisable in two equal annual
installments beginning on the first anniversary of the date of grant.
The exercisability of options may be accelerated upon the optionee's
retirement with consent of the Company, death or material disability.
The exercise price may be paid with the delivery of already-owned
shares or through a broker-assisted exercise.
On February 15, 1999, the Company amended the ASA Holdings, Inc. 1997
Nonqualified Stock Option Plan (the "1997 Plan") to provide that in the event
of a Change in Control, all options granted under the 1997 Plan will become
fully vested and immediately exercisable. "Change in Control" is defined as set
forth in the amendment to the 1997 Plan. Consummation of the Offer constituted
a Change in Control under the 1997 Plan. The Company has also previously
granted to certain directors of the Company options to purchase shares under
the Company's 1998 Nonqualified Stock Option Plan for Non-Employee Directors,
all of which options are fully exercisable by their terms. Under the terms of
the Merger Agreement, each of the employee and director stock options
outstanding as of the Effective Time will be canceled in return for a cash
payment to the option holder equal to the product of (A) the merger
consideration minus the per share exercise price of the option, multiplied by
(B) the number of shares subject to the option.
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The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
---------------------------- ---------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George F. Pickett..... -- -- 341,800 94,300 2,822,514 --
John W. Beiser ....... 204,000 3,657,731 129,700 92,000 1,053,813 --
Ronald V. Sapp........ 38,800 887,675 65,400 37,100 341,250 --
Edward J. Paquette... 26,800 489,250 -- 63,900 -- 247,900
</TABLE>
(1) The fair market value of the Common Stock at the close of business on
December 31, 1998, was $30.50 per share based on the closing price per
share as quoted on the Nasdaq National Market.
EXECUTIVE DEFERRED COMPENSATION PLAN
Pursuant to the Atlantic Southeast Airlines, Inc. Executive Deferred
Compensation (Retirement) Plan, as amended on February 15, 1999 (the "Deferred
Plan"), each month the Employer (defined as either the Company or Atlantic
Southeast Airlines, Inc.) contributes an amount equal to 15% of the
compensation of a Class A participant (senior executive officer designated by
the Company's Board) and 10% of the compensation of a Class B participant
(officer designated by the Company's Board), to a fund established to receive
and invest such contributions. No employee contributions are allowed. Employees
may direct the investment of their accounts. If a participant's employment is
terminated without Cause or if the participant terminates employment for Good
Reason within two years after a Change in Control, the participant will have a
nonforfeitable vested interest in all benefits accrued under the terms of the
Deferred Plan. "Change in Control," "Cause" and "Good Reason" are defined as
set forth in the Deferred Plan. The definition of "Change in Control" was
amended on February 15, 1999 to conform to the definition of "Change in
Control" in the 1997 Plan. The consummation of the Offer constituted a Change
in Control under the Deferred Plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company maintains a Supplemental Executive Retirement Plan
("SERP") to provide certain of its key executives with supplemental retirement
income. Currently, Messrs. Pickett and Beiser are the only SERP participants.
Under the SERP, after reaching age 55 and after retiring or terminating
employment with the Company and its subsidiaries, participants will be
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entitled to annual benefits, paid on a monthly basis, of $150,000 offset by (i)
50% of the participant's annual Social Security benefits projected as of the
last day of the calendar month of the participant's actual date of retirement
or termination of employment; (ii) the actuarial equivalent, expressed as an
annual benefit for the life of the participant, of 100% of the vested amount in
the participant's Employer Matching Account under the Savings Plan as of the
last day of the calendar month containing the participant's actual date of
retirement or termination; and (iii) the actuarial equivalent, expressed as an
annual benefit for the life of the participant, of 100% of the participant's
vested benefits under the Deferred Compensation Plan as of the last day of the
calendar month containing the participant's actual date of retirement or
termination of employment. For each year that the participant continues to be
employed by the Company and its subsidiaries after reaching age 55 and until
the attainment of age 65, the base amount of his benefits under the SERP is
increased by an additional 6%. As of the date of this report, the benefits
payable to Messrs. Pickett and Beiser would be $178,652 annually, reduced by
the applicable amounts of their benefits under the Savings Plan, the Deferred
Compensation Plan and Social Security. On February 15, 1999, the SERP was
amended to change the "Change in Control" definition to have the same meaning
as in the 1997 Plan.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
EMPLOYMENT AND CONSULTING AGREEMENTS
On February 15, 1999, the Company and Messrs. George F. Pickett and
John W. Beiser (each an "Executive") agreed pursuant to certain memorandum
agreements (each a "Memorandum Agreement") with Delta to negotiate in good
faith to enter into formal written employment and consulting agreements
incorporating the terms described below, with the intention that such
employment and consulting agreements will be executed prior to Effective Time.
Pursuant to the terms of the Memorandum Agreements, Mr. Pickett is to
serve as Chief Executive Officer of the Company and Mr. Beiser is to serve as
President and Secretary of the Company from February 15, 1999 until the
Effective Time or such shorter period as provided by the Memorandum Agreements
(the "Employment Term") and each is to serve as a non-employee consultant of
the Company from the Effective Time until the 180th day following the Effective
Time or such shorter period as provided by the Memorandum Agreements (the
"Consulting Term"). During the Employment Term and the Consulting Term, the
Company is to pay Messrs. Pickett and Beiser base salaries at the rate in
effect as of February 15, 1999 and each is to continue to earn an annual bonus
entitlement equal to 40% of his respective base salary on the same terms that
currently apply to such officer under the Company's annual bonus plan. As of
the 180th day following the Effective Time, the Company shall pay to Mr.
Pickett and to Mr. Beiser a lump sum payment (the "Special Consideration") of
$427,267 and $416,896, respectively (provided, however, that such payment is
subject to a reduction, if necessary, if it would be treated as an "excess
parachute payment" under Section 280G of the Internal Revenue Code, as amended
(the "Code")), as consideration for each officer's agreement to render services
and honor the non-competition covenant in the Memorandum Agreements. Pursuant
to the terms
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of the Memorandum Agreements, from February 15, 1999 until the second
anniversary of the Effective Time, neither Mr. Pickett nor Mr. Beiser may (i)
directly or indirectly provide management or executive services to any person
or entity operating a commuter airline using planes with a capacity of less
than 70 seats in any market in which the Company currently operates or (ii)
solicit or hire any employee of the Company to perform a service on behalf of a
competitor similar to any service performed by such employee on behalf of the
Company. If the Executive's employment or consulting services are terminated
without Cause (as defined in the Memorandum Agreements) or because of death or
disability during the Employment Term or Consulting Term, the Executive will
receive accrued salary, a pro rata bonus and the Special Consideration.
SPECIAL SEVERANCE PLAN
On February 15, 1999, the Company adopted the ASA Holdings, Inc.
Special Severance Plan (the "Severance Plan"). Generally, the Severance Plan
provides that if the Company terminates the employment of an eligible executive
(which includes certain senior officers other than Mr. Pickett and Mr. Beiser)
without "Cause" or the executive terminates for "Good Reason" within two years
of a "Change in Control," the executive will receive an amount in cash equal to
either 18 or 24 months of the executive's highest annual rate of base salary in
effect during the twelve-month period immediately prior to termination plus an
average of the executive's bonus for the last two years, subject to a
reduction, if necessary, if the payments thereunder would be treated as "excess
parachute payments" under Section 280G of the Code. In addition, the executive
will also receive continued coverage under the Company's medical, dental and
life insurance plans for the same number of months. In the event the executive
cannot continue to participate in such plans, the Company will otherwise
provide such benefits on the same after-tax basis as if continued participation
had been permitted. "Cause," "Good Reason" and "Change in Control" are defined
as set forth in the Severance Plan. Consummation of the Offer constituted a
Change in Control under the Severance Plan.
RETENTION AGREEMENTS
On February 15, 1999, the Company entered into retention agreements
(each a "Retention Agreement") with each of Ronald V. Sapp and Edward J.
Paquette. Mr. Sapp's Retention Agreement provides that if Mr. Sapp is still
employed with the Company on the six month anniversary of the closing of the
Offer, Mr. Sapp will receive a lump sum amount equal to approximately three
times the annual base salary payable to Mr. Sapp for the 1999 calendar year
(provided, however, that such payment is subject to a reduction, if necessary,
if it would be treated as an "excess parachute payment" under Section 280G of
the Code). Mr. Paquette's Retention Agreement provides that if Mr. Paquette is
still employed with the Company on the six month anniversary of the closing of
the Offer, he will receive a lump sum amount equal to the annual base salary
payable to him for the 1999 calendar year. The Retention Agreements also
provide that each of Messrs. Sapp and Paquette will receive such amount if the
Company terminates the employee's employment without "Cause" or the employee
terminates for "Good Reason" prior to the six month anniversary of the closing
of the Offer. "Cause" and "Good Reason" are defined as set forth in the
Retention Agreements.
-47-
<PAGE> 75
INDEMNITY AGREEMENTS OF EXECUTIVE OFFICERS AND DIRECTORS
On February 15, 1999, the Board of Directors authorized the Company to
enter into an Indemnity Agreement (each an "Indemnity Agreement of Executive
Officer") with each of six of its executive officers, including George F.
Pickett, John W. Beiser, Edward J. Paquette, Ronald V. Sapp, R. Mark Bole and
Renee Skinner. The Indemnity Agreement of Executive Officer provides the
Indemnitee with specific contractual assurance that indemnification protection
provided under the Company's Bylaws will be available to Indemnitee regardless
of, among other things, any amendment to or revocation of the Company's
Articles or Bylaws or a Change in Control of the Company. The Indemnity
Agreement of Executive Officer further provides that the Company has purchased
and maintains directors' and officers' insurance consisting of a primary policy
providing $15 million in aggregate coverage and a supplemental policy providing
$15 million in aggregate coverage, and that the Company will maintain such
insurance coverage for so long as Indemnitee shall continue to serve as an
executive officer of the Company or thereafter shall be subject to any possible
Claim or threatened, pending or completed litigation. "Indemnitee," "Change in
Control" and "Claim" are defined as set forth in the form of Indemnity
Agreement of Executive Officer.
On February 15, 1999, the Board of Directors authorized the Company to
enter into an Indemnity Agreement (each an "Indemnity Agreement of Director")
with each of its directors, which included at such time George F. Pickett, John
W. Beiser, Jean A. Mori, Parker H. Petit, Alan M. Voorhees, Ralph M. Voorhees
and George Berry. The terms of the Indemnity Agreement of Director are
substantially similar to the terms of the Indemnity Agreement of Executive
Officer described above.
AMENDED AND RESTATED FOUNDING OFFICER AGREEMENT
The Company, Atlantic Southeast Airlines, Inc. and George F. Pickett
and John W. Beiser, respectively, are parties to Amended and Restated Founding
Officer Agreements, each dated April 16, 1997, as further amended on February
15, 1999, pursuant to which if Mr. Pickett or Mr. Beiser, as the case may be,
ceases to be an employee of the Company within two years after a Change in
Control, the Company and Atlantic Southeast Airlines, Inc. will pay Mr. Pickett
or Mr. Beiser, as applicable, the lesser of (i) two times gross compensation
accrued in the last twelve months or (ii) the maximum amount which may be paid
to Mr. Pickett or Mr. Beiser, as applicable, which is deductible to the Company
under Section 280G of the Code. "Change in Control" is defined as set forth in
the Amended and Restated Founding Officer Agreement.
CERTAIN TRAVEL BENEFITS
On February 15, 1999, in recognition of Mr. Pickett's and Mr. Beiser's
founding the Company and of their service to the Company, the Board granted
lifetime travel privileges to Mr. Pickett and his wife and to Mr. Beiser, his
wife and Mr. Beiser's dependent children, respectively, on all Atlantic
Southeast Airlines flights.
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<PAGE> 76
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth certain information as to the Common
Stock of the Company beneficially owned as of February 18, 1999 by each person,
other than persons whose ownership is reflected under the caption "Security
Ownership of Management," who is known by the Company to own, directly or
indirectly, more than 5% of the outstanding shares of the Company's Common
Stock, and reflects information presented in each such person's Schedule 13D or
Schedule 13G (and amendments, if any, thereto) as filed with the Securities and
Exchange Commission and provided to the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
- ------------------------------------ -------------------- ----------
<S> <C> <C>
Delta Air Lines Holdings, Inc. (2)......... 7,995,000 28.03%
1101 North Market Street
Suite 1300
Wilmington, DE 19801
FMR Corporation............................. 3,003,800 (3) 10.53%
82 Devonshire Street
Boston, MA 02109
</TABLE>
(1) Percent of Class is based on 28,523,177 shares of the Company's Common
Stock outstanding as of February 18, 1999 (excluding treasury shares).
(2) Delta Air Lines Holdings, Inc. is a wholly-owned subsidiary of Delta.
As a result of the consummation of the Offer, Delta beneficially owned
91% of the Company's outstanding common stock on March 22, 1999.
(3) Based upon an amendment to the Schedule 13G filed on February 11, 1999
with the Securities and Exchange Commission by FMR Corp. ("FMR"),
Edward C. Johnson, III and Abigail P. Johnson. Of the shares reported,
(a) 2,500,700 shares are owned beneficially by Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR and an
investment advisor to various investment companies (the "Funds"), (b)
1,570,000 shares are owned beneficially by Fidelity Low-Priced Stock
Fund (the "Fund"), a registered investment company, and (c) 503,100
shares are owned beneficially by Fidelity Management Trust Company
("FMTC"), a wholly-owned subsidiary of FMR. According to the Schedule
13G as amended, (i) each of FMR, Fidelity, Mr. Johnson and the Funds
has the sole power to dispose of all 2,500,700 of the shares owned by
the Funds, and (ii) the sole power to vote the shares owned directly
by the Funds resides with the Funds' Board of Trustees. Each of Mr.
Johnson and FMR, through its control of FMTC, has sole dispositive
power over 503,100 shares and sole power to vote or direct the voting
of 446,400 shares owned by the above beneficial owners.
-49-
<PAGE> 77
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as to the Common
Stock beneficially owned as of February 18, 1999 by each of the Company's
directors, each executive officer, and all directors and executive officers as
a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
- ------------------------ -------------------- --------
<S> <C> <C>
George F. Pickett........................... 810,287 (2)(3) 2.8%
John W. Beiser.............................. 467,847 (3)(4) 1.6%
Ronald V. Sapp.............................. 70,439 (3) *
R. Mark Bole................................ 9,800 (3) *
Jean A. Mori................................ 6,124 (5)(8) *
Parker H. Petit............................. 10,000 (8) *
Alan M. Voorhees............................ 248,027 (6)(8) *
Ralph W. Voorhees........................... 43,200 (7)(8) *
George Berry................................ 6,000 (8) *
Edward J. Paquette.......................... 18,550 (3) *
All directors, nominees and executive
officers as a group (ten persons)........... 1,690,274 (9) 5.9%
</TABLE>
- ---------------------
* Represents holdings of less than 1%.
(1) Information with respect to beneficial ownership is based upon
information furnished by each owner. Percent of Class is based on
28,523,177 shares of the Company's Common Stock outstanding as of
February 18, 1999 (excluding treasury shares).
(2) Includes 118,650 shares held by the wife of George F. Pickett, as to
which shares Mr. Pickett disclaims any beneficial ownership interest.
(3) Includes shares of the Company's Common Stock that the individual has
the right to acquire, on or before April 19, 1999 (60 days from
February 18, 1999), through the exercise of options granted under the
Nonqualified Stock Option Plan (see "Stock Option Grants and Related
Information") as follows: George F. Pickett - 310,350 shares; John W.
Beiser - 175,700 shares; Ronald V. Sapp - 60,550 shares; Edward J.
Paquette - 18,550 shares; and R. Mark Bole - 8,600 shares. As
previously noted because consummation of the Offer constituted a
Change in Control under this plan, all outstanding options have
vested.
-50-
<PAGE> 78
(4) Includes 140,000 shares held by the wife of John W. Beiser, as to
which shares Mr. Beiser disclaims any beneficial ownership interest.
(5) Includes 230 shares held by the wife of Jean A. Mori, as to which
shares Mr. Mori disclaims any beneficial ownership interest.
(6) Includes 243,027 shares held by irrevocable trusts created for the
benefit of the adult children of Alan M. Voorhees, as to which shares
Mr. Voorhees disclaims any beneficial ownership interest.
(7) Includes 19,300 shares held by the wife of Ralph W. Voorhees, as to
which shares Mr. Voorhees disclaims any beneficial ownership interest.
(8) Includes 5,000 shares that the individual has the right to acquire
through the exercise of options granted under the Company's
Nonqualified Stock Option Plan for Non-Employee Directors.
(9) Includes an aggregate of 598,750 shares which the directors and
executive officers as a group have the right to acquire as of April
19, 1999 through the exercise of options.
Pursuant to the Shareholders Agreement (as defined below), Messrs.
Pickett and Beiser and their wives tendered into the Offer a total of 499,937
shares and 292,147 shares of the Company's common stock, respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since 1984, ASA has operated from the Atlanta and Dallas/Fort Worth
hubs as a "Delta Connection" carrier pursuant to a marketing agreement with
Delta. ASA leases reservation equipment and certain terminal facilities from
Delta and Delta provides certain services to ASA, including reservation and
ground handling services at certain stations. Expenses paid under the joint
marketing agreement during the 1998 fiscal year were approximately $11,812,000.
In addition, at December 31, 1998, Delta owed ASA approximately $225,000 for
various services performed by ASA for Delta and ASA owed Delta approximately
$2,068,000 for various services performed by Delta for ASA, as described above.
During 1998, approximately 84% of ASA's passengers connected with or from Delta
flights at ASA's Atlanta, Georgia and Dallas/Fort Worth, Texas hubs.
As of February 18, 1999, Delta (through its wholly owned subsidiary
Delta Air Lines Holdings, Inc.) beneficially owned approximately 28.03% of the
Company's outstanding Common Stock. On March 19, 1999, Delta completed the Offer
and accepted 18,011,033 shares of the Company's common stock representing 91.15%
of the outstanding shares. Upon approval by holders of a majority of the
Company's outstanding common stock at a special meeting of shareholders to be
called by the Company pursuant to the Merger Agreement, Purchaser will be merged
with and into the Company, and the Company will be a wholly-owned subsidiary of
Delta. Delta has sufficient voting power to approve the Merger without the vote
of any other shareholder. See "Recent Developments" for information regarding
the Merger Agreement as well as Delta's Offer to purchase the Company.
-51-
<PAGE> 79
THE SHAREHOLDERS AGREEMENT
Delta entered into a shareholders agreement, dated as of February 15,
1999 (the "Shareholders Agreement"), with George F. Pickett, John W. Beiser,
Elizabeth H. Pickett and Maureen W. Beiser (collectively, the "Interested
Shareholders"). Pursuant to the Shareholders Agreement, each Interested
Shareholder agreed to tender, or cause to be tendered, upon the request of
Delta (and agree that, subject to applicable law, he or she will not withdraw),
pursuant to and in accordance with the terms of the Offer, all outstanding
shares of the Company's common stock beneficially owned by such Interested
Shareholder. Further, the Interested Shareholders agreed not to vote any shares
in favor of the approval of any (i) Acquisition Proposal (as defined in the
Shareholders Agreement), (ii) reorganization, recapitalization, liquidation or
winding up of ASA or any other extraordinary transaction involving ASA, (iii)
corporate action the consummation of which would frustrate the purposes, or
prevent or delay the consummation, of the transactions contemplated by the
Merger Agreement or (iv) other matter relating to, or in connection with, any
of the foregoing matters.
CONFIDENTIALITY AGREEMENT
On February 9, 1999, Delta and the Company entered into a
confidentiality agreement (the "Confidentiality Agreement"), under which the
Company agreed to provide certain confidential information relating to its
operations to Delta. Pursuant to the Confidentiality Agreement, Delta agreed
that Delta and its representatives would hold non-public information received
from the Company under the Confidentiality Agreement in confidence, except to
the extent that disclosure is legally mandated or compelled by any court,
tribunal or governmental authority. The Confidentiality Agreement does not
limit Delta's use of any information which (i) was previously known by Delta or
its representatives, (ii) was independently developed by Delta or its
representatives, (iii) was acquired by Delta or its representatives from a
third party which is not obligated not to disclose such information or (iv)
which is or becomes publicly available through no breach by Delta of its
obligations under the Confidentiality Agreement.
-52-
<PAGE> 80
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
l. The following financial statements of the Registrant required
by this Item are included at Item 8 hereof:
Consolidated Balance Sheets as of December 31, 1998 and 1997;
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996;
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996;
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996;
Notes to Consolidated Financial Statements; and
Report of Independent Auditors.
2. The following financial statement schedules of the Registrant
required by this Item are included as pages 54 through 57 of this Report on
Form 10-K:
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. The exhibits required by this Item are listed on the Exhibit
Index on pages (i) through (ix) of this Report and are filed herewith or
incorporated by reference as indicated. The management contracts or
compensatory plans or arrangements required to be filed as exhibits to this
Report pursuant to Item 14(c) are identified in the Exhibit Index.
(b) ASA Holdings filed no current reports on Form 8-K during the fourth
quarter of 1998.
-53-
<PAGE> 81
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
ASA HOLDINGS, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,468 $ 1,093
Receivables from affiliates 8,821 5,542
Accounts receivable 8 8
-------- --------
12,297 6,643
Investment in Subsidiaries 300,883 295,851
Other Assets 1,261 1,274
-------- --------
TOTAL ASSETS $314,441 $303,768
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 0 $ 2,172
Accrued compensation and related expenses 2,012 3,433
Other accrued expenses 253 242
-------- --------
2,265 5,847
Non-Current Liabilities 2,403 1,996
Shareholders' Equity
Common stock 2,854 2,973
Retained earnings 306,919 292,952
-------- --------
309,773 295,925
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $314,441 $303,768
======== ========
</TABLE>
See accompanying note.
-54-
<PAGE> 82
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT - CONTINUED
ASA HOLDINGS, INC. (PARENT COMPANY)
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
-------- --------
<S> <C> <C>
Cost Sharing Revenues $ 1,479 $ 1,404
-------- --------
Total Revenues 1,479 1,404
Operating Expenses
General and administrative 1,473 1,319
Depreciation and amortization 122 122
-------- --------
Total Operating Expenses 1,595 1,441
-------- --------
Net Operating Loss (116) (37)
Non Operating Income (Loss) 121 (37)
-------- --------
Income before Income Taxes 5 0
Income Taxes 5 0
-------- --------
Net Income before Equity in Earnings of Subsidiaries 0 0
Net Income of Subsidiaries 66,137 54,512
-------- --------
Net Income $ 66,137 $ 54,512
======== ========
</TABLE>
-55-
<PAGE> 83
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
OF REGISTRANT - CONTINUED
ASA HOLDINGS, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income of Subsidiaries $ 66,137 $ 54,512
Adjustment to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Undistributed earnings of subsidiaries (5,037) (35,616)
Other (72) 30
Changes in Operating Assets and Liabilities:
Receivables (3,279) (2,743)
Other assets 13 (60)
Accounts payable (2,172) 2,172
Accrued compensation and related expenses 542 2,880
Other liabilities 1,829 648
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 57,961 21,823
FINANCING ACTIVITIES
Dividends Paid (13,095) (11,970)
Proceeds from Exercise of Stock Options 8,911 5,480
Purchase of Common Stock (51,402) (14,240)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (55,586) (20,730)
INCREASE IN CASH AND CASH EQUIVALENTS 2,375 1,093
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,093 0
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,468 $ 1,093
======== ========
</TABLE>
Note to Condensed Financial Statements
Note A -- Basis of Presentation
ASA Holdings, Inc., the parent company, was formed pursuant to a corporate
reorganization which was effective December 31, 1996. ASA Holdings, Inc. holds
all of the outstanding shares of Atlantic Southeast Airlines, Inc. and ASA
Investments, Inc. The Company's investment in these subsidiaries is stated
using the equity method of accounting. ASA Holdings, Inc. received dividends
from ASA Investments, Inc. in the amount of $54.6 million and from Atlantic
Southeast Airlines, Inc. in the amount of $6.5 million during 1998.
-56-
<PAGE> 84
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
---------
Balance at Charged to Charged to Balance at
Description beginning of cost and other accounts Deductions end of
period expenses (describe) (describe) period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 266,343 $(25,000) $ (36,996) (A) $ 204,347
Allowance for obsolescence of
expendable parts 4,048,772 567,788 (413,818) (B) 4,202,742
---------- -------- ------ ----------- ----------
$4,315,115 $542,788 $ -0- $ (450,814) $4,407,089
Year ended December 31, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 204,347 $120,000 $ (29,358) (A) $ 294,989
Allowance for obsolescence of
expendable parts 4,202,742 737,208 4,939,950
---------- -------- ------ ----------- ----------
$4,407,089 $857,208 $ -0- $ (29,358) $5,234,939
Year ended December 31, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 294,989 $ 20,000 $ (171,785) (A) $ 143,204
Allowance for obsolescence of
expendable parts 4,939,950 470,725 (709,108) (C) 4,701,567
---------- -------- ------ ----------- ----------
$5,234,939 $490,725 $ -0- $ (880,893) $4,844,771
========== ======== ====== =========== ==========
</TABLE>
(A) Uncollectible Accounts charged off during the period.
(B) Obsolete parts charged off during the period.
(C) Parts which were sold were written off during the period.
-57-
<PAGE> 85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA HOLDINGS, INC.
Date: March 24, 1999 By: /s/ George F. Pickett
-----------------------------------------
George F. Pickett
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
-58-
<PAGE> 86
We, the undersigned officers and directors of ASA Holdings, Inc.,
hereby severally constitute George F. Pickett and John W. Beiser and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
any and all amendments to this report, and generally do all such things in our
name and behalf in such capacities to enable ASA Holdings, Inc. to comply with
the applicable provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities and Exchange Commission, and we hereby
ratify and confirm our signatures as they may be signed by our said attorneys,
or either of them, to any and all such amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the date indicated:
<TABLE>
<S> <C>
/s/ George F. Pickett
- --------------------------------------------
George F. Pickett, Chairman of the Board and March 24, 1999
Chief Executive Officer (Principal Executive
Officer) and Director
/s/ John W. Beiser March 24, 1999
- --------------------------------------------
John W. Beiser, President, Secretary and
Director
/s/ Ronald V. Sapp March 24, 1999
- --------------------------------------------
Ronald V. Sapp, Senior Vice President-
Finance (Principal Financial and Accounting
Officer)
/s/ George Berry March 24, 1999
- --------------------------------------------
George Berry, Director
/s/ Jean A. Mori March 24, 1999
- --------------------------------------------
Jean A. Mori, Director
/s/ Parker H. Petit March 24, 1999
- --------------------------------------------
Parker H. Petit, Director
/s/ Ralph W. Voorhees March 24, 1999
- --------------------------------------------
Ralph W. Voorhees, Director
/s/ Alan M. Voorhees March 24, 1999
- --------------------------------------------
Alan M. Voorhees, Director
</TABLE>
-59-
<PAGE> 87
EXHIBIT INDEX
Exhibit Number and Description
<TABLE>
<S> <C>
2 Agreement and Plan of Merger dated as of February 15, 1999, among
ASA Holdings, Inc., Delta Air Lines, Inc. and Delta Sub, Inc. (filed
as Exhibit 4 to the Company's Schedule 14D-9 dated February 22, 1999
(the "Schedule 14D-9") and incorporated herein by reference.)
3(a) Articles of Incorporation of the Registrant. (Incorporated by
reference to Exhibit 3(a) to the Registration Statement on Form S-4
[Registration No. 333-13071], as amended [the "Reorganization
Registration Statement"].)
3(b) Bylaws of the Registrant.
10.1 Stock Agreement dated as of March 17, 1997, between ASA Holdings,
ASA, Delta and Delta Holdings. (Incorporated by reference to Exhibit
10(a) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, file number 0-29558, filed with the
Commission on March 31, 1997.)
10.2 Delta Connection Agreement dated July 1, 1986, between ASA and Delta.
(Incorporated by reference to Exhibit 10(a) to Amendment No. 1 to
ASA's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, file number 0-29558, filed with the Commission on November
26, 1997.) Letter Agreement dated February 19, 1987 from Delta and
agreed to and accepted by ASA. (Incorporated by reference to Exhibit
10(b) to Amendment No. 1 to ASA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, file number 0-29558, filed with
the Commission on November 26, 1997.) Amendment to the Delta
Connection Agreement dated December 17, 1987, between Delta and ASA.
(Incorporated by reference to Exhibit 10(c) to Amendment No. 1 to
ASA's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, file number 0-29558, filed with the Commission on November
26, 1997.) Amendment to the Delta Connection Agreement effective July
1, 1988, between Delta and ASA. (Incorporated by reference to Exhibit
10(d) to Amendment No. 1 to ASA's Quarterly Report on
</TABLE>
-i-
<PAGE> 88
<TABLE>
<S> <C>
Form 10-Q for the quarter ended September 30, 1996, file number
0-29558, filed with the Commission on November 26, 1997.) Amendment to
the Delta Connection Agreement dated March 4, 1992, between Delta and
ASA. (Incorporated by reference to Exhibit 10(e) to Amendment No. 1 to
ASA's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, file number 0-29558, filed with the Commission on November
26, 1997.) Amendment to the Connection Carrier Agreement dated as of
August 1, 1994, between Delta and ASA. (Incorporated by reference to
Exhibit 10(f) to Amendment No. 1 to ASA's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, file number 0-29558,
filed with the Commission on November 26, 1997.) Confidential
treatment has been applied for with respect to certain provisions in
these exhibits.
10.3 Office Lease Agreement dated December 18, 1991, by and between ASA and
Trident Partners. (Incorporated by reference to Exhibit 10(q) to ASA's
Annual Report on Form 10-K for the year ended December 31, 1991, file
number 0-11097, filed with the Commission on March 27, 1992.)
10.4 Lease Agreement dated April 1, 1988, between ASA and Macon - Bibb
County Industrial Authority. (Incorporated by reference to Exhibit
10(k) to ASA's Annual Report on Form 10-K for the year ended December
31, 1992, file number 0-11097, filed with the Commission on March 31,
1993.)
10.5 Credit Agreement dated as of December 24, 1986, among ASA, ASA
Investments, and Manufacturers Hanover Leasing International Corp.,
American Security Bank, N.A., Barclays Bank PLC, B.S.F.E. - Banque de
la Societe Financiere Europeene, Canadian Imperial Bank of Commerce,
Citizens and Southern National Bank, Continental Illinois National
Bank and Trust Company of Chicago, Kawasaki Lease Financing Inc.,
National Bank of Canada, National Bank of Georgia and The Royal Bank
of Canada. (Incorporated by reference to Exhibit 10(f) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1991, file number
0-11097, filed with the Commission on March 27, 1992.) Amendment No. 1
dated as of February 20, 1987. (Incorporated by reference to Exhibit
10(f) to ASA's Annual Report on Form 10-K for the year ended December
31, 1992, file number 0-11097, filed with the Commission on March 31,
1993.) Amendment No. 2 dated as of May 23, 1989. (Incorporated by
reference to Exhibit 19(a) to ASA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989, file number 0-11097, filed with
the commission on November 11, 1989.) Amendment No. 3 dated as of
August 17, 1989. (Incorporated by reference to Exhibit 19(b) to ASA's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, file number 0-11097, filed with the Commission on November 11,
1989.) Fourth Amendment dated September 17, 1996. (Incorporated by
reference to Exhibit 10(f) to ASA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, file number 0-11097, filed with
the Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the Fourth
Amendment.
10.6 Single Payment Note, dated January 26, 1987, payable to SunTrust Bank.
(Incorporated by reference to Exhibit 10(g) to ASA's Annual Report on
Form 10-K for the year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992.)
</TABLE>
-ii-
<PAGE> 89
<TABLE>
<S> <C>
10.7 Credit Agreement dated as of April 23, 1987, among ASA, ASA
Investments, Inc., Manufacturers Hanover Leasing International Corp.,
Kawasaki Lease Financing, Inc. and Credit Lyonnais, Cayman Islands
Branch. (Incorporated by reference to Exhibit 10(i) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1991, file number
0-11097, filed with the Commission on March 27, 1992.) Amendment No. 1
dated as of May 23, 1989. (Incorporated by reference to Exhibit 19(c)
to ASA's Quarterly Report on Form 10-Q for the quarter ended September
30, 1989, file number 0-11097, filed with the Commission on November
11, 1989.) Second Amendment dated as of October 31, 1989.
(Incorporated by reference to Exhibit 10(s) to ASA's Annual Report on
Form 10-K for the year ended December 31, 1989, file number 0-11097,
filed with the Commission on March 30, 1990.) Third Amendment dated
September 17, 1996. (Incorporated by reference to Exhibit 10(h) to
ASA's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, file number 0-11097, filed with the Commission on November
14, 1996.) Confidential treatment has been applied for with respect to
certain provisions in the Third Amendment.
10.8 Credit Agreement dated June 15, 1990 between ASA and Bank of America
National Trust and Savings Association ("Bank of America").
(Incorporated by reference to Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, file
number 0-29558, filed with the Commission on March 31, 1997.) First
Amendment dated September 13, 1996 (Incorporated by reference to
Exhibit 10(j) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the First Amendment.
10.9 Credit Agreement dated December 1, 1990 between ASA and Wachovia Bank
of Georgia, N.A. ("Wachovia"). (Incorporated by reference to Exhibit
10(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, file number 0-29558, filed with the
Commission on March 31, 1997.) Amendatory Agreement dated July 6,
1993. Second Amendment dated September 13, 1996. (Incorporated by
reference to Exhibit 10(l) to ASA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, file number 0-11097, filed with
the Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the Second
Amendment.
10.10 Credit Agreement dated February 25, 1991 between ASA and Bank of
America. (Incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996, file number 0-29558, filed with the Commission on March 31,
1997.) First Amendment dated September 13, 1996. (Incorporated by
reference to Exhibit 10(n) to ASA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, file number 0-11097,
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filed with the Commission on November 14, 1996.) Confidential
treatment has been applied for with respect to certain provisions in
the First Amendment.
10.11 Credit Agreement dated April 19, 1991 between ASA and Wachovia.
(Incorporated by reference to Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, file
number 0-29558, filed with the Commission on March 31, 1997.) First
Amendment dated September 13, 1996. (Incorporated by reference to
Exhibit 10(p) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the First Amendment.
10.12 Credit Agreement dated June 1, 1992, among ASA, Wachovia, in both its
capacities as Lender and Agent, and the Bank of Tokyo - Mitsubishi,
LTD., Atlanta Agency f/k/a The Bank of Tokyo, Ltd., Atlanta Agency.
(Incorporated by reference to Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, file
number 0-29558, filed with the Commission on March 31, 1997.) First
Amendment dated September 13, 1996. (Incorporated by reference to
Exhibit 10(r) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the First Amendment.
10.13 Credit Agreement with Trust Company Bank dated as of April 20, 1994.
(Incorporated by reference to Exhibit 10(a) to ASA's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994, file number
0-11097, filed with the Commission on May 13, 1994.) Confidential
treatment has been granted by the Commission with respect to certain
provisions in this Credit Agreement. First Amendment dated September
11, 1996. (Incorporated by reference to Exhibit 10(t) to ASA's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1996, file number 0-11097, filed with the Commission on November
14, 1996.) Confidential treatment has been applied for with respect to
certain provisions in the First Amendment.
10.14 Aircraft Purchase Agreement dated August 27, 1990, between ASA and
Embraer - Empresa Brasileira de Aeronautica S.A. (Incorporated by
reference to Exhibit 10(t) to ASA's Annual Report on Form 10-K for the
year ended December 31, 1990, file number 0-11097, filed with the
Commission on March 29, 1991.) Confidential treatment has been granted
for with respect to certain provisions in this exhibit.
10.15 Purchase Agreement Assignment [N630AS] dated June 22, 1995; Purchase
Agreement Assignment [N631AS] dated June 22, 1995; Purchase Agreement
Assignment [N632AS] dated June 22, 1995; Purchase Agreement Assignment
[N633AS] dated June 22, 1995; Purchase Agreement Assignment [N634AS]
dated June 22, 1995;
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Purchase Agreement Assignment [N635AS] dated June 22, 1995; Purchase
Agreement Assignment [N636AS] dated June 22, 1995; and Purchase
Agreement Assignment [N637AS] dated June 22, 1995, all between the
Company and First Security Bank of Utah, N.A. (Incorporated by
reference to Exhibit 10(c) to ASA's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995.)
10.16 Aircraft Purchase Agreement dated as of April 15, 1993, between ASA
and Embraer-Empresa Brasileira de Aeronautica S.A., related Letter
Agreements (I), (II), and (III) dated as of April 15, 1993, and a
Second Amendment dated as of April 15, 1993, to a Letter Supplement
dated as of November 21, 1988. (Incorporated by reference to Exhibit
10(a) to ASA's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, file number 0-11097, filed with the Commission on
August 16, 1993.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10.17 Participation Agreement dated as of May 1, 1993 between the Company
and Antoine Finance Corporation. (Incorporated by reference to Exhibit
10(b) to ASA's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, file number 0-11097, filed with the Commission on
August 16, 1993.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10.18 Unconditional Guaranty of Performance between the Company and Avions
de Agreement between the Company and Avions de Transport Regional
dated February 10, 1993 and related letter agreements. (Incorporated
by reference to Exhibit 10(d) to ASA's quarterly report on Form 10-Q
for the quarter ended June 30, 1993, file number 0-11097, filed with
the Commission on August 16, 1993.)
10.19 Purchase Agreement Assignment No. 1 dated May 10, 1993, Purchase
Agreement Assignment No. 2 dated May 12, 1993, Purchase Agreement
Assignment No. 3 dated May 26, 1993, Purchase Agreement Assignment No.
4 dated June 16, 1993, Purchase Agreement Assignment No. 5 dated June
23, 1993, and Purchase Agreement Assignment No. 6 dated July 21, 1993,
all with respect to ATR 72 Purchase Agreement between the Company and
Avions de Transport Regional dated February 10, 1993 and related
letter agreements. (Incorporated by reference to Exhibit 10(e) to
ASA's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993, file number 0-11097, filed with the Commission on August 16,
1993.) Purchase Agreement Assignment No. 7 dated August 25, 1993,
Purchase Agreement Assignment No. 8 dated September 9, 1993, and
Purchase Agreement Assignment No. 9 dated September 23, 1993.
(Incorporated by reference to Exhibit 10(b) to ASA's quarterly report
on Form 10-Q for the quarter ended September 30, 1993, file number
0-11097, filed with the Commission on November 15, 1993.)
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10.20 Collateral Assignment of Purchase Agreement with Trust Company Bank
dated as of April 20, 1994 with respect to ATR 72 Purchase Agreement
between the Company and Avions de Transport Regional dated February
10, 1993. Incorporated by reference to Exhibit 10(b) to ASA's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
file number 0-11097, filed with the Commission on May 13, 1994.)
10.21 Sublease Agreement [N630AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N630AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N630AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N630AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(d) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.22 Sublease Agreement [N631AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N631AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N631AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N631AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(e) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.23 Sublease Agreement [N632AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N632AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N632AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N632AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(f) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.24 Sublease Agreement [N633AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N633AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N633AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N633AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(g) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
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10.25 Sublease Agreement [N634AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N634AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N634AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N634AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(h) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.26 Sublease Agreement [N635AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N635AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N635AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N635AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(i) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.27 Sublease Agreement [N636AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N636AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N636AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N636AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(j) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.28 Sublease Agreement [N637AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N637AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N637AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N637AS] dated June 22, 1995. (Incorporated by
reference to Exhibit 10(k) to ASA's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on February 23, 1996.) Confidential treatment has been
granted by the Commission with respect to certain provisions in this
exhibit.
10.29 Agreement to Lease Used British Aerospace 146 Series 200 Aircraft
between British Aerospace Holdings, Inc. Asset Management Organization
and the Company dated as of October 2, 1995. (Incorporated by
reference to Exhibit 10(ac) to ASA's Annual Report on Form 10-K for
the year ended December 31, 1995, file number 0-11097, filed with the
Commission on April 1, 1996.)
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10.30 JetSpares Agreement, dated as of October 2, 1995, between British
Aerospace Holdings, Inc., Avro International Aerospace Division, and
ASA. (Incorporated by reference to Exhibit 10(ad) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1995, file number
0-11097, filed with the Commission on April 1, 1996.)
10.31 Engine Maintenance Cost Protection Program Agreement between
AlliedSignal, Inc., AlliedSignal Engines and the Company dated as of
October 2, 1995. (Incorporated by reference to Exhibit 10(ae) to ASA's
Annual Report on Form 10-K for the year ended December 31, 1995, file
number 0-11097, filed with the Commission on April 1, 1996.)
10.32 Customer Support Agreement (ALF 502 Series TurboFan Engines)
between AlliedSignal Aerospace-Engine Division and the Company dated
as of October 2, 1995. (Incorporated by reference to Exhibit 10(af) to
ASA's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, file number 0-11097, filed with the Commission on April 1,
1996.)
10.33 1990 Stock Appreciation Rights Plan of Atlantic Southeast Airlines,
Inc. (Incorporated by reference to Exhibit 19(a) to ASA's Quarterly
Report for the quarter ended June 30, 1990, file number 0-11097, filed
with the Commission on August 13, 1990.)*
10.34 Atlantic Southeast Airlines, Inc. Executive Deferred Compensation
(Retirement) Plan dated May 15, 1990. (Incorporated by reference to
Exhibit 19(b) to ASA's Quarterly Report for the quarter ended June 30,
1990, file number 0-11097, filed with the Commission on August 13,
1990.) First Amendment to Executive Deferred Compensation (Retirement)
Plan dated December 31, 1992. (Incorporated by reference to Exhibit
10(s) to ASA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, file number 0-11097, filed with the Commission on
March 31, 1993.)*
10.35 Atlantic Southeast Airlines, Inc. Supplemental Executive Retirement
Plan effective May 24, 1995. (Incorporated by reference to Exhibit
10(a) to ASA's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
August 14, 1995.)*
10.36 Bombardier Purchase Agreement No. P.A.-0372 and related Letter
Agreements. (Incorporated by reference to Exhibit 10(a) of the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1997, file number 0-29558, filed with the Commission on August 14,
1997.) Confidential treatment has been applied for with respect to
certain provisions in these exhibits.
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10.37 ASA Holdings, Inc. 1997 Nonqualified Stock Option Plan (filed as
Appendix A to the Company's Proxy Statement for the 1997 Annual
Meeting of Shareholders and incorporated herein by reference.)*
10.38 ASA Holdings, Inc. 1998 Nonqualified Stock Option Plan for
Non-Employee Directors (filed as Appendix A to the Company's Proxy
Statement for the 1998 Annual Meeting of Shareholders and incorporated
herein by reference.)*
10.39.1 Credit Agreement dated as of June 26, 1998 by and among ASA Holdings,
Inc., the Lenders named therein and NationsBank, N.A., as Issuing Bank
and Administrative Agent (the "1998 Credit Agreement") (filed as
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30,1998 and incorporated herein by reference.)
10.39.2 First Amendment dated as of March 22, 1999 to 1998 Credit Agreement.
10.40 First Amendment dated September 3, 1998 to Purchase Agreement No.
P.A. - 0372 dated April 17, 1997 between Bombardier Inc. and Atlantic
Southeast Airlines, Inc., and related letter agreements. Confidential
treatment has been applied for with respect to certain provisions in
this exhibit (filed as Exhibit 10(a) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 and incorporated
herein by reference.)
10.41 Purchase Agreement No. P.A. - 0430 dated September 3, 1998 between
Bombardier Inc. and Atlantic Southeast Airlines, Inc., and related
letter agreements. Confidential treatment has been applied for with
respect to certain provisions in this exhibit (filed as Exhibit 10(b)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference.)
10.42 Memorandum Agreement (with respect to employment and consulting),
dated as of February 15, 1999, among George F. Pickett, ASA Holdings,
Inc. and Delta Air Lines, Inc. (filed as Exhibit 7 to the Company's
Schedule 14D-9 and incorporated herein by reference.)*
10.43 Memorandum Agreement (with respect to employment and consulting),
dated as of February 15, 1999, among John W. Beiser, ASA Holdings,
Inc. and Delta Air Lines, Inc. (filed as Exhibit 8 to the Company's
Schedule 14D-9 and incorporated herein by reference.)*
10.44 The Company Special Severance Plan (filed as Exhibit 9 to the
Company's Schedule 14D-9 and incorporated herein by reference.)*
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10.45 Form of Retention Agreement between the Company and Ronald V. Sapp
dated as of February 15, 1999 (filed as Exhibit 10 to the Company's
Schedule 14D-9 and incorporated herein by reference.)*
10.46 Form of Retention Agreement between the Company and Edward J.
Paquette dated as of February 15, 1999 (filed as Exhibit 11 to the
Company's Schedule 14D-9 and incorporated herein by reference.)*
10.47 Amendment to the Company 1997 Nonqualified Stock Option Plan (filed as
Exhibit 12 to the Company's Schedule 14D-9 and incorporated herein by
reference.)*
10.48 Second Restatement and Amendment By the Entirety of and Third
Amendment to the Atlantic Southeast Airlines, Inc. Executive Deferred
Compensation (Retirement) Plan (filed as Exhibit 13 to the Company's
Schedule 14D-9 and incorporated herein by reference.)*
10.49 Stock Agreement among Delta Air Lines, Inc., Atlantic Southeast
Airlines, Inc. and the Company dated as of March 17, 1997 (filed as
Exhibit 14 to the Company's Schedule 14D-9 and incorporated herein by
reference.)
10.50 Form of Indemnity Agreement of Executive Officer (filed as Exhibit 15
to the Company's Schedule 14D-9 and incorporated herein by
reference.)*
10.51 Form of Indemnity Agreement of Director (filed as Exhibit 16 to the
Company's Schedule 14D-9 and incorporated herein by reference.)*
10.52 Amended and Restated Founding Officer Agreement among George F.
Pickett, Atlantic Southeast Airlines, Inc. and the Company dated as of
April 16, 1997 and amended as of February 15, 1999 (filed as Exhibit
17 to the Company's Schedule 14D-9 and incorporated herein by
reference.)*
10.53 Amended and Restated Founding Officer Agreement among John W. Beiser,
Atlantic Southeast Airlines, Inc. and the Company dated as of April
16, 1997 and amended as of February 15, 1999 (filed as Exhibit 18 to
the Company's Schedule 14D-9 and incorporated herein by reference.)*
10.54 Confidentiality Agreement between Delta and the Company dated as of
February 9, 1999 (filed as Exhibit 19 to the Company's Schedule 14D-9
and incorporated herein by reference.)
10.55 Second Amendment to the Company's Supplemental Executive Retirement
Plan (filed as Exhibit 20 to the Company's Schedule 14D-9 and
incorporated herein by reference.)*
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21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (Included on the signature page of this Form 10-K.)
27 Financial Data Schedule.
99 Information required by Form 11-K with respect to the Atlantic
Southeast Airlines, Inc. Investment Savings Plan will be filed as an
amendment to this Form 10-K within 180 days after the end of the
fiscal year of the plan as permitted by Rule 15d-21 under the
Securities Exchange Act of 1934.
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* The referenced exhibit is a compensatory contract, plan or
arrangement.
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