<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SKYWEST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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UTAH 87-0292166
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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BRADFORD R. RICH
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
SKYWEST, INC.
444 SOUTH RIVER ROAD
ST. GEORGE, UTAH 84790
(435) 634-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR
SERVICE)
COPIES TO:
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RICHARD G. BROWN, ESQ. JOHN J. KELLEY III, ESQ.
BRIAN G. LLOYD, ESQ. KING & SPALDING
PARR, WADDOUPS, BROWN, GEE & LOVELESS 191 PEACHTREE STREET
185 SOUTH STATE STREET, SUITE 1300 ATLANTA, GEORGIA 30303-1763
SALT LAKE CITY, UTAH 84111 (404) 572-4600
(801) 532-7840
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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=================================================================================================================
PROPOSED
TITLE OF EACH CLASS PROPOSED MAXIMUM MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
Common Stock, no par
value.................. 1,610,000 $31.0625 $50,010,625 $14,753
=================================================================================================================
</TABLE>
(1) Includes 210,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee, based on the average of the high and low sales prices for
the Common Stock, as reported on the Nasdaq National Market, on January 14,
1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1998
1,400,000 SHARES
[LOGO]
COMMON STOCK
------------------------
All of the 1,400,000 shares of Common Stock (the "Common Stock") of
SkyWest, Inc. (the "Company") offered hereby are being sold by the Company. The
Common Stock is quoted on the Nasdaq National Market under the symbol "SKYW." On
January 20, 1998, the last sale price of the Common Stock reported on the Nasdaq
National Market was $36.875 per share. See "Price Range of Common Stock and
Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share....................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
=============================================================================================================
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated to be
$350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
210,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered and accepted by them, subject
to their right to reject orders, in whole or in part, and to certain other
conditions. It is expected that delivery of certificates representing the Common
Stock will be made on or about , 1998.
THE ROBINSON-HUMPHREY COMPANY SBC WARBURG DILLON READ INC.
, 1998
<PAGE> 3
[THREE MAPS IDENTIFYING ROUTES SERVED BY SKYWEST AIRLINES, INC.]
SkyWest Airlines, Inc. operates as the Delta Connection(R) in Salt Lake
City and Los Angeles, as United Express(R) in Los Angeles and as the Continental
Connection(TM) in selected California markets, providing scheduled air service
to 46 cities in 12 western states and Canada. On January 19, 1998, SkyWest
executed an agreement to operate as United Express at United's San Francisco
hub, beginning June 1, 1998.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE-COVERING TRANSACTIONS, SHORT-COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus and in the
documents and financial statements incorporated by reference herein. The
"Company" refers to SkyWest, Inc. and its subsidiaries, SkyWest Airlines, Inc.
("SkyWest"), Scenic Airlines, Inc. ("Scenic") and National Parks Transportation,
Inc. ("NPT"). Unless otherwise noted, the information in this Prospectus does
not give effect to the exercise of the Underwriters' over-allotment option. The
Company's fiscal year ends on March 31. The term "fiscal 1997" refers to the
Company's fiscal year ended on March 31, 1997.
THE COMPANY
SkyWest operates a regional airline offering scheduled passenger service
primarily in the western United States. SkyWest has been a code-sharing partner
with Delta Air Lines, Inc. ("Delta") and Continental Airlines, Inc.
("Continental") since 1987 and 1995, respectively. Effective October 1, 1997,
SkyWest expanded its operations through a code-sharing agreement with United
Airlines, Inc. ("United"). SkyWest offers a convenient schedule and frequent
flights designed to maximize connecting and local traffic. Operating primarily
from its hubs in Salt Lake City and Los Angeles, SkyWest serves 46 cities in 12
states and Canada with approximately 580 daily flights. In Salt Lake City and
Los Angeles, SkyWest is the largest regional airline with market shares of
passengers enplaned of 99% and 33%, respectively. SkyWest operates as the Delta
Connection in Salt Lake City and Los Angeles, as United Express in Los Angeles
and as the Continental Connection in selected California markets. On January 19,
1998, SkyWest executed an addendum to its agreement with United, expanding
SkyWest's United Express operations to include approximately 168 daily flights
connecting twelve California markets with United's San Francisco hub beginning
June 1, 1998. To support operations at the San Francisco hub, SkyWest expects to
acquire 17 additional aircraft and spend approximately $12 million for related
ground and maintenance facilities, support equipment and spare parts inventory.
SkyWest operates one of the youngest fleets in the airline industry,
consisting of fifty 30-seat Embraer EMB-120 Brasilia turbo-prop aircraft
("Brasilias") with an average age of 4.4 years and ten 50-seat Canadair Regional
Jets ("CRJs") with an average age of 3.1 years. In December 1996, SkyWest
completed a strategic transition out of the 19-seat Fairchild Metroliner III
("Metroliner") turbo-prop aircraft, which reduced the number of aircraft types
operated by SkyWest from three to two. The transition enabled SkyWest to upgrade
to an all cabin-class fleet of larger aircraft with higher operating
efficiencies and greater passenger acceptance. "Cabin-class" aircraft offer
stand-up headroom, overhead and under-seat storage, lavatories and flight
attendant service.
The addition of United as a code-sharing partner and the completion of
SkyWest's transition to an all cabin-class fleet, together with other factors,
contributed to the Company's achievement of record consolidated operating
revenues and net income for the nine months ended December 31, 1997.
Consolidated operating revenues increased 7.4% to $225.7 million from $210.0
million and net income increased 91.9% to $17.3 million from $9.0 million for
the nine months ended December 31, 1997 and 1996, respectively.
The key elements of SkyWest's business strategy are:
- Capitalize on Relationships with Code-Sharing Partners. Historically,
SkyWest's growth has been assisted by the development of code-sharing agreements
with Delta, United and Continental. SkyWest views the recent addition of United
as a code-sharing partner as a significant opportunity to further increase its
traffic and profitability by serving United's Los Angeles and San Francisco hubs
and to develop code-sharing relationships in other hubs served by United.
SkyWest works closely with its code-sharing partners to expand service to
existing markets, open new markets and schedule frequent, convenient and
profitable flights. SkyWest believes that the principal reason it has attracted
multiple code-sharing partners is its delivery of high-quality, reliable
service. SkyWest's competitive fares and ability to offer passengers
participation in the frequent flyer programs of Delta, United and Continental
are attractive incentives for passengers to fly on SkyWest. SkyWest also
believes that multiple code-sharing agreements with major carriers diversifies
operating risk by reducing reliance on a single major carrier.
3
<PAGE> 5
- Expand Fleet Size and Increase Utilization to Serve New and Existing
Markets. SkyWest seeks to expand and more efficiently utilize its Brasilia and
CRJ aircraft to serve existing and new, profitable markets. SkyWest believes
that Brasilias are most efficiently used on shorter stage lengths to provide
frequent and convenient service. For example, as SkyWest commenced service as
United Express in Los Angeles in October 1997, Brasilias were shifted from less
efficient, non-hub based routes to more efficient Los Angeles hub and spoke
routes connecting with SkyWest's code-sharing partners. SkyWest's expanded role
as United Express in San Francisco will require the addition of 17 Brasilias by
June 1, 1998. CRJs are utilized on longer routes to supplement existing service
by major carriers, to replace larger jets on routes where service is
discontinued by major carriers, to replace SkyWest's Brasilias as markets grow,
and to develop new markets. SkyWest believes its utilization of CRJs is among
the highest of all regional carriers operating CRJs.
- Increase Profitability. SkyWest focuses on increasing profitability
through maximizing revenues per available seat mile ("RASM") and minimizing
costs per available seat mile ("CASM"). Revenues are maximized by delivery of
reliable, on-time flights, excellent customer service, efficient utilization of
a revenue management system and the development of profitable code-sharing
relationships. SkyWest uses its recently acquired state-of-the-art revenue
management system to analyze markets and booking patterns and assist in
scheduling and seat inventory management to maximize revenues. The Company
believes SkyWest's development of multiple code-sharing relationships has
resulted in increased revenues without a proportionate increase in costs. A
Company-wide emphasis on cost management and more efficient utilization of
existing resources, together with the completed transition from three to two
aircraft types, has resulted in lower overhead and lower unit costs while
maintaining excellent customer service. CASM has declined in each fiscal year
since 1993 and decreased from 16.2c for the nine months ended December 31, 1996
to 15.8c for the nine months ended December 31, 1997. These reductions in CASM
have been achieved notwithstanding a decline in stage lengths as Brasilias have
been shifted to shorter hub and spoke routes to increase utilization.
- Provide Excellent Customer Service. SkyWest believes its insistence on
excellent customer service in every aspect of its operations (including
personnel, flight equipment, in-flight amenities, baggage handling and on-time
performance and flight completion ratios) has increased customer loyalty.
SkyWest also believes that excellent customer service is largely responsible for
its multiple code-sharing relationships as Delta, United and Continental seek to
build customer loyalty and preference by partnering with high-quality regional
carriers. SkyWest completed its transition to an all cabin-class fleet in
December 1996, in part to provide larger, more comfortable aircraft for its
passengers. SkyWest believes that, for the nine months ended December 31, 1997,
its on-time performance ratio and flight completion ratio were the highest of
all regional airlines at 95.5% and 98.5%, respectively. SkyWest has achieved
these performance measures by operating one of the youngest fleets in the
airline industry and continuing its commitment to high quality maintenance.
ADDITIONAL BUSINESSES
The Company is also engaged in other transportation-related businesses
through two wholly-owned subsidiaries. Scenic provides air tours and general
aviation services to the Grand Canyon and other scenic regions of northern
Arizona, southern Utah and southern Nevada. Scenic operates 41 aircraft,
including 18 specially modified VistaLiner sight-seeing airplanes. NPT provides
car rental services through a fleet of Avis vehicles located at six airports
served by SkyWest. During the nine months ended December 31, 1997, Scenic and
NPT generated combined revenues of $27.9 million, representing 12.4% of the
Company's consolidated revenues for the period.
The principal executive offices of the Company are located at 444 South
River Road, St. George, Utah 84790, and the Company's telephone number is (435)
634-3000.
4
<PAGE> 6
THE OFFERING
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Common Stock offered by the Company..................... 1,400,000 Shares
Common Stock to be outstanding after the offering....... 11,717,152 Shares(1)
Use of proceeds......................................... For expansion of operations, including the
acquisition of additional aircraft and
related spare parts, support equipment and
ground and maintenance facilities, and for
general corporate purposes.
Nasdaq National Market symbol........................... SKYW
</TABLE>
- ---------------
(1) Excludes 583,865 shares of Common Stock reserved for issuance upon exercise
of outstanding stock options and 287,195 shares of Common Stock available
for the future grant of stock options under the Company's stock option plans
at January 16, 1998 .
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
FORWARD-LOOKING STATEMENTS
This Prospectus contains various forward-looking statements and information
that are based on management's belief, as well as assumptions made by and
information currently available to management. When used in this document, the
words "anticipate," "estimate," "project," "expect," and similar expressions are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
key factors that may have a direct bearing on the Company's operating results
are the risks and uncertainties described under "Risk Factors," including, among
other things, changes in SkyWest's code-sharing relationships, fluctuations in
the economy and the demand for air travel, the degree and nature of competition
and SkyWest's ability to expand services in new and existing markets and to
maintain profit margins in the face of pricing pressures.
PROPRIETARY MARKS
Delta(R), Delta Connection(R) and The Delta Connection(R) are trademarks of
Delta Air Lines, Inc. United(R) and United Express(R)are trademarks of United
Airlines, Inc. Continental(R) and Continental Connection(TM) are trademarks of
Continental Airlines, Inc.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND AIRLINE OPERATING DATA)
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NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
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CONSOLIDATED STATEMENTS OF
INCOME DATA:
Operating revenues(1)......... $ 146,800 $ 182,908 $ 218,075 $ 245,520 $ 278,110 $ 210,039 $ 225,683
Operating income.............. 11,465 24,680 20,341 5,710(2) 15,417 13,941 26,703
Net income.................... 6,704 14,396 13,701 4,366(2) 10,111 9,003 17,277
Net income per common
share(3):
Basic....................... $ 0.85 $ 1.46 $ 1.23 $ 0.42(2) $ 1.00 $ 0.89 $ 1.70
Diluted..................... 0.83 1.43 1.22 0.42(2) 1.00 0.89 1.68
OTHER FINANCIAL DATA:
EBITDAR(4).................... $ 39,057 $ 56,325 $ 63,932 $ 57,725(2) $ 75,419 $ 59,436 $ 73,120
AIRLINE OPERATING DATA(5):
Passengers carried............ 1,523,384 1,730,993 2,073,885 2,340,366 2,656,602 1,986,371 2,228,741
Revenue passenger miles
(000)....................... 294,276 345,414 488,901 617,136 717,322 540,043 567,437
Available seat miles (000).... 669,724 727,059 976,095 1,254,334 1,413,170 1,053,935 1,113,486
Passenger load factor......... 43.9% 47.5% 50.1% 49.2% 50.8% 51.2% 51.0%
Breakeven load factor......... 41.1% 41.2% 45.5% 48.4% 47.9% 48.2% 45.2%
Yield per revenue
passenger mile.............. 45.0c 43.9c 36.3c 33.2c 33.3c 32.9c 34.2c
Revenue per available seat
mile........................ 20.5c 21.6c 18.8c 16.9c 17.3c 17.3c 17.8c
Cost per available seat
mile........................ 19.1c 18.8c 17.1c 16.6c 16.3c 16.2c 15.8c
Average passenger trip
length...................... 193 200 236 264 270 272 255
Number of aircraft (end of
period):
Embraer Brasilia............ 19 23 28 35 50 47 50
Canadair Regional Jet....... - 4 6 10 10 10 10
Fairchild Metroliner III.... 31 28 26 18 - 5 -
-- -- -- -- -- -- --
Total aircraft.......... 50 55 60 63 60 62 60
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AS OF DECEMBER 31, 1997
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AS
ACTUAL ADJUSTED(6)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 68,730 $117,295
Property and equipment, net............................... 140,297 140,297
Total assets.............................................. 260,933 309,498
Long-term debt, less current maturities................... 51,248 51,248
Stockholders' equity...................................... 142,541 191,106
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(1) Reflects the reclassification of non-airline commissions expense against
non-airline operating revenues.
(2) Includes $6.2 million of pre-tax fleet restructuring and transition expenses
related to the replacement of the Metroliner turbo-prop aircraft.
(3) Reflects restated net income per common share amounts as required by
Statement of Financial Accounting Standards No. 128.
(4) EBITDAR represents earnings before interest, income taxes, depreciation,
amortization and aircraft rents.
(5) Excludes the operations of Scenic and NPT. For definitions of the airline
operating terms used in this table, see "Selected Consolidated Financial and
Operating Data."
(6) Adjusted to reflect the sale of the 1,400,000 shares offered hereby at an
assumed price of $36.875 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Company.
DEPENDENCE ON CODE-SHARING RELATIONSHIPS
SkyWest is dependent on relationships created by code-sharing agreements
with Delta, United and Continental (the "Code-Sharing Agreements") for a
substantial portion of its business. Under SkyWest's Code-Sharing Agreement with
Delta (the "Delta Agreement"), Delta is not prohibited from competing on routes
served by SkyWest. The term of the Delta Agreement continues until April 2002,
but is subject to termination in various circumstances including 180 days'
notice by either party for any or no reason; provided, however, that Delta may
not terminate the Delta Agreement prior to April 1999, except for cause, as
defined in the Delta Agreement. The term of SkyWest's Code-Sharing Agreement
with United (the "United Express Agreement") is for five years ending in
September 2002 for Los Angeles operations and ten years ending in May 2008 for
San Francisco operations, subject to termination by United upon 180 days' prior
notice. United may, however, terminate the United Express Agreement for cause
upon 30 days' written notice. Any material modification to or termination of the
Code-Sharing Agreements, any substantial decrease in the number of routes served
by SkyWest or SkyWest's code-sharing partners at hubs served by SkyWest or the
occurrence of any event adversely affecting either of Delta or United generally
could have a material adverse effect on the Company. See
"Business -- Code-Sharing Agreements."
ABILITY TO IMPLEMENT EXPANSION
The Company's principal growth strategy is to expand SkyWest's operations
to support the operations of its code-sharing partners. Such expansion, which
will likely consist of entry into new markets and development of existing
markets, will require additional aircraft and facilities for passenger
ticketing, check-in and boarding and aircraft maintenance and storage,
additional rights to use gates in the markets to be served by SkyWest and
additional personnel. In particular, SkyWest recently announced its intention to
expand its operations to include service as a United Express carrier at United's
San Francisco hub, which, if implemented, would require the acquisition of 17
additional Brasilias, the acquisition of additional maintenance facilities, the
employment of more than 475 additional employees (consisting of approximately
200 pilots and flight attendants, 50 maintenance personnel and 225 customer
service personnel) and the integration of those aircraft, facilities and
employees into SkyWest's existing operations. There can be no assurance that
SkyWest can profitably integrate this growth. The Company presently estimates
that the cost of acquiring the additional ground and maintenance facilities,
support equipment and spare parts inventory required for the San Francisco
expansion will be approximately $12 million. There is no assurance that the
Company will be able to obtain the financing or the facilities, aircraft, gates
and personnel required in connection with its proposed expansion on a timely
basis. The failure to obtain such financing or such aircraft, facilities, gates
or personnel could adversely affect the Company's financial condition and
results of operations. Due to the limited market for purchase of Brasilia
aircraft and facilities, among other factors, there can be no assurance that the
Company's current estimates of the costs associated with its proposed expansion
will be accurate. Any material deviation in the actual costs from the Company's
current estimates could adversely affect the Company's financial condition or
results of operations. In addition, part of the Company's growth strategy is to
expand its code-sharing relationships into other hubs served by United. There
can be no assurance, however, that such opportunities will arise or that the
Company will be able to execute profitably such expansion. SkyWest is also
likely to face intense competition from regional airlines currently serving the
markets into which SkyWest desires to expand. Accordingly, there can be no
assurance that the Company will be able to implement its growth strategy or that
implementation of its growth strategy will enhance its operations and
profitability. See "Business -- Business Strategy."
7
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DEPENDENCE ON LIMITED NUMBER OF AIRCRAFT TYPES
SkyWest's fleet consists of 50 Brasilias and ten CRJs. During the three
months ended, December 31, 1997, 56% of SkyWest's available seat miles were
generated by Brasilias and 44% were generated by CRJs. The Company's operations
could be materially adversely affected by, among other factors, (i) the failure
or inability of Embraer-Empresa Brasileira de Aeronautica S.A. (in the case of
Brasilias) or Bombardier, Inc. (in the case of CRJs) to provide additional
aircraft, parts or related support services on a timely basis, (ii) the
interruption of fleet service as a result of unscheduled or unanticipated
maintenance requirements, (iii) the issuance of Federal Aviation Administration
("FAA") directives restricting the use of a particular aircraft type in the
fleet or (iv) the adverse public perception of an aircraft type as a result of
an accident or other adverse publicity. See "Business -- Flight Equipment."
FUEL COSTS AND AVAILABILITY
One of the Company's principal cost components is fuel. At SkyWest's
current rate of consumption, for every one cent increase in the price of fuel,
SkyWest's annual operating expenses increase by approximately $350,000. Both the
cost and the availability of fuel are subject to many economic and political
factors and events occurring throughout the world. The Company has no agreement
with any fuel supplier assuring the availability or price of fuel, nor has the
Company entered into any hedging transactions to assure the price of fuel.
SkyWest's ability to pass on increased fuel costs through fare increases may be
limited by several factors, including, without limitation, economic and
competitive conditions. Accordingly, the future cost and availability of fuel to
the Company cannot be predicted and substantial fuel cost increases, the
unavailability of adequate supplies or increases in federal fuel taxes could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business -- Competition and Economic Conditions."
OPERATING LEVERAGE
As is characteristic of the airline industry, the Company is subject to a
high degree of operating leverage. The revenues generated from a particular
flight vary directly with the number of passengers carried and the fare
structure of the flight. However, since fixed costs comprise a high proportion
of the operating costs of each flight, the expenses of each flight do not vary
proportionately with the number of passengers carried. Accordingly, any
sustained decrease in the number of passengers carried or increase in operating
costs that is not offset by higher fares could have a material adverse effect on
the Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FINANCIAL LEVERAGE
As of December 31, 1997, the Company had outstanding $59.7 million in
long-term debt, requiring debt service payments of $12.2 million in fiscal 1998,
and future minimum payments under long term operating leases of $457.4 million,
requiring rental payments of $42.9 million in fiscal 1998. The Company's
long-term debt and operating leases require significant periodic cash payments
and there can be no assurance that the Company's operations will generate
sufficient cash flow to make such payments. The Company's financial leverage may
impair its ability to obtain or increase the cost of obtaining additional
financing, may make the Company more vulnerable to the cyclical and seasonal
nature of the airline industry, may restrict the Company's ability to exploit
new business opportunities and may limit the Company's flexibility in responding
to changing business conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
COMPETITION
The airline industry is highly competitive. Federal deregulation of the
airline industry allows competitors to rapidly enter a market and quickly
discount and restructure fares. The airline industry is particularly susceptible
to price discounting because airlines incur only nominal costs to provide
service to passengers occupying otherwise unsold seats. The introduction of
deeply discounted fares by competing carriers on routes
8
<PAGE> 10
served by SkyWest or connected to one of SkyWest's hubs or the introduction of
service into competitors' hubs could have an adverse impact upon the Company's
financial condition or results of operations.
SkyWest not only competes with other regional airlines, some of which are
owned by or are operated as code-sharing partners of major airlines, but also
faces competition from major airline carriers on certain routes. Competition in
the southern California markets, which are serviced by SkyWest from its Los
Angeles hub, is particularly intense with a large number of competing carriers.
Many of SkyWest's competitors are larger and have significantly greater
financial and other resources than SkyWest. There can be no assurance that
additional carriers will not offer competing services on SkyWest's existing or
future routes. See "Business -- Competition and Economic Conditions."
GENERAL ECONOMIC CONDITIONS, CYCLICALITY AND SEASONALITY
Generally, the airline industry is highly sensitive to economic conditions,
in large part due to the discretionary nature of a substantial percentage of
both business and leisure travel. In the past many airlines, including SkyWest,
have reported decreased earnings or substantial losses resulting from periods of
economic recession, heavy fare discounting and other factors. Economic downturns
combined with competitive pressures have contributed to a number of bankruptcies
and liquidations among major and regional carriers. Negative economic conditions
may have a material adverse effect on regional airlines, including SkyWest.
Historically, the Company has experienced lower revenue and earnings during
the second half of its fiscal year. SkyWest's earnings have declined on a
seasonal basis due to several factors including decreased business travel during
the holiday season and inclement weather. In addition, a large percentage of
Scenic's passengers are tourists visiting the Las Vegas and Grand Canyon areas
during the summer months. See "Business -- Competition and Economic Conditions."
REGULATION
The Company is subject to regulation by the U.S. Department of
Transportation (the "DOT"), the FAA and certain other governmental agencies.
Regulations promulgated by the DOT relate primarily to economic aspects of air
service. The FAA principally regulates flight operations and safety matters
relating to air service. In addition the Company is subject to certain other
federal and state laws relating to protection of the environment, radio
communications, labor relations, equal employment opportunity and other matters.
The DOT and the FAA, as well as other governmental agencies regulating the
Company, enforce their regulations through, among other mechanisms, (i)
certifications, which are necessary for the Company's continued operations, and
(ii) administrative proceedings, which can result in civil or criminal penalties
or revocation of operating authority.
The FAA can also issue maintenance directives and other mandatory orders
relating to, among other things, inspection of aircraft, installation of new
safety-related items and the mandatory removal and replacement of aircraft parts
that the FAA believes might present a safety hazard. Such directives or orders
could increase significantly the cost of airline operations.
The Company incurs substantial costs in maintaining its current
certifications and otherwise complying with the laws, rules and regulations to
which it is subject. Although the Company has all certifications it believes to
be necessary for its continued operation and believes that it is in compliance
with all requirements currently necessary to maintain in good standing such
certifications, it cannot predict whether it will be able to comply with all
present and future laws, rules, regulations and certification requirements or
that the cost of continued compliance will not have a material adverse effect on
the Company. See "Business -- Regulation."
BRAZILIAN DEFAULT RISK
In connection with SkyWest's acquisition of substantially all of its
Brasilia aircraft, the Company has obtained the right to receive subsidy
payments through an export support program sponsored by the Federative Republic
of Brazil. The amount of these subsidies, which are offered by the Brazilian
government as an economic incentive to purchasers of the Brazilian-made Embraer
aircraft and are currently payable through
9
<PAGE> 11
December 2006, fluctuates based upon the number and age of the Brasilia aircraft
eligible for subsidy payments. The subsidies currently represent approximately
$6 million in annual credits against the Company's interest and aircraft rental
expense related to Brasilia purchases. The subsidies would be jeopardized if the
Brazilian government failed to meet its obligations under the export support
program. From time to time, the Brazilian government has experienced economic
conditions which have impaired the creditworthiness of such governmental
obligations. Any termination or significant interruption of the Brazilian
subsidy payments, which could occur for a number of reasons including the
failure of the Brazilian government to meet its obligations under its export
support program, could have a material adverse effect on the Company's financial
condition or results of operations. There can be no assurance that a default
will not occur under the Brazilian export support program.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the Nasdaq National Market, and its trading
price has fluctuated over a broad range. See "Price Range of Common Stock and
Dividends." The trading price of the Common Stock could continue to fluctuate
widely in response to variations in quarterly operating and financial results,
announcements by the Company or its competitors, industry trends, legislative or
regulatory changes, general economic conditions or other events or factors. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies.
DIVIDENDS
Historically, the Company has paid dividends in varying amounts on its
Common Stock. See "Price Range of Common Stock and Dividends." The future
payment and amount of cash dividends will depend upon the Company's financial
condition and results of operations, loan covenants and other factors deemed
relevant by the Company's Board of Directors. There can be no assurance that the
Company will continue its policy of paying dividends on the Common Stock or that
the Company will have the financial resources to pay such dividends.
LABOR RELATIONS
From time to time, the Company, which does not currently have any employees
represented by labor unions, becomes aware of collective bargaining
organizational efforts among its employees. The Company recognizes that such
efforts will likely continue in the future and may ultimately result in some or
all of its employees being represented by a union. If such efforts are
successful, the Company may be subjected to risks of work interruption or
stoppage and incur additional expenses associated with union representation of
its employees. In connection with SkyWest's proposed expansion to northern
California, it anticipates that it will hire at least 475 additional employees,
many of whom may be represented by a union in their current employment.
DELTA OPTION AGREEMENT
Under the terms of a Stock Option Agreement executed by the Company and
Delta concurrently with the Delta Agreement (the "Delta Option Agreement"),
Delta acquired shares of Common Stock, which currently represent approximately
15.1% of the outstanding Common Stock (13.3% after giving effect to the issuance
of the shares offered hereby), certain preemptive rights and registration rights
with respect to the Common Stock owned by Delta and certain rights to
representation on the Company's Board of Directors. Delta's rights under the
Delta Option Agreement may permit Delta to influence the management and policies
of the Company, and Delta's ownership of shares of Common Stock may give it the
ability to affect the outcome of matters submitted to a vote of the Company's
shareholders. See "Description of Capital Stock -- Common Stock" and "-- Board
of Directors."
10
<PAGE> 12
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Articles of Incorporation and
Bylaws, including provisions authorizing the issuance of Preferred Stock from
time to time without stockholder approval, may have the effect of delaying or
preventing a change in control of the Company and may adversely affect the
voting and other rights of the holders of Common Stock. In addition, the
provisions of the Utah Control Shares Acquisition Act may discourage persons or
entities interested in acquiring a significant interest in or control of the
Company. See "Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,400,000 shares of Common Stock offered hereby, after deducting underwriting
discounts and offering expenses, are estimated to be approximately $48.6 million
($55.9 million if the Underwriters' over-allotment option is exercised in full).
The Company currently intends to use the net proceeds of the offering for
expansion of operations, including the acquisition of additional aircraft and
related spare parts, support equipment and ground facilities, and for other
general corporate purposes. Based upon circumstances existing immediately prior
to each aircraft acquisition, management will determine whether to purchase such
aircraft with a portion of the net proceeds from the offering or to finance the
acquisition of such aircraft through long-term loans or lease arrangements. The
Company believes the expenses of obtaining such loans or leases may be reduced
and the availability of such loans or leases may be facilitated by the increase
in stockholders' equity resulting from this offering. In connection with
SkyWest's planned expansion as the United Express carrier at United's San
Francisco hub, the Company estimates that the cost of acquiring the additional
ground and maintenance facilities, support equipment and spare parts inventory
required for the planned expansion will be approximately $12 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pending specific use, the net proceeds will be invested in short-term,
investment grade, interest-bearing securities.
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SKYW." The following table sets forth, for the periods indicated, the high and
low sale prices per share for the Common Stock, as reported by the Nasdaq
National Market, and the cash dividends declared by the Company.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
FISCAL 1996:
Quarter ended June 30, 1995................... $23.50 $14.13 $0.17
Quarter ended September 30, 1995.............. 25.38 17.00 --
Quarter ended December 31, 1995............... 19.75 12.88 0.08
Quarter ended March 31, 1996.................. 14.75 12.38 --
FISCAL 1997:
Quarter ended June 30, 1996................... $20.75 $12.88 $0.08
Quarter ended September 30, 1996.............. 18.38 14.00 0.05
Quarter ended December 31, 1996............... 15.88 12.38 0.05
Quarter ending March 31, 1997................. 14.75 11.75 0.05
FISCAL 1998:
Quarter ended June 30, 1997................... $17.38 $12.00 $0.05
Quarter ended September 30, 1997.............. 21.00 15.25 0.05
Quarter ended December 31, 1997............... 30.13 19.75 0.05
Quarter ending March 31, 1998 (through January
20, 1998).................................. 37.00 28.25 --
</TABLE>
The closing sale price of the Common Stock, as reported by the Nasdaq
National Market, on January 20, 1998 was $36.875 per share. As of January 16,
1998, the number of shares of Common Stock outstanding was 10,317,152 shares,
held by approximately 1,100 stockholders of record, which does not include
shares held in securities position listings.
The Company has historically paid cash dividends on its Common Stock. In
August 1996, the Company revised its dividend policy from paying a regular
annual dividend, supplemented by special quarterly dividends paid from time to
time, to a policy of paying a regular quarterly cash dividend of $0.05 per
share. The future payment and amount of cash dividends will depend upon the
Company's financial condition and results of operations, applicable loan
covenants and other factors deemed relevant by the Company's Board of Directors.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at December 31, 1997, and as adjusted to give effect to the sale of the
1,400,000 shares of Common Stock offered hereby at an assumed offering price of
$36.875 per share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds." The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus or incorporated herein by
reference.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt(1)........................ $ 8,429 $ 8,429
======== ========
Long-term debt(1)........................................... $ 51,248 $ 51,248
-------- --------
Stockholders' equity:
Preferred Stock, no par value; 5,000,000 shares
authorized, none outstanding........................... -- --
Common Stock, no par value; 40,000,000 shares authorized,
10,300,953 shares outstanding; 11,700,953 shares
outstanding, as adjusted(2)............................ 71,107 119,672
Retained earnings......................................... 71,434 71,434
-------- --------
Total stockholders' equity............................. 142,541 191,106
-------- --------
Total capitalization................................... $193,789 $242,354
======== ========
</TABLE>
- ---------------
(1) As of December 31, 1997, SkyWest had financed 44 of its aircraft and certain
of its airport and maintenance facilities through operating leases. See Note
4 of the Company's Notes to Consolidated Financial Statements incorporated
herein by reference.
(2) Excludes 600,064 shares issuable upon exercise of outstanding stock options
granted by the Company at a weighted average exercise price of $17.15 per
share and 287,195 shares available for the future grant of shares of Common
Stock upon the exercise of stock options under the Company's stock option
plans. See Note 5 of the Company's Notes to Consolidated Financial
Statements incorporated herein by reference.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and airline
operating data with respect to the Company for the periods indicated. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein. See
"Incorporation of Certain Information by Reference." The selected consolidated
financial data as of and for each of the fiscal years ended March 31, 1993
through 1997 have been derived from the Consolidated Financial Statements of the
Company, which statements have been audited by Arthur Andersen LLP, independent
public accountants. The selected consolidated financial data as of and for the
nine months ended December 31, 1996 and 1997 have been derived from the
unaudited Consolidated Financial Statements of the Company which, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information contained therein. Data
for the nine months ended December 31, 1997 are not necessarily indicative of
results to be expected for the fiscal year ending March 31, 1998. The Other
Financial Data and Airline Operating Data set forth below are unaudited.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA(1):
Operating revenues:
Passenger..................... $ 132,430 $ 151,699 $ 177,588 $ 205,034 $ 239,222 $ 177,768 $ 193,783
Freight....................... 2,573 3,099 3,802 4,291 4,174 3,120 3,099
Public service and other...... 2,067 2,411 2,401 2,159 1,243 980 852
Nonairline.................... 9,730 25,699 34,284 34,036 33,471 28,171 27,949
---------- ---------- ----------- ----------- ----------- ----------- -----------
Total operating
revenues............... 146,800 182,908 218,075 245,520 278,110 210,039 225,683
---------- ---------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Flying operations............. 51,421 52,256 68,135 85,117 101,689 75,536 78,550
Aircraft, traffic and
passenger service........... 22,230 22,621 28,218 32,522 37,044 27,234 28,464
Maintenance................... 21,804 21,853 25,530 28,713 29,149 21,594 21,721
Promotion and sales........... 15,072 16,527 20,369 25,965 29,606 22,155 20,307
Depreciation and
amortization................ 7,478 8,967 11,896 15,392 18,481 13,644 14,169
General and administrative.... 8,954 12,306 11,605 11,962 12,577 9,320 11,006
Fleet restructuring and
transition.................. -- -- -- 6,247 -- -- --
Nonairline.................... 8,376 23,698 31,981 33,892 34,147 26,615 24,763
---------- ---------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 135,335 158,228 197,734 239,810 262,693 196,098 198,980
---------- ---------- ----------- ----------- ----------- ----------- -----------
Operating income................ 11,465 24,680 20,341 5,710 15,417 13,941 26,703
---------- ---------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense.............. (1,410) (1,978) (1,100) (2,163) (2,431) (1,507) (2,037)
Interest income............... 445 1,069 2,826 2,707 2,481 1,853 2,681
Gain on sales of property and
equipment................... 43 74 173 556 1,113 339 541
---------- ---------- ----------- ----------- ----------- ----------- -----------
Total other income
(expense).............. (922) (835) 1,899 1,100 1,163 685 1,185
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes.................. 10,543 23,845 22,240 6,810 16,580 14,626 27,888
Provision for income taxes...... 3,839 9,449 8,539 2,444 6,469 5,623 10,611
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income........................ $ 6,704 $ 14,396 $ 13,701 $ 4,366 $ 10,111 $ 9,003 $ 17,277
========== ========== =========== =========== =========== =========== ===========
Net income per common share(2):
Basic........................... $ 0.85 $ 1.46 $ 1.23 $ 0.42 $ 1.00 $ 0.89 $ 1.70
Diluted......................... 0.83 1.43 1.22 0.42 1.00 0.89 1.68
Weighted average common shares
outstanding(2):
Basic........................... 7,927 9,883 11,112 10,284 10,085 10,073 10,179
Diluted......................... 8,061 10,063 11,214 10,368 10,124 10,104 10,297
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT AIRLINE OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDAR(3)........................... $ 39,057 $ 56,325 $ 63,932 $ 57,725 $ 75,419 $ 59,436 $ 73,120
AIRLINE OPERATING DATA(4):
Passengers carried................... 1,523,384 1,730,993 2,073,885 2,340,366 2,656,602 1,986,371 2,228,741
Revenue passenger miles (000)(5)..... 294,276 345,414 488,901 617,136 717,322 540,043 567,437
Available seat miles (000)(6)........ 669,724 727,059 976,095 1,254,334 1,413,170 1,053,935 1,113,486
Passenger load factor(7)............. 43.9% 47.5% 50.1% 49.2% 50.8% 51.2% 51.0%
Breakeven load factor(8)............. 41.1% 41.2% 45.5% 48.4% 47.9% 48.2% 45.2%
Yield per revenue passenger
mile(9)............................ 45.0c 43.9c 36.3c 33.2c 33.3c 32.9c 34.2c
Revenue per available seat
mile(10)........................... 20.5c 21.6c 18.8c 16.9c 17.3c 17.3c 17.8c
Cost per available seat mile(11)..... 19.1c 18.8c 17.1c 16.6c 16.3c 16.2c 15.8c
Average passenger trip length........ 193 200 236 264 270 272 255
Number of aircraft (end of
period)(12):
Embraer Brasilia................... 19 23 28 35 50 47 50
Canadair Regional Jet.............. - 4 6 10 10 10 10
Fairchild Metroliner III........... 31 28 26 18 - 5 -
-- -- -- -- -- -- --
Total aircraft................ 50 55 60 63 60 62 60
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 12,334 $ 66,615 $ 46,039 $ 32,818 $ 45,273 $ 40,670 $ 68,730
Property and equipment, net.......... 56,458 89,962 110,241 145,071 137,743 142,129 140,297
Total assets......................... 86,945 184,017 188,182 227,550 232,898 232,680 260,933
Long-term debt, less current
maturities......................... 18,391 26,647 29,553 53,736 47,337 48,907 51,248
Stockholders' equity................. 42,766 122,788 117,684 115,800 124,552 123,753 142,541
</TABLE>
- ---------------
(1) Reflects the reclassification of nonairline commissions expense against
non-airline operating revenues.
(2) Reflects restated net income per common share amounts and weighted average
common shares outstanding as required by Statement of Financial Accounting
Standards No. 128.
(3) EBITDAR represents earnings before interest, income taxes, depreciation,
amortization and aircraft rents. EBITDAR is a widely accepted financial
indicator of a company's ability to incur and service debt. However,
EBITDAR should not be considered in isolation, as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(4) Excludes the operations of Scenic and NPT.
(5) Revenue passengers multiplied by miles flown.
(6) Passenger seats available multiplied by miles flown.
(7) Revenue passenger miles divided by available seat miles.
(8) Passenger load factor at which total airline operating revenues equals
total airline operating expenses, including interest expense. Calculated by
dividing airline operating expenses and interest expense by airline
operating revenues and multiplying the result by passenger load factor.
(9) Passenger revenues divided by revenue passenger miles flown.
(10) Airline operating revenues divided by available seat miles.
(11) Airline operating expenses and interest expense divided by available seat
miles.
(12) Of the 60 aircraft operated by SkyWest at December 31, 1997, 44 were
financed through operating leases.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, through SkyWest, operates a regional airline offering
scheduled passenger service with approximately 580 daily departures to 46 cities
in 12 western states and Canada. Total operating revenues and passengers carried
have grown consistently from fiscal 1993 through fiscal 1997, at compound annual
growth rates of approximately 17% and 15%, respectively. In fiscal 1993, SkyWest
generated approximately 670 million available seat miles ("ASMs") with its fleet
of thirty-one 19-seat Metroliners and nineteen 30-seat Brasilias at fiscal year
end. As a result of the introduction of the 50-seat CRJs beginning in fiscal
1994, the expansion of the Brasilia fleet and the strategic transition out of
the Metroliner aircraft as of December 1996, SkyWest generated approximately 1.4
billion ASMs in fiscal 1997 with a fleet of 50 Brasilias and 10 CRJs at fiscal
year end. This transition out of the Metroliner aircraft enabled SkyWest to
upgrade its aircraft to an all cabin-class fleet of Brasilias and CRJs, which
offer increased passenger acceptance and capacity and higher operating
efficiencies. This transition resulted in one-time pre-tax fleet restructuring
and transition expenses of $6.2 million, or $0.38 per share, in fiscal 1996.
In fiscal 1997, the Company generated net income of $10.1 million, compared
to $4.4 million in fiscal 1996. The Company's profitability has continued to
improve in fiscal 1998 with net income for the nine months ended December 31,
1997 increasing 91.9% to $17.3 million from $9.0 million in the prior year
period. The improvement since fiscal 1996 reflects, among other factors, the
addition of United as a code-sharing partner and the completion of SkyWest's
transition to an all cabin-class fleet.
SkyWest has been a code-sharing partner with Delta and Continental since
1987 and 1995, respectively. SkyWest recently expanded its code-sharing
relationships to include United effective October 1, 1997. SkyWest operates as
the Delta Connection in Salt Lake City and Los Angeles, as United Express in Los
Angeles and as the Continental Connection in selected California markets.
SkyWest has executed an addendum to the United Express Agreement, expanding
SkyWest's operations to serve as the United Express carrier in San Francisco
beginning June 1, 1998. SkyWest believes that its success in attracting multiple
code-sharing relationships is attributable to its delivery of high quality
customer service with an all cabin-class fleet.
Multiple code-sharing relationships have enabled SkyWest to reduce reliance
on any single major airline code and to enhance and stabilize operating results
through a mix of SkyWest-controlled flying and United Express contract flying.
On the majority of flights currently operated by SkyWest (74% during the quarter
ended December 31, 1997), SkyWest controls scheduling, ticketing, pricing and
seat inventories and receives a prorated portion of passenger fares. On United
Express contract routes, United controls scheduling, ticketing, pricing and seat
inventories with SkyWest receiving from United negotiated minimum payments per
flight departure and incentives related to passenger volumes and levels of
customer service. For the quarter ended December 31, 1997, 69% of the Company's
capacity was generated in the Delta and Continental codes and 31% in the United
code, while 74% was SkyWest-controlled flying and 26% was contract flying. As a
result of SkyWest's planned San Francisco expansion, management expects that the
percentages of SkyWest capacity in the United code and in contract flying will
increase.
The Company has continued to emphasize cost management and better
utilization of existing resources. During the period from fiscal 1993 through
fiscal 1997, cost per ASM decreased from 19.1c to 16.3c. For the nine months
ended December 31, 1997, cost per ASM decreased further to 15.8c. This reduction
was due primarily to the introduction of the CRJs, which offer lower unit
operating costs on longer stage lengths. In addition, the transition to an
all-Brasilia turbo-prop fleet has resulted in fewer flight interruptions and
lower maintenance costs. Furthermore, increased employee productivity has
enabled the Company to grow with few additional employees, except for flight
crews to operate the larger Embraer and CRJ aircraft.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth information regarding the Company's
operating expense components. Airline operating expenses are expressed as a
percentage of total airline operating revenues. Nonairline expenses are
expressed as a percentage of nonairline revenues. Total operating expenses and
interest are expressed as a percentage of total consolidated revenues.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------
1995 1996 1997
--------------------------- --------------------------- ---------------------------
PERCENT CENTS PERCENT CENTS PERCENT CENTS
OF PER OF PER OF PER
AMOUNT REVENUES ASM AMOUNT REVENUES ASM AMOUNT REVENUES ASM
-------- -------- ----- -------- -------- ----- -------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and employee
benefits...................... $ 49,684 27.0% 5.1c $ 56,005 26.5% 4.5c $ 60,759 24.8% 4.3c
Aircraft expenses.............. 35,355 19.2 3.6 43,009 20.3 3.4 49,822 20.4 3.5
Maintenance.................... 18,350 10.0 1.9 20,779 9.8 1.7 20,929 8.6 1.4
Fuel........................... 16,625 9.0 1.7 23,084 10.9 1.8 30,713 12.6 2.2
Other.......................... 45,742 24.9 4.7 56,794 26.9 4.5 66,323 27.0 4.7
Interest....................... 1,086 0.6 0.1 2,160 1.0 0.2 2,431 1.0 0.2
Fleet restructuring and
transition expenses........... -- -- -- 6,247 3.0 0.5 -- -- --
-------- -- ---- -------- -- ---- -------- --- ----
Total airline expenses and
interest...................... 166,842 90.7 17.1c 208,078 98.4 16.6c 230,977 94.4 16.3c
==== ==== ====
Nonairline expenses and
interest...................... 31,992 93.3 33,895 99.6 34,147 102.0
-------- -------- --------
Total operating expenses and
interest...................... $198,834 91.2% $241,973 98.6% $265,124 95.3%
======== ======== ========
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1997
--------------------------- ---------------------------
PERCENT CENTS PERCENT CENTS
OF PER OF PER
AMOUNT REVENUES ASM AMOUNT REVENUES ASM
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Salaries, wages and employee
benefits...................... $ 45,144 24.8% 4.3c $ 49,866 25.2% 4.5c
Aircraft expenses.............. 36,781 20.2 3.5 39,127 19.8 3.5
Maintenance.................... 15,481 8.5 1.5 15,163 7.7 1.4
Fuel........................... 22,640 12.4 2.1 22,176 11.2 2.0
Other.......................... 49,438 27.2 4.7 47,884 24.2 4.3
Interest....................... 1,507 0.8 0.1 1,354 0.7 0.1
Fleet restructuring and
transition expenses........... -- -- -- -- -- --
-------- -- ---- -------- -- ----
Total airline expenses and
interest...................... 170,991 94.0 16.2c 175,570 88.8 15.8c
==== ====
Nonairline expenses and
interest...................... 26,615 94.5 25,447 91.0
-------- --------
Total operating expenses and
interest...................... $197,606 94.1% $201,017 89.1%
======== ========
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1996
For the nine months ended December 31, 1997, SkyWest enplaned a record
number of passengers and the Company reported record consolidated net income of
$17.3 million, or $1.68 diluted net income per share, compared to net income of
$9.0 million, or $0.89 per share, for the nine months ended December 31, 1996.
Consolidated operating revenues increased 7.4% to a record $225.7 million for
the nine months ended December 31, 1997, compared to $210.0 million for the
comparable period in 1996.
Passenger revenues, which represented 85.9% of total consolidated operating
revenues, increased 9.0% to $193.8 million for the nine months ended December
31, 1997, compared to $177.8 million or 84.6% of total consolidated operating
revenues for the nine months ended December 31, 1996. The increase resulted
primarily from a 5.1% increase in RPMs as well as a 4.0% increase in yield per
RPM. SkyWest entered into a new code-sharing relationship with United and began
operating as United Express in Los Angeles beginning October 1, 1997. This
operation has resulted in both increased RPMs and increased yield per RPM. The
increased yield per RPM also resulted from an increase in SkyWest's portion of
prorated fares with Delta in certain markets. Additionally, SkyWest acquired a
new state-of-the-art revenue management and control system which utilizes
historical booking data and trends to optimize revenue. The combination of these
factors was principally responsible for an increase in revenue per ASM to 17.8c
for the nine months ended December 31, 1997, compared to 17.3c for the same
period of 1996.
Management has continued its efforts to reduce airline operating costs per
ASM and as a percentage of airline operating revenues. For the nine months ended
December 31, 1997, total airline expenses and interest were 88.8% of airline
operating revenues compared to 94.0% for the nine months ended December 31,
1996.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 25.2% for the nine months ended December 31, 1997, from
24.8% for the nine months ended December 31, 1996. The average number of
full-time equivalent employees for the nine months ended December 31, 1997, was
1,916 compared to 1,847 for the nine months ended December 31, 1996. The
increase in number of personnel was due to hiring flight attendants and customer
service personnel to support increased operations. Salaries, wages and employee
benefits per ASM increased slightly to 4.5c for the nine months ended December
31, 1997, compared to 4.3c for the nine months ended December 31, 1996, due
primarily to increased employee incentives and profit sharing.
17
<PAGE> 19
Aircraft expenses, including aircraft rent and depreciation, decreased as a
percentage of airline operating revenues to 19.8% for the nine months ended
December 31, 1997, from 20.2% for the nine months ended December 31, 1996.
Aircraft costs per ASM were consistent at 3.5c for the nine months ended
December 31, 1997 and 1996.
Maintenance expense decreased as a percentage of airline operating revenues
to 7.7% for the nine months ended December 31, 1997, from 8.5% for the nine
months ended December 31, 1996. This decrease resulted primarily from the
acquisition and utilization of 15 new Brasilia aircraft, which are more
efficient than Metroliner aircraft. Maintenance expense per ASM decreased
slightly to 1.4c for the nine months ended December 31, 1997, from 1.5c for the
nine months ended December 31, 1996.
Fuel expenses decreased as a percentage of airline operating revenues to
11.2% for the nine months ended December 31, 1997, from 12.4% for the nine
months ended December 31, 1996, due primarily to a decrease in the average fuel
price per gallon to $0.85 from $0.94. Fuel costs per ASM decreased to 2.0c for
the nine months ended December 31, 1997, from 2.1c for the nine months ended
December 31, 1996.
Other expenses, consisting primarily of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
decreased as a percentage of airline operating revenues to 24.2% for the nine
months ended December 31, 1997, from 27.2% for the nine months ended December
31, 1996. The decrease is due primarily to SkyWest not incurring certain
commissions on contract-related passenger revenues.
Nonairline revenues, generated from the operations of Scenic and NPT,
decreased 0.8% to $27.9 million for the nine months ended December 31, 1997 from
$28.2 million for the nine months ended December 31, 1996. Nonairline expenses
and interest decreased 4.4% to $25.4 million for the nine months ended December
31, 1997, compared to $26.6 million for the nine months ended December 31, 1996.
The decrease was primarily due to implementation of cost control measures and
the restructuring of the financing of flight equipment and facilities.
FISCAL 1997 COMPARED TO FISCAL 1996
Consolidated operating revenues increased 13.3% to a record $278.1 million
in fiscal 1997 compared to $245.5 million in fiscal 1996. SkyWest also
experienced continued growth in passenger enplanements, RPMs and ASMs during
fiscal 1997 compared to fiscal 1996. Consolidated net income increased to $10.1
million, or $1.00 diluted net income per share, in fiscal 1997, compared to net
income of $4.4 million, or $0.42 per share, in fiscal 1996. The fiscal 1996
results include pre-tax fleet restructuring and transition expenses of $6.2
million, or $0.38 per share, resulting from a fleet rationalization plan related
to a restructuring of SkyWest's turbo-prop fleet.
Passenger revenues, which represented 86.0% of total operating revenues,
increased 16.7% to $239.2 million in fiscal 1997 from $205.0 million in fiscal
1996. The increase was primarily due to a 16.2% increase in RPMs, while yield
per RPM remained relatively constant at 33.3c in fiscal 1997 compared to 33.2c
in fiscal 1996. The increase in RPMs was due to a 20.3% increase in ASMs
generated by CRJs, which were used to provide service from Salt Lake City to
destinations such as San Francisco, California, Pasco, Washington and Colorado
Springs, Colorado. Additionally, SkyWest acquired 15 new Brasilia aircraft to
replace the 18 remaining Metroliner aircraft as their leases expired or were
terminated as part of the fleet rationalization program. These aircraft fleet
additions and changes resulted in a 12.7% increase in ASMs. The growth in RPMs
exceeded the growth in ASMs and resulted in a passenger load factor of 50.8% in
fiscal 1997 compared to 49.2% in fiscal 1996. As a result of the increased
passenger load factor and a 0.3% increase in yield per RPM, revenue per ASM
increased 2.4% to 17.3c in fiscal 1997 from 16.9c in fiscal 1996.
Total airline operating expenses and interest were 94.4% of airline
operating revenues in fiscal 1997 compared to 98.4% in fiscal 1996. Exclusive of
the one-time charge related to the fleet restructuring and transition from
Metroliner to Brasilia aircraft recorded in fiscal 1996, total airline operating
expenses and interest, as a percentage of airline operating revenues, decreased
to 94.4% in fiscal 1997 from 95.4% in fiscal 1996. This percentage decrease was
due to a 16.7% growth rate in passenger revenues compared to a 14.4%
18
<PAGE> 20
increase in operating expenses and interest. The 14.4% increase in operating
expenses and interest was exclusive of the one-time fleet restructuring and
transition expense recorded in fiscal 1996. Airline operating costs per ASM
decreased to 16.3c in fiscal 1997 from 16.6c in fiscal 1996. Exclusive of the
one-time fleet restructuring and transition expense, airline operating costs per
ASM would have been 16.1c for fiscal 1996. The slight increase in cost per ASM
in fiscal 1997 was primarily due to increased fuel costs.
Salaries, wages and employee benefits decreased as a percentage of airline
operating revenues to 24.8% in fiscal 1997 from 26.5% in fiscal 1996. The
decrease was primarily due to airline operating revenues increasing at a faster
rate than employee related expenses. The average number of employees was 1,852
for fiscal 1997 compared to 1,753 for fiscal 1996. The increase was primarily
due to the addition of flight attendants for new Brasilia aircraft. Salaries,
wages and employee benefits per ASM decreased to 4.3c in fiscal 1997 from 4.5c
in fiscal 1996.
Aircraft expenses, including aircraft rent and depreciation, increased
slightly as a percentage of airline operating revenues to 20.4% in fiscal 1997
from 20.3% in fiscal 1996, as a result of the fleet transition to Brasilia
aircraft. Aircraft expenses per ASM were 3.5c in fiscal 1997, as compared to
3.4c in fiscal 1996.
Maintenance expense decreased slightly as a percentage of airline operating
revenues to 8.6% in fiscal 1997 from 9.8% in fiscal 1996. Maintenance cost per
ASM decreased to 1.4c in fiscal 1997 from 1.7c in fiscal 1996 due to the
efficiency of additional new Brasilia aircraft.
Fuel expenses increased as a percentage of airline operating revenues to
12.6% in fiscal 1997 compared to 10.9% in fiscal 1996. The increase was
primarily due to an 18.8% increase in the average fuel price per gallon to $0.95
in fiscal 1997 from $0.80 in fiscal 1996. As a result, fuel costs per ASM
increased to 2.2c in fiscal 1997 from 1.8c in fiscal 1996.
Other expenses, which consist primarily of commissions, landing fees,
station rents, computer reservation systems and hull and liability insurance,
increased as a percentage of airline operating revenues to 27.0% in fiscal 1997
compared to 26.9% in fiscal 1996. The increase was due primarily to rate
increases in customer reservation systems booking fees. In addition, SkyWest
experienced rate increases in landing fees and general passenger handling
charges. Interest expense as a percentage of airline operating revenues was 1.0%
in fiscal 1997 and fiscal 1996.
Nonairline revenues decreased 1.7% to $33.5 million in fiscal 1997 compared
to $34.0 million in fiscal 1996. The decrease was due to decreased passenger
enplanements in fiscal 1997. Nonairline expenses increased 0.8% to $34.1 million
for fiscal 1997 compared to $33.9 million for fiscal 1996. The slight increase
was due primarily to increased fuel costs.
FISCAL 1996 COMPARED TO FISCAL 1995
SkyWest experienced continued growth in RPMs, ASMs, and passenger
enplanements during fiscal 1996 compared to fiscal 1995. Consolidated operating
revenues increased 12.6% to a record $245.5 million in fiscal 1996 compared to
$218.1 million in fiscal 1995. Consolidated net income decreased to $4.4
million, or $0.42 diluted net income per share, in fiscal 1996, compared to net
income of $13.7 million, or $1.22 per share, in fiscal 1995. The fiscal 1996
results included a pre-tax fleet restructuring and transition expense of $6.2
million, or $0.38 per share, resulting from a fleet rationalization plan that
related to a restructuring of SkyWest's turbo-prop fleet. The $6.2 million fleet
restructuring and transition expense primarily represented crew-related costs
associated with the discontinuance of Metroliner aircraft operations as well as
accelerated maintenance costs associated with the early termination of
Metroliner leases. The amount consisted of $2.4 million of costs incurred in
fiscal 1996 and an accrual for $3.8 million of fiscal 1997 restructuring costs.
The fleet rationalization plan resulted in an all Brasilia turbo-prop fleet and
was completed by December 1996.
Passenger revenues, which represented 83.5% of total operating revenues,
increased 15.5% to $205.0 million in fiscal 1996 from $177.6 million in fiscal
1995. The increase was due to a 26.2% increase in RPMs offset by an 8.5%
decrease in yield per RPM to 33.2c in fiscal 1996 from 36.3c in fiscal 1995. The
increase in RPMs was due to the addition of four new CRJs and seven new
Brasilias, which replaced eight Metroliners as leases expired or were terminated
as part of the fleet rationalization program. These aircraft fleet additions and
19
<PAGE> 21
changes resulted in a 28.5% increase in ASMs. The growth in ASMs exceeded the
growth in RPMs and resulted in a decrease in passenger load factor to 49.2% in
fiscal 1996 from 50.1% in fiscal 1995. Although the passenger load factor was
only down 0.9 points and in spite of a strong trend of growth in demand
exceeding growth in capacity during the fourth quarter, passenger enplanements
did not meet management's expectation during the first nine months due to the
following factors: (i) growing reluctance of airline passengers to book flights
on Metroliner aircraft which do not have cabin-class amenities, (ii) the
schedule restructuring by Delta at the Los Angeles hub, which significantly
reduced daily departures commencing in May 1995, thereby reducing SkyWest's
connection opportunities, (iii) the impact of indirect competition from low-fare
carriers and (iv) a continuing reluctance of travel agents to book passengers on
the Delta system after Delta instigated commission caps in the spring of 1995 as
well as commission overrides being offered by SkyWest's competitors.
Yield per revenue passenger mile decreased 8.5% to 33.2c in fiscal 1996
compared to 36.3c in fiscal 1995. The decrease was due to an 11.9% increase in
the average passenger trip length resulting from growing regional jet
operations. The 8.5% decrease in yield coupled with a lower passenger load
factor resulted in a decrease in revenue per ASM to 16.9c in fiscal 1996
compared to 18.8c in fiscal 1995.
Total airline operating expenses and interest were 98.4% of airline
operating revenues in fiscal 1996 compared to 90.7% in fiscal 1995. This
percentage increase was due to passenger enplanements not meeting expectations
which resulted in passenger revenues falling short of internal plans as well as
the airline incurring one-time fleet restructuring and transition expenses.
Exclusive of one-time fleet restructuring and transition expenses, total airline
operating expenses increased 21.0% for fiscal 1996 over fiscal 1995, while ASMs
increased 28.5%. Due to the continuing fleet rationalization program, management
has continued to reduce airline operating costs per ASM. Airline operating costs
per ASM decreased to 16.6c in fiscal 1996 from 17.1c in fiscal 1995. Exclusive
of the one-time fleet restructuring and transition expenses, airline operating
costs per ASM would have been 16.1c for fiscal 1996.
Salaries, wages and employee benefits decreased as a percentage of airline
operating revenues to 26.5% in fiscal 1996 from 27.0% in fiscal 1995. The
decrease was primarily due to lower employee incentive payments resulting from
the decrease in profitability for fiscal 1996 compared to fiscal 1995. The
average number of full-time equivalent employees was 1,753 for 1996 compared to
1,760 for fiscal 1995. Salaries, wages and employee benefits per ASM decreased
to 4.5c in fiscal 1996 from 5.1c in fiscal 1995.
Aircraft expenses, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 20.3% in fiscal 1996 from 19.2% in
fiscal 1995. This percentage increased as a result of the utilization of
additional Brasilia and CRJ aircraft as well as passenger traffic falling short
of management's expectations, resulting in lower operating revenues. Aircraft
costs per ASM decreased slightly to 3.5c in fiscal 1996 from 3.6c in fiscal
1995.
Maintenance expense decreased slightly as a percentage of airline operating
revenues to 9.8% in fiscal 1996 from 10.0% in fiscal 1995. Maintenance cost per
ASM decreased to 1.6c in fiscal 1996 from 1.9c in fiscal 1995, primarily due to
the increased ASMs generated from operations.
Fuel expenses increased as a percentage of airline operating revenues to
10.9% in fiscal 1996 compared to 9.0% in fiscal 1995. The increase was primarily
due to an increase in the average fuel price per gallon to $0.80 in fiscal 1996
from $0.74 in fiscal 1995. As a result, fuel costs per ASM increased slightly to
1.8c in fiscal 1996 from 1.7c in fiscal 1995.
Other expenses, which consist primarily of commissions, landing fees,
station rents, computer reservation systems and hull and liability insurance,
increased as a percentage of airline operating revenues to 26.9% in fiscal 1996
compared to 24.9% in fiscal 1995. The increase was primarily due to significant
rate increases in customer reservation systems booking fees. In addition,
SkyWest experienced rate increases in landing fees and general passenger
handling charges. Interest expense increased as a percentage of airline
operating revenues to 1.0% in fiscal 1996 from 0.6% in fiscal 1995. The increase
was due to an increase in debt financings of new Brasilia aircraft.
20
<PAGE> 22
Nonairline revenues decreased 0.7% to $34.0 million in fiscal 1996 from
$34.3 million in fiscal 1995. Nonairline net income decreased to $0.4 million in
fiscal 1996 from $1.6 million in fiscal 1995. The decreases were primarily due
to the following factors: (i) a decrease in overall tourist traffic in the Grand
Canyon/Las Vegas market, (ii) the impact of low-fare competition and (iii)
Scenic's difficulty in differentiating its premium touring packages from low
price transportation alternatives. Nonairline expenses increased 6.0% to $33.9
million for fiscal 1996 compared to $32.0 million for fiscal 1995. The increase
was primarily attributable to increased fuel costs.
SEASONALITY
As is common in its industry, the Company's operations are favorably
affected by increased travel historically occurring in the summer months and are
unfavorably affected by decreased business travel during the months from
November through January and by inclement weather which occasionally results in
cancelled flights principally during the winter months. However, the Company
does expect some mitigation of the historical seasonal trends due to an increase
in the portion of its operations in contract flying with United. Scenic's
business is also seasonal in nature. A large percentage of Scenic's passengers
are tourists visiting the Las Vegas and Grand Canyon areas during the summer
months.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly financial and operating
data for the periods indicated:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
------------------------------------------ -------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1997 1997 1997 1997
-------- --------- -------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............... $ 70,569 $ 75,819 $ 63,651 $ 68,071 $ 72,115 $ 80,302 $ 73,266
Operating income (loss).......... 7,678 7,999 (1,736) 1,476 6,703 12,248 7,752
Net income (loss)................ 4,834 4,990 (821) 1,108 4,345 7,510 5,422
Net income (loss) per common
share:
Basic.......................... $ 0.48 $ 0.50 $ (0.08) $ 0.11 $ 0.43 $ 0.74 $ 0.53
Diluted........................ 0.48 0.49 (0.08) 0.11 0.43 0.73 0.52
Revenue passenger miles (000s)... 179,647 188,161 172,235 177,279 189,040 195,752 182,645
Available seat miles (000s)...... 344,454 358,437 351,044 359,235 372,901 377,448 363,137
Passenger load factor............ 52.2% 52.5% 49.1% 49.3% 50.7% 51.9% 50.3%
Yield per revenue passenger
mile........................... 33.2c 33.2c 32.3c 34.7c 32.5c 34.2c 35.8c
Revenue per available seat
mile........................... 17.7c 17.8c 16.2c 17.5c 16.9c 18.1c 18.3c
Cost per available seat mile..... 16.0c 16.2c 16.4c 16.7c 15.4c 15.8c 16.1c
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $68.7 million and a current ratio of
2.4:1 at December 31, 1997, compared to working capital of $45.3 million and a
current ratio of 2.0:1 at March 31, 1997. During the first nine months of fiscal
1998, the Company invested $17.3 million in flight equipment, $7.5 million in
buildings, ground equipment and other fixed assets, reduced long-term debt by
$5.6 million and paid cash dividends of $1.5 million. The principal sources of
cash during the first nine months of fiscal 1998 were $45.8 million provided by
operating activities, $11.5 million of proceeds from long-term debt and $7.3
million from the sale of marketable securities, property and equipment, and the
issuance of common stock resulting from exercises of employee stock options.
These factors resulted in a $32.6 million increase in cash and cash equivalents
from $37.8 million as of March 31, 1997 to $70.4 million as of December 31,
1997.
SkyWest has options to acquire ten additional Brasilias and ten additional
CRJs at fixed prices (subject to cost escalation and delivery schedules). The
Brasilia options are exercisable through fiscal 1999 and the CRJ options are
exercisable at any time with no expiration.
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<PAGE> 23
In connection with SkyWest's expansion into San Francisco, SkyWest expects
to acquire an additional 17 Brasilias. Depending upon the outcome of current
aircraft acquisition negotiations, SkyWest expects to acquire a combination of
new and used Brasilias. The deliveries are expected to be scheduled between
February and June 1998. The Company also anticipates that SkyWest will incur
costs of approximately $12.0 million associated with the acquisition of
additional ground and maintenance facilities, support equipment and spare parts
inventory related to the San Francisco expansion.
Depending in large part upon the outcome of current aircraft acquisition
negotiations, the mix of new and used Brasilia aircraft, as well as the state of
the aircraft financing market at the time, management will determine whether to
purchase these Brasilia aircraft with the net proceeds from this offering or
acquire the aircraft through third-party, long-term loans or lease arrangements.
SkyWest has significant long-term lease obligations primarily relating to
its aircraft fleet. These leases are classified as operating leases and
therefore are not reflected as liabilities in the Company's consolidated balance
sheets. At December 31, 1997, SkyWest leased 44 SkyWest aircraft and eight
Scenic aircraft under leases with an average remaining term of approximately 9.6
years. Future minimum lease payments due under all long-term operating leases
were approximately $457.4 million at December 31, 1997.
At December 31, 1997, the Company had outstanding long-term debt, including
current maturities, of approximately $59.7 million. Of the long-term debt, $48.8
million was incurred in connection with the acquisition of Brasilia aircraft and
is subject to subsidy payments through the export support program of the
Federative Republic of Brazil. The interest rates on $11.0 million of the $48.8
million of long-term debt are floating based on one month and three month LIBOR.
The subsidy payments reduced the stated interest rates on the $48.8 million of
long-term debt to an average effective rate of approximately 4.0% as of December
31, 1997. The debt is payable in either quarterly or semi-annual installments
through January 2006. The remaining $10.9 million of long-term debt was incurred
to purchase ten VistaLiner aircraft operated by Scenic. These ten aircraft were
previously financed under long-term operating lease arrangements and were
purchased in October 1997.
The Company spent approximately $13.3 million for non-aircraft capital
expenditures during the nine months ended December 31, 1997, consisting
primarily of aircraft engine overhauls, aircraft modifications to be made
pursuant to industry-wide FAA directives, buildings and ground equipment and
rental vehicles.
The Company has available $5.0 million in an unsecured bank line of credit
with interest payable at the bank's base rate less one-quarter percent, which
was 8.25% at December 31, 1997. The Company believes that, in the absence of
unusual circumstances and taking into account the proceeds from this offering,
the working capital available to the Company will be sufficient to meet its
present requirements, including expansion, capital expenditure, lease payment
and debt service requirements for at least the next 12 months.
22
<PAGE> 24
BUSINESS
GENERAL
SkyWest operates a regional airline offering scheduled passenger service
primarily in the western United States. SkyWest has been a code-sharing partner
with Delta and Continental since 1987 and 1995, respectively. Effective October
1, 1997, SkyWest expanded its operations through a code-sharing agreement with
United. SkyWest offers a convenient schedule and frequent flights designed to
maximize connecting and local traffic. Operating primarily from its hubs in Salt
Lake City, Utah and Los Angeles, California, SkyWest serves 46 cities in 12
states and Canada with approximately 580 daily flights. In Salt Lake City and
Los Angeles, SkyWest is the largest regional airline with market shares of
passengers enplaned of 99% and 33%, respectively. SkyWest operates as the Delta
Connection in Salt Lake City and Los Angeles, as United Express in Los Angeles
and as the Continental Connection in selected California markets. On January 19,
1998, SkyWest executed an addendum to its agreement with United, expanding
SkyWest's United Express operations to include approximately 168 daily flights
connecting twelve California markets with United's San Francisco hub beginning
June 1, 1998. To support operations at the San Francisco hub, SkyWest expects to
acquire 17 additional aircraft and spend approximately $12 million for related
ground and maintenance facilities, support equipment and spare parts inventory.
SkyWest operates one of the youngest fleets in the airline industry,
consisting of fifty 30-seat Brasilias with an average age of 4.4 years and ten
50-seat CRJs with an average age of 3.1 years. In December 1996, SkyWest
completed a strategic transition out of the Metroliner turbo-prop aircraft,
which reduced the number of aircraft types operated by SkyWest from three to
two. The transition enabled SkyWest to upgrade to an all cabin-class fleet of
larger aircraft with higher operating efficiencies and greater passenger
acceptance. Cabin-class aircraft offer stand-up headroom, overhead and
under-seat storage, lavatories and flight attendant service.
The addition of United as a code-sharing partner and the completion of
SkyWest's transition for an all cabin-class fleet, together with other factors,
contributed to the Company's achievement of record consolidated operating
revenues and net income for the nine months ended December 31, 1997.
Consolidated operating revenues increased 7.4% to $225.7 million from $210.0
million and net income increased 91.9% to $17.3 million from $9.0 million for
the nine months ended December 31, 1997 and 1996, respectively.
BUSINESS STRATEGY
The key elements of SkyWest's business strategy are:
Capitalize on Relationships with Code-Sharing Partners. Historically,
SkyWest's growth has been assisted by the development of code-sharing agreements
with Delta, United and Continental. SkyWest views the recent addition of United
as a code-sharing partner as a significant opportunity to further increase its
traffic and profitability by serving United's Los Angeles and San Francisco hubs
and to develop code-sharing relationships in other hubs served by United.
SkyWest works closely with its code-sharing partners to expand service to
existing markets, open new markets and schedule convenient, frequent and
profitable flights. SkyWest believes that the principal reason it has attracted
multiple code-sharing partners is its delivery of high-quality, reliable
service. SkyWest's competitive fares and ability to offer passengers
participation in the frequent flyer programs of Delta, United and Continental
are attractive incentives for passengers to fly on SkyWest. SkyWest also
believes that multiple code-sharing agreements with major carriers diversifies
operating risk by reducing reliance on a single major carrier.
Expand Fleet Size and Increase Utilization to Serve New and Existing
Markets. SkyWest seeks to expand and more efficiently utilize its Brasilia and
CRJ aircraft to serve existing and new, profitable markets. SkyWest believes
that Brasilias are most efficiently used on shorter stage lengths to provide
frequent and convenient service. For example, as SkyWest commenced service as
United Express in Los Angeles in October 1997, Brasilias were shifted from less
efficient, non-hub based routes to more efficient Los Angeles hub and spoke
routes connecting with its code-sharing partners. SkyWest's expanded role as
United Express in San Francisco will require the addition of 17 Brasilias by
June 1, 1998. CRJs are utilized on longer routes to supplement existing service
by major carriers, to replace larger jets on routes where service is
discontinued by
23
<PAGE> 25
major carriers, to replace SkyWest's Brasilias as markets grow and to develop
new markets. SkyWest believes its utilization of CRJs is among the highest of
all regional carriers operating CRJs.
Increase Profitability. SkyWest focuses on increasing profitability through
maximizing RASM and minimizing CASM. Revenues are maximized by delivery of
reliable, on-time flights, excellent customer service, efficient utilization of
a revenue management system and the development of profitable code-sharing
relationships. SkyWest uses its recently acquired state-of-the-art revenue
management system to analyze markets and booking patterns and assist in
scheduling and seat inventory management to maximize revenues. The Company
believes SkyWest's development of multiple code-sharing relationships has
resulted in increased revenues without a proportionate increase in costs. A
Company-wide emphasis on cost management and more efficient utilization of
existing resources, together with the completed transition from three to two
aircraft types, has resulted in lower overhead and lower unit costs while
maintaining excellent customer service. CASM has declined in each fiscal year
since 1993 and decreased from 16.2c for the nine months ended December 31, 1996
to 15.8c for the nine months ended December 31, 1997. These reductions in CASM
have been achieved notwithstanding a decline in stage lengths as Brasilias have
been shifted to shorter hub and spoke routes to increase utilization.
Provide Excellent Customer Service. SkyWest believes its insistence on
excellent customer service in every aspect of its operations (including
personnel, flight equipment, in-flight amenities, baggage handling and on-time
performance and flight completion ratios) has increased customer loyalty.
SkyWest also believes that excellent customer service is largely responsible for
its multiple code-sharing relationships as Delta, United and Continental seek to
build customer loyalty and preference by partnering with high-quality regional
carriers. SkyWest completed its transition to an all cabin-class fleet in
December 1996, in part to provide larger, more comfortable aircraft for its
passengers. SkyWest believes that, for the nine months ended December 31, 1997,
its on-time performance ratio and flight completion ratio were the highest of
all regional airlines at 95.5% and 98.5%, respectively. SkyWest has achieved
these performance measures by operating one of the youngest fleets in the
airline industry and continuing its commitment to high quality maintenance.
CODE-SHARING AGREEMENTS
The Company's Code-Sharing Agreements with Delta, United and Continental
authorize SkyWest to use two-letter flight designator codes ("DL," "UA" and
"CO," respectively) to identify its flights and fares in major central
reservation systems, to paint its aircraft with the colors and/or logos of its
code-sharing partners and to market and advertize its status as the Delta
Connection, United Express or Continental Connection carrier. The Code-Sharing
Agreements either allocate to the Company a portion of the total passenger fare
on a formula or other basis, subject to periodic adjustments, or provide for
payments for contracted flying on a per departure basis with incentives related
to number of passengers carried and customer service. SkyWest's passengers
participate in the frequent flyer programs of its code-sharing partners. Under
the Code-Sharing Agreements, Delta, United and Continental provide additional
services to the Company, including providing reservation services and ticket
stock, issuing tickets, providing ground support services and gate access and
coordinating cooperative marketing, advertising and other promotional efforts.
SkyWest pays negotiated fees to its code-sharing partners for services provided.
The significant terms of each of the Code-Sharing Agreements are as
follows:
Delta. SkyWest has operated as the Delta Connection at Delta's Salt Lake
City and Los Angeles hubs since 1987. The Delta Agreement was revised in 1990
and modified effective April 1, 1997 to facilitate interline connections in Salt
Lake City and Los Angeles, to adjust proration formulas (the portion of the
passenger fare allocated to SkyWest) and to permit SkyWest to seek other
code-sharing relationships in Los Angeles. The Delta Agreement continues until
April 2002 but is subject to earlier termination under various circumstances,
including upon 180 days' advance notice by either party for any or no reason.
The Delta Agreement was modified in April 1997 to be noncancellable (except for
cause) for a two-year period. Delta currently owns approximately 15.1% of the
outstanding Common Stock, which was acquired under the Delta Option Agreement
entered into in 1987, concurrently with the Delta Agreement. See "Description of
Capital Stock -- Common Stock."
24
<PAGE> 26
United. In July 1997, SkyWest and United entered into an Agreement in
Principle which contemplated execution of a "United Express Agreement"
(subsequently signed on January 19, 1998) pursuant to which SkyWest became a
United Express carrier at United's Los Angeles hub effective on October 1, 1997.
In January 1998, SkyWest and United also entered into an addendum to the United
Express Agreement, pursuant to which SkyWest will become the United Express
carrier at United's San Francisco hub, beginning June 1, 1998.
Under the United Express Agreement, SkyWest currently operates flights in
Los Angeles city pairs on a contract basis; i.e., United pays SkyWest a flat
rate per flight departure, an additional amount per passenger and per passenger
incentives based upon on-time performance, flight completion rates and number of
passengers carried measured against agreed upon objectives. United controls
scheduling, ticketing, pricing and seat inventories in these city pairs. SkyWest
also operates as a United Express carrier in certain city pairs where SkyWest
receives no contract payments and United controls scheduling, inventory and
pricing. United must also concur in any marketing or code-sharing relationship
with any other carrier with respect to operations covered by the United Express
Agreement. United has consented to SkyWest's Code-Sharing Agreement with Delta
in designated city pairs in Los Angeles.
The term of the United Express Agreement is for five years ending in
September 2002 with respect to operations in Los Angeles and for ten years,
ending in May 2008 with respect to operations in San Francisco, subject to
termination by United upon 180 days' prior notice. United may, however,
terminate the United Express Agreement for cause upon 30 days' written notice.
Continental. SkyWest entered into a Code-Sharing Agreement with Continental
in October 1995, which provided for service to selected California markets. The
Continental agreement expired in October 1997. SkyWest has continued to operate
as the Continental Connection without an agreement, but on the same terms as
provided in the expired agreement. Execution of a new agreement with Continental
requires the consent of United.
MARKETS
The Company believes its development of hub operations in the Salt Lake
City and Los Angeles markets has been a principal factor in the growth of
SkyWest's flight operations. As of January 1, 1998, SkyWest scheduled 91 daily
departures from Salt Lake City. SkyWest's departures are scheduled to facilitate
connections with 171 scheduled daily Delta departures from Salt Lake City as of
January 1, 1998. As of the same date, SkyWest was the largest regional carrier
at the Salt Lake City hub, with a market share of approximately 99% among
regional carriers and Delta was the largest carrier at Salt Lake City, with a
total market share of approximately 70%.
At its Los Angeles hub, where it is also the largest regional carrier, with
a 33% market share among regional carriers, SkyWest scheduled 170 daily
departures as of January 1, 1998, of which 120 departures were under the United
code and were scheduled to connect with 178 scheduled daily United departures.
As of January 1, 1998, United was the largest carrier at Los Angeles
International Airport ("LAX"), with a total market share of approximately 23%.
As of January 1, 1998, SkyWest also scheduled 50 daily departures at LAX under
the Delta and Continental codes, connecting with 59 Delta departures and 23
Continental departures. As of January 1, 1998, Delta and Continental held market
shares at LAX of approximately ten percent and three percent, respectively. Of
the 288 SkyWest total daily flights under the United code as of January 1, 1998,
240 were contracted flights.
The Company believes its Los Angeles operations have benefitted from the
location of SkyWest's gates and customer service facilities in Terminal 6, one
of the principal terminals at LAX. SkyWest's location in Terminal 6 permits
SkyWest passengers to more quickly and conveniently transfer to and from major
carriers, including SkyWest's code-sharing partners.
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<PAGE> 27
As of January 1, 1998, United was also the largest carrier at San Francisco
International Airport, with approximately 250 scheduled daily flights,
representing a total market share of approximately 60%. SkyWest presently
anticipates that its San Francisco operations will consist of 168 scheduled
daily flights, which the Company believes will represent a market share of
approximately 87% among regional carriers in San Francisco. Although SkyWest has
announced its intention to commence service in San Francisco on June 1, 1998,
the routes which SkyWest proposes to operate are preliminary and remain subject
to modification in response to a number of factors, including SkyWest's ability
to locate sufficient aircraft, obtain necessary maintenance facilities and hire,
train and integrate qualified pilots, flight attendants, maintenance personnel
and customer service personnel. All of SkyWest's flights under the United code
in San Francisco will be contracted flights.
ROUTES
Operating from its hubs in Salt Lake City and Los Angeles, SkyWest serves
approximately 46 cities in 12 states and Canada with approximately 580 scheduled
daily flights. In addition, on June 1, 1998, SkyWest expects to commence service
in San Francisco with 168 scheduled daily flights.
SkyWest operates all of its ten CRJs and 15 of its Brasilias out of Salt
Lake City, with CRJs utilized primarily on longer stage lengths to approximately
18 destinations and Brasilias utilized to serve approximately 13 destinations.
SkyWest provides service to southern California markets, which are characterized
by high frequency service on shorter stage lengths, with 35 Brasilias, resulting
in high aircraft utilization. For example, SkyWest provides service between LAX
and San Diego every half hour and service between LAX and Palm Springs every
hour.
The following table identifies the cities served by SkyWest as of January
1, 1998, as well as the cities SkyWest proposes to serve upon commencement of
its service in San Francisco:
<TABLE>
<S> <C> <C>
ARIZONA: COLORADO: SOUTH DAKOTA:
Tucson Colorado Springs Rapid City
Yuma Grand Junction UTAH:
CALIFORNIA: IDAHO: Cedar City
Arcata/Eureka* Boise Salt Lake City
Bakersfield* Idaho Falls St. George
Burbank Pocatello Vernal
Chico* Sun Valley WASHINGTON:
Fresno Twin Falls Pasco
Imperial/El Centro MONTANA: WYOMING:
Los Angeles Billings Casper
Merced* Bozeman Cody
Modesto* Butte Jackson Hole
Monterey* Helena CANADA:
Ontario Missoula Vancouver, B.C.
Orange County West Yellowstone
Palm Springs NEW MEXICO:
Redding* Albuquerque
Sacramento* NEVADA:
San Diego Elko
San Francisco Las Vegas
San Jose Reno
San Luis Obispo* OREGON:
Santa Barbara* Eugene
Santa Maria Portland
Santa Rosa*
</TABLE>
- ---------------
* Service to be provided from San Francisco commencing June 1, 1998. Of the
cities to be served by SkyWest's expanded San Francisco operations,
Bakersfield, Monterey, San Luis Obispo and Santa Barbara are currently served
from SkyWest's hubs in Los Angeles or Salt Lake City.
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<PAGE> 28
FLIGHT EQUIPMENT
As of December 31, 1997, SkyWest operated a fleet of 60 aircraft,
consisting of 50 Brasilias and 10 CRJs, as described in the following table:
<TABLE>
<CAPTION>
SCHEDULED AVERAGE
AIRCRAFT FLIGHT CRUISING AVERAGE
--------------- PASSENGER RANGE SPEED AGE
OWNED LEASED CAPACITY (MILES) (MPH) (YEARS)
----- ------ --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Brasilias.................. 16 34 30 450 300 4.4
Canadair Regional Jets..... -- 10 50 600 530 3.1
</TABLE>
The Brasilias are turbo-prop, pressurized aircraft designed to operate more
economically over short-haul routes with lower passenger load factors than
larger jet aircraft. These factors make it economically feasible for SkyWest to
provide high frequency service in markets with relatively low volumes of
passenger traffic. Passenger comfort features of the Brasilia aircraft include
stand-up headroom, a lavatory, overhead baggage compartments and flight
attendant service. During fiscal 1997, the Company acquired 15 additional
Brasilia aircraft and negotiated the early termination of its 18 remaining
Metroliner leases. The Company has secured options to purchase an additional ten
Brasilia aircraft at fixed prices (subject to cost escalation and delivery
schedules). These options are exercisable through fiscal 1999.
The CRJ is one of the quietest commercial jets currently available and
offers many of the amenities of larger commercial jet aircraft, including a
stand-up cabin, overhead and under-seat storage, lavatories, in-flight snack and
beverage service, and, in many cases, more legroom than larger jets. The Company
also has options at fixed prices (subject to cost escalation and delivery
schedules) for ten additional CRJs which are exercisable at any time with no
expiration.
Scenic's operations are currently conducted using 18 specially modified
sight-seeing VistaLiners and 23 smaller aircraft.
GROUND FACILITIES
Employees of the Company perform substantially all routine airframe and
engine maintenance and periodic inspection of equipment. Maintenance is
performed primarily at facilities in Salt Lake City, Utah and Palm Springs,
California. SkyWest leases a 90,000 square foot aircraft maintenance and
training facility at the Salt Lake City International Airport and owns a 56,600
square foot maintenance facility in Palm Springs. The Salt Lake City facility
consists of a 40,000 square foot maintenance hanger and 50,000 square feet of
training and other facilities to support SkyWest's hub operations. The facility
was constructed and is owned by the Salt Lake City Airport Authority. SkyWest is
leasing the facility under an operating lease arrangement over a 36-year term,
expiring in August 2021. The Palm Springs maintenance facility supports
SkyWest's expanding southern California operations.
SkyWest leases ticket counters and check-in, boarding and other facilities
in the passenger terminal areas in the majority of the airports it serves and
staffs these facilities with SkyWest personnel. Delta and United provide ticket
handling and ground support services for SkyWest in 21 of the 46 airports
SkyWest serves.
Scenic owns a new terminal and hanger facility in Page, Arizona consisting
of 11,500 square feet of office and terminal space and 22,000 square feet of
maintenance hanger space. Scenic also leases a new terminal and hanger facility
in Las Vegas, Nevada consisting of 39,500 square feet of office and terminal
space and 28,500 square feet of maintenance hanger space.
The Company also owns its corporate headquarters, located in a 63,000
square foot building in St. George, Utah.
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<PAGE> 29
SCENIC AIR TOURS
Scenic currently provides air tours and general aviation services to the
Grand Canyon and other scenic regions of northern Arizona, southern Utah and
southern Nevada. Scenic's operations are conducted principally from leased
boarding, tour and flight facilities at the North Las Vegas Airport in Las
Vegas, Nevada. Since the acquisition of Scenic in June 1993, the Company has
operated Scenic as a premium tour provider. In response to increased price
competition which has resulted in decreased revenues and earnings at Scenic, the
Company has changed top management, broadened its offering of tour packages to
appeal to cost conscious customers, implemented cost control measures and
restructured the financing of flight equipment and facilities. The Company
believes Scenic is currently well-positioned to pursue opportunities to increase
revenues and profitability of the air tour business.
NPT AUTOMOBILE RENTAL SERVICES
NPT provides car rental services at six airports served by SkyWest,
including Page, Arizona, Ely and Elko, Nevada and St. George, Cedar City and
Vernal, Utah. NPT's services are provided through a fleet of Avis vehicles
pursuant to a franchise agreement between NPT and Avis.
EMPLOYEES
As of January 1, 1998, the Company employed 2,300 full-time equivalent
employees consisting of 796 pilots and flight attendants, 246 maintenance
personnel, 950 customer service personnel, 63 reservation and marketing
personnel, and 245 employees engaged in accounting, administration and other
functions. The Company's employees are not currently represented by any union.
The Company is aware, however, that collective bargaining group organization
efforts among its employees occur from time to time and expects that such
efforts will continue in the future. If such efforts are successful, the Company
may be subjected to risks of work interruption or stoppage and incur additional
expenses associated with union representation of its employees. In connection
with SkyWest's proposed expansion into northern California, it anticipates that
it will hire at least 475 additional employees, many of whom may be represented
by a union in their current employment. The Company has never experienced any
work stoppages and considers its relationship with its employees to be good.
COMPETITION AND ECONOMIC CONDITIONS
The airline industry is highly competitive. SkyWest not only competes with
other regional airlines, some of which are owned by or are operated as
code-sharing partners of major airlines, but also faces competition from major
airlines on certain routes. SkyWest is the dominant regional airline operating
out of the Salt Lake City International Airport; however, Southwest Airlines
Co., a national low fare airline, also operates out of the Salt Lake City
International Airport,which results in significant price competition at the Salt
Lake City hub. Competition in the southern California markets, which are
serviced by SkyWest from its hub in Los Angeles, is particularly intense, with a
large number of carriers in these markets. In its markets served from LAX,
SkyWest's principal competitors include Wings West, Inc. (operating as "American
Eagle"), Trans States Airlines, Inc. (operating as "US Air Express" and "Trans
World Express") and with Mesa Airlines, Inc. (operating as "Mesa Airlines" and
"United Express"). The Company believes its principal competitor in San
Francisco will be Trans States Airlines, Inc. (operating as "US Air Express").
Certain of the Company's competitors are larger and have significantly
greater financial and other resources than the Company. Moreover, federal
deregulation of the industry allows competitors to rapidly enter the Company's
markets and to quickly discount and restructure fares. The airline industry is
particularly susceptible to price discounting because airlines incur only
nominal costs to provide service to passengers occupying otherwise unsold seats.
Generally, the airline industry is highly sensitive to general economic
conditions, in large part due to the discretionary nature of a substantial
percentage of both business and leisure travel. In the past, many airlines have
reported decreased earnings or substantial losses resulting from periods of
economic recession, heavy fare discounting and other factors. Economic downturns
combined with competitive pressures have contributed to
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<PAGE> 30
a number of bankruptcies and liquidations among major and regional carriers.
Negative economic conditions may have a material adverse effect on regional
airlines, including the Company.
REGULATION
All interstate air carriers, including SkyWest and Scenic, are subject to
regulation by the DOT, the FAA and certain other governmental agencies.
Regulations promulgated by the DOT primarily relate to economic aspects of air
service. The FAA requires operating, air worthiness and other certificates,
approval of personnel who may engage in flight, maintenance or operations
activities, record keeping procedures in accordance with FAA requirements, and
FAA approval of flight training and retraining programs. The DOT and the FAA, as
well as other governmental agencies regulating the Company, enforce their
regulations through, among other mechanisms, (i) certifications, which are
necessary for the Company's continued operations, and (ii) proceedings, which
can result in civil or criminal penalties or revocation of operating authority.
The FAA can also issue maintenance directives and other mandatory orders
relating to, among other things, inspection of aircraft, installation of new
safety-related items and the mandatory removal and replacement of aircraft parts
that the FAA believes might present a safety hazard.
The Company believes it is operating in material compliance with FAA
regulations and holds all necessary operating and air worthiness certificates
and licenses. The Company incurs substantial costs in maintaining its current
certifications and otherwise complying with the laws, rules and regulations to
which it is subject. The Company's flight operations, maintenance programs,
record keeping and training programs are conducted under FAA approved
procedures. The Company does not operate at any airports where landing slots are
restricted.
All air carriers are required to comply with federal law and regulations
pertaining to noise abatement and engine emissions. All air carriers are also
subject to certain provisions of the Federal Communications Act of 1934, as
amended, because of their extensive use of radio and other communication
facilities. The Company is also subject to certain other federal and state laws
relating to protection of the environment, labor relations and equal employment
opportunity. Management believes that the Company is in compliance in all
material respects with these laws and regulations.
INSURANCE
In the opinion of management, the Company maintains insurance policies of
types customary in the industry and in amounts it believes are adequate to
protect it and its property against material loss. The policies principally
provide coverage for public liability, passenger liability, baggage and cargo
liability, property damage, including coverages for loss or damage to its flight
equipment, and workers' compensation insurance. There is no assurance, however,
that the amount of insurance carried by the Company will be sufficient to
protect it from material loss.
LEGAL PROCEEDINGS
The Company is a party to routine legal proceedings incident to its
business. In the opinion of management, none of such proceedings is expected to
have a material adverse effect on the Company.
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<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following are the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerry C. Atkin............ 48 Chairman, President and Chief Executive Officer
Ron B. Reber.............. 43 Executive Vice President and Chief Operating Officer
President -- National Parks Transportation, Inc.
Bradford R. Rich.......... 36 Executive Vice President, Chief Financial Officer
and Treasurer
Sidney J. Atkin........... 62 Vice Chairman
J. Ralph Atkin............ 54 Director
Mervyn K. Cox............. 60 Director
Ian M. Cumming............ 56 Director
Henry J. Eyring........... 34 Director
Steven F. Udvar-Hazy...... 51 Director
Hyrum W. Smith............ 53 Director
</TABLE>
Jerry C. Atkin joined the Company in July 1974 as Director of Finance. In
1975, he assumed the office of President and Chief Executive Officer. He was
elected Chairman in 1991. Prior to employment by the Company, Mr. Atkin was
employed by a public accounting firm and is a certified public accountant. Mr.
Atkin is a board member of (i) The Regence Group, a medical insurance holding
company, and its subsidiary, Regence Blue Cross Blue Shield of Utah, a medical
insurance company, and (ii) Zions Bancorporation, a Utah bank holding company.
Mr. Atkin has served as a director of the Company since 1974.
Ron B. Reber has served in various capacities since joining the Company in
1977. He is currently Executive Vice President and Chief Operating Officer with
general responsibility for flight operations, maintenance, customer service,
market planning, marketing, revenue control and pricing. He also serves as
President of NPT.
Bradford R. Rich joined the Company in 1987 as Corporate Controller. He was
previously employed with a public accounting firm and is a certified public
accountant. He is currently Executive Vice President, Chief Financial Officer
and Treasurer with responsibility for financial accounting, treasury, public
reporting, investor relations, internal audit and management information
systems.
Sidney J. Atkin was elected Vice Chairman in 1988. For more than five
years, Mr. Atkin has been President of Sugarloaf Corp., a Utah corporation
involved in the operation of restaurants and motels. Mr. Atkin has served as a
director of the Company since 1973.
J. Ralph Atkin was the founder of the Company and served as President and
Chief Executive Officer from 1972 to 1975. He served as Chairman of the Board of
Directors from 1972 to 1991. From 1984 to 1988 he served as Senior Vice
President of the Company. From March 1991 to January 1993, he was Director of
Business and Economic Development for the State of Utah. He served as Chief
Executive Officer of EuroSky, a company organized to explore the feasibility of
a regional airline in Austria during 1994 and 1995. Mr. Atkin is an attorney and
is currently engaged in the private practice of law in St. George, Utah. Mr.
Atkin is also a director of Fairchild Aircraft Incorporated and Fairchild
Aircraft Services Incorporated. Mr. Atkin has served as a director of the
Company since 1972.
Mervyn K. Cox has been for more than five years an orthodontist engaged in
private practice, and has also engaged in the development and management of real
estate. Mr. Cox has served as a director of the Company since 1974.
Ian M. Cumming is Chairman of Leucadia National Corporation, a diversified
financial services holding company principally engaged in personal and
commercial lines of property and casualty insurance, life and health insurance,
banking and lending, manufacturing and the trade stamps business. He has served
as a
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<PAGE> 32
director of the Company since 1986. Mr. Cumming is also a director of MK Gold
Company and Allcity Insurance Company, both of which are public companies.
Henry J. Eyring has been employed since 1989 by Monitor Company, an
international management consulting firm based in Cambridge, Massachusetts. At
Monitor, he serves as President of Monitor Institute, the subsidiary of Monitor
that consults in the public sector. He is also Chief Operating Officer of the
Huntsman Cancer Institute. He is a director of Global Microtechnologies, a
computer retailing company, and Assist Cornerstone Technologies, a software
development company, is a member of the Board of Trustees of Southern Utah
University and is Chairman-elect of Artspace, a non-profit real estate
developer. Mr. Eyring has served as a director of the Company since 1995.
Steven F. Udvar-Hazy is currently President, Director and Chief Executive
Officer of International Lease Finance Corporation, a wholly owned subsidiary of
American International Group, Inc., which leases and finances commercial jet
aircraft worldwide. Mr. Udvar-Hazy has been engaged in aircraft leasing and
finance for 32 years. He has served as a director of the Company since 1986.
Hyrum W. Smith is co-founder, Chief Executive Officer and Chairman of
Franklin Covey Co., a public company in business to help people gain control
over their lives and increase their productivity. Mr. Smith has been the Chief
Executive Officer of Franklin Covey Co. since February 1997, a position he also
held from April 1991 to September 1996. Mr. Smith was Senior Vice President of
Franklin Quest from December 1984 to April 1991. Franklin Covey Co. was formerly
known as Franklin Quest Co. prior to its merger with Covey Leadership Center,
Inc. in May 1997. Mr. Smith has served as a director of the Company since 1995.
J. Ralph Atkin and Sidney J. Atkin are brothers. Jerry C. Atkin is their
nephew.
KEY EMPLOYEES
In addition to the executive officers listed above, the following are key
employees of SkyWest or Scenic:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James K. Boyd.......... 40 Vice President -- Customer Service
Eric D. Christensen.... 39 Vice President -- Planning and Secretary
H. Michael Gibson...... 48 Vice President -- Maintenance
Steven L. Hart......... 36 Vice President -- Market Development
Brad Holt.............. 38 Vice President -- Flight Operations
Michael J. Kraupp...... 36 Vice President -- Controller
David A. Young......... 56 President -- Scenic
</TABLE>
James K. Boyd joined the Company in 1981. He is currently Vice
President -- Customer Service with responsibility for SkyWest ticket counter,
gate and ramp personnel at all SkyWest cities. He has also served as Director of
Stations and Station Manager.
Eric D. Christensen joined the Company in 1985. He is currently Vice
President -- Planning and Secretary with responsibility for aircraft performance
and acquisition analysis, fleet planning and risk management. He has also served
as Assistant to the President and Director of Finance.
H. Michael Gibson joined the Company in 1988. He is currently Vice
President -- Maintenance with responsibility for aircraft maintenance, control
of parts inventory and maintenance personnel training. He has also served as
Director of Quality Assurance for SkyWest.
Steven L. Hart joined the Company in 1986. He is currently Vice
President -- Market Development with responsibility for flight scheduling,
revenue control and pricing. He has also served as Director Market Planning,
Market Analyst and Director of Marketing.
Brad Holt joined the Company in 1983. He is currently Vice
President -- Flight Operations with responsibility for flight crew supervision
and dispatch, flight safety and flight quality standards. He has also served as
Director of Flight Standards, Chief Flight Instructor, Check Airman and Line
Pilot.
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<PAGE> 33
Michael J. Kraupp joined the Company in 1991 as financial controller for
SkyWest. He has been Vice President -- Controller since 1993 with responsibility
for financial accounting and public reporting. He was previously employed with a
public accounting firm and is a certified public accountant.
David A. Young joined the Company in 1997 as President of Scenic Airlines,
Inc. on July 4, 1997. He was previously employed as Chief Executive Officer of
Air Fiji from 1993 to July 1997 and Chief Executive Officer of Air Macau from
1992 to 1993. Mr. Young holds a Ph.D. in aerospace management.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value.
COMMON STOCK
As of January 16, 1998 there were 10,317,152 shares of Common Stock issued
and outstanding held by approximately 1,100 stockholders of record.
Subject to the rights of the holders of Preferred Stock, each holder of
Common Stock shall have equal ratable rights to dividends from funds legally
available therefor, if, as and when declared by the Board of Directors of the
Company. The declaration and payment of all dividends, however, is subject to
the discretion of the Board of Directors. In the event of liquidation,
dissolution or winding up of the affairs of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and amounts, if any, due to holders of Preferred Stock. Holders of
Common Stock are entitled to one vote per share on all matters which
stockholders may vote on at all meetings of stockholders. The holders of Common
Stock do not have cumulative voting rights. The holders of Common Stock do not
have preemptive, subscription or conversion rights and there are no redemption
or sinking fund provisions applicable thereto. All the outstanding shares of
Common Stock are fully paid and nonassessable, and the shares of Common Stock to
be outstanding upon completion of this offering will be fully paid and
nonassessable. Pursuant to the terms of the Delta Option Agreement, in the event
the Company proposes to issue any additional voting securities and for so long
as Delta owns at least ten percent of the outstanding shares of Common Stock and
the Delta Connection Agreement or a substantially similar agreement remains in
effect between Delta and the Company, Delta has a preemptive right to acquire,
on the same terms and conditions as the proposed issuance of securities, the
number of voting securities which, when added to all voting securities then
owned by Delta, would provide Delta with the number of votes necessary to
preserve Delta's percentage voting interest. Delta has elected not to exercise
its preemptive right under the Delta Option Agreement with respect to this
offering. Also pursuant to the terms of the Delta Option Agreement, in the event
Delta desires to sell any of its shares of Common Stock, it has the right to
demand up to two separate registrations under the Securities Act of such shares
of Common Stock. For an unlimited number of times, Delta may, within fifteen
days of receipt of notice from the Company that the Company proposes to register
under the Securities Act shares of Common Stock, require the Company to include
shares of Common Stock owned by Delta in such registration.
PREFERRED STOCK
The Company is authorized to issue Preferred Stock from time to time in one
or more series without stockholder approval. No shares of Preferred Stock are
presently outstanding. The Board of Directors is authorized, without any further
action by the stockholders of the Company, to (i) divide the Preferred Stock
into series; (ii) designate each such series; (iii) fix and determine dividend
rights; (iv) determine the price, terms and conditions on which shares of
Preferred Stock may be redeemed; (v) determine the amount payable to holders of
Preferred Stock in the event of voluntary or involuntary liquidation; (vi)
determine any sinking fund provisions; and (vii) establish any conversion
privileges. Thus, the Board of Directors, without stockholder approval, could
authorize the issuance of Preferred Stock with rights which could decrease the
amount of earnings and assets available for distribution to holders of shares of
Common Stock or otherwise adversely affect the rights of the holders of Common
Stock. Any future issuance of Preferred Stock may have
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<PAGE> 34
the effect of delaying or preventing a change in control of the Company and may
adversely affect the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any Preferred Stock.
BOARD OF DIRECTORS
The Company's Board of Directors, currently consists of nine directors who
are elected for one year terms at the annual meetings of the Company's
shareholders. As a result of the resignation of a director, as discussed below,
the Board of Directors currently has eight members. Pursuant to the terms of the
Delta Option Agreement, for as long as Delta owns at least 10% of the
outstanding Common Stock, the Company will include at least one designee of
Delta reasonably acceptable to the Company on the slate of nominees for election
as directors nominated by the Company's Board of Directors and will use its
reasonable best efforts to assure that such individual is elected to the
Company's Board of Directors. From 1988 to April 1, 1997, the date of the
resignation of Delta's most recent nominee, Delta had continuous representation
on the Company's Board of Directors through such nominees. Since the
resignation, no Delta nominee has served on the Company's Board of Directors.
Delta did not nominate any candidate for election to the Board of Directors at
the most recent annual meeting of shareholders.
UTAH CONTROL SHARES ACQUISITION ACT
The Utah Control Shares Acquisition Act (the "Control Shares Act") provides
that any person or entity which acquires 20% or more of the outstanding voting
shares of a publicly-held Utah corporation is denied voting rights with respect
to the acquired shares, unless a majority of the disinterested stockholders of
the corporation elects to restore such voting rights. The Control Shares Act
provides that a person or entity acquires "control shares" whenever it acquires
shares that, but for the operation for the Control Share Act would bring its
voting power within any of the following three ranges: (i) 20% to 33 1/3%, (ii)
33 1/3% to 50%, or (iii) 50% or more. A "control share acquisition" is generally
defined as the direct or indirect acquisition of either ownership or voting
power associated with issued and outstanding control shares. The stockholders of
a corporation may elect to exempt the stock of the corporation from the
provisions of the Control Shares Act through adoption of a provision to that
effect in the articles of incorporation or bylaws of the corporation. The
Company's Restated Articles of Incorporation (the "Restated Articles") and
Bylaws, as amended (the "Bylaws") do not exempt the Company's Common Stock from
the Control Shares Act.
Under the Control Shares Act, a person or entity that acquires control
shares pursuant to a control share acquisition acquires voting rights with
respect to those shares only to the extent granted by a majority of
disinterested stockholders of each class of capital stock outstanding prior to
the acquisition. The stockholders of the corporation must consider the status of
those voting rights at the next annual or special meeting of stockholders. The
acquiror may accelerate the decision and require the corporation to hold a
special meeting of stockholders for the purpose of considering the status of
those rights if the acquiror (i) files an "acquiring person statement" with the
corporation, and (ii) agrees to pay all expenses of the meeting. If the
stockholders do not vote to restore voting rights to the control shares, the
corporation may, if its articles of incorporation or bylaws so provide, redeem
the control shares from the acquiror at fair market value. If the acquiror fails
to file an acquiring person statement, the corporation may, if its articles of
incorporation or bylaws so provide, redeem the control shares at any time within
60 days of the acquiror's last acquisition of control shares, regardless of the
decision of the stockholders to restore voting rights. The Company's Restated
Articles and the Bylaws do not provide for such redemption. Unless otherwise
provided in the articles of incorporation or bylaws of a corporation,
stockholders are entitled to dissenters' rights if the control shares are
accorded full voting rights and the acquiror has obtained majority or more
control shares. The Restated Articles and the Bylaws do not deny such
dissenters' rights to the Company's stockholders.
The provisions of the Control Shares Act may discourage companies
interested in acquiring a significant interest in or control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Zions First
National Bank, N.A., Salt Lake City, Utah.
33
<PAGE> 35
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, LLC and SBC
Warburg Dillon Read Inc. are acting as representatives (collectively, the
"Representatives"), have severally agreed to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the number of shares of Common
Stock set forth opposite the Underwriters' respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
The Robinson-Humphrey Company, LLC..........................
SBC Warburg Dillon Read Inc. ...............................
---------
Total............................................. 1,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share in sales to certain other dealers.
After the offering, the public offering price and other selling terms may be
changed.
The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 210,000 shares of Common Stock at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus to
cover over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by each of them, as shown in the above table,
bears to the 1,400,000 shares of Common Stock offered hereby.
The Company, its executive officers and directors (beneficially owning, in
the aggregate, 1,247,430 shares of Common Stock) have agreed that they will not
offer, sell or otherwise dispose of any shares of Common Stock (other than the
shares offered by the Company in the offering), subject to certain exceptions,
for a period of 90 days from the date of this Prospectus without the prior
written consent of The Robinson-Humphrey Company, LLC on behalf of the
Underwriters.
Pursuant to the Underwriting Agreement, the Company has agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
In connection with the offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market-making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M, during the one business day prior to the pricing
of the offering before the commencement of offers or sales of the Common Stock.
The passive market-making transactions must comply with applicable volume and
price limitations and be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
the security; however, if
34
<PAGE> 36
all independent bids are lowered below the passive market maker's bid, such bid
must then be lowered when certain purchase limits are exceeded.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters to bid for and purchase shares of Common Stock. As an exception
to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriters create a short position in
the Common Stock in connection with the offering (i.e., if they sell more shares
of the Common Stock than are set forth on the cover page of this Prospectus),
the Representatives may reduce the short position by purchasing the Common Stock
in the open market. The Representatives may elect to reduce any short position
by exercising all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Parr, Waddoups, Brown, Gee & Loveless, a professional corporation
("Parr Waddoups"), Salt Lake City, Utah and for the Underwriters by King &
Spalding, Atlanta, Georgia. King & Spalding will rely upon the opinion of Parr
Waddoups as to all matters of Utah law.
EXPERTS
The consolidated financial statements and schedules incorporated by
reference in this Prospectus and elsewhere in the Registration Statement, to the
extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants and are incorporated herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and, in accordance therewith, files
reports, proxy statements, information statements and other information with the
Commission. Such reports, proxy statements, information statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at the principal offices of
the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
its Regional Offices located in the Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy statements, information statements and other
information regarding registrants,
35
<PAGE> 37
including the Company, that file such information electronically with the
Commission. The address of the Commission's web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act relating to the Common Stock offered
hereby. This Prospectus, which is part of such Registration Statement, does not
contain all of the information set forth, or incorporated by reference, in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules, which may be inspected and copied in the manner and at the locations
described above. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or as previously filed with
the Commission and incorporated herein by reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the Commission (File No.
0-14719) pursuant to the 1934 Act are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997.
5. The Company's Current Report on Form 8-K dated January 21, 1998.
6. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A as filed on June 15, 1986 with the
Commission under the 1934 Act, including any amendment or report filed for
the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act prior to the termination of the offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modified or
supersedes 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
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference
(other than exhibits). Requests for such copies should be directed to: SkyWest,
Inc., 444 South River Road, St. George, Utah 84790, Attention: Bradford R. Rich,
telephone: (435) 634-3000.
36
<PAGE> 38
[Three aircraft photographs]
<PAGE> 39
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividends........................... 12
Capitalization........................ 13
Selected Consolidated Financial and
Operating Data...................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 30
Description of Capital Stock.......... 32
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
Available Information................. 35
Incorporation of Certain Information
by Reference........................ 36
</TABLE>
======================================================
======================================================
1,400,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
THE ROBINSON-HUMPHREY
COMPANY
SBC WARBURG DILLON READ INC.
, 1998
======================================================
<PAGE> 40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth expenses in connection with the issuance and
distribution of the Common Stock being registered, other than underwriting
discounts and commissions payable by the Company. All of the amounts shown are
estimates, except the registration fee and the NASD filing and listing fees.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee........................................ $ 14,753
NASD filing fee............................................. 5,592
NASD listing fee............................................ 17,500
Accounting fees and expenses................................ 75,000
Legal fees and expenses..................................... 90,000
Printing expenses........................................... 100,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees and expenses............................ 1,000
Miscellaneous expenses...................................... 41,155
--------
Total............................................. $350,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 16-10a-902 ("Section 902") of the Utah Revised Business Corporation
Act (the "Revised Act") provides that a corporation may indemnify any individual
who was, is, or is threatened to be made a named defendant or respondent (a
"Party") in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal (a "Proceeding"), because he is or was a director of the corporation
or, while a director of the corporation, is or was serving at its request as a
director, officer, partner, trustee, employee, fiduciary or agent of another
corporation or other person or of an employee benefit plan (an "Indemnifiable
Director"), against any obligation incurred with respect to a Proceeding,
including any judgment, settlement, penalty, fine or reasonable expenses
(including attorneys' fees), incurred in the Proceeding if his conduct was in
good faith, he reasonably believed that his conduct was in, or not opposed to,
the best interests of the corporation, and, in the case of any criminal
Proceeding, he had no reasonable cause to believe his conduct was unlawful;
provided, however, that pursuant to Subsection 902(4): (i) indemnification under
Section 902 in connection with a Proceeding by or in the right of the
corporation is limited to payment of reasonable expenses (including attorneys'
fees) incurred in connection with the Proceeding and (ii) the corporation may
not indemnify an Indemnifiable Director in connection with a Proceeding by or in
the right of the corporation in which the Indemnifiable Director was adjudged
liable to the corporation, or in connection with any other Proceeding charging
that the Indemnifiable Director derived an improper personal benefit, whether or
not involving action in his official capacity, in which Proceeding he was
adjudged liable on the basis that he derived an improper personal benefit.
Section 16-10a-903 ("Section 903") of the Revised Act provides that, unless
limited by its articles of incorporation, a corporation shall indemnify an
Indemnifiable Director who was successful, on the merits or otherwise, in the
defense of any Proceeding, or in the defense of any claim, issue or matter in
the Proceeding, to which he was a Party because he is or was an Indemnifiable
Director of the corporation, against reasonable expenses (including attorneys'
fees) incurred by him in connection with the Proceeding or claim with respect to
which he has been successful.
In addition to the indemnification provided by Sections 902 and 903,
Section 16-10a-905 ("Section 905") of the Revised Act provides that, unless
otherwise limited by a corporation's articles of incorporation, an Indemnifiable
Director may apply for indemnification to the court conducting the Proceeding or
to another court of competent jurisdiction. On receipt of an application and
after giving any
II-1
<PAGE> 41
notice the court considers necessary, (i) the court may order mandatory
indemnification under Section 903, in which case the court shall also order the
corporation to pay the director's reasonable expenses to obtain court-ordered
indemnification, or (ii) upon the court's determination that the director is
fairly and reasonably entitled to indemnification in view of all the relevant
circumstances and regardless of whether the director met the applicable standard
of conduct set forth in Section 902, the court may order indemnification as the
court determines to be proper, except that indemnification with respect to
certain Proceedings resulting in a director being found liable as described in
Subsection 902(4) is limited to reasonable expenses (including attorneys' fees)
incurred by the director.
Section 16-10a-904 ("Section 904") of the Revised Act provides that a
corporation may pay for or reimburse the reasonable expenses (including
attorneys' fees) incurred by an Indemnifiable Director who is a Party to a
Proceeding in advance of the final disposition of the Proceeding if (i) the
director furnishes the corporation a written affirmation of his good faith
belief that he has met the applicable standard of conduct described in Section
902, (ii) the director furnishes to the corporation a written undertaking,
executed personally or in his behalf, to repay the advance if it is ultimately
determined that he did not meet the required standard of conduct, and (iii) a
determination is made that the facts then known to those making the
determination would not preclude indemnification.
Section 16-10a-907 of the Revised Act provides that, unless a corporation's
articles of incorporation provide otherwise, (i) an officer of the corporation
is entitled to mandatory indemnification under Section 903 and is entitled to
apply for court ordered indemnification under Section 905, in each case to the
same extent as an Indemnifiable Director, (ii) the corporation may indemnify and
advance expenses to an officer, employee, fiduciary or agent of the corporation
to the same extent as an Indemnifiable Director, and (iii) a corporation may
also indemnify and advance expenses to an officer, employee, fiduciary or agent
who is not an Indemnifiable Director to a greater extent than the right of
indemnification granted to an Indemnifiable Director, if not inconsistent with
public policy, and if provided for by its articles of incorporation, bylaws,
general or specific action of its board of directors or contract.
The Company's Amended and Restated Bylaws (the "Bylaws") provide that,
subject to the limitations described below, the Company shall, to the maximum
extent and in the manner permitted by the Revised Act, indemnify any individual
made party to a proceeding because he is or was a director or officer of the
Company, against liability incurred in the proceeding if his conduct was in good
faith, he reasonably believed that his conduct was in, or not opposed to, the
Company's best interest and, in the case of any criminal proceeding he had no
reasonable cause to believe his conduct was unlawful. The Company may not,
however, extend such indemnification to an officer or director in connection
with a proceeding by or in the right of the Company in which such person was
adjudged liable to the Company, or in connection with any other proceeding
charging that such person derived an improper personal benefit, whether or not
involving action in his official capacity, in which proceeding he was adjudged
liable on the basis that he derived an improper personal benefit, unless ordered
by a court of competent jurisdiction. Notwithstanding the foregoing, the Bylaws
obligate the Company to indemnify an officer or director who was successful on
the merits or otherwise, in the defense of any proceeding or the defense of any
claim, issue or matter in the proceeding to which he was a party because he is
or was a director or officer of the Company against reasonable expenses incurred
in connection with the proceeding or claim with respect to which he was
successful. The Bylaws also permit the Company to pay for or reimburse the
reasonable expenses incurred by an officer or director who is party to a
proceeding in advance of final disposition of the proceeding if (i) the officer
or director furnishes to the Company a written affirmation of his good faith
belief that he has met the applicable standard of conduct necessary for
indemnification, (ii) the officer or director furnishes to the Company a written
undertaking to repay the advance if it is ultimately determined that he did not
meet the standard of conduct, and (iii) a determination is made that the facts
then known to those making the determination would not preclude indemnification
pursuant to the Bylaws. The Bylaws also provide that any indemnification or
advancement of expenses provided thereby shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any articles of incorporation, bylaw, agreement,
stockholders or disinterested directors, or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
II-2
<PAGE> 42
Utah law permits director liability to be eliminated in accordance with
Section 16-10a-841 of the Revised Act, which provides that the liability of a
director to the corporation or its stockholders for monetary damages for any
action taken or any failure to take any action, as a director, may be limited or
eliminated by the corporation except for liability for (i) the amount of
financial benefit received by a director to which he is not entitled; (ii) an
intentional infliction of harm on the corporation or its stockholders; (iii) a
violation of Section 16-10a-842 of the Revised Act which prohibits unlawful
distributions by a corporation to its stockholders; or (iv) an intentional
violation of criminal law. Such a provision may appear either in a corporation's
articles of incorporation or bylaws; however, to be effective, such a provision
must be approved by the corporation's stockholders.
The Company's Restated Articles of Incorporation, as amended by the
Company's stockholders at the 1993 Annual Meeting of Stockholders (the "Restated
Articles"), provide that the personal liability of any director to the Company
or its stockholders for monetary damages for any action taken or the failure to
take any action, as a director, is eliminated to the fullest extent permitted by
Utah law.
The Bylaws provide that the Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, fiduciary or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or incurred by him in such capacity or arising out of his
status in such capacity, whether or not the Company would have the power to
indemnify him against such liability under the indemnification provisions of the
Bylaws or the laws of the State of Utah, as the same may hereafter be amended or
modified. The Company maintains insurance from commercial carriers against
certain liabilities which may be incurred by its directors and officers.
Indemnification may be granted pursuant to any other agreement, bylaw or
vote of shareholders or directors. Reference is also made to the Underwriting
Agreement filed herewith pursuant to which the Underwriters have agreed to
indemnify the Company and its offers and directors against certain liabilities,
including liabilities under the Securities Act.
The foregoing description is necessarily general and does not describe all
details regarding the indemnification of officers, directors or controlling
persons of the Company.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1 Form of Underwriting Agreement.
4.1 Restated Articles of Incorporation, as amended.(1)
4.2 Amended and Restated Bylaws.(2)
4.3 Stock Option Agreement, dated January 28, 1987 between Delta
Air Lines, Inc. and SkyWest, Inc.*
5 Opinion of Parr, Waddoups, Brown, Gee & Loveless, a
professional corporation, as to the legality of the
securities being registered.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Parr, Waddoups, Brown, Gee & Loveless (included
in Item 5 above).
24 Power of Attorney (included on signature page of this
Registration Statement).
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Exhibits to a Registration Statement filed
on Form S-8, File No. 33-60173.
(2) Incorporated by reference to the Exhibits to a Registration Statement filed
on Form S-3, File No. 33-74290.
II-3
<PAGE> 43
ITEM 17. UNDERTAKINGS
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
ITEM 18. FINANCIAL STATEMENTS AND SCHEDULES
Not applicable.
II-4
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. George, State of Utah, on January 20, 1998.
SKYWEST, INC.
By: /s/ JERRY C. ATKIN
------------------------------------
Jerry C. Atkin
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Jerry C.
Atkin and Bradford R. Rich, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JERRY C. ATKIN Chairman of the Board, January 20, 1998
- ----------------------------------------------------- President and Chief Executive
Jerry C. Atkin Officer (Principal executive
officer)
/s/ SIDNEY J. ATKIN Vice Chairman of the Board January 20, 1998
- -----------------------------------------------------
Sidney J. Atkin
/s/ BRADFORD R. RICH Executive Vice President, January 20, 1998
- ----------------------------------------------------- Chief Financial Officer and
Bradford R. Rich Treasurer (Principal
financial and accounting
officer)
/s/ J. RALPH ATKIN Director January 20, 1998
- -----------------------------------------------------
J. Ralph Atkin
/s/ MERVYN K. COX Director January 20, 1998
- -----------------------------------------------------
Mervyn K. Cox
/s/ IAN M. CUMMING Director January 20, 1998
- -----------------------------------------------------
Ian M. Cumming
/s/ HENRY J. EYRING Director January 20, 1998
- -----------------------------------------------------
Henry J. Eyring
</TABLE>
II-5
<PAGE> 45
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
- ------------------------------------------------------ Director
Steven F. Udvar-Hazy
/s/ HYRUM W. SMITH Director January 20, 1998
- ------------------------------------------------------
Hyrum W. Smith
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1
SKYWEST, INC.
COMMON STOCK
-----------------
UNDERWRITING AGREEMENT
February __, 1998
THE ROBINSON-HUMPHREY COMPANY, LLC
SBC WARBURG DILLON READ INC.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o The Robinson-Humphrey Company, LLC
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Dear Sirs:
SkyWest, Inc., a Utah corporation (the "Company") proposes, subject to
the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I (the "Underwriters") an aggregate of 1,400,000 shares of
common stock, no par value ("Common Stock"), of the Company (the "Firm Shares")
and, at the election of the Underwriters, subject to the terms and conditions
stated herein, the Company proposes, subject to the terms and conditions stated
herein, to sell to the Underwriters up to 210,000 additional shares of Common
Stock (the "Optional Shares") (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are collectively
called the "Shares").
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-3 (File No.
333-_____) with respect to the Shares, including a prospectus subject
to completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (i)
if such registration statement, as it may have been amended, has
become effective under the Act and information has been omitted
therefrom in accordance with Rule 430A under the Act, either (A) if
the Company relies on Rule 434 under the Act, a term sheet relating to
the Shares that shall identify the preliminary prospectus that it
supplements containing such information as is required or permitted by
Rules 434, 430A and
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424(b) under the Act or (B) if the Company does not rely on Rule 434
under the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment
shall have been filed, in such registration statement) with such
changes or insertions as are required by Rule 430A or permitted by
Rule 424(b) under the Act and as have been provided to and approved by
the Representatives, or (ii) if such registration statement, as it may
have been amended, has not become effective under the Act, an
amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been provided to and
approved by the Representatives prior to the execution of this
Agreement. The Company may also file a related registration statement
with the Commission pursuant to Rule 462(b) under the Act for the
purpose of registering certain additional shares of Common Stock,
which registration statement will be effective upon filing with the
Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating
to the Common Stock, as amended at the time when it was or is declared
effective, including (i) all financial statement schedules and
exhibits thereto, (ii) all documents incorporated by reference therein
filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (iii) any information omitted therefrom pursuant
to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Rule 462(b) Registration Statement"
means any registration statement filed with the Commission pursuant to
Rule 462(b) under the Act (including the Registration Statement and
any Preliminary Prospectus or Prospectus incorporated therein at the
time such registration statement becomes effective); the term
"Registration Statement" includes both the Original Registration
Statement and any Rule 462(b) Registration Statement; the term
"Preliminary Prospectus" means each prospectus subject to completion
included in such registration statement or any amendment or
post-effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at the time
it was or is declared effective), including all documents incorporated
by reference therein filed under the Exchange Act; the term
"Prospectus" means (A) if the Company relies on Rule 434 of the Act,
the Term Sheet (as hereinafter defined) relating to the Shares that is
first filed pursuant to Rule 424(b)(7) of the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements; (B) if the Company does not rely on Rule 434 of the Act,
the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or (C) if no prospectus is required to be so filed, such
term means the prospectus included in the Registration Statement, in
either case, including all documents incorporated by referenced
therein filed under the Exchange Act; and the term "Term Sheet" means
any term sheet that satisfies the requirements of Rule 434 of the Act.
Any reference in this Agreement to an "amendment or supplement" to any
Preliminary Prospectus or the Prospectus or an "amendment" to any
registration statement (including the Registration Statement) shall be
deemed to include any document incorporated by reference therein and
filed with the Commission under the Exchange Act after the date of
such Preliminary Prospectus, Prospectus or Registration Statement, as
the case may be. For purposes of the preceding sentence, any reference
to the "effective date" of an amendment to a registration statement
shall, if such amendment is effected by means of the filing with the
Commission under the
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Exchange Act of a document incorporated by reference in such
registration statement, be deemed to refer to the date on which such
document was so filed with the Commission and any reference to the
"date" of a Prospectus that includes a Term Sheet shall mean the date
of such Term Sheet. As used herein, any reference to any statement or
information as being "made", "included", "contained", "disclosed", or
"set forth" in any Preliminary Prospectus, a Prospectus or any
amendment or supplement thereto, or the Registration Statement or any
amendment thereto (or other similar references) shall refer both to
information and statements actually appearing in such document as well
as information and statements incorporated by reference therein. For
purposes of the following representations and warranties, to the
extent reference is made to the Prospectus and at the relevant time
the Prospectus is not yet in existence, such reference shall be deemed
to be to the most recent Preliminary Prospectus.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission or the
securities authority of any state or other jurisdiction. If the
Registration Statement has become effective under the Act, no stop
order suspending the effectiveness of the Registration Statement or
any part thereof has been issued and no proceeding for that purpose
has been instituted or threatened or, to the best knowledge of the
Company, contemplated by the Commission or the securities authority of
any state or other jurisdiction.
(iii) When any Preliminary Prospectus or any amendment or
supplement thereto was filed with the Commission it (A) contained all
statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the Act
and the rules and regulations of the Commission thereunder and (B) did
not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto
was or is declared effective, and at each Time of Delivery (as
hereinafter defined), it (A) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and
the rules and regulations of the Commission thereunder and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When (A) the Prospectus or any amendment or supplement
thereto is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or such amendment or supplement is not required to be
so filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is
declared effective) or (B) any Term Sheet that is a part of the
Prospectus is filed with the Commission pursuant to Rule 434, and at
each Time of Delivery, the Prospectus, as amended or supplemented at
any such time, (1) contained or will contain all statements required
to be stated therein in accordance with, and complied or will comply
in all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (2) did not or
will not include any untrue statement of a material
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<PAGE> 4
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(iii) do not apply to statements or omissions made in any Preliminary
Prospectus and any amendment or supplement thereto, the Registration
Statement or any amendment thereto, the Prospectus or any amendment or
supplement thereto, or any Term Sheet in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through you specifically for use therein. The Company
acknowledges that the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information
relating to an Underwriter furnished in writing to the Company by any
Underwriter specifically for use therein.
(iv) If the Company has elected to rely on Rule 462(b) and
the Rule 462(b) Registration Statement has not been declared effective
(A) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to Rule
462(b) and has received confirmation of its receipt; and (B) the
Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under
the Act, or the Commission has received payment of such filing fee.
(v) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or
contracts and other documents are accurate and fairly present the
information required to be shown; and there are no statutes or legal
or governmental proceedings required to be described in the
Registration Statement or the Prospectus that are not described as
required and no contracts or documents of a character that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described and filed as required.
(vi) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has full
corporate and other power and authority to own or lease its properties
and conduct its business as described in the Prospectus. The Company
has full corporate and other power and authority to enter into this
Agreement and to perform its obligations hereunder. Each of the
Company and its subsidiaries is duly qualified to transact business as
a foreign corporation and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, except where the
failure to so qualify would not subject them to any material liability
or disability.
(vii) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Stock contained in the Prospectus. None of
the issued shares of capital stock of the Company or any of its
subsidiaries has been issued or is owned or held
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<PAGE> 5
in violation of any preemptive rights of shareholders, and no person
or entity (including any holder of outstanding shares of capital stock
of the Company or its subsidiaries) has any preemptive or other rights
to subscribe for any of the Shares.
(viii) The only subsidiaries of the Company are: (i) SkyWest
Airlines, Inc., a Utah corporation, (ii) Scenic Airlines, Inc., a Utah
corporation, and (iii) National Parks Transportation, Inc., a Utah
corporation. All of the issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned beneficially by the
Company free and clear of all liens, security interests, pledges,
charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever. Other than the
subsidiaries set forth in this paragraph, the Company does not own,
directly or indirectly, any capital stock or other equity securities
of any other corporation or any ownership interest in any partnership,
joint venture, limited liability company or other association other
than as disclosed in the Prospectus.
(ix) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any
such capital stock or any such convertible or exchangeable securities
or obligations, or (C) obligations of the Company or any such
subsidiary to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants,
rights or options.
(x) Since the date of the most recent audited financial
statements included in the Prospectus, neither the Company nor any of
its subsidiaries has sustained any material loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as disclosed in
or contemplated by the Prospectus.
(xi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A) neither
the Company nor any of its subsidiaries has incurred any liabilities
or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are
material to the Company and its subsidiaries, (B) the Company has not
purchased any of its outstanding capital stock or declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock, (C) there has not been any change in the capital stock,
long-term debt or short-term debt of the Company or any of its
subsidiaries, and (D) there has not been any material adverse change,
or any development involving a prospective material adverse change, in
or affecting the financial position, results of operations or business
of the Company and its subsidiaries, in each case other than as
disclosed in or contemplated by the Prospectus.
(xii) The Shares to be issued and sold by the Company have
been duly authorized and, when issued and delivered against payment
therefor as provided herein, will be validly
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<PAGE> 6
issued and fully paid and nonassessable and will conform to the
description of the Common Stock contained in the Prospectus; and the
certificates evidencing the Shares will comply with all applicable
requirements of Utah law.
(xiii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has been
effectively waived) or any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(xiv) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly registered
under the Act or exempt from the registration requirements of the Act
by reason of Sections 3(b), 4(2) or 4(6) thereof and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities or blue
sky laws.
(xv) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both would be, in
violation of its Articles of Incorporation or Bylaws or in default
under any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or to which any of their respective properties
or assets are subject.
(xvi) The issue and sale of the Shares to be issued and sold
by the Company and the performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with, or (with or without the giving of notice or the passage of time
or both) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or to which
any of their respective properties or assets is subject, nor will such
action conflict with or violate any provision of the Articles of
Incorporation or Bylaws of the Company or any of its subsidiaries or
any statute, rule or regulation or any order, judgment or decree of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties or assets.
(xvii) The Company and its subsidiaries have good and
marketable title in fee simple to all real property, if any, and good
title to all personal property owned by them, in each case free and
clear of all liens, security interests, pledges, charges,
encumbrances, mortgages and defects, except such as are disclosed in
the Prospectus or such as do not materially and adversely affect the
value of such property and do not interfere with the use made or
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company or any of its subsidiaries are
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<PAGE> 7
held under valid, subsisting and enforceable leases, with such
exceptions as are disclosed in the Prospectus or are not material and
do not interfere with the use made or proposed to be made of such
property and buildings by the Company or such subsidiary.
(xviii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for the issue and
sale of the Shares or the consummation of the transactions
contemplated by this Agreement, except the registration of the Shares
under the Act (which, if the Registration Statement is not effective
as of the time of execution hereof, shall be obtained as provided in
this Agreement) and such as may be required under state securities or
blue sky laws in connection with the offer, sale and distribution of
the Shares by the Underwriters.
(xix) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or threatened (or any basis therefor) in which
the Company or any of its subsidiaries is a party or of which any of
their respective properties or assets are the subject which, if
determined adversely to the Company or any such subsidiary, would
individually or in the aggregate have a material adverse effect on the
financial position, results of operations or business of the Company
and its subsidiaries. Neither the Company nor any of its subsidiaries
is in violation of, or in default with respect to, any statute, rule,
regulation, order, judgment or decree, except as described in the
Prospectus or such as do not and will not individually or in the
aggregate have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries,
and neither the Company nor any of its subsidiaries is required to
take any action in order to avoid any such violation or default.
(xx) Arthur Andersen LLP, who has certified certain
financial statements of the Company and its consolidated subsidiaries
for the fiscal years ended March 31, 1997, 1996 and 1995, is and was
during the periods covered by their reports included in the
Registration Statement and the Prospectus, independent public
accountants as required by the Act, the Exchange Act and the
respective rules and regulations of the Commission thereunder.
(xxi) The consolidated financial statements and schedules
(including the related notes) of the Company and its consolidated
subsidiaries included in the Registration Statement, the Prospectus or
any Preliminary Prospectus were prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved and fairly present the financial position and results
of operations of the Company and its subsidiaries, on a consolidated
basis, at the dates and for the periods presented. The selected
financial and operating data set forth under the caption "Selected
Consolidated Financial and Operating Data" in the Prospectus fairly
present, on the basis stated in the Prospectus, the information
included therein.
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<PAGE> 8
(xxii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding
agreement of the Company enforceable against the Company in accordance
with its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws relating
to or affecting the enforcement of creditors' rights generally and to
general equitable principles and except as the enforceability of
rights to indemnity and contribution under this Agreement may be
limited under applicable securities laws or the public policy
underlying such laws.
(xxiii) Neither the Company nor any of its officers, directors
or affiliates has (A) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Shares or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company
(xxiv) The Company has obtained for the benefit of the
Company and the Underwriters from each of its directors and executive
officers a written agreement that for a period of 180 days from the
date of the Prospectus such director or executive officer will not,
without your prior written consent, offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of (or
announce any offer, pledge, sale, grant of an option to purchase or
other disposition), directly or indirectly, any shares of Common Stock
or securities convertible into, or exercisable or exchangeable for,
shares of Common Stock.
(xxv) Neither the Company, any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any such subsidiary has, directly
or indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
(xxvi) The operations of the Company and its subsidiaries
with respect to any real property currently leased or owned or by any
means controlled by the Company or any subsidiary (the "Real
Property") are in compliance with all federal, state, and local laws,
ordinances, rules, and regulations relating to occupational health and
safety and the environment (collectively, "Laws"), and the Company and
its subsidiaries have all licenses, permits and authorizations
necessary to operate under all Laws and are in compliance with all
terms and conditions of such licenses, permits and authorizations;
neither the Company nor any subsidiary has authorized, conducted or
has knowledge of the generation, transportation, storage, use,
treatment, disposal or release of any hazardous substance,
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<PAGE> 9
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any
environmental law on, in or under any Real Property; and there is no
pending or threatened claim, litigation or any administrative agency
proceeding, nor has the Company or any subsidiary received any written
or oral notice from any governmental entity or third party, that: (A)
alleges a violation of any Laws by the Company or any subsidiary; (B)
alleges the Company or any subsidiary is a liable party under the
Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. ss. 9601 et seq. or any state superfund law; (C) alleges
possible contamination of the environment by the Company or any
subsidiary; or (D) alleges possible contamination of the Real
Property.
(xxvii) The Company and its subsidiaries own or have the right
to use all patents, patent applications, trademarks, trademark
applications, tradenames, service marks, copyrights, franchises, trade
secrets, proprietary or other confidential information and intangible
properties and assets (collectively, "Intangibles") necessary to their
respective businesses as presently conducted or as the Prospectus
indicates the Company or such subsidiary proposes to conduct; to the
best knowledge of the Company, neither the Company nor any subsidiary
has infringed or is infringing, and neither the Company nor any
subsidiary has received notice of infringement with respect to,
asserted Intangibles of others; and, to the best knowledge of the
Company, there is no infringement by others of Intangibles of the
Company or any of its subsidiaries.
(xxviii) The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a comparable cost, except as
disclosed in the Prospectus.
(xxix) Each of the Company and its subsidiaries makes and
keeps accurate books and records reflecting its assets and maintains
internal accounting controls which provide reasonable assurance that
(A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of the Company's consolidated financial statements in
accordance with generally accepted accounting principles and to
maintain accountability for the assets of the Company, (C) access to
the assets of the Company and each of its subsidiaries is permitted
only in accordance with management's authorization, and (D) the
recorded accountability for assets of the Company and each of its
subsidiaries is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xxx) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distributions on such
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<PAGE> 10
subsidiary's capital stock, from repaying to the Company any loans or
advances to such subsidiary or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as disclosed in the Prospectus.
(xxxi) The Company and its subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be
filed by them and have paid all taxes shown as due on such returns as
well as all other taxes, assessments and governmental charges that are
due and payable; and no deficiency with respect to any such return has
been assessed or proposed.
(xxxii) SkyWest Airlines, Inc. is a "citizen of the United
States" (as defined in Section 40102(a)(15) of Title 49 of the United
States Code, as amended) and is an air carrier operating under a
certificate of public convenience and necessity issued by the
Secretary of Transportation pursuant to Section 41102 of Title 49,
United States Code. There is in force with respect to SkyWest
Airlines, Inc. an air carrier operating certificate issued by the
Federal Aviation Administration pursuant to 14 C.F.R. Part 119.
(xxxiii) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
(xxxiv) The conditions for use of a Registration Statement on
Form S-3 set forth in the General Instructions to Form S-3 have been
satisfied with respect to the Company and the transactions
contemplated by this Agreement and the Registration Statement.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to purchase
from the Company and each Selling Stockholder, at a purchase price of
$_________ per share, the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Shares to be sold by the Company as set forth opposite their respective names
in Schedule II hereto by a fraction, the numerator of which is the aggregate
number of Firm Shares to be purchased by such Underwriter as set forth opposite
the name of such Underwriter in Schedule I hereto, and the denominator of which
is the aggregate number of Firm Shares to be purchased by the Underwriters from
the Company hereunder, and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company, at the purchase price per share set forth in
clause (a) of this Section 2, that portion of the number of Optional Shares as
to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares that such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in
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<PAGE> 11
Schedule I hereto and the denominator of which is the maximum number of the
Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election in whole or in part from time to time up to 210,000 Optional
Shares, at the purchase price per share set forth in clause (a) in the
paragraph above, for the sole purpose of covering over-allotments in the sale
of Firm Shares. Any such election to purchase Optional Shares may be exercised
by written notice from you to the Company, given from time to time within a
period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as hereinafter defined) or, unless you
and the Company otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice. In the event you elect to purchase
all or a portion of the Optional Shares, the Company agrees to furnish or cause
to be furnished to you the certificates, letters and opinions, and to satisfy
all conditions, set forth in Section 7 hereof at each Subsequent Time of
Delivery (as hereinafter defined).
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by you
of the release of the Shares, the several Underwriters propose to offer the
Shares for sale upon the terms and conditions disclosed in the Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive
form for the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as The Robinson-Humphrey Company,
LLC may request upon at least 48 hours' prior notice to the Company shall be
delivered by or on behalf of the Company to you for the account of such
Underwriter, against payment by such Underwriter on its behalf of the purchase
price therefor by official bank check or checks (payable in next day funds)
drawn on an Atlanta, Georgia bank, payable to the order of the Company in next
day available funds. The closing of the sale and purchase of the Shares shall
be held at the offices of King & Spalding, 191 Peachtree Street, Atlanta,
Georgia 30303, except that physical delivery of such certificates shall be made
at the office of The Depository Trust Company, 55 Water Street, New York, New
York 10041. The time and date of such delivery and payment shall be, with
respect to the Firm Shares, at 10:00 a.m., Atlanta time, on the third full
business day after the execution of this Agreement or at such other time and
date as you and the Company may agree upon in writing, and, with respect to the
Optional Shares, at 10:00 a.m., Atlanta time, on the date specified by you in
the written notice given by you of the Underwriters' election to purchase all
or part of such Optional Shares, or at such other time and date as you and the
Company may agree upon in writing. Such time and date for delivery of the Firm
Shares is herein called the "First Time of Delivery," such time and date for
delivery of the Optional Shares, if not the First Time of Delivery, is herein
called a "Subsequent Time of Delivery," and each such time and date for
delivery is herein called a "Time of Delivery." The Company will make such
certificates available for checking and packaging at least 24 hours prior to
each Time of Delivery at the office of the office of The Depository Trust
Company, 55 Water Street, New York, New York 10041 or
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<PAGE> 12
at such other location in New York, New York specified by you in writing at
least 48 hours prior to such Time of Delivery.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each of the Underwriters:
(i) If the Registration Statement has been declared
effective prior to the execution and delivery of this Agreement, the
Company will file either (A) the Prospectus with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable
and if consented to by you, subparagraph (4)) of Rule 424(b) or (B) a
Term Sheet with the Commission pursuant to and in accordance with Rule
434 not later than the earlier of (1) the second business day
following the execution and delivery of this Agreement or (2) the
fifth business day after the date on which the Registration Statement
is declared effective. The Company will advise you promptly of any
such filing pursuant to Rule 424(b) or Rule 434. The Company will file
promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering,
sale and distribution of the Shares.
(ii) The Company will not file with the Commission the
Prospectus or the amendment referred to in the second sentence of
Section 1(a)(i) hereof, any amendment or supplement to the Prospectus,
any Term Sheet, any amendment to the Registration Statement or any
Rule 462(b) Registration Statement unless you have received a
reasonable period of time to review any such proposed amendment or
supplement and consented to the filing thereof and will use its best
efforts to cause any such amendment to the Registration Statement to
be declared effective as promptly as possible. Upon the request of the
Representatives or counsel for the Underwriters, the Company will
promptly prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, any amendments to the
Registration Statement or any amendments or supplements to the
Prospectus or any Term Sheet that may be necessary or advisable in
connection with the distribution of the Shares by the several
Underwriters and will use its best efforts to cause any such amendment
to the Registration Statement to be declared effective as promptly as
possible. If required, the Company will file any amendment or
supplement to the Prospectus or any Term Sheet with the Commission in
the manner and within the time period required by Rule 424(b) and Rule
434, as applicable, under the Act. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time
when the Original Registration Statement or any amendment thereto or
any Rule 462(b) Registration Statement has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide evidence to the Representatives of each
such filing or effectiveness.
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<PAGE> 13
(iii) The Company will advise you promptly after receiving
notice or obtaining knowledge of (A) the issuance by the Commission of
any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or
any part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, (B) the suspension of the qualification of the
Shares for offer or sale in any jurisdiction or of the initiation or
threatening of any proceeding for any such purpose, or (C) any request
made by the Commission or any securities authority of any other
jurisdiction for amending the Original Registration Statement or any
Rule 462(b) Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its
best efforts to prevent the issuance of any such stop order and, if
any such stop order is issued, to obtain the withdrawal thereof as
promptly as possible.
(iv) If the delivery of a prospectus relating to the Shares
is required under the Act at any time prior to the expiration of nine
months after the date of the Prospectus and if at such time any events
have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or if for any reason it is necessary during
such same period to amend or supplement the Prospectus or to file
under the Exchange Act any document incorporated by reference in the
Prospectus to comply with the Act or the Exchange Act or the
respective rules and regulations thereunder, the Company will promptly
notify you and upon your request (but at the Company's expense)
prepare and file with the Commission an amendment or supplement to the
Prospectus or any such incorporated document that corrects such
statement or omission or effects such compliance and will furnish
without charge to each Underwriter and to any dealer in securities as
many copies of such amended or supplemented Prospectus as you may from
time to time reasonably request. If the delivery of a prospectus
relating to the Shares is required under the Act at any time nine
months or more after the date of the Prospectus, upon your request but
at the expense of such Underwriter, the Company will prepare and
deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act. Neither your consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 7.
(v) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for
offering and sale under the securities or blue sky laws of such
jurisdictions as you may request and will continue such qualifications
in effect for as long as may be necessary to complete the distribution
of the Shares, provided that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction.
(vi) The Company will promptly provide you, without charge,
(A) three manually executed copies of the Original Registration
Statement and any Rule 462(b) Registration
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<PAGE> 14
Statement as originally filed with the Commission and of each
amendment thereto, including all documents or information incorporated
by reference therein, (B) for each other Underwriter a conformed copy
of the Original Registration Statement and any Rule 462(b)
Registration Statement as originally filed and of each amendment
thereto, without exhibits but including all documents or information
incorporated by reference therein, and (C) so long as a prospectus
relating to the Shares is required to be delivered under the Act, as
many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as you may reasonably request.
(vii) As soon as practicable, but in any event not later
than the last day of the thirteenth month after the later of the
effective date of the Original Registration Statement and any Rule
462(b) Registration Statement, the Company will make generally
available to its security holders an earnings statement of the Company
and its subsidiaries, if any, covering a period of at least 12 months
beginning after the later of the effective date of the Original
Registration Statement and any Rule 462(b) Registration Statement
(which need not be audited) complying with Section 11(a) of the Act
and the rules and regulations thereunder.
(viii) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, without your prior written consent,
offer, pledge, issue, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of (or announce any offer, pledge, sale,
grant of an option to purchase or other disposition), directly or
indirectly, any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock, except as
provided in Section 2 and except for the issuance of Common Stock upon
the exercise of stock options outstanding on the date of this
Agreement to the extent that such stock options or warrants are
disclosed in the Prospectus.
(ix) During a period of five years from the later of the
effective date of the Original Registration Statement or any Rule
462(b) Registration Statement, the Company will furnish to you and,
upon request, to each of the other Underwriters, without charge, (A)
copies of all reports or other communications (financial or other)
furnished to shareholders, (B) as soon as they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange, and (C) such
additional information concerning the business and financial condition
of the Company and its subsidiaries, if any, as you may reasonably
request.
(x) Neither the Company nor any of its officers, directors
or affiliates will (i) take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Shares, (ii) sell, bid for, purchase
or pay anyone any compensation for soliciting purchases of, the Shares
or (iii) pay or agree to pay
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<PAGE> 15
to any person any compensation for soliciting another to purchase any
other securities of the Company.
(xi) The Company will apply the net proceeds from the
offering in the manner set forth under "Use of Proceeds" in the
Prospectus.
(xii) The Company will cause the Shares to be listed on the
Nasdaq National Market at each Time of Delivery and for at least one
year from the date hereof.
(xiii) If at any time during the period beginning on the date
the Registration Statement becomes effective and ending on the later
of (A) the date 30 days after such effective date and (B) the date
that is the earlier of (1) the date on which the Company first files
with the Commission a Quarterly Report on Form 10-Q after such
effective date and (2) the date on which the Company first issues a
quarterly financial report to shareholders after such effective date,
any rumor, publication or event relating to or affecting the Company
shall occur as a result of which in your reasonable opinion the market
price of the Common Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event
necessitates an amendment of or supplement to the Prospectus), the
Company will, after written notice from you advising the Company to
the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(xiv) If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 promulgated under the Act by the earlier
of (i) 10:00 P.M. Eastern time on the date of this Agreement and (ii)
the time confirmations are sent or given, as specified by Rule
462(b)(2).
6. EXPENSES. The Company will pay all costs and expenses incident to
the performance of this Agreement, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated pursuant to Section 10
hereof, including without limitation all costs and expenses incident to (i) the
fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and, if applicable,
filing of the Original Registration Statement (including all amendments
thereto), any Rule 462(b) Registration Statement, any Preliminary Prospectus,
the Prospectus and any amendments and supplements thereto, this Agreement and
any blue sky memoranda; (ii) the delivery of copies of the foregoing documents
to the Underwriters; (iii) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Shares; (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Shares, including transfer agent's and registrar's fees; (v) the
qualification of the Shares for offering and sale under state securities and
blue sky laws, including filing fees and fees and disbursements of counsel for
the Underwriters relating thereto; (vi) any
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<PAGE> 16
listing of the Shares on the Nasdaq National Market and (vii) any expenses for
travel, lodging and meals incurred by the Company and any of its officers,
directors and employees in connection with any meetings with prospective
investors in the Shares. It is understood, however, that, except as provided in
this Section 6, Section 8 and Section 10 hereof, the Underwriters will pay all
of their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses relating to the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of such Time of Delivery, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its covenants and agreements hereunder, and to the following
additional conditions precedent:
(a) If the Original Registration Statement as amended to date
has not become effective prior to the execution of this Agreement,
such Original Registration Statement and, if the Company has elected
to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have been declared effective not later than the earlier of (i) 11:00
a.m., Atlanta time, on the date of this Agreement, and (ii) the time
confirmations are sent or given as specified by Rule 462(b)(2), or,
with respect to the Original Registration Statement such later date
and/or time as shall have been consented to by you in writing. The
Prospectus and any amendment or supplement thereto or a Term Sheet
shall have been filed with the Commission pursuant to Rule 424(b) or
Rule 434, as applicable, within the applicable time period prescribed
for such filing and in accordance with Section 5 of this Agreement; no
stop order suspending the effectiveness of the Registration Statement
or any Rule 462(b) Registration Statement, respectively, or any part
thereof shall have been issued and no proceedings for that purpose
shall have been instituted, threatened or, to the knowledge of the
Company and the Representatives, contemplated by the Commission; and
all requests for additional information on the part of the Commission
shall have been complied with to your reasonable satisfaction.
(b) King & Spalding, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the
validity of the Shares being delivered at such Time of Delivery, the
Registration Statement, the Prospectus, and other related matters as
you may reasonably request, and the Company shall have furnished to
such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of
Delivery, of Parr, Waddoups, Brown, Gee & Loveless, counsel for the
Company in form and substance satisfactory to you and your counsel, to
the effect that:
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<PAGE> 17
(i) The Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the
corporate power and authority to own or lease its properties
and conduct its business as described in the Registration
Statement and the Prospectus and to enter into this Agreement
and perform its obligations hereunder. The Company is duly
qualified to transact business as a foreign corporation and
is in good standing under the laws of each other jurisdiction
in which it owns or leases property, or conducts any
business, so as to require such qualification, except where
the failure to so qualify would not have a material adverse
effect on the financial position, results of operations or
business of the Company and its subsidiaries.
(ii) Each of the subsidiaries of the Company has
been duly incorporated, is validly existing as a corporation
in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to
own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus.
Each such subsidiary is duly qualified to transact business
as a foreign corporation and is in good standing under the
laws of each other jurisdiction in which it owns or leases
property, or conducts any business, so as to require such
qualification, except where the failure to so qualify would
not subject them to any material liability or disability.
(iii) The Company's authorized, issued and
outstanding capital stock is as disclosed in the Prospectus.
All of the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description of the Common
Stock contained in the Prospectus. None of the issued shares
of capital stock of the Company or any of its subsidiaries
has been issued or is owned or held in violation of any
preemptive rights of shareholders, and no person or entity
(including any holder of outstanding shares of capital stock
of the Company or its subsidiaries) has any preemptive or
other rights to subscribe for any of the Shares.
(iv) All of the issued shares of capital stock of
each of the Company's subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable, and are
owned beneficially by the Company free and clear of all
liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, voting trusts, defects, equities or
claims of any nature whatsoever. Other than the subsidiaries
disclosed in the Prospectus, the Company does not own,
directly or indirectly, any capital stock or other equity
securities of any other corporation or any ownership interest
in any partnership, joint venture, limited liability company
or other association.
(v) Except as disclosed in the Prospectus, there
are no outstanding (A) securities or obligations of the
Company or any of its subsidiaries convertible
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<PAGE> 18
into or exchangeable for any capital stock of the Company or
any such subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such
subsidiary any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of
the Company or any such subsidiary to issue any shares of
capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or
options.
(vi) The Shares to be issued and sold by the
Company have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will
be validly issued and fully paid and nonassessable and will
conform to the description of the Common Stock contained in
the Prospectus; the certificates evidencing the Shares comply
with all applicable requirements of Utah law; the Shares have
been listed on the Nasdaq National Market.
(vii) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings between the
Company and any person granting such person the right to
require the Company to file a registration statement under
the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant
to the Registration Statement (or any such right has been
effectively waived) or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Act.
(viii) All offers and sales of the Company's capital
stock prior to the date hereof were at all relevant times
duly registered under the Act or exempt from the registration
requirements of the Act by reason of Sections 3(b), 4(2) or
4(6) thereof and were duly registered or the subject of an
available exemption from the registration requirements of the
applicable state securities or blue sky laws.
(ix) Neither the Company nor any of its
subsidiaries is, or with the giving of notice or passage of
time or both, would be, in violation of its Articles of
Incorporation or Bylaws or in default under any indenture,
mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any such
subsidiary is a party or to which any of their respective
properties or assets is subject.
(x) The issue and sale of the Shares being issued
at such Time of Delivery and the performance of this
Agreement and the consummation of the transactions herein
contemplated will not conflict with, or (with or without the
giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which the Company or any such subsidiary is a party or to
which any of their respective properties or assets is
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<PAGE> 19
subject, nor will such action conflict with or violate any
provision of the Articles of Incorporation or Bylaws of the
Company or any of its subsidiaries or any statute, rule or
regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties or assets.
(xi) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good
title to all personal property owned by them, in each case
free and clear of all liens, security interests, pledges,
charges, encumbrances, mortgages and defects except such as
are disclosed in the Prospectus or such as do not materially
and adversely affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company or any
of its subsidiaries are held by the Company or such
subsidiary under valid, subsisting and enforceable leases
with such exceptions as are disclosed in the Prospectus or
are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the
Company or such subsidiary.
(xii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the issue and sale of the Shares or the
consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the
Act and such as may be required under state securities or
blue sky laws in connection with the offer, sale and
distribution of the Shares by the Underwriters.
(xiii) To such counsel's knowledge and other than as
disclosed in or contemplated by the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or
informal) or investigation pending or threatened (or any
basis therefor) in which the Company or any of its
subsidiaries is a party or of which any of their respective
properties or assets is the subject which, if determined
adversely to the Company or any such subsidiary, would
individually or in the aggregate have a material adverse
effect on the financial position, results of operations or
business of the Company and its subsidiaries; and, to such
counsel's knowledge, neither the Company nor any of its
subsidiaries is in violation of, or in default with respect
to, any statute, rule, regulation, order, judgment or decree,
except as described in the Prospectus, nor is the Company or
any subsidiary required to take any action in order to avoid
any such violation or default.
(xiv) This Agreement has been duly authorized,
executed and delivered by the Company.
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<PAGE> 20
(xv) The Registration Statement, any Rule 462(b)
Registration Statement and the Prospectus and each amendment
or supplement thereto (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion), as of their respective effective or
issue dates, complied as to form in all material respects
with the requirements of the Act and the Exchange Act and the
respective rules and regulations thereunder. The descriptions
in the Registration Statement and the Prospectus of statutes,
legal and governmental proceedings or contracts and other
documents are accurate and fairly present the information
required to be shown; and such counsel do not know of any
statutes or legal or governmental proceedings required to be
described in the Registration Statement, any Rule 462(b)
Registration Statement or Prospectus that are not described
as required or of any contracts or documents of a character
required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration
Statement which are not described and filed as required.
(xvi) Each of the Registration Statement and any
Rule 462(b) Registration Statement is effective under the
Act; any required filing of the Prospectus or any Term Sheet
pursuant to Rule 424(b) or Rule 434, as applicable, has been
made in the manner and within the time period required by
Rule 424(b) or Rule 434, as applicable; and no stop order
suspending the effectiveness of the Registration Statement or
any Rule 462(b) Registration Statement, respectively, or any
part thereof has been issued and, to such counsel's
knowledge, no proceedings for that purpose have been
instituted or threatened or are contemplated by the
Commission.
(xvii) The Company is not, and will not be as a
result of the consummation of the transactions contemplated
by this Agreement, an "investment company," or a company
"controlled" by an "investment company," within the meaning
of the Investment Company Act of 1940.
(xviii) If the Company elects to rely upon Rule 434,
the Prospectus is not "materially different", as such term is
used in Rule 434, from the prospectus included in the
Registration Statement at the time of its effectiveness or an
effective post-effective amendment thereto (including such
information that is permitted to be omitted pursuant to Rule
430A).
Such counsel shall also state that they have no reason to
believe that the Registration Statement, or any further amendment
thereto made prior to such Time of Delivery, on its effective date and
as of such time of Delivery, contained or contains any untrue
statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, or any amendment or
supplement thereto made prior to such Time of Delivery, as of its
issue date and as of such Time of Delivery, contained or contains any
untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements
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<PAGE> 21
therein, in light of the circumstances under which they were made, not
misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and other
financial data contained in the Registration Statement, any amendment
thereto, or the Prospectus, or any amendment or supplement thereto).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deem proper, on
certificates of responsible officers of the Company and public
officials.
(d) You shall have received from Arthur Andersen LLP
letters dated, respectively, the date hereof (or, if the Registration
Statement has been declared effective prior to the execution and
delivery of this Agreement, dated such effective date and the date of
this Agreement) and each Time of Delivery, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto. In the
event that the letters referred to in this Section 7(d) set forth any
changes, decreases or increases in the items specified in paragraph
(iv) of Annex I, it shall be a further condition to the obligations of
the Underwriters that (i) such letters shall be accompanied by a
written explanation by the Company as to the significance thereof,
unless the Representatives deem such explanation unnecessary, and (ii)
such changes, decreases or increases do not, in your sole judgment,
make it impracticable or inadvisable to proceed with the purchase,
sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as
of the date of such letter.
(e) Since the date of the latest audited financial statements
included in the Prospectus, neither the Company nor any of its
subsidiaries shall have sustained (i) any loss or interference with
their respective businesses from fire, explosion, flood, hurricane or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as disclosed in or contemplated by the Prospectus, or (ii) any
change, or any development involving a prospective change (including
without limitation a change in management or control of the Company),
in or affecting the position (financial or otherwise), results of
operations, net worth or business prospects of the Company and its
subsidiaries, otherwise than as disclosed in or contemplated by the
Prospectus, the effect of which, in either such case, is in your
judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the
Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(f) Subsequent to the date hereof there shall not have
occurred any of the following: (i) any suspension or limitation in
trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or in the
Common Stock by the Commission or the Nasdaq Stock Market; (ii) a
moratorium on commercial banking activities in New York declared by
either federal or state authorities; or (iii) any outbreak or
escalation of hostilities involving the United States, declaration by
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<PAGE> 22
the United States of a national emergency or war or any other national
or international calamity or emergency if the effect of any such event
specified in this clause (iv) in your judgment makes it impracticable
or inadvisable to proceed with the purchase, sale and delivery of the
Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(g) The Company shall have furnished to you at such Time of
Delivery certificates of officers of the Company, satisfactory to you
as to the accuracy of the representations and warranties of the
Company herein at and as of such Time of Delivery, as to the
performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have
furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (e) of this Section 7, and as to such
other matters as you may reasonably request.
(h) The Shares shall have been approved for inclusion in
the Nasdaq National Market.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement made by the Company in Section
1 of this Agreement; (ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or (iii) the omission or alleged omission to state in
the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any Rule 462(b)
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto or any Application in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you expressly for use therein. The Company
acknowledges that the statements set forth under the heading "Underwriting" in
the Prospectus constitute the only
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<PAGE> 23
information relating to an Underwriter furnished in writing to the Company by
any Underwriter specifically for use therein. The Company will not, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter
from all liability arising out of such claim, action, suit or proceeding (or
related cause of action or portion thereof).
(b) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities to which the Company may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto or any Application or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through you expressly for use therein; and will reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party); provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnified party shall
have the right to select separate counsel to defend such action on behalf of
such indemnified party. After such notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation,
- 23 -
<PAGE> 24
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, which separate counsel shall be designated by the
Representatives in the case of indemnity arising under paragraph (a) of this
Section 8 or (ii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
Nothing in this Section 8(c) shall preclude an indemnified party from
participating at its own expense in the defense of any such action so assumed
by the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were
- 24 -
<PAGE> 25
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on
the terms contained herein. If within thirty-six (36) hours after such default
by any Underwriter you do not arrange for the purchase of such Shares, the
Company shall be entitled to a further period of thirty-six (36) hours within
which to procure another party or other parties satisfactory to you to purchase
such Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Shares, or the Company notifies you that they have so arranged for the
purchase of such Shares, you or the Company shall have the right to postpone a
Time of Delivery for a period of not more than seven days in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus that in your opinion may thereby be made necessary. The cost of
preparing, printing and filing any such amendments shall be paid for by the
Underwriters. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of
Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
- 25 -
<PAGE> 26
10. TERMINATION. (a) This Agreement may be terminated with respect to
the Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that
(i) any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied, or (ii) the Company shall have failed, refused
or been unable to deliver the Shares or to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
to such Time of Delivery, in either case other than by reason of a default by
any of the Underwriters. If this Agreement is terminated pursuant to this
Section 10(a), the Company will reimburse the Underwriters upon demand for all
out-of-pocket expenses (including counsel fees and disbursements) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Shares. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in Section 9(a), the aggregate number of such Shares which remains
unpurchased exceeds one-eleventh of the aggregate number of Shares to be
purchased at such Time of Delivery, or if the Company shall not exercise the
right described in Section 9(b) to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to a Subsequent Time of Delivery, the obligations
of the Underwriters to purchase and of the Company to sell the Optional Shares)
shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person
referred to in Section 8(e) or the Company or any officer or director or
controlling person of the Company referred to in Section 8(e), and shall
survive delivery of and payment for the Shares. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6 and 8
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or telegraphed and
confirmed in writing to you in care of The Robinson-Humphrey Company, LLC, 3333
Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: Corporate Finance
Department (with a copy to King & Spalding, 191 Peachtree Street, Atlanta,
Georgia 30303, Attention: John J. Kelley III); and if sent to the Company,
shall be mailed, delivered or telegraphed and confirmed in writing to the
Company at the address set forth in the Registration Statement, Attention:
Secretary (with a copy to Parr, Waddoups, Brown, Gee &
- 26 -
<PAGE> 27
Loveless, 185 South State Street, Suite 1300, Salt Lake City, Utah 84147,
Attention: Richard G. Brown).
13. REPRESENTATIVES. You will act for the several Underwriters
in connection with the transactions contemplated by this Agreement, and any
action under this Agreement taken by you jointly or by The Robinson-Humphrey
Company, LLC will be binding upon all the Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and
inure solely to the benefit of, the Underwriters and the Company to the extent
provided in Sections 8 and 10 hereof, the officers and directors and
controlling persons referred to therein and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia without giving
effect to any provisions regarding conflicts of
laws.
16. COUNTERPARTS. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall
be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
- 27 -
<PAGE> 28
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and
upon the acceptance hereof by The Robinson-Humphrey Company, LLC, on behalf of
each of the Underwriters, this letter will constitute a binding agreement among
the Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
SKYWEST, INC.
By:
-------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above at
Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, LLC
SBC WARBURG DILLON READ INC.
By: The Robinson-Humphrey Company, LLC
By:
------------------------------------
(Authorized Representative)
On behalf of each of the Underwriters
- 28 -
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Optional Shares
Total Number of to be Purchased if
Firm Shares to be Maximum Option
Underwriter Purchased Exercised
----------- --------- ---------
<S> <C> <C>
The Robinson-Humphrey Company, LLC
SBC Warburg Dillon Read Inc. --------- ---------
Total.........................................
========= =========
</TABLE>
<PAGE> 30
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, Arthur
Andersen LLP shall furnish letters to the Underwriters to the effect
that:
(i) they are independent public accountants with respect to the
Company and its consolidated subsidiaries within the meaning the Act
and the applicable published rules and regulations thereunder;
(ii) in their opinion, the consolidated financial statements and
schedules audited by them and included in the Prospectus and the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations thereunder;
(iii) the financial statements of the Company as of and for the
nine-month period ended December 31, 1997 were reviewed by them in
accordance with the standards established by the American Institute of
Certified Public Accountants and based upon their review they are not
aware of any material modifications that should be made to such
financial statements for them to be in conformity with generally
accepted accounting principles, and such financial statements comply
as to form in all material respects with the applicable accounting
requirements of the Act and the applicable rules and regulations
thereunder;
(iv) On the basis of a reading of the latest available interim
unaudited consolidated condensed financial statements of the Company
and its consolidated subsidiaries, a reading of the unaudited amounts
for revenues and total and per share amounts of net income for the
nine months ended December 31, 1997 and of the unaudited consolidated
financial statements of the Company and its consolidated subsidiaries
for the periods from which such amounts are derived, limited
procedures, not constituting an audit in accordance with generally
accepted auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below, a
reading of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the
Company and its subsidiaries since the date of the latest audited
financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries responsible for
financial accounting matters and such other inquiries and procedures
as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(A) the unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus do
not comply in form in all material respects with the
applicable accounting requirements of the Act, the Exchange
Act and the related published rules and regulations
thereunder or are not in conformity with generally accepted
principles applied on a basis substantially consistent with
that of the audited consolidated financial statements
included in the Registration Statement and the Prospectus;
A-1
<PAGE> 31
(B) the unaudited amounts for revenues and total and per
share amounts of net income included in the Registration
Statement and the Prospectus do not agree with the amounts
set forth in the unaudited consolidated financial statements
for those same periods or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the corresponding
amounts in the audited consolidated financial statements
included in the Registration Statement and the Prospectus;
and
(C) as of a specified date not more than 5 days prior to
the date of such letter, there were any changes in the
capital stock (other than the issuance of capital stock upon
exercise of employee stock options that were outstanding on
the date of the latest balance sheet included in the
Prospectus) or any increase in inventories or the long-term
debt or short-term debt of the Company and its subsidiaries,
or any decreases in net current assets or net assets or other
items specified by the Representatives, or any increases in
any other items specified by the Representatives, in each
case as compared with amounts shown in the latest balance
sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus
discloses have occurred or may occur, or which are described
in such letter; and
(D) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (C) there were any decreases in
revenues or operating income or the total or per share
amounts of net income or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the
comparable period of the preceding year and with any other
period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur, or which are described in such letter; and
(v) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph
(iv) above, they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives that are included or
incorporated by reference in the Registration Statement and the
Prospectus, or which appear in Part II of, or in exhibits or schedules
to, the Registration Statement and have compared certain of such
amounts, percentages and financial information with the accounting
records of the Company and its subsidiaries and have found them to be
in agreement.
References to the Registration Statement and the Prospectus
in this Annex I shall include any amendment or supplement thereto at
the date of such letter.
A-2
<PAGE> 1
EXHIBIT 5
[PARR, WADDOUPS, BROWN, GEE & LOVELESS LETTERHEAD]
January 21, 1998
The Board of Directors of
SkyWest, Inc.
444 South River Road
St. George, Utah 84790
Re: SkyWest, Inc. - Registration Statement on Form S-3
Gentlemen:
As counsel to SkyWest, Inc., a Utah corporation (the "Company"), in
connection with the sale by the Company of up to 1,610,000 shares (including
210,000 shares subject to an over-allotment option granted by the Company to
the underwriters) of the Company's Common Stock (the "Shares") pursuant to a
Registration Statement on Form S-3 (the "Registration Statement"), we have
examined the originals or certified, conformed or reproduction copies of all
such records, agreements, instruments and documents as we have deemed necessary
as the basis for the opinion expressed herein. In all such examinations we have
assumed the genuineness of all signatures on original or certified copies
submitted to us as conformed or reproduction copies. As to various questions of
fact relevant to the opinion hereinafter expressed, we have relied upon
certificates of public officials and statements or certificates of officers or
representatives of the Company and others.
Based upon the foregoing, we are of the opinion that the Shares to be sold
by the Company will, upon payment therefor, be validly issued, fully paid and
nonassessable.
We hereby consent to the reference to our firm under "Legal Matters" in
the prospectus which constitutes a part of the Registration Statement and the
filing of this opinion as an exhibit to the Registration Statement.
PARR, WADDOUPS, BROWN, GEE & LOVELESS
/s/ PARR, WADDOUPS, BROWN, GEE & LOVELESS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated May 23, 1997,
included or incorporated by reference in SkyWest, Inc.'s Form 10-K for the year
ended March 31, 1997 and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 21, 1998
