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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
RENO AIR, INC.
(Name of Subject Company)
RENO AIR, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
SERIES A CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
759741101
AND
759741705
((CUSIP) Number of Class of Securities)
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STEVEN A. ROSSUM
SENIOR VICE PRESIDENT,
GENERAL COUNSEL,
AND CORPORATE SECRETARY
RENO AIR, INC.
220 EDISON WAY
RENO, NEVADA 89502
TELEPHONE: (702) 954-5000
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement)
COPIES TO:
LAWRENCE LEDERMAN, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY
ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
(212) 530-5000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Reno Air, Inc., a Nevada corporation (the
"Company"), and the address of its principal executive offices is 220 Edison
Way, Reno, Nevada 89502. The titles of the two classes of equity securities to
which this statement relates are (i) Common Stock, par value $.01 per share, of
the Company (the "Common Shares") and (ii) Series A Cumulative Convertible
Exchangeable Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Shares" and, together with the Common Shares, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated November 24, 1998 (the "Schedule 14D-1"), of
Bonanza Acquisitions, Inc., a Nevada corporation ("Purchaser") and a
wholly-owned subsidiary of American Airlines, Inc., a Delaware corporation
("American"), to purchase all of the issued and outstanding (i) Common Shares at
a price of $7.75 per Common Share (or any greater amount paid per Common Share
pursuant to the Offers (as defined below)), net to the seller in cash (the "Per
Common Share Amount"), and (ii) Preferred Shares at an initial price of $27.50
per Preferred Share and thereafter declining as provided in Annex B to the
Merger Agreement (or any greater amount paid per Preferred Share pursuant to the
Offers) plus accrued and unpaid dividends thereon, net to the seller in cash
(the "Per Preferred Share Amount" and, together with the Per Common Share
Amount, the "Per Share Amount"), upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated November 24, 1998, and any supplement
thereto (the "Offer to Purchase"), and the related Letters of Transmittal and
any supplement thereto (which together constitute the "Offers").
The Offers are being made pursuant to an Agreement and Plan of Merger among
American, Purchaser and the Company, dated as of November 19, 1998 (the "Merger
Agreement"), which provides that, following the consummation of the Offers and
the satisfaction or waiver of certain conditions, Purchaser will be merged with
and into the Company (the "Merger"), with the Company continuing as the
surviving corporation (the "Surviving Corporation"). In the Merger, (a) each
outstanding (i) Common Share (other than Common Shares held in the treasury of
the Company, or by American, Purchaser or any other wholly-owned subsidiary of
American, which Common Shares will be cancelled, and other than Common Shares,
if any, held by stockholders who perfect any appraisal rights they may have
under the Nevada Revised Statutes of the State of Nevada ("Nevada Law")), will,
by virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive the Per Common Share Amount and (ii)
Preferred Share (other than Preferred Shares held in the treasury of the
Company, or by American, Purchaser or any other wholly-owned subsidiary of
American, which Preferred Shares will be cancelled, and other than Preferred
Shares, if any, held by stockholders who perfect any appraisal rights they may
have under Nevada Law), will, by virtue of the Merger and without any action by
the holder thereof, be converted into the right to receive the amount per
Preferred Share provided in Annex B to the Merger Agreement (the "Primary
Merger") or (b) in the event that the holders of less than 66 2/3% of the
Preferred Shares have voted in favor of the Primary Merger, (i) each outstanding
Common Share will be converted, cancelled or otherwise exist in the same manner
as in the Primary Merger and (ii) each outstanding Preferred Share will remain
issued and outstanding and unchanged thereby as a Preferred Share of the
Surviving Corporation.
According to the Schedule 14D-1, the addresses of the principal executive
offices of American and Purchaser are at 4333 Amon Carter Boulevard, Fort Worth,
Texas 76155.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above, which information is incorporated
herein by reference.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its executive officers, directors and/or
affiliates are described below.
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On February 18, 1998, the Company Board appointed Joseph R. O'Gorman as
Chairman of the Board of Directors, Chief Executive Officer and President of the
Company. Mr. O'Gorman subsequently entered into an Employment Agreement with the
Company with the terms and provisions thereof retroactive to his date of
appointment (the "O'Gorman Employment Agreement"). Between March and June 1998,
Mr. O'Gorman assembled a new management team consisting of five executive
officers (the "Executives") with whom the Company entered into employment
agreements (the "Other Company Employment Agreements"): Vicki W. Bretthauer,
Vice President -- Administration; Beverley Grear, Senior Vice President --
Operations; W. Stephen Jackson, Senior Vice President -- Finance and Chief
Financial Officer; Steven A. Rossum, Senior Vice President, General Counsel, and
Corporate Secretary; and Joanne Smith, Senior Vice President -- Marketing and
Planning.
The employment period under the O'Gorman Employment Agreement commenced on
February 18, 1998 and ends on December 30, 2000, subject to annual renewals
commencing on June 30, 1999. Following a "change of control" of the Company (as
defined in the O'Gorman Employment Agreement), the employment period is deemed
to terminate on the 30th monthly anniversary of the date of the "change of
control". The consummation of the transactions contemplated by the Merger
Agreement would constitute such a "charge of control".
Under the O'Gorman Employment Agreement, Mr. O'Gorman receives a base salary
of $250,000 per year, subject to review and increase by the Board of Directors
of the Company (the "Company Board"). Mr. O'Gorman is entitled to receive an
annual bonus (as determined by the Company Board in good faith) of up to the
maximum participation level provided for in the Company's incentive compensation
plan for officers. Mr. O'Gorman was also awarded options to purchase 250,000
Common Shares, at an exercise price of $5.63, vesting in five equal installments
beginning on the date of grant at six-month intervals. Mr. O'Gorman was also
awarded options to purchase 30,000 Common Shares under the terms of the
Company's stock option plan for Directors. All stock options granted to Mr.
O'Gorman become immediately vested upon the first to occur of a "change of
control" of the Company and the termination of his employment other than by the
Company for "cause" or by Mr. O'Gorman without "good reason" (as such terms are
defined in the O'Gorman Employment Agreement), and shall remain exercisable
until the earlier of the stated expiration date of the options and 180 days
following the date of termination. The O'Gorman Employment Agreement also
provides for lifetime unlimited free positive space airline travel for Mr.
O'Gorman and members of his family on the Company's and any successor's
airlines. Mr. O'Gorman is entitled to participate in all other benefits, plans
and programs made available by the Company to its most-senior executive officers
and key employees.
If Mr. O'Gorman dies or becomes disabled during his employment period, he is
entitled to salary continuation for six-month and twelve-month periods,
respectively. If Mr. O'Gorman's employment is terminated by the Company for
"cause" or by Mr. O'Gorman without "good reason" (which requires at least 60
days' prior notice), he is not entitled to any additional compensation. On the
other hand, if Mr. O'Gorman's employment is terminated by the Company without
"cause" or by Mr. O'Gorman for "good reason" (in each case which requires at
least 60 days' prior notice), Mr. O'Gorman is entitled to receive (i) the entire
salary which would otherwise be payable to him under the O'Gorman Employment
Agreement for the remainder of the employment period plus, if such termination
follows a "change in control" of the Company, (ii) an amount equal to the
product of 2 1/2 times the maximum annual bonus payable to Mr. O'Gorman in
accordance with the then-current incentive bonus plan maintained by the Company.
"Good Reason" is defined in the O'Gorman Employment Agreement to include a
termination by Mr. O'Gorman for any reason during the 180-day period following
the first anniversary of the date of a "change of control". The payments
described above are payable in three equal monthly installments following the
date of termination. The O'Gorman Employment Agreement also contains customary
indemnification and confidentiality provisions.
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The Other Company Employment Agreements are substantially similar to the
O'Gorman Employment Agreement. The Other Company Employment Agreements generally
provide for three-year employment periods, which are subject to annual renewal
beginning on June 30, 1999. Each such employment period is deemed to terminate
on the third anniversary of the date of a "change of control" of the Company.
Under the Other Company Employment Agreements, Ms. Bretthauer receives an annual
salary of $125,000, Ms. Grear, Mr. Jackson and Ms. Smith each receives an annual
salary of $175,000 and Mr. Rossum receives an annual salary of $180,000. Each
Executive received relocation assistance and temporary living benefits in
connection with their relocations to Reno, Nevada and Mr. Rossum received a
$50,000 signing bonus. If the employment of any of the Executives is terminated
by the Company without "cause" or by the Executive for "good reason", such
Executive is entitled to receive (i) the entire salary which would otherwise be
payable under his or her employment agreement for the remainder of the
employment period plus, if such termination follows a "change in control" of the
Company, (ii) an amount equal to the product of three times the maximum annual
bonus payable to such executive in accordance with the then-current incentive
bonus plan maintained by the Company. "Good Reason" is defined in the Other
Company Employment Agreements to include a termination by the Executive for any
reason during the 180-day period following the first anniversary of the date of
a "change of control". The payments described above are payable in three equal
monthly installments following the date of termination. The Other Company
Employment Agreements also contain customary indemnification and confidentiality
provisions.
In connection with the execution and delivery of the Merger Agreement, each
of the Executives other than Mr. O'Gorman entered into an employment agreement
with the Company and American which will supersede the existing Other Company
Employment Agreements at the effective time of the Merger, each of which is
described in Item 3(b)(2) below. No amendment or modification has been made to
the O'Gorman Employment Agreement.
(b)(2) Certain contracts, agreements, arrangements and understandings
between the Company and/or its affiliates, and American and/or Purchaser, are
described below.
THE MERGER AGREEMENT AND CONFIDENTIALITY AGREEMENT.
American, Purchaser and the Company have entered into the Merger Agreement,
a copy of which is filed herewith as Exhibit (c)(1) hereto. The description of
the terms of the Merger Agreement contained in the Offer to Purchase under the
heading "BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; THE MERGER
AGREEMENT; THE EMPLOYMENT AGREEMENTS -- THE MERGER AGREEMENT" are incorporated
herein by reference.
On June 12, 1998, AMR Corporation (American's parent) and the Company
entered into a confidentiality agreement (the "Confidentiality Agreement").
Pursuant to the Confidentiality Agreement, American agreed to use the Evaluation
Material (as defined in the Confidentiality Agreement) furnished to it by the
Company solely for the purpose of evaluating a possible negotiated transaction
between American and the Company and further agreed to keep such material
confidential. The foregoing summary of the Confidentiality Agreement is
qualified in its entirety to the full text thereof which is incorporated herein
by reference and a copy of which has been filed as Exhibit (c)(7) hereto.
COMMERCIAL ARRANGEMENTS BETWEEN AMERICAN AND THE COMPANY.
American and the Company have, since 1993, had several on-going commercial
arrangements between them.
The Company entered into a MultiHost Agreement on April 14, 1997 with The
SABRE Group, Inc., an affiliate of American. The agreement grants the Company a
licence to use SABRE, a computerized travel reservation system. The agreement
expires in November 2004.
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American and the Company entered into an Amended and Restated AAdvantage
Participating Carrier Agreement dated March 28, 1995, which has been
subsequently amended, and which provides for the accrual and redemption of
frequent flyer points by members of American's frequent flyer program on the
Company's flights in the Western Region (defined as areas within the United
States falling within the Pacific and Mountain time zones) as well as selected
routes to Chicago, Anchorage and Vancouver. The agreement may be terminated by
either party, with or without cause, on at least 210 days' prior notice.
On October 24, 1994, American and the Company executed an Amended and
Restated Agreement of Sublease, which has been subsequently amended, relating to
the sublease by the Company from American of five gates and related terminal
space and facilities at San Jose International Airport in San Jose, California.
This agreement expires in November 2007.
The Company also subleases from American gates and other related terminal
space and facilities at John Wayne Airport in Orange County, California pursuant
to an Agreement of Sublease, dated October 18, 1994. This agreement has been
extended to December 31, 1998, and may be terminated by either party on prior
notice as provided therein.
In addition, American and the Company have entered into an Operations
Agreement, dated October 18, 1994, pursuant to which Company has been allocated
seven slots at John Wayne Airport as well as several more slots, whose number
vary from month to month based on a formula tied to the Company's and American's
seat capacity. This Agreement also provides for the permanent allocation of two
additional slots to the Company, which will remain with the Company upon
termination or expiration of this Agreement. This Agreement has been extended to
December 31, 1998 and may be terminated by either party on prior notice as
provided therein.
American and its affiliates also provide ground handling and related airport
services on behalf of the Company at several airports pursuant to various
agreements. These agreements are terminable by either party on 30 to 60 days'
notice.
Under certain circumstances, the agreements described above may be modified
if the Offers and the Merger are not consummated, as more fully described
immediately above under the heading "THE MERGER AGREEMENT".
AMERICAN EMPLOYMENT AGREEMENTS.
On November 19, 1998, the Company and American entered into employment
agreements (the "American Employment Agreements") with each of the Executives.
Each of the American Employment Agreements has an initial term of 24 months
commencing upon the effective time of the Merger. Under their respective
American Employment Agreements, Ms. Bretthauer will receive an annual base
salary of $125,000, Ms. Grear, Mr. Jackson and Ms. Smith will each receive an
annual base salary of $175,000 and Mr. Rossum will receive an annual base salary
of $180,000. These base salaries may be increased, but not decreased, at any
time. Beginning in calendar year 1999, each of the Executives shall be entitled
to participate in American's incentive compensation plan.
Each of the Executives will be entitled to receive awards of stock options
pursuant to AMR Corporation's Performance Share Program (the "Performance Share
Program") and Career Equity Program (the "Career Equity Program") as well as
receive employee stock options annually on the same basis as other officers of
American of like rank.
At the effective time of the Merger, each Executive shall receive (i) a
payment equal to 150% of the Executive's annual base salary, (ii) 2,500 stock
options to purchase common stock of AMR Corporation, (iii) 1,000 shares of
deferred stock under the Performance Share Program and (iv) 1,000 shares of
deferred stock under the Career Equity Program.
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The American Employment Agreements provide that if an Executive is
terminated without "Cause" (as defined in each American Employment Agreement) or
resigns for "Good Reason" (as defined in each American Employment Agreement):
(i) American shall pay the Executive two times the Executive's annual base
salary, (ii) the Executive shall be entitled to receive various fringe benefits
(including, without limitation, medical insurance and air travel) until the
30-month anniversary of the consummation of the Merger, and (iii) the Executive
shall become entitled to exercise any stock options that were vested at the time
of termination. The American Employment Agreements also provide that if an
Executive is terminated for "Cause", the Executive will not be entitled to any
additional compensation.
If upon the expiration of the initial 24 month term of employment under each
Employment Agreement: (i) an Executive is not offered or elects not to accept an
offer of continued employment with American, such Executive shall receive the
same payments and benefits as if such Executive had been terminated without
"Cause", and (ii) an Executive is offered and accepts continued employment with
American, such Executive shall receive a payment equal to two times such
Executive's base salary, and shall continue to receive air travel benefits up
until the 30-month anniversary of the consummation of the Merger.
In the event an American Employment Agreement is terminated by American
(other than for "Cause"), by the Executive for "Good Reason" or upon the
occurrence of the "Non-Renewal Event" (as defined in each American Employment
Agreement) and the Executive relocates (in the continental U.S.) from the Reno
area within 12 months from such date, American will reimburse or pay the
Executive for basic and customary closing costs and reasonable packing and
moving costs up to a maximum amount of $35,000.
Copies of the American Employment Agreements described immediately above are
filed as Exhibits (c)(2) - (c)(6) hereto.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATIONS OF THE COMPANY BOARD.
At a meeting held on November 18, 1998, the Company Board, by unanimous vote
(i) determined that the Merger Agreement and the transactions contemplated
thereby, including the Offers and the Merger, taken together, are fair to, and
in the best interests of, the holders of Common Shares, (ii) approved and
adopted the Merger Agreement, the Offers and the transactions contemplated
thereby (including, without limitation, for purposes of Section 78.438 of Nevada
Law), (iii) recommended that the stockholders of the Company accept the Offers
and, if required by Nevada Law, approve and adopt the Merger Agreement and the
transactions contemplated thereby, and (iv) amended the bylaws of the Company to
exempt the Company from the provisions of Sections 78.378 through 78.3793 of
Nevada Law and to permit the stockholders of the Company to take action by
written consent. ACCORDINGLY, THE COMPANY BOARD RECOMMENDS THAT THE STOCKHOLDERS
OF THE COMPANY TENDER THEIR SHARES PURSUANT TO THE OFFERS. Copies of a press
release announcing the Merger Agreement and the transactions contemplated
thereby and of a letter to the stockholders of the Company communicating the
Company Board's recommendation are filed herewith as Exhibits (a)(4) and (a)(5),
respectively, and are incorporated herein by reference.
(b)(1) BACKGROUND.
On February 18, 1998, Joseph R. O'Gorman was appointed as the Chairman of
the Board of Directors, Chief Executive Officer, and President of the Company.
Between February 1998 and June 1998, Mr. O'Gorman replaced the Company's eleven
officers with a new management team of five experienced airline executives to
manage the Company.
In March 1998, the Company retained Robert L. Fornaro as a special
consultant to assist Mr. O'Gorman and the Company Board in evaluating the
strategic landscape of the Company. Mr. Fornaro has held senior planning,
scheduling and marketing positions at US Airways, Northwest
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Airlines, Braniff International Airlines and Trans World Airlines. Based upon
Mr. Fornaro's analysis and Mr. O'Gorman's evaluation of the Company and its
strengths and weaknesses, Mr. O'Gorman provided a report to the Company Board on
April 8, 1998 entitled "Competitive Assessment of Reno Air." Among the
recommendations made by Mr. O'Gorman to the Company Board were the pursuit of a
strategy to seek a long-term alliance with a major air carrier--either through
marketing relationships or pursuant to a business combination. From February
1998 until the announcement of the transaction with American, Mr. O'Gorman and
other representatives of the Company contacted senior executives at numerous
other airlines to determine whether any such airline would be interested in
pursuing a transaction with the Company.
On March 25, 1998, Messrs. O'Gorman and Fornaro met with Donald J. Carty,
who was then the President and Chief Operating Officer of AMR Corporation and
American (Mr. Carty is now Chairman, President and Chief Executive Officer of
AMR Corporation and American and Chairman of Purchaser), and Jeffrey C.
Campbell, Vice President--Corporate Development and Treasurer of American. The
meeting took place at American's corporate headquarters in Forth Worth, Texas.
The stated purpose of the meeting was to discuss opportunities to expand the
four year-old marketing relationship between American and the Company. Messrs.
Carty and O'Gorman met privately following the meeting and in that subsequent
private discussion, broached the possibility of American purchasing the Company.
Andrew A. Cuomo, President of Airline Management Services, Inc., an
affiliate of American, met with Mr. O'Gorman, Ms. Smith, and Steven A. Rossum,
the Company's Senior Vice President, General Counsel, and Corporate Secretary on
or about May 11, 1998 at American's headquarters for discussions regarding an
expanded marketing relationship.
On June 11, 1998, Gerard J. Arpey, Senior Vice President of Finance and
Planning and Chief Financial Officer of American, Messrs. Campbell and O'Gorman
and Vicki W. Bretthauer, the Company's Vice President--Administration, met at an
Admiral's Club at Dallas-Fort Worth International Airport to discuss due
diligence and a preliminary overview of the Company. On June 12, 1998 the
parties executed the Confidentiality Agreement.
Over the next several months, representatives of American conducted due
diligence on the Company. Throughout this process, Mr. O'Gorman met frequently
with the Company Board and the Executive Committee thereof. From April 7, 1998
through and including November 16, 1998, the Company's relationship with
American and the status of negotiations regarding a strategic alliance and/or
business combination were discussed at not less than 12 meetings of the Company
Board and 6 meetings of the Executive Committee.
On September 24, 1998, Mr. O'Gorman met with Messrs. Arpey and Campbell in
St. Louis, Missouri. At that time, American indicated it would be interested in
pursuing an acquisition of the Company. Price terms were not discussed at that
meeting.
In early October 1998, the Company formally engaged Salomon Smith Barney
Inc. ("Salomon") to act as its exclusive financial advisor and Milbank, Tweed,
Hadley & McCloy to act as special counsel, to assist the Company in connection
with any proposed sale transaction.
On October 13, 1998, Mr. Cuomo; legal representatives of American; Mr.
Rossum; W. Stephen Jackson, Senior Vice President and Chief Financial Officer of
the Company; representatives of Salomon; and legal representatives of the
Company, met in New York City to discuss the proposed structure and other
non-price terms for a possible acquisition of the Company by American. Salomon
also made a presentation to American regarding the strategic and financial
rationale for the proposed transaction. On October 14, 1998, Mr. Rossum met with
Mr. Cuomo at the Admiral's Club in LaGuardia Airport to continue the discussions
regarding the proposed transaction.
Discussions followed over the next several weeks between representatives of
American and the Company and their legal and financial advisors concerning a
proposed structure for the transaction, scope
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of Parent's due diligence investigations and terms and conditions of the
American Employment Agreements.
On or about October 22, 1998, Mr. Carty had a telephone conversation with
Mr. O'Gorman proposing a meeting at American's headquarters on November 4, 1998
to discuss terms of a potential merger. From and after October 23, 1998,
representatives of American and the Company and their legal and financial
advisors had numerous telephone conversations regarding various structural
issues in connection with a potential transaction between American and the
Company.
On November 4, 1998, Mr. O'Gorman and Mr. Carty met to discuss the structure
of a potential transaction.
Between November 5, 1998 and November 15, 1998, the discussions continued
between senior management and representatives of each of the Company and
American regarding a potential transaction, as well as the terms and conditions
of the American Employment Agreements. On November 15, 1998, senior management
and legal advisors of each of the Company and American met at American's
headquarters in Fort Worth, Texas to review and negotiate the non-price terms of
the Merger Agreement and the American Employment Agreements.
Between November 16 and 18, 1998, Mr. Rossum continued negotiations with
various business and legal representatives of American at American's
headquarters. On November 17, 1998, Mr. Carty and Mr. O'Gorman met at American's
headquarters to discuss final terms and conditions, including price. On the same
date, Mr. O'Gorman also met with Mr. Arpey regarding non-price terms. On
November 17, 1998 and the morning of November 18, 1998, Mr. O'Gorman had
follow-up conversations with Mr. Carty regarding final terms and conditions,
including price.
At a meeting of the Company Board held on November 18, 1998, the terms and
conditions of the proposed Merger Agreement were discussed. Representatives of
Salomon made a presentation to the Company Board and delivered its oral opinion
(which was subsequently confirmed in writing) to the effect that, as of such
date, the proposed $7.75 per Common Share cash consideration to be received by
the holders of Common Shares pursuant to the Offers and the Merger, taken
together, is fair to such holders from a financial point of view. Salomon also
made a presentation to the Company Board that the proposed formula for
determining the price to be received by the holders of Preferred Shares in the
Preferred Stock Offer that is set forth in Annex B to the Merger Agreement was
in an amount that is economically equivalent to the present value of the
dividends payable to such holders through, and the price payable to such holders
on, the first date that the Preferred Shares become optionally redeemable in
accordance with their terms. Mr. Fornaro also orally reported to the Company
Board that although the Company was well-managed under Mr. O'Gorman's management
team, it was not well-positioned strategically. Mr. Fornaro stated that the
Company was susceptible to a downturn in the economy, competitive threats
(including from American), and the risk of American not renewing on favorable
terms the many commercial arrangements between the Company and American or its
affiliates.
Following a discussion of these presentations and the factors discussed
below under "REASONS FOR THE MERGER," the Company Board, by unanimous vote (i)
determined that the Merger Agreement and the transactions contemplated thereby,
including the Offers and the Merger, taken together, are fair to, and in the
best interests of, the holders of Common Shares, (ii) approved and adopted the
Merger Agreement, the Offers and the transactions contemplated thereby, and
(iii) recommended that the stockholders of the Company accept the Offers and, if
required by Nevada Law, approve and adopt the Merger Agreement and the
transactions contemplated thereby. On November 19, 1998, American, Purchaser and
the Company signed the Merger Agreement; American, the Company and the
Executives executed the American Employment Agreements; and American and the
Company issued separate press releases announcing the Merger.
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(b)(2) REASONS FOR THE RECOMMENDATION.
In making the determinations and recommendations set forth in Item 4(a)
above, the Company Board considered a number of factors including, without
limitation, the following:
(i) The historical and recent market prices of the Common Shares and the
fact that the cash offer price of $7.75 per Common Share provided for in the
Merger Agreement represented a premium of 37.9% over the average trading
prices of the Common Shares for the sixty-day period prior to the
announcement of the Merger, which period began at approximately the same
time that Mr. O'Gorman advised the Company's Executive Committee of
American's interest in exploring a potential transaction.
(ii) The opinion of Salomon delivered on November 18, 1998 that, as of
such date and based upon its review and analysis and subject to the
limitations set forth therein, the $7.75 per Common Share cash consideration
to be received by the holders of Common Shares in the Common Stock Offer and
the Merger, taken together, is fair to such holders from a financial point
of view. A copy of the written opinion dated November 18, 1998 of Salomon,
which sets forth the procedures followed, matters considered, assumptions
made and limitations of the review undertaken by Salomon in rendering its
opinion, is attached as Exhibit (a)(7) hereto and is incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE OPINION OF SALOMON
IN ITS ENTIRETY.
(iii) The presentation by Salomon that the initial price of $27.50 per
Preferred Share (and thereafter declining as provided in the Merger
Agreement) cash consideration, plus accrued and unpaid dividends, to be
received by the holders of Preferred Shares in the Preferred Stock Offer and
the Merger is in an amount that is economically equivalent to the present
value of the dividends payable to such holders through, and the price
payable to such holders on, the first date that the Preferred Shares become
optionally redeemable in accordance with their terms.
(iv) The terms and conditions of the Merger Agreement and, in
particular, the facts that the Company retained the ability to accept a
superior offer, subject to paying a $3 million termination fee plus
expenses, and that American had the ability to terminate the Offers and the
Merger Agreement only in a limited number of customary circumstances.
(v) The provisions of the Merger Agreement providing for the following:
(i) that between the date of entering into the Merger Agreement and the
earlier of the effective time of the Merger or the termination of the Merger
Agreement, American agreed not to terminate the current commercial
arrangements between American and the Company, (ii) the extension of certain
commercial arrangements between American (or an affiliate) and the Company
upon entering into the Merger Agreement, and (iii) the extension of certain
other commercial arrangements upon a termination of the Merger Agreement
under certain circumstances, each in a manner favorable to the Company.
(vi) The Company Board's familiarity with the Company's business,
prospects, financial condition, results of operations and current business
strategy and its belief that the price per Common Share offered in the
Common Stock Offer and the Merger reflects the values inherent in the
Company, and that the price per Preferred Share (as provided in the Merger
Agreement) is in an amount that is economically equivalent to the present
value of the dividends payable to such holders through, and the price
payable to such holders on, the first date that the Preferred Shares become
optionally redeemable in accordance with their terms.
(vii) The Company Board's belief that a transaction with American is the
most advantageous scenario based upon the unique benefits offered by the
Company to American, particularly in light of American's desire to expand
its operations in the western United States, the existing commercial
arrangements between the Company and American, and American's familiarity
with the Company, which the Company Board believed would enable American to
make the most attractive offer to the Company's stockholders.
8
<PAGE>
(viii) The fact that no satisfactory indications of interest to acquire
the Company were forthcoming after the Company contacted several potential
purchasers, other than American's offer.
(ix) The belief by the Company Board that in the event the Company did
not enter into the Merger Agreement with American, it would be required in
the foreseeable future to undergo a significant restructuring of its
business in the face of increased competition in its current markets and the
likely loss of the favorable commercial arrangements with American.
(x) American's ability to finance the acquisition and the absence of any
financing condition in the Merger Agreement.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Company Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Company Board may have given different weights to
different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
On October 13, 1998, the Company formally engaged Salomon to act as the
Company's exclusive financial advisor in connection with any proposed sale
transaction (a "Sale") involving the Company and another business entity (the
"Financial Advisor Agreement"). Pursuant to the Financial Advisor Agreement,
Salomon agreed, upon the Company's reasonable request, to perform certain
customary financial advisory and investment banking services, including the
rendering of a fairness opinion to the Company Board in connection with a Sale.
Further pursuant to the Financial Advisor Agreement, the Company agreed to
pay Salomon cash fees for its services in the following amounts: (i) $25,000
payable promptly following the execution of the Financial Advisor Agreement and
$75,000 payable upon the earlier of January 15, 1999 and the consummation of a
Sale; plus (ii) an additional fee payable upon the consummation of a Sale (less
any amounts previously paid pursuant to clause (i) above) calculated based upon
the per share value to be received by holders of Common Shares. If the per share
value is (i) less than $7.00, (ii) greater than or equal to $7.00 and less than
$8.00, or (iii) greater than or equal to $8.00, the amount of the additional fee
would be $2,000,000, $3,000,000 or $4,000,000, respectively. The Company also
has agreed in the event Salomon's engagement with the Company is terminated by
the Company and a Sale is later consummated at any time prior to the later of
December 31, 1999 and the one (1) year period following such termination, to pay
the same cash fee described above upon consummation of such Sale.
In addition, the Company has agreed in the Financial Advisor Agreement to
reimburse Salomon for its reasonable out-of-pocket expenses, including
reasonable fees of counsel (except in the case where Salomon would achieve the
compensation payable at the $7.00 plateau or greater, all out-of-pocket expenses
would be borne by Salomon). In a separate letter agreement also executed on
October 13, 1998, the Company has agreed to indemnify Salomon and certain
related persons against certain liabilities in connection with Salomon's
engagement under the Financial Advisor Agreement.
In March 1998, the Company retained Robert L. Fornaro as a special
consultant to assist the Company Board in evaluating the strategic landscape of
the Company. Pursuant to the arrangement between the Company and Mr. Fornaro,
the Company paid Mr. Fornaro $3,600 per day, plus expenses, for consulting
services performed.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) There have been no transactions in Shares which were effected during the
past sixty (60) days by the Company or, to the best of the Company's knowledge,
any executive officer, director or affiliate of the Company.
9
<PAGE>
(b) To the best of the Company's knowledge, each of its executive officers
and directors presently intends to tender his or her Shares pursuant to the
Offers.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3(b) and Item 4 above, the Company is not
engaged in any negotiation in response to the Offers which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization,
involving the Company; (ii) a purchase, sale or transfer of a material amount of
assets by the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3(b) above, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offers which relate to or would result in one or more of the matters referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Purchase and the related Letters of
Transmittal, which are attached as Exhibits (a)(1) and (a)(2) hereto,
respectively, and are incorporated by reference herein in their entirety.
10
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
*+(a)(1) Offer to Purchase dated November 24, 1998.
*+(a)(2) Letter of Transmittal with respect to Common Shares.
*+(a)(3) Letter of Transmittal with respect to Preferred Shares.
#(a)(4) Text of press release issued by Reno Air, Inc. dated November 19, 1998.
*(a)(5) Letter to stockholders of Reno Air, Inc. dated November 24, 1998.
+(a)(6) Form of Summary Advertisement dated November 24, 1998.
*(a)(7) Fairness Opinion of Salomon Smith Barney Inc. dated November 18, 1998.
(b) Not applicable.
+(c)(1) Agreement and Plan of Merger dated as of November 19, 1998 by and among
American Airlines, Inc., Bonanza Acquisitions, Inc. and Reno Air, Inc.
+(c)(2) Employment Agreement dated as of November 19, 1998 by and among Reno Air,
Inc., American Airlines, Inc. and Vicki W. Bretthauer.
+(c)(3) Employment Agreement dated as of November 19, 1998 by and among Reno Air,
Inc., American Airlines, Inc. and Beverley Grear.
+(c)(4) Employment Agreement dated as of November 19, 1998 by and among Reno Air,
Inc., American Airlines, Inc. and Joanne Dowty Smith.
+(c)(5) Employment Agreement dated as of November 19, 1998 by and among Reno Air,
Inc., American Airlines, Inc. and Steven A. Rossum.
+(c)(6) Employment Agreement dated as of November 19, 1998 by and among Reno Air,
Inc., American Airlines, Inc. and W. Stephen Jackson.
(c)(7) Confidentiality Agreement dated June 12, 1998 by and between Reno Air, Inc.
and AMR Corporation.
##(c)(8) AAdvantage (R) Agreement between American Airlines, Inc. and Reno Air, Inc.
###(c)(9) Agreement of Sublease for San Jose International Airport between American
Airlines, Inc. and Reno Air, Inc.
####(c)(10) MultiHost Agreement with The SABRE Group, Inc.
(c)(11) Amendments to the Company's Ninth Amended and Restated Code of Bylaws adopted
on November 18, 1998.
</TABLE>
- ------------------------
* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule
14D-1 dated November 24, 1998 and incorporated herein by reference.
# Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 19, 1998.
## Incorporated by reference to the Company's 1993 Annual Report on Form
10-K, as amended and filed as an exhibit to the Company's Form 10-K/A
filed on October 14, 1994, as amended and filed as an exhibit to the
Company's September 30, 1998 Quarterly Report on Form 10-Q.
### Incorporated by reference to the Company's 1993 Annual Report on Form
10-K.
#### Incorporated by reference to the Company's September 30, 1997 Quarterly
Report on Form 10-Q.
11
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
<TABLE>
<S> <C> <C>
Dated: November 24, 1998
RENO AIR, INC.
By: /s/ STEVEN A. ROSSUM
-----------------------------------------
Name: Steven A. Rossum
Title: Senior Vice President,
General Counsel, and
Corporate Secretary
</TABLE>
12
<PAGE>
SCHEDULE I
RENO AIR, INC.
220 EDISON WAY
RENO, NEVADA 89502
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about November 24, 1998 as
part of the Solicitation/ Recommendation Statement on the Schedule 14D-9
("Schedule 14D-9") of Reno Air, Inc. (the "Company") to the holders of record of
shares of Common Stock, par value $.01 per share, of the Company (the "Common
Shares") and to the holders of record of shares of Series A Cumulative
Convertible Exchangeable Preferred Stock, $.001 par value per share, of the
Company (the "Preferred Shares"; and collectively with the Common Shares, the
"Shares"). You are receiving this Information Statement in connection with the
possible election of persons designated by American Airlines, Inc., a Delaware
corporation ("American"), to at least a majority of the seats on the Board of
Directors of the Company (the "Board").
On November 19, 1998, the Company, American and Bonanza Acquisitions, Inc.,
a Nevada corporation and a wholly-owned subsidiary of American ("Purchaser"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") in
accordance with the terms and subject to the conditions of which (i) Purchaser
will commence a tender offer (the "Offer") for (A) all of the issued and
outstanding shares of Common Stock at a price of $7.75 per share (or any greater
amount paid per share pursuant to the Offer), net to the seller in cash and (B)
all of the issued and outstanding Preferred Stock at a price of $27.50 per share
(subject to reduction as provided in the Merger Agreement) plus accrued and
unpaid dividends through the date Purchaser accepts for payment the Preferred
Shares, or any greater amount paid per share pursuant to the Preferred Stock
Offer), and (ii) following the consummation of the Offer and the satisfaction or
waiver of other conditions set forth in the Merger Agreement, Purchaser will be
merged with and into the Company (the "Merger"). As a result of the Offer and
the Merger, the Company will become a wholly-owned subsidiary of American.
The Merger Agreement requires that the Company use its best efforts, at
Purchaser's request, to take all lawful action necessary to cause Purchaser's
designees to be elected to the Board under the circumstances described in the
Merger Agreement. See "BOARD OF DIRECTORS AND EXECUTIVE OFFICERS -- Right to
Designate Directors; the Purchaser's Designees" below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9.
In accordance with the Merger Agreement, Purchaser will commence the Offer
on Tuesday November 24, 1998. The Offer is scheduled to expire at 12:00
midnight, New York City time, on or before December 22, 1998 unless the Offer is
extended or is terminated under the terms of the Merger Agreement.
The information contained in this Information Statement concerning American,
Purchaser and the Purchaser's Designees (hereinafter defined) has been furnished
to the Company by American and Purchaser, and the Company assumes no
responsibility for the accuracy or completeness of such information.
I-1
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Common Shares is the only class of voting securities of the Company
outstanding. Each Common Share is entitled to one vote. As of September 30,
1998, there were 10,843,470 Common Shares outstanding.
The Board currently consists of nine members and each nominee is elected to
a one-year term. The number of Directors may consist of such number of members,
not less than three (3) and not more than eleven (11), as shall be determined
from time to time by resolution of the Board. Vacancies in the Board may be
filled by a unanimous vote of the remaining Board though less than a quorum of
the Board, and any Director chosen to fill a vacancy will hold office until the
expiration of the term of his predecessor in office.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER'S DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law and the Company's Articles of Incorporation, promptly upon the purchase by
Purchaser of Common Shares pursuant to the Offers, and from time to time
thereafter, Purchaser shall be entitled to designate such number of directors
("Purchaser Designees"), rounded up to the next whole number, on the Board as
shall give Purchaser representation on the Board equal to the product of the
total number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Common Shares beneficially owned by Purchaser or any affiliate of
Purchaser following such purchase bears to the total number of Common Shares
then outstanding, and the Company shall, at such time, promptly take all actions
necessary to cause Purchaser's designees to be elected as directors of the
Company, including increasing the size of the Board or securing the resignations
of incumbent directors or both. At such times, the Company shall use its best
efforts to cause persons designated by Purchaser to constitute the same
percentage as persons designated by Purchaser shall constitute of the Board of
each committee of the Board to the extent permitted by applicable law.
Notwithstanding the foregoing, until the earlier of (i) the time Purchaser
acquires a majority of the then outstanding Common Shares on a fully diluted
basis and (ii) the Effective Time (as defined in the Merger Agreement), the
Company shall use its best efforts to ensure that all the members of the Board
and each committee of the Board as of the date of the Merger Agreement who are
not employees of the Company shall remain members of the Board and of each such
committee.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Purchaser of Common Shares pursuant to the Offer,
which purchase may not be earlier than December 22, 1998, and that, upon
assuming office, the Purchaser Designees will thereafter constitute at least a
majority of the Board.
PURCHASER DESIGNEES
Any director or executive officer of American or Purchaser listed in
Schedule I to the Tender Offer Statement on Schedule 14D-1 of American and
Purchaser, dated November 24, 1998 ("Schedule 14D-1") filed as an exhibit to the
Schedule 14D-1 may be designated by Purchaser as a Purchaser Designee and is
incorporated herein by reference. The information with respect to the Purchaser
Designees has been designated by Purchaser for inclusion herein.
I-2
<PAGE>
DIRECTORS OF THE COMPANY
Set forth below is certain information regarding each Director (each, a
"Director") of the Company as of November 24, 1998:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRESENTLY DIRECTOR
NAME AGE HELD WITH THE COMPANY SINCE
- ------------------------------------------------ --- ------------------------------------------------ -----------
<S> <C> <C> <C>
Joseph R. O'Gorman.............................. 55 President, Chief Executive Officer and Chairman
of the Board 1998
Lee M. Hydeman.................................. 70 Director, Chairman of Executive Committee of the
Board 1990
Donald L. Beck.................................. 72 Director 1990
Barrie K. Brunet................................ 73 Director 1992
Joe M. Kilgore.................................. 80 Director 1992
James T. Lloyd.................................. 57 Director 1996
Emmett E. Mitchell.............................. 43 Director 1998
Wayne L. Stern, M.D............................. 55 Director 1990
Agnieszka Winkler............................... 52 Director 1994
</TABLE>
BIOGRAPHICAL INFORMATION
JOSEPH R. O'GORMAN has been Chairman of the Board, Chief Executive Officer
and President since February 19, 1998. From April 1995 through October 1997, Mr.
O'Gorman was Executive Vice President-- Fleet Operations and Administration for
United Airlines. Prior to April 1995, Mr. O'Gorman held various senior officer
positions at United and USAir. Mr. O'Gorman has also served as Senior Vice
President-- Airline Operations for AirCal, as Chief Executive Officer of Aloha
Airlines and as Chief Executive Officer of Frontier Airlines. Mr. O'Gorman is a
director of Cade Industries, Inc. and a member of the board of trustees of St.
Louis University.
LEE M. HYDEMAN has been a director of the Company since September 1990 and
served as Chairman from December 1991 until February 1998. From April 1, 1994
through September 22, 1995, Mr. Hydeman also served as Chief Executive Officer
of the Company. Mr. Hydeman has over 30 years experience in the airline
industry, including 13 years as Washington, D.C. counsel to and an officer of
Continental Air Lines (prior to its restructuring in 1982).
DONALD L. BECK has been a director of the Company since October 1990. He is
and has been since 1988 the Chairman of the Board of The Pacific Group, an
airline consulting firm located in Manhattan Beach, California, and, since 1995,
a Director of Vision Expeditions (airline ticket consolidator). From 1988 until
1993, Mr. Beck was Chairman of Pacific Rim Development Corp., a land development
company located in Manhattan Beach, California. Mr. Beck has over 30 years
experience in the airline industry, including 28 years as a senior officer of
Continental Air Lines, Western Airlines and World Airways.
BARRIE K. BRUNET has been a director of the Company since April 13, 1992.
From April 1986 until March 1990 (when he retired), Mr. Brunet was employed by
Bally Entertainment Company as the President and Chief Operating Officer of
Bally's Casino Resort-Reno and as the Vice President and Director of Bally
Grand, Inc., a subsidiary of Bally Manufacturing Company.
JOE M. KILGORE has been a director of the Company since September 18, 1992.
From October 1990 to September 1992, he acted as an advisor to the Board. Since
1965, Mr. Kilgore has been a partner in the law firm of McGinnis, Lochridge &
Kilgore in Austin, Texas. He is also director of Texas Regional Bancshares, Inc.
and its subsidiary, Texas State Bank, both in McAllen, Texas, and a director of
Photo Control Corporation in Minneapolis. Mr. Kilgore also has 10 years'
experience as a director of Continental Air Lines (prior to its restructuring in
1982).
I-3
<PAGE>
JAMES T. LLOYD has been a director of the Company since April 11, 1996.
Since August 1997, Mr. Lloyd has been Of Counsel to Bryan Cave, LLP. From
February 1987 through February 1996, Mr. Lloyd was an officer of USAir Group,
Inc., most recently Executive Vice President, General Counsel and Secretary. Mr.
Lloyd served as Chairman of the Law Council of the Air Transport Association in
Washington, D.C. in 1991 and 1992 and as a member of the Air Transport
Association's Audit Committee from 1992 to 1996.
EMMETT E. MITCHELL has been a director of the Company since January 28,
1998. Since July 1991, Mr. Mitchell has been an employee of Paradise Valley
Securities, a registered broker dealer. Mr. Mitchell is currently a minority
owner of the firm where he is employed in the Corporate Finance Department.
Paradise Valley Securities provided investment services for the Company in 1992,
1993 and 1994. Mr. Mitchell is also a director of Prolux Corporation, a private
company, and is a certified public accountant.
WAYNE L. STERN, M.D. has been a director of the Company since its inception.
Since 1974, Dr. Stern has been the President of, and conducts his medical
practice as a specialist in pulmonary medicine through, Minnesota Lung Center,
Ltd., located in Minneapolis, Minnesota. Since 1984, he has been a director of
Special Medical Services, Inc., a home health care company in Minneapolis,
Minnesota. Since 1989, Dr. Stern has been the director of respiratory care at
Abbott-Northwestern Hospital in Minneapolis.
AGNIESZKA WINKLER has been a director of the Company since January 21, 1994.
She is a principal of, and the founder (in 1984) of, Winkler Advertising, an
advertising agency based in San Francisco. Ms. Winkler is a member of the Board
of Directors of Lifeguard, Inc. and is a member of the Board of Trustees of
Santa Clara University.
MEETINGS OF THE BOARD AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board held twelve
meetings, seven of which were held in person and five of which were telephonic.
During such period, each of the current Directors of the Company attended 75% or
more of the total number of meetings held by the Board and by all committees of
the Board on which such Director served.
The Board has a standing Executive Committee, Audit Committee, Ethics and
Corporate Governance and Nominating Committee and Human Resources Committee.
Other than the Executive Committee, these committees meet at each regularly
scheduled meeting of the Board and at other times when warranted. The Chairman
of the Board is an ex-officio member of each committee. The following committee
membership information is as of November 24, 1998.
The members of the Executive Committee are Lee Hydeman, who serves as
Chairman, James T. Lloyd, Emmett Mitchell and Dr. Wayne Stern. The Executive
Committee has the authority to act in place of the Board on all matters except
those required by law or by the Company's Articles of Incorporation or By-Laws
to be acted upon exclusively by the Board. The Executive Committee held six
meetings in 1997.
The members of the Audit Committee are Emmett Mitchell, who serves as
Chairman, Lee Hydeman, Barrie Brunet, and Don Beck. The Audit Committee's
primary responsibilities are to review the Company's financial statements, to
recommend the appointment of the Company's independent public accountants, to
review the overall scope of the audit and to review the Company's internal
controls, and to establish and to monitor ethical policies applicable to the
Company's management. The Audit and Ethics Committee held seven meetings during
1997. In 1998, the "Ethics" function was transferred to the Corporate Goverance
and Nominating Committee.
The members of the Ethics and Corporate Governance and Nominating Committee
are Barrie Brunet, who serves as Chairman, and Dr. Wayne Stern. The Ethics and
Corporate Governance and Nominating Committee was formed in October 1997 to
review and make recommendations regarding the composition of the Board, to
evaluate the performance of the Board and to develop missions, objectives and
succession plans for the Company's senior management and to monitor ethical
policies applicable to
I-4
<PAGE>
the Company's senior management. The Corporate Governance and Nominating
Committee held two meetings in 1997.
The members of the Human Resources Committee are James Lloyd, who serves as
Chairman, Barrie Brunet, Lee Hydeman and Joe Kilgore. The Human Resources
Committee reviews and makes recommendations regarding the Company's compensation
strategy, the compensation arrangements pertaining to the officers of the
Company and the Company's bonus, stock option and 401(k) plans. The Human
Resources Committee has authority to grant options under the Company's Stock
Option Plan, except for initial grants to newly-hired officers. The Human
Resources Committee (including its predecessor, the Nominating and Compensation
Committee) held eleven meetings during 1997.
Winkler Advertising, of which Ms. Winkler is a principal, provided
advertising services to the Company in 1998. In 1998, Ms. Winkler resigned from
all committees of the Company Board.
EXECUTIVE OFFICERS OF THE COMPANY WHO ARE NOT DIRECTORS
The following sets forth certain information as to each Executive Officer of
the Company who is not also a Director, including age as of November 24, 1998.
VICKI W. BRETTHAUER is 41 years old and was appointed Vice
President--Administration on March 18, 1998. From 1983 through 1998, Ms.
Bretthauer held progressively more senior management positions at United
Airlines. Her last position with United was Director--Information Services
Administration.
BEVERLEY GREAR is 50 years old and was appointed Senior Vice
President--Operations on March 18, 1998. Previously, Ms. Grear was Senior Vice
President--Operations for AFSA Data Corporation. Ms. Grear has airline
experience at several airlines including Air Cal, HughesAirwest, Aloha and
Frontier Airlines.
W. STEPHEN JACKSON is 51 years old and was appointed Chief Financial Officer
of the Company on June 3, 1998. From 1994 to May 1998, Mr. Jackson was Chief
Financial Officer of Mesa Air Group, Inc. Prior to Mesa Air Group, Inc., Mr.
Jackson from 1990 to 1994 was President and CEO of WSJ Development Company. Mr.
Jackson is also a certified public accountant and was a partner at KPMG Peat
Marwick from 1981 to 1990.
STEVEN A. ROSSUM is 36 years old and was appointed Senior Vice President,
General Counsel and Corporate Secretary on April 7, 1998. From 1992-1998, Mr.
Rossum was Assistant General Counsel of US Airways, Inc. Prior to joining US
Airways, Mr. Rossum was Assistant General Counsel at WorldCorp, Inc. and also
practiced corporate and aviation law in Atlanta, Georgia. Mr. Rossum has also
taught commercial law at Emory University School of Law as an Adjunct Professor.
JOANNE SMITH is 40 years old and was appointed Senior Vice
President--Marketing and Planning on March 23, 1998. Previously, Ms. Smith was
Senior Vice President-Marketing of Midway Airlines. Prior to joining Midway, Ms.
Smith had management positions at American Eagle and Wings West Airlines.
I-5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1998, the name and
address of each person known by the Company to be the beneficial owner of more
than five percent of the outstanding Common Shares, and, based on information
supplied to the Company by such persons, the approximate number of shares and
percentage owned by each:
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND ADDRESS SHARES OWNED OWNED
- ------------------------------------------------------------------ ------------- ---------
<S> <C> <C>
Fidelity Advisor Series VIII:..................................... 934,800(1) 8.7%
Fidelity Advisor Strategic
Opportunities Fund
82 Devonshire St.
Boston, MA 02109
PAR Investment Partners, L.P...................................... 770,291(2) 7.2%
Par Capital Management, Inc.
One Financial Center, Suite 1600
Boston, MA 02111
Anthony Silverman................................................. 558,995(3) 5.2%
11811 N. Tatum Blvd, Suite 4040
Phoenix, AZ 85028
</TABLE>
- ------------------------
(1) Based on a Schedule 13G dated February 14, 1998. Voting power over these
shares resides with the Board of Trustees of Fidelity Advisor Strategic
Opportunities Fund. Includes 492,574 shares obtainable upon conversion of
shares of the Company's Series A Cumulative Convertible Exchangeable
Preferred Stock.
(2) Based on a Schedule 13G filed on June 15, 1998. Includes 552,900 shares of
Common Stock plus 217,391 shares upon the conversion of Series A Preferred
Stock, which equals 770,291 total shares.
(3) Based on a Schedule 13D dated September 12, 1997. Mr. Silverman is a
principal of Paradise Valley Securities, which acted as placement agent for
the Company's sale of convertible notes in 1993 and 1994 and as managing
underwriter for the Company's initial public offering in 1992. Includes
16,500 shares held in an individual retirement account, 12,000 shares held
for the benefit of Mr. Silverman's children, 44,000 shares held for the
estate of William Silverman, 21,300 shares issuable upon exercise of
warrants held by Mr. Silverman and 7,581 shares issuable upon exercise of
warrants held by Paradise Valley Securities. Also includes 296,878 shares
held by Kay Silverman (including shares held in an individual retirement
account), as to which Mr. Silverman disclaims beneficial ownership.
I-6
<PAGE>
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table reflects, as of March 31, 1998, the Common Share
ownership of each Director, and each executive officer and former executive
officer listed in the Summary Compensation Table, and all Directors and officers
as a group.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER: OWNED(1) OWNERSHIP(2)
- -------------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Donald L. Beck...................................................... 15,000 *
Barrie K. Brunet.................................................... 60,000 *
Lee M. Hydeman...................................................... 56,000 *
Joe M. Kilgore...................................................... 34,100 *
James T. Lloyd...................................................... 21,000 *
Emmett E. Mitchell.................................................. 9,500(3) *
Annette Murphy...................................................... 18,000
Joseph R. O'Gorman.................................................. 50,000 *
Robert W. Reding.................................................... 252,174 2.3%
B.J. Rone........................................................... 182,000 1.7%
Robert M. Rowen..................................................... 55,924 *
Steve Sarner........................................................ 24,107 *
Wayne L. Stern, M.D................................................. 275,848(4) 2.6%
Agnieszka Winkler................................................... 60,000 *
All executive officers and directors as a group (14 persons)(5)..... 1,210,827 10.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes the following number of shares subject to options exercisable
within 60 days of March 31, 1998: Mr. Hydeman: 26,000; Mr. Lloyd: 20,000;
Ms. Murphy: 18,000; Mr. O'Gorman: 50,000; Mr. Reding: 209,000; Mr. Rone:
180,000; Mr. Rowen: 54,000; Mr. Sarner: 24,000; Ms. Winkler: 60,000.
Includes 174 shares each held for the benefit of Messrs. Reding and Rowen
and 107 shares held for the benefit of Mr. Sarner in the Company's 401(k)
Plan. Shares held in the 401(k) Plan are subject to disposition by the
beneficial holder thereof and are voted by a 401(k) Plan Committee unless
the Committee determines to pass such vote through to the beneficial
holders. Includes 1,000 shares obtainable by Mr. Lloyd upon the conversion
of convertible notes held in an IRA.
(2) Based on 10,583,775 shares of Common Stock outstanding on March 31, 1998.
The Percent of Ownership is determined by assuming that in each case the
person only, or the group only, exercised his or her rights to purchase all
shares of Common Stock underlying outstanding stock options and warrants,
including those not currently exercisable.
(3) Includes 500 shares held by his minor children, and 6,000 shares obtainable
upon exercise of warrants.
(4) Includes 50,324 shares held beneficially and of record by Dr. Stern's spouse
and 10,000 shares held beneficially and of record by Dr. Stern's children.
(5) Includes 717,000 shares subject to options exercisable within 60 days of
March 31, 1998 and 629 shares held in the Company's 401(k) Plan.
I-7
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ending December 31, 1995,
1996, and 1997, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to the Company's five
executive officers who were highest paid in 1997 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
AWARDS
--------------------------
SECURITIES
ANNUAL COMPENSATION OTHER RESTRICTED UNDERLYING
------------------------------------- ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION(2) AWARD(S)($) SARS (#)
- ----------------------------- --------- ----------- ------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Reding(4).......... 1997 195,188 1,896 0 N/A 50,000
Chief Executive Officer and 1996 164,500 30,327 0 N/A 0
President 1995 153,375 300 0 N/A 60,000
B.J. Rone.................... 1997 85,682 0 9,000 N/A 180,000
Senior Vice President 1996 N/A N/A N/A N/A N/A
Finance(4) 1995 N/A N/A N/A N/A N/A
Annette Murphy............... 1997 94,614 4,275 18,248 N/A 135,000
Senior Vice President 1996 N/A N/A N/A N/A N/A
Customer Service(4) 1995 N/A N/A N/A N/A N/A
Steve Sarner................. 1997 122,947 4,219 0 N/A 24,000
Vice President Marketing and 1996 87,546 327 9,540 N/A 78,000
Sales 1995 60,963 300 1,191 N/A 0
Robert M. Rowen.............. 1997 112,062 3,300 0 N/A 14,400
Vice President, General 1996 103,000 20,327 0 N/A 0
Counsel and Secretary 1995 102,250 300 29,562 N/A 0
<CAPTION>
(A) (H)
ALL
OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(3)
- ----------------------------- -------------------
<S> <C>
Robert W. Reding(4).......... 300
Chief Executive Officer and 300
President 300
B.J. Rone.................... 0
Senior Vice President N/A
Finance(4) N/A
Annette Murphy............... 300
Senior Vice President N/A
Customer Service(4) N/A
Steve Sarner................. 300
Vice President Marketing and 300
Sales 0
Robert M. Rowen.............. 300
Vice President, General 300
Counsel and Secretary 300
</TABLE>
- ------------------------
(1) $300 in 1995 and $327 in 1996 reflect payments under the Company's profit
sharing plan.
(2) Amounts indicated were in payment or reimbursement of moving expenses, or
temporary housing allowance.
(3) Amounts indicated are the $300 annual Company match to the 401(k) Plan. Does
not include the value of a $30,000 rental car credit available to the
Company's officers as a group.
(4) Mr. Reding's employment terminated in 1998. Mr. Rone commenced employment on
June 25, 1997 and terminated employment in 1998. Ms. Murphy commenced
employment on March 1, 1997.
I-8
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted under the Company's
Employee Stock Incentive Plan to the Named Executives during 1997. The Company
has never granted stock appreciation rights.
<TABLE>
<CAPTION>
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS (D)
UNDERLYING GRANTED TO EXERCISE (E) (F)
(A) OPTIONS EMPLOYEES IN OR BASE EXPIRATION GRANT DATE
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) (DATE) VALUE(5)
- ------------------------------------------------- ----------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Robert Reding.................................... 50,000(1) 3.8% $ 7.44 3/12/07 $ 129,500
B.J. Rone........................................ 180,000(2) 13.6% 7.44 6/25/07 390,600
50,000(3) 3.8% 7.44 6/25/07 0(3)
Annette Murphy................................... 90,000(4) 6.8% 7.44 3/12/07 436,500
45,000(4) 3.4% 7.38 10/8/07 216,450
Steve Sarner..................................... 24,000(4) 1.8% 7.75 9/15/07 121,440
Robert Rowen..................................... 14,400(4) 1.1% 7.75 9/15/07 72,864
</TABLE>
- ------------------------
(1) Vested in connection with Mr. Reding's termination of employment.
(2) Vested in connection with Mr. Rone's termination of employment.
(3) Expired in connection with Mr. Rone's termination of employment.
(4) Vested 20% per year. All of Ms. Murphy's options and 50% of Mr. Sarner's and
Mr. Rowen's options set forth in this chart are accelerated upon a
termination of employment following a change of control.
(5) Determined by the Black-Scholes method, with the following assumptions:
expected volatility: 0.692; no dividends; 6% risk-free interest rate. In the
case of the options granted to Mr. Reding and 180,000 of the options granted
to Mr. Rone, the expected life was 1.42 years and 1.00 years, respectively,
based on the provisions of their termination agreements discussed elsewhere
herein. 50,000 of the options granted to Mr. Rone have been assigned no
value because they have terminated unexercised. In all other cases, the
expected life used was 5.6 years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth, with respect to the Named Executives,
information concerning the exercise of options during the fiscal year ended
December 31, 1997, and the unexercised options held as of December 31, 1997:
<TABLE>
<CAPTION>
(E)
VALUE OF
UNEXERCISED
IN-THE-MONEY
(D) OPTIONS
(C) NUMBER OF UNEXERCISED AT FY-END
(B) ACTUAL OPTIONS AT FY-END (#) ($)
(A) SHARES ACQUIRED VALUE -------------------------- -----------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------------- --------------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Robert Reding........................ 0 0 54,500 166,500 $ 57,808
B.J. Rone............................ 0 0 0 230,000 $ 0
Annette Murphy....................... 0 0 0 135,000 $ 0
Steve Sarner......................... 0 0 15,000 99,000 $ 2,958
Robert Rowen......................... 0 0 39,000 65,400 $ 19,227
<CAPTION>
(A)
NAME UNEXERCISABLE(1)
- ------------------------------------- ---------------
<S> <C>
Robert Reding........................ $ 37,714
B.J. Rone............................ $ 0
Annette Murphy....................... $ 0
Steve Sarner......................... $ 2,958
Robert Rowen......................... $ 25,143
</TABLE>
- ------------------------
(1) Values are calculated by subtracting the exercise price from the closing
price of the stock as of the fiscal year-end. The closing price for the
Common Stock of the Company on December 31, 1997, was $5.563 per share.
I-9
<PAGE>
DIRECTORS COMPENSATION
In 1997, the Company's outside directors received fees of $2,000 per
regularly scheduled meeting of the Board attended in person and $1,000 per
calendar quarter, in addition to reimbursement of their expenses incurred in
connection with attending meetings of the Board. Committee members also received
$1,000 for each meeting of the Committee attended in person, other than meetings
held in connection with meetings of the Board of Directors.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS. The Company has entered into written employment
agreements with each of Joseph R. O'Gorman, dated as of February 18, 1998, W.
Stephen Jackson, dated as of June 3, 1998, Steven A. Rossum, dated as of April
17, 1998, Joanne Dowty Smith, dated as of April 6, 1998, and Beverley Grear,
dated as of March 27, 1998, each described in Item 3(b)(1) of the Schedule 14D-9
of the Company. The Company and American have entered into Employment Agreements
with each of Mr. Jackson, Mr. Rossum, Ms. Bretthauer, Ms. Grear and Ms. Smith,
each dated as of November 19, 1998 and described in Item 3(b)(2) of the Schedule
14D-9 of the Company. Upon the effective time of the Merger, the subsequent
employment agreements will supercede the existing employment agreements.
CHANGE-IN-CONTROL AGREEMENTS. The Company has change-in-control agreements
with the named executive officers. These agreements provide for salary
continuation and acceleration of the vesting of up to 100% of the officer's
unvested options upon a termination of employment or constructive termination of
employment without cause following a change-in-control, as defined in the
agreement. The options granted the executive officers accelerate upon a change
of control.
Mr. Reding's employment as Chief Executive Officer terminated February 19,
1998. Mr. Reding's salary and health benefits will continue through March 20,
1999; all of Mr. Reding's options have either expired or been exercised; and Mr.
Reding is entitled to lifetime space-available travel privileges on the
Company's flights.
Mr. Rone's employment as Senior Vice President--Finance terminated March 3,
1998. Mr. Rone's salary and health benefits will continue through March 29,
1999; Mr. Rone's options have either expired or been exercised; and Mr. Rone is
entitled to space available travel privileges on the Company's flights through
March 29, 1999.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Human Resources Committee are Messrs. Brunet,
Lloyd, and Kilgore. From April 1, 1994, through September 22, 1995, Mr. Hydeman
served as Chief Executive Officer of the Company without cash compensation.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board establishes the general
compensation policies of the Company and reviews and establishes specific
compensation plans, salaries, bonuses and other benefits payable to the
Company's executive officers, including the Chief Executive Officer. Following
review and approval by the Committee, all issues pertaining to executive
compensation are submitted to the entire Board of Directors for review and
approval.
I-10
<PAGE>
The Committee has adopted the following objectives for both executive and
broad based employee compensation, in order to align compensation with corporate
performance. The goals of the compensation program are as follows:
- Develop a strong and ongoing linkage between employee performance and the
creation of stockholder value.
- Provide a total compensation program to attract, develop, motivate and
retain exceptional employees.
- Achieve competitiveness of total compensation over time.
- Focus upon variable and incentive compensation to control fixed costs, and
to provide the opportunity for substantive rewards specifically linked to
Company performance.
The Committee emphasizes merit-based compensation, including short-term cash
bonus and long term stock incentive compensation programs for both executive and
non-executive level employees. The Committee intends that a substantial portion
of executive compensation should be performance-based. The Committee believes it
is imperative for the Company to tie its long-term growth and profitability
strategy to incentive compensation based upon the performance of the Company as
well as the executive.
EXECUTIVE COMPENSATION. The Committee targets executive base salaries
conservatively within a range established for each officer's position by bench
marking compensation at companies of comparable size, including other airlines.
The Committee believes it is important to pay base salaries at comparative
levels in order to attract and retain highly-qualified individuals. The
Committee believes it is in the best interest of the Company to attract fewer,
highly-qualified executives, at competitive compensation levels instead of a
greater number of less-qualified executives at below-market compensation levels.
The Committee has approved an executive incentive compensation plan for 1998
based upon the attainment of specified corporate and individual objectives.
Individual performance objectives will be reviewed semi-annually. The evaluation
of company performance objectives will be reviewed at the conclusion of 1998.
Payout will be contingent upon both the attainment of objectives and the
achievement of profitability.
The Committee intends to grant additional stock options to executives and
non-executive employees annually based upon the Company's performance and each
employee's individual contribution. All options will be granted with an exercise
price equal to the fair market value of the Company's common stock at the time
of grant.
CEO COMPENSATION. On February 18, 1998, the Company hired Joseph R.
O'Gorman as Chairman of the Board, Chief Executive Officer and President. Mr.
O'Gorman is paid $250,000 per year and received a grant of options to purchase
250,000 shares of the Company's common stock at an exercise price equal to the
fair market value of the Company's common stock at the time of grant. Of such
options, 50,000 are immediately vested, and 50,000 additional vest every six
months following February 18, 1998. All options are accelerated upon the
occurrence of a change of control of the Company, defined as the acquisition of
50% or more of the Company's common stock or control of the Company's Board of
Directors. Mr. O'Gorman's compensation was based upon his prior track record as
a seasoned airline executive and the Company's need for seasoned executive
leadership to enable it to make a successful transition from a start-up company
to an established, profitable airline.
Mr. Reding's salary during 1997 was based on the criteria discussed herein.
Mr. Reding received no incentive bonus for 1997.
PROFIT SHARING PLAN. The Company's profit sharing plan provides for a
profit sharing bonus to be granted to all full time employees who satisfy the
length of service eligibility requirements (employees with
I-11
<PAGE>
at least six months of service) in an amount up to 10% of the Company's
quarterly pre-tax net income. There were no payments under the Profit Sharing
Plan in 1997.
RELATIONSHIP OF CORPORATE PERFORMANCE TO COMPENSATION. The Committee
believes that it is imperative to provide total compensation that is competitive
and rewards performance to both attract and retain excellent contributors. In
evaluating the performance of the Company's executives, the Committee considers
it appropriate to assess the competitive environment in which the Company
operated and the Company's relative performance as compared to its competitors.
This analysis forms the basis for assessing individual and corporate
performance.
Human Resources Committee
James T. Lloyd, Chairman
Lee M. Hydeman
Joe M. Kilgore
Agnieszka Winkler
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and certain officers of
the Company, as well as persons who own more than 10% of a registered class of
the Company's equity securities ("Reporting Persons"), to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and NASDAQ.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during the last fiscal year all Section 16(a) filing
requirements applicable to its Reporting Persons were complied with.
I-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- -----------------------------------------------------------------------------------------------
<C> <S>
*+(a)(1) Offer to Purchase dated November 24, 1998.
*+(a)(2) Letter of Transmittal with respect to the Common Shares.
*+(a)(3) Letter of Transmittal with respect to Preferred Shares.
#(a)(4) Text of press release issued by Reno Air, Inc. dated November 19, 1998.
*(a)(5) Letter to stockholders of Reno Air, Inc. dated November 24, 1998.
+(a)(6) Form of Summary Advertisement dated November 24, 1998.
*(a)(7) Fairness Opinion of Salomon Smith Barney Inc. dated November 18, 1998.
(b) Not applicable.
+(c)(1) Agreement and Plan of Merger dated as of November 19, 1998 by and among American Airlines,
Inc., Bonanza Acquisitions, Inc. and Reno Air, Inc.
+(c)(2) Employment Agreement dated as of November 19, 1998 by and among Reno Air, Inc., American
Airlines, Inc., and Vicki W. Bretthauer.
+(c)(3) Employment Agreement dated as of November 19, 1998 by and among Reno Air, Inc., American
Airlines, Inc., and Beverley Grear.
+(c)(4) Employment Agreement dated as of November 19, 1998 by and among Reno Air, Inc., American
Airlines, Inc., and Joanne Smith.
+(c)(5) Employment Agreement dated as of November 19, 1998 by and among Reno Air, Inc., American
Airlines, Inc., and Steven A. Rossum.
+(c)(6) Employment Agreement dated as of November 19, 1998 by and among Reno Air, Inc., American
Airlines, Inc., and W. Stephen Jackson.
(c)(7) Confidentiality Agreement dated June 12, 1998 by and between Reno Air, Inc. and AMR
Corporation.
##(c)(8) AAdvantage (R) Agreement between American Airlines, Inc. and Reno Air, Inc.
###(c)(9) Agreement of Sublease for San Jose International Airport between American Airlines, Inc. and
Reno Air, Inc.
####(c)(10) MultiHost Agreement with The SABRE Group, Inc.
(c)(11) Amendments to the Company's Ninth Amended and Restated Code of Bylaws adopted on November 18,
1998.
</TABLE>
- ------------------------
* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule
14D-1 dated November 24, 1998 and incorporated herein by reference.
# Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 19, 1998.
## Incorporated by reference to the Company's 1993 Annual Report on Form
10-K, as amended and filed as an exhibit to the Company's Form 10-K/A
filed on October 14, 1994, as amended and filed as an exhibit to the
Company's September 30, 1998 Quarterly Report on Form 10-Q.
### Incorporated by reference to the Company's 1993 Annual Report on Form
10-K.
#### Incorporated by reference to the Company's September 30, 1997 Quarterly
Report on Form 10-Q.
<PAGE>
[LOGO]
November 24, 1998
Dear Stockholder:
I am pleased to inform you that on November 19, 1998, Reno Air, Inc.
("Reno") entered into an Agreement and Plan of Merger (the "Merger Agreement")
with American Airlines, Inc. ("American") and its wholly-owned subsidiary,
Bonanza Acquisitions, Inc. ("Purchaser"), pursuant to which Purchaser is
commencing (i) a tender offer to purchase all of the issued and outstanding
shares of Common Stock of Reno at a purchase price of $7.75 per share in cash
(the "Common Stock Offer") and (ii) a tender offer to purchase all of the issued
and outstanding shares of Preferred Stock of Reno at an initial purchase price
of $27.50 per share (and thereafter declining as provided in Annex B to the
Merger Agreement), plus accrued and unpaid dividends thereon, in cash (the
"Preferred Stock Offer" and, together with the Common Stock Offer, the
"Offers"). Following the successful completion of the Offers, in accordance with
the terms of the Merger Agreement, Purchaser will merge with and into Reno (the
"Merger") and Reno will continue as the surviving corporation wholly-owned by
American. Each share of Reno Common Stock not purchased in the Common Stock
Offer will be converted in the Merger into the right to receive the cash amount
paid in the Common Stock Offer. Each share of Reno Preferred Stock not purchased
in the Preferred Stock Offer will either (i) be converted in the Merger into the
right to receive the cash amount provided in Annex B to the Merger Agreement or,
in the event that the holders of 66 2/3% of the Preferred Stock do not vote in
favor of the Merger Agreement and the Merger, (ii) remain issued and outstanding
and unchanged thereby as a share of Preferred Stock of the surviving
corporation.
YOUR BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFERS AND THE MERGER,
TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF THE
COMMON STOCK AND HAS APPROVED AND ADOPTED THE MERGER AGREEMENT, THE OFFERS AND
THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD HEREBY RECOMMENDS THAT THE
COMMON STOCKHOLDERS ACCEPT AND TENDER THEIR SHARES PURSUANT TO THE COMMON STOCK
OFFER, THAT THE PREFERRED STOCKHOLDERS ACCEPT AND TENDER THEIR SHARES PURSUANT
TO THE PREFERRED STOCK OFFER, AND THAT ALL COMMON AND PREFERRED STOCKHOLDERS
APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of Salomon Smith
Barney Inc. ("Salomon") to the effect that the $7.75 per share cash
consideration to be received by the holders of Common Stock in the Common Stock
Offer and the Merger, taken together, is fair to such holders from a financial
point of view, and the presentation by Salomon that the per share cash
consideration to be received by the holders of Preferred Stock in the Preferred
Stock Offer is in an amount that is economically equivalent to the present value
of the dividends payable to such holders through, and the price payable to such
holders on, the first date that the Preferred Stock becomes optionally
redeemable in accordance with its terms.
In addition to the attached Schedule 14D-9 relating to the Offers, enclosed
is the Offer to Purchase, dated November 24, 1998, of Purchaser, together with
related materials, including Letters of Transmittal, to be used for tendering
your shares of Common Stock and/or Preferred Stock. These documents set forth
the terms and conditions of the Offers and the Merger and provide instructions
as to how to tender your shares. I urge you to read the enclosed materials
carefully.
On behalf of your Board of Directors, I thank you for your support.
Sincerely yours,
/s/ Joseph R. O'Gorman
Joseph R. O' Gorman
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF
EXECUTIVE OFFICER
<PAGE>
Exhibit 99(a)(7)
[Salomon Smith Barney Inc. Letterhead]
November 18, 1998
Board of Directors
Reno Air, Inc.
220 Edison Way
Reno, NV 89502
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $0.01 per share ("Company
Common Stock"), of Reno Air, Inc. (the "Company"), of the consideration to be
received by such holders in connection with the proposed acquisition (the
"Acquisition") of the Company by American Airlines, Inc. ("Parent"), pursuant
to an Agreement and Plan of Merger dated as of November 19, 1998 (the "Merger
Agreement"), among Parent, Bonanza Acquisitions, Inc. ("Sub") and the
Company. Pursuant to the Merger Agreement, Parent will make (i) an offer (the
"Common Stock Offer") to purchase all the issued and outstanding shares of
Company Common Stock at a price per share of $7.75 in cash and (ii) an offer
to purchase all the issued and outstanding shares of Company Preferred Stock
at a price per share of $27.50, subject to the adjustments indicated in Annex
B ("Annex B") of the Merger Agreement, plus accrued and unpaid dividends
through the date such shares are accepted for payment by Parent, in cash.
Pursuant to the Merger Agreement, upon the effectiveness of the proposed
merger (the "Merger") of Sub with and into the Company (A) each issued and
outstanding share of Company Common Stock (other than shares owned by Parent,
any subsidiary of Parent or the Company and any shares the subject of
appraisal rights) shall be converted into and represent the right to receive
the price per share paid in the Common Stock Offer, in cash and (B) each
issued and outstanding share of Company Preferred Stock (other than shares
owned by Parent, any subsidiary of Parent or the Company and any shares the
subject of appraisal rights) shall be converted into and represent the right
to receive the amount set forth in Annex B opposite the dividend payment date
for the dividend most recently declared by the Board which has or had a
record date prior to the Effective Time, plus accrued and unpaid dividends
through the Effective Time, in cash; provided, however, that if the holders
of less than 66 2/3% of the shares of Company Preferred Stock have
<PAGE>
voted to approve the Merger Agreement and the Merger, each share of Company
Preferred Stock shall remain issued and outstanding subject to the right of
holders of Company Preferred Stock to convert such shares according to the
procedures described in, and into the amount of cash calculated pursuant to,
Section 2.06(b) of the Merger Agreement. Capitalized terms used herein but not
otherwise defined are used as defined in the Merger Agreement.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and certain other financial
information concerning the Company, including financial forecasts, that were
provided to us by the Company. We have discussed the past and current business
operations, financial condition and prospects of the Company with certain
officers and employees of the Company. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of the information reviewed by us for
the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company, we have been advised by the management of the Company
that such forecasts have been reasonably prepared on bases reflecting
management's best currently available estimates and judgments, and we express no
opinion with respect to such forecasts or the assumptions on which they are
based. We have not assumed any responsibility for any independent evaluation or
appraisal of any of the assets (including properties and facilities) or
liabilities of the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address the Company's
underlying business decision to enter into the Acquisition, the Merger or the
Merger Agreement. Our opinion is directed only to the fairness, from a financial
point of view, of the consideration to be received in the Common Stock Offer and
the Merger by holders of Company Common Stock. Our opinion does not constitute a
recommendation concerning (i) whether holders of Company Common Stock should
accept the Common Stock Offer or (ii) how such holders should vote with respect
to the Merger Agreement or the Merger.
We have acted as financial advisor to the Company in connection with the
Acquisition and Merger and will receive a fee for our services, a significant
portion of which is contingent upon consummation of the Merger. In the ordinary
course of business, we and our affiliates may actively trade the securities of
the Company and Parent for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. In
<PAGE>
addition, we and our affiliates have previously rendered certain
investment banking and financial advisory services to Parent for which we have
received customary compensation. We and our affiliates (including Citigroup
Inc.) may have other business relationships with the Company or Parent in the
ordinary course of their businesses.
Based upon and subject to the foregoing, it is our opinion that the
consideration to be received in the Common Stock Offer and the Merger, taken
together, by holders of Company Common Stock is fair to such holders from a
financial point of view.
Very truly yours,
/s/ Salomon Smith Barney
Salomon Smith Barney
<PAGE>
Exhibit 99(c)(7)
[Confidentiality Agreement]
June 12, 1998
AMR Corporation
4333 Amon Carter Boulevard
Ft. Worth, Texas 76155
Attention: Senior Vice President and General Counsel
Ladies and Gentlemen:
In connection with your consideration of a possible negotiated transaction with
Reno Air, Inc. (the "Company"), you have requested information regarding the
Company.
1. As a condition to your being furnished with such information, you agree
(and agree to cause your affiliates and associates) to treat any
information concerning the Company which is furnished to you by or on
behalf of the Company, from and after June 11, 1998 and regardless of the
manner in which it is or was furnished, together with analyses,
compilations, studies or other documents or records prepared by you or any
of your directors, officers, employees, agents or advisors (including,
without limitation, attorneys, accountants, consultants, bankers, financial
advisors and any representatives of your advisors) (collectively,
"Representatives") to the extent that such analyses, compilations, studies,
documents or records contain or otherwise reflect or are generated from
such information (hereinafter collectively referred to as the "Evaluation
Material"), in accordance with provisions of this agreement. The term
"Evaluation Material" does not include information which (i) was or becomes
generally available to the public other than as a result of a disclosure by
you or your Representatives, (ii) was or becomes available to you on a
non-confidential basis from a source other than the Company or its advisors
provided that such source is not known to you to be bound by a
confidentiality agreement with the Company, or otherwise prohibited from
transmitting the information to you by a contractual, legal or fiduciary
obligation, or (iii) was within your possession prior to having been
furnished to you by or on behalf of the Company, provided that the source
of such information was not bound by a confidentiality agreement with the
Company or otherwise prohibited from transmitting the information to you by
a contractual, legal, or fiduciary obligation.
2. You hereby agree that the Evaluation Material will be used solely for the
purpose of evaluating a possible negotiated transaction between the Company
and you, and that such information will be kept confidential by you and
your Representatives;
<PAGE>
provided, however, that (a) any of such information may be disclosed to
your Representatives who need to know such information for the purpose of
evaluating any such possible transaction between the Company and you (it
being understood that such Representatives shall have been advised of this
agreement and shall have agreed to be bound by the provisions hereof), and
(b) any disclosure of such information may be made to which the Company
consents in writing. In any event, you shall be responsible for any breach
of this agreement by any of your Representatives and you agree, at your
sole expense, to take all reasonable measures (including but not limited to
court proceedings) to restrain your Representatives from prohibited or
unauthorized disclosure or use of the Evaluation Material.
3. In addition, both you and the Company agree that, without the prior written
consent of the other, each will not, and will direct its Representatives
not to, disclose to any person (i) that the Evaluation Material has been
made available to you or your Representatives, (ii) that discussions or
negotiations are taking place concerning a possible transaction between the
Company and you or (iii) any terms, conditions or other facts with respect
to any such possible transaction, including the status thereof. Both you
and the Company agree however, that, if in the reasonable opinion of
counsel for either party, disclosure of the type described in sub-clauses
(i), (ii), or (iii) of the immediately preceding sentence is required by
applicable law, prior to making any such disclosure, the party required to
so disclose will notify the other party in writing as soon as reasonably
practicable. Such notice will set forth with the proposed text of the
disclosure, the date and time when it is expected that the disclosure will
be made, and the legal requirement and rationale for the disclosure.
4. In the event that you are requested or required (by interrogatories,
requests for information or documents, subpoena, civil investigative demand
or similar processes) to disclose any Evaluation Material, it is agreed
that you will provide the Company with prompt notice of any such request or
requirement (written or practical) so that the Company may seek an
appropriate protective order or waive your compliance with the provisions
of this agreement. If, failing the entry of a protective order or the
receipt of a waiver hereunder, you are, in the opinion of your counsel,
compelled to disclose Evaluation Material, you may disclose that portion of
the Evaluation Material, which your counsel advises that you are compelled
to disclose and you will exercise reasonable efforts to obtain assurance
that confidential treatment will be accorded to that portion of the
Evaluation Material which is being disclosed. In any event, you will not
oppose any action by the
<PAGE>
Company to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Evaluation
Material.
5. It is understood that Steven A. Rossum- the Company's General Counsel - or
his designee will arrange for appropriate contacts for due diligence
purposes. All (i) communications regarding this transaction, (ii) requests
for additional information, and (iii) discussions or questions regarding
the Company's business or operations, will be confidentially submitted or
directed to Mr. Rossum or to such other person or entity as he may
designate in writing for such purpose during the period in which there are
discussions conducted pursuant hereto.
6. You understand and acknowledge that any and all information contained in
the Evaluation Material is being provided without any representation or
warranty, express or implied, as to the accuracy or completeness of the
Evaluation Material, on the part of the Company. You agree that neither the
Company nor any of its representatives shall have any liability to you or
any of your Representatives with respect thereto. It is understood that the
scope of any representations and warranties to be given by the Company will
be negotiated along with other terms and conditions in arriving at a
mutually acceptable form of definitive agreement should discussions between
you and the Company progress to such a point.
7. Each of us hereby acknowledges that it is aware and that it will advise its
Representatives that the federal and state securities laws prohibit any
person who has material, non-public information about a company from
purchasing or selling securities of such a company or from communicating
such information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities.
8. All Evaluation Material disclosed by the Company shall be and shall remain
the property of the Company. In the event that the parties do not proceed
with the transaction that is the subject of this letter within a reasonable
time or within five days after being so requested by the Company, you shall
return or destroy all documents constituting Evaluation Material furnished
to you by the Company. Except to the extent a party is advised in writing
by counsel that any such destruction is prohibited by law, you will also
destroy all written material, memoranda, notes, copies, excerpts and other
writings or recordings whatsoever prepared by you or your Representatives
based upon, containing or otherwise reflecting any Evaluation Material. Any
destruction of materials shall be verified by you in writing and signed by
one of your officers. Any Evaluation Material that is not
<PAGE>
returned or destroyed, including without limitation, any oral Evaluation
Material shall remain subject to the confidentiality obligations set forth
in this agreement.
9. You agree that unless and until a definitive agreement regarding a
transaction between the Company and you has been executed, neither the
Company nor you will be under any legal obligation of any kind whatsoever
with respect to such a transaction by virtue of this agreement except for
the matters specifically agreed to herein. You further acknowledge and
agree that the Company and you reserve the right, in its sole discretion,
to reject any and all proposals made by the other or any of its
Representatives with regard to a transaction between the Company and you,
and to terminate discussions and negotiations at any time.
10. It is understood and agreed that damages would not be a sufficient remedy
for any breach of this agreement and that the Company and you shall be
entitled to specific performance and injunctive or other equitable relief
as a remedy for any such breach by the other. Such remedy shall not be
deemed to be the exclusive remedy for breach of this agreement but shall be
in addition to all other remedies available at law or equity.
11. In the event of litigation relating to this agreement, the unsuccessful
party determined by a court of competent jurisdiction in a final,
non-appealable order shall be liable and pay to the prevailing party the
reasonable legal fees such prevailing party has incurred in connection with
such litigation, including any appeal therefrom.
12. This agreement is for the benefit of each of the parties and its successors
and shall be governed and construed in accordance with the laws of the
State of New York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law thereof. All obligations under
this agreement shall expire one year from the date hereof, except as
otherwise explicitly stated above. In case, any provision of this agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of the agreement shall not in
any way be affected or impaired thereby.
13. This agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one
and the same agreement. Faxed executed counterparts will be enforceable.
Please confirm that the foregoing is in accordance with your understanding
of our agreement by signing and returning to a copy of this letter to the
Company's General Counsel.
<PAGE>
Very truly yours,
Reno Air, Inc.
By:/s/ Steven A. Rossum
Its: Senior Vice President, General Counsel, and Corporate Secretary
Confirmed and Agreed:
AMR Corporation
By:/s/ Charles D. MarLett
Its: Corporate Secretary
<PAGE>
Exhibit 99(c)(11)
Amendment to Code of By-Laws Adopted on November 18, 1998
---------------------------------------------------------
RESOLVED, that Article III, Section G of the Ninth Amended and
Restated Code of By-Laws of the Company (the "By-Laws") is hereby amended to
read in its entirety as follows:
"G. Action by Written Consent. Any action required or permitted to be
taken at a meeting of the stockholders may be taken without a meeting
if a written consent thereto is signed by stockholders holding at
least a majority of the voting power, except that if a different
proportion of voting power is required for such an action at a
meeting, then that proportion of written consents is required."; and
further
RESOLVED, that a new Article IX be added to the By-Laws to read in its
entirety as follows:
"IX
INAPPLICABILITY OF ACQUISITION OF
CONTROLLING INTEREST STATUTE
Notwithstanding any other provision in the By-Laws to the contrary,
the provisions of Sections 78.378 to 78.3793, inclusive, of the Nevada Revised
Statutes (or any successor thereto), relating to acquisitions of controlling
interests in the corporation, do not apply to the corporation."; and further
RESOLVED, that Articles IX and X of the By-Laws be redesignated as
Articles X and XI, respectively.
