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SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF
THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/X/ Definitive Information Statement
RENO AIR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.01 per share, and Series A Cumulative Convertible
Exchangeable Preferred Stock, par value $0.001 per share, of Reno Air,
Inc. (the "Shares")
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 1,773,542
shares of Common Stock and 1,117 shares of Series A Cumulative Con-
vertible Exchangeable Preferred Stock
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursu-
ant to Exchange Act Rule 0-11: $7.75 per share of Common Stock and
$27.50 per share of Series A Cumulative Convertible Exchangeable Pre-
ferred Stock
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $13,775,668
------------------------------------------------------------------------
(5) Total fee paid: $2,755.13*
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $35,086.51*
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14D-1
------------------------------------------------------------------------
(3) Filing Party: Bonanza Acquisitions, Inc. and American Airlines, Inc.
------------------------------------------------------------------------
(4) Date Filed: November 24, 1998
------------------------------------------------------------------------
* The amount previously paid assumed the purchase of (i) 10,843,470 outstanding
shares of Common Stock of Reno Air, Inc. and 6,697,501 shares of Common Stock
which may be issued upon the exercise of outstanding options and warrants and
the conversion of outstanding convertible notes, in each case, at $7.75 in cash
per share and (ii) the purchase of 1,436,000 outstanding shares of Series A
Cumulative Convertible Exchangeable Preferred Stock of Reno Air, Inc., at $27.50
in cash per share. The amount of the filing fee as calculated in accordance with
Regulation 240.0-11 of the Securities Exchange Act of 1934, as amended, equaled
1/50 of one percent of the value of the shares to be purchased. As of December
31, 1998, there were 10,884,650 shares of Common Stock outstanding (representing
9,111,108 shares of Common Stock held by Purchaser and 1,773,542 shares of
Common Stock held by persons other than Purchaser) and 1,436,000 shares of
Preferred Stock outstanding (representing 1,434,883 shares of Preferred Stock
held by Purchaser and 1,117 shares of Preferred Stock held by persons other than
Purchaser), which total number of Shares is less than the number of Shares for
which a filing fee was paid on November 24, 1998 pursuant to the Offer to
Purchase. The total fee with respect to the securities to which this transaction
applies is $2,755.13, which was previously paid as part of the $35,086.51 paid
pursuant to the November 24, 1998 Schedule 14D-1 filing.
<PAGE>
RENO AIR, INC.
220 EDISON WAY
RENO, NEVADA 89502
INFORMATION STATEMENT
This Information Statement is furnished by the Board of Directors (the
"Board of Directors") of Reno Air, Inc., a Nevada corporation (the "Company"),
to holders of the outstanding shares of (i) common stock, par value $.01 per
share (the "Common Stock"), and (ii) Series A Cumulative Convertible
Exchangeable Preferred Stock, par value $.001 per share (the "Preferred Stock"
and, together with the Common Stock, the "Shares"), of the Company, in
connection with an Agreement and Plan of Merger, dated as of November 19, 1998,
by and among the Company, American Airlines, Inc., a Delaware corporation
("Parent"), and Bonanza Acquisitions, Inc., a Nevada corporation ("Purchaser")
providing for the merger (the "Merger") of Purchaser with and into the Company
(the "Merger Agreement"). As a result of the Merger, the Company will become a
wholly-owned subsidiary of Parent and (i) each issued and outstanding share of
Common Stock (other than shares of Common Stock that are owned by the Company,
Parent, Purchaser or any other wholly-owned subsidiary of Parent) will be
converted into the right to receive $7.75 in cash (the "Common Stock Merger
Consideration") and (ii) each issued and outstanding share of Preferred Stock
(other than shares of Preferred Stock that are owned by the Company, Parent,
Purchaser or any other wholly-owned subsidiary of Parent) will be converted into
the right to receive $27.50 in cash together with accrued and unpaid dividends
through the Effective Time (as defined below) of the Merger (the "Preferred
Stock Merger Consideration"; and together with the Common Stock Merger
Consideration, the "Merger Consideration"). A copy of the Merger Agreement is
attached hereto as Annex I.
The Merger is the second step of a two-step transaction pursuant to which
Parent, as the owner of all of the capital stock of Purchaser, will acquire the
entire equity interest in the Company. The first step was a tender offer for the
outstanding Shares at $7.75 per share of Common Stock and $27.50 per share of
Preferred Stock, respectively, net to the seller in cash (the "Offer").
Purchaser acquired 9,111,108 shares of Common Stock and 1,434,883 shares of
Preferred Stock upon the consummation of the Offer on December 23, 1998,
representing approximately 83.7% of the issued and outstanding shares of Common
Stock and approximately 99.9% of the issued and outstanding shares of Preferred
Stock, respectively.
As a result of the consummation of the Offer, Purchaser owns and has the
right to vote a sufficient number of outstanding Shares to approve and adopt the
Merger Agreement without the affirmative vote of any other holder of Common
Stock or Preferred Stock, thereby assuring such approval and adoption. Purchaser
has executed and delivered to the Company a written consent in lieu of a meeting
of stockholders approving and adopting the Merger Agreement and authorizing the
consummation of the Merger.
SUCH WRITTEN CONSENT PROVIDES THAT THE MERGER WILL BECOME EFFECTIVE NO
EARLIER THAN 20 CALENDAR DAYS AFTER THIS INFORMATION STATEMENT IS FIRST MAILED
TO STOCKHOLDERS OF THE COMPANY. THE COMPANY CURRENTLY ANTICIPATES THAT THE
EFFECTIVE TIME OF THE MERGER WILL BE ON OR ABOUT FEBRUARY 22, 1999.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES AT THIS TIME.
This Information Statement is first being mailed to stockholders on or about
February 1, 1999.
THIS INFORMATION STATEMENT IS DATED FEBRUARY 1, 1999.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.............................................................................. 1
THE COMPANIES...................................................................... 1
THE COMPANY...................................................................... 1
PURCHASER........................................................................ 1
PARENT........................................................................... 1
GENERAL............................................................................ 1
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING.................................. 2
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION...................................... 2
ABSENCE OF APPRAISAL RIGHTS........................................................ 2
THE MERGER......................................................................... 2
BACKGROUND OF THE OFFER AND THE MERGER........................................... 2
APPROVAL OF THE BOARD OF DIRECTORS............................................... 2
OPINION OF FINANCIAL ADVISOR....................................................... 3
POTENTIAL CONFLICTS; INTERESTS OF CERTAIN PERSONS IN THE MERGER.................... 3
CONDITIONS TO THE MERGER........................................................... 3
REGULATORY MATTERS................................................................. 3
CERTAIN INCOME TAX CONSEQUENCES.................................................... 3
FINANCING ARRANGEMENTS............................................................. 4
COMPANY'S SELECTED FINANCIAL DATA.................................................. 4
GENERAL.............................................................................. 5
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING.................................... 5
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION........................................ 5
VALID SURRENDERS OF SHARES......................................................... 5
SIGNATURE GUARANTEES............................................................... 6
ABSENCE OF APPRAISAL RIGHTS.......................................................... 6
THE MERGER........................................................................... 6
BACKGROUND OF THE OFFER AND THE MERGER............................................. 6
REASONS FOR THE RECOMMENDATION..................................................... 9
FAIRNESS OPINION OF SALOMON.......................................................... 10
PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY........................... 13
PURPOSE OF THE OFFER............................................................... 13
CONVERTIBLE NOTES.................................................................. 13
WARRANTS........................................................................... 13
PLANS FOR THE COMPANY.............................................................. 13
INTERESTS OF CERTAIN PERSONS IN THE MERGER........................................... 14
MANAGEMENT CONTRACTS............................................................... 14
O'GORMAN EMPLOYMENT AGREEMENT.................................................... 14
EXECUTIVE EMPLOYMENT AGREEMENTS.................................................. 15
STOCK OPTION PLANS................................................................. 16
COMMERCIAL ARRANGEMENTS............................................................ 16
THE MERGER AGREEMENT................................................................. 17
THE OFFER.......................................................................... 17
THE MERGER......................................................................... 17
AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY.................................... 17
</TABLE>
i
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<TABLE>
<S> <C>
REPRESENTATIONS AND WARRANTIES..................................................... 22
CONDITIONS TO THE MERGER........................................................... 22
TERMINATION; FEES AND EXPENSES; COMMERCIAL ARRANGEMENTS............................ 22
ACCOUNTING TREATMENT................................................................. 23
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER................................ 23
REGULATORY APPROVAL.................................................................. 24
GENERAL............................................................................ 24
ANTITRUST.......................................................................... 24
MARKET FOR THE SHARES................................................................ 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................... 26
CERTAIN BENEFICIAL OWNERS.......................................................... 26
COMMON STOCK OWNERSHIP OF MANAGEMENT............................................... 27
AVAILABLE INFORMATION................................................................ 27
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... 28
ANNEX I: AGREEMENT AND PLAN OF MERGER................................................ I-1
ANNEX II: FAIRNESS OPINION OF SALOMON SMITH BARNEY INC............................... II-1
</TABLE>
ii
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SUMMARY
The following is a summary of the more detailed information contained in
this Information Statement with respect to the Merger which is discussed herein.
This Summary is not intended to be complete and is qualified in its entirety by
the more detailed information contained elsewhere in this Information Statement,
in the Annexes hereto and other documents referred to herein. Terms used but not
defined in this Summary have the meanings ascribed to them elsewhere in this
Information Statement. Cross references in this Summary are to the captions of
sections in this Information Statement.
Stockholders are urged to read this Information Statement and the Annexes
hereto in their entirety.
THE COMPANIES.
THE COMPANY. The Company is a Nevada corporation with its principal
executive offices located at 220 Edison Way, Reno, Nevada 89502. The Company is
a national air carrier operating primarily in the western United States. The
Company's primary strategy has been to provide low-cost, low-fare and high
quality all-jet scheduled airline passenger service. The Company also transports
cargo and mail and provides charter service.
PURCHASER. Purchaser is a newly incorporated Nevada corporation organized in
connection with the Offer and the Merger and has not carried on any activities
other than in connection with the Offer and the Merger. The principal offices of
Purchaser are located at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155.
Purchaser is a wholly-owned subsidiary of Parent.
PARENT. Parent is a Delaware corporation with its principal offices located
at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155. The principal activity
of Parent is air transportation. Parent is a wholly-owned subsidiary of AMR
Corporation, a Delaware corporation ("AMR Corporation"). The common stock of AMR
Corporation is listed on the New York Stock Exchange.
GENERAL. This Information Statement is being delivered in connection with
the merger of Purchaser with and into the Company pursuant to the Merger
Agreement. As a result of the Merger, the Company will become a wholly-owned
subsidiary of Parent, each issued and outstanding Share (other than Shares that
are owned by the Company, Parent, Purchaser or any other wholly-owned subsidiary
of Parent) will be converted into the right to receive the Common Stock Merger
Consideration or the Preferred Stock Merger Consideration, as the case may be
(I.E., $7.75 or $27.50 (plus accrued and unpaid dividends) in cash), without
interest thereon, and the equity interest of all pre-Merger stockholders in the
Company will be terminated.
The Merger is the second step of a two-step transaction pursuant to which
Parent will acquire the entire equity interest in the Company. The first step
was the Offer, pursuant to which Purchaser acquired 9,111,108 shares of Common
Stock at a price of $7.75 per share and 1,434,883 shares of Preferred Stock at a
price of $27.50 per share (plus accrued and unpaid dividends) on December 23,
1998, representing approximately 83.7% of the outstanding shares of Common Stock
and 99.9% of the outstanding shares of Preferred Stock, respectively.
The consummation of the Offer was subject to several conditions, including,
among other things, there being validly tendered and not withdrawn prior to the
expiration of the Offer, that number of shares of Common Stock which represents
at least a majority of the shares of Common Stock outstanding on a fully diluted
basis (including for purposes of such calculation, without limitation, all
shares of Common Stock issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights, but
excluding shares of Common Stock issuable upon the conversion of any shares of
Preferred Stock to be accepted for payment and paid for by Purchaser pursuant to
the Offer) (the "Minimum Condition"). The Minimum Condition was satisfied.
<PAGE>
Pursuant to Section 6.03 of the Merger Agreement, following the purchase of
the shares of Common Stock by Purchaser pursuant to the Offer, on December 23,
1998 Purchaser designated the following four individuals for election as
directors of the Board of Directors: Gerard J. Arpey, Jeffrey C. Campbell,
Donald J. Carty and Charles D. MarLett. In addition, Purchaser requested that
the Company reduce the size of the Board of Directors from nine to seven
members. Effective December 23, 1998, the following six members of the Board of
Directors resigned: Lee M. Hydeman, Donald L. Beck, Joe M. Kilgore, Emmett E.
Mitchell, Wayne L. Stern, M.D. and Agnieszka Winkler. Thereafter, on such date,
Barrie K. Brunet, James T. Lloyd and Joseph R. O'Gorman, the remaining members
of the Board of Directors of the Company, took action by written consent to
reduce the size of the Board of Directors from nine to seven members and to
appoint the four Purchaser designees to the Board of Directors.
Also on December 23, 1998 and pursuant to Section 6.10 of the Merger
Agreement, the Company called for redemption the 9% Senior Convertible Notes due
September 30, 2002 (the "Convertible Notes") in accordance with their terms on
the thirtieth day following the notice of redemption. The Convertible Notes were
redeemed in accordance with their terms on January 22, 1999.
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING. Under the Company's
Articles of Incorporation and the laws of the State of Nevada applicable to
corporations ("Nevada Law"), the affirmative vote of holders of a majority of
the outstanding shares of Common Stock and sixty-six and two-thirds percent
(66 2/3%) of the outstanding shares of Preferred Stock is required to approve
and adopt the Merger Agreement and the transactions contemplated thereby. As a
result of the consummation of the Offer, Purchaser owns and has a right to vote
a sufficient number of shares of Common Stock and Preferred Stock to cause the
Merger to be approved without the concurrence of any other holder of shares of
Common Stock or Preferred Stock. Purchaser has executed and delivered to the
Company a written consent in lieu of a meeting of stockholders approving and
adopting the Merger Agreement and authorizing the consummation of the Merger.
Such written consent provides that the Merger will become effective no
earlier than twenty (20) calendar days after this Information Statement is first
mailed to stockholders of the Company.
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION. A Letter of Transmittal for
each of the shares of Common Stock and the shares of Preferred Stock will be
sent to all stockholders of the Company under separate cover. The Letter of
Transmittal must be completed and returned as directed therein along with
certificates representing the shares of Common Stock or the shares of Preferred
Stock, as the case may be, covered thereby. Checks will be sent to stockholders
as soon as practicable after the receipt of Letters of Transmittal and
certificates. Detailed instructions concerning the procedure for receipt of the
Merger Consideration are set forth in the Letter of Transmittal and elsewhere
herein. See "PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION."
ABSENCE OF APPRAISAL RIGHTS. Under Nevada Law, the holders of shares of
Common Stock and Preferred Stock are not entitled to dissent from the Merger and
obtain payment in cash from the Company of the fair value of their Shares. See
"ABSENCE OF APPRAISAL RIGHTS."
THE MERGER.
BACKGROUND OF THE OFFER AND THE MERGER. For a description of the events
leading to the approval of the Merger Agreement by the Board of Directors and of
the other events since such approval, see "THE MERGER--Background of the Offer
and the Merger."
APPROVAL OF THE BOARD OF DIRECTORS. At a meeting held on November 18, 1998,
the Board of Directors, by unanimous vote (i) determined that the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, taken together, are fair to, and in the best interests of, the holders
of Common Stock, (ii) approved and adopted the Merger Agreement, the Offer 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 Offer and, if required
2
<PAGE>
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.
OPINION OF FINANCIAL ADVISOR. On November 18, 1998, Salomon Smith Barney
Inc. ("Salomon"), the Company's financial advisor, delivered its oral opinion,
subsequently confirmed in writing (the "Fairness Opinion"), to the effect that,
as of such date, the proposed $7.75 per share of Common Stock cash consideration
to be received by the holders of Common Stock pursuant to the Offer and the
Merger, taken together, is fair to such holders from a financial point of view.
Salomon also made a presentation to the Board of Directors that the proposed
formula for determining the price to be received by the holders of shares of
Preferred Stock in the Offer and the Merger 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 Stock becomes optionally
redeemable in accordance with its terms. The full text of the Fairness Opinion
is set forth in Annex II hereto and should be read in its entirety. See "THE
FAIRNESS OPINION OF SALOMON."
POTENTIAL CONFLICTS; INTERESTS OF CERTAIN PERSONS IN THE MERGER. Each of the
executive officers of the Company, other than Joseph R. O'Gorman, the Chairman
of the Board of Directors, President and Chief Executive Officer of the Company,
has entered into a new employment agreement with Parent which will supersede
each of their respective existing employment agreements with the Company as of
the Effective Time (as defined below) of the Merger. Mr. O'Gorman and the
Company entered into an agreement dated as of January 11, 1999 which, in
exchange for a severance payment and certain other benefits, terminated and
superseded Mr. O'Gorman's existing employment agreement (other than as provided
therein). Under the new agreement, Mr. O'Gorman may continue as Chairman of the
Board of Directors, Chief Executive Officer and President of the Company until
February 28, 1999 and will remain available, at his current salary, to consult
with the management and the Board of Directors of the Company and Parent until
June 30, 1999. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER--Management
Contracts."
Parent and the Company, since 1993, have had several ongoing commercial
arrangements between them. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER--Commercial Arrangements."
CONDITIONS TO THE MERGER. Pursuant to the Merger Agreement, and as a result
of the consummation of the Offer, the respective obligation of each party to
effect the Merger is subject to the satisfaction prior to the Effective Time (as
defined below) of the Merger of the following condition: no foreign, United
States or state governmental authority or other agency or commission or foreign,
United States or state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of making the acquisition
of Shares by Parent of Purchaser of any affiliate of either of them illegal or
otherwise restricting, preventing or prohibiting consummation of the Merger.
REGULATORY MATTERS. No regulatory approval is required for the consummation
of the Merger. See "REGULATORY APPROVAL."
CERTAIN INCOME TAX CONSEQUENCES. The receipt of cash pursuant to the Merger
Agreement will be a taxable transaction for Federal income tax purposes and may
also be a taxable transaction for state, local, foreign and other tax purposes.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." Stockholders are
urged to consult their tax advisors as to the particular tax consequences of the
Merger to them, including the applicability and the effect of Federal, state,
local, foreign and other tax laws.
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FINANCING ARRANGEMENTS. The Company has been advised that the total amount
of funds required by Purchaser to consummate the Offer and the Merger and to pay
related fees and expenses is estimated to be approximately $130,000,000.
Purchaser will obtain all of such funds from Parent. Parent will provide such
funds from its working capital.
COMPANY'S SELECTED FINANCIAL DATA. Set forth below is certain selected
financial information relating to the Company which has been excerpted or
derived from the audited financial statements contained in the Company's Annual
Report on Form 10-K for each of the fiscal years ended December 31, 1997 and
1996, respectively (the "Form 10-Ks") and the unaudited financial statements
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (the "Form 10-Q"). In the opinion of the Company, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the unaudited interim financial information have been made.
Interim results are subject to significant seasonal variations and are not
necessarily indicative of the results of operations to be expected for a full
fiscal year. More comprehensive financial information is included in the Form
10-Ks, the Form 10-Q and other documents filed by the Company with the
Securities and Exchange Commission (the "SEC"), which are incorporated into this
Information Statement by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE". The summary financial information that follows is qualified in its
entirety by reference to such reports and other documents, including the
financial statements and related notes contained therein. Such reports and other
documents may be examined and copies may be obtained from the offices of the SEC
in the manner set forth under "AVAILABLE INFORMATION".
COMPANY'S SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues.................... $ 293,667 $ 292,754 $ 383,924 $ 349,884 $ 256,508 $ 195,519 $ 124,640
Operating income (loss)............... 7,511 1,322 (10,649) 2,484 3,609 (13,852) (7,334)
Non-operating expense, net............ (183) (1,298) (978) (454) (1,658) (141) (10)
Net income (loss)..................... 7,328 24 (11,627) 2,030 1,951 (13,993) (7,344)
Net income (loss) applicable to common
stock............................... 4,907 24 (12,345) 2,030 1,818 (13,993) (7,344)
Net income (loss) per common share.... .46 -- (1.18) 0.20 0.20 (1.73) (1.06)
Net income (loss) per common share
assuming dilution................... .45 -- (1.18) 0.19 0.18 (1.73) (1.06)
Balance Sheet Data:
Current assets........................ 83,010 65,360 86,678 55,118 72,064 32,935 24,787
Total assets.......................... 176,945 173,041 193,409 143,706 99,484 51,683 37,204
Current liabilities................... 67,306 85,293 80,397 67,015 53,802 44,577 22,611
Long-term debt........................ 50,520 61,044 62,584 50,698 28,755 4,788 0
Total liabilities..................... 135,744 159,954 158,685 131,575 90,581 53,481 25,255
Shareholders' equity (deficiency)..... 41,201 13,087 34,724 12,131 8,903 (1,798) 11,948
Working capital (deficit)............. 15,704 (19,933) 6,281 (11,897) 18,262 (11,642) 2,176
</TABLE>
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GENERAL
This Information Statement is being delivered in connection with the merger
of Purchaser into the Company pursuant to the Merger Agreement. As a result of
the Merger, Parent will own 100% of the issued and outstanding shares of capital
stock of the Company, each issued and outstanding Share (other than Shares that
are owned by the Company, Parent, Purchaser or any other wholly-owned subsidiary
of Parent) will be converted into the right to receive the Merger Consideration
and the equity interests of all pre-Merger stockholders in the Company will be
terminated.
The Merger is the second step of a two-step transaction pursuant to which
Parent will acquire all of the equity interest in the Company. The first step
was the Offer, pursuant to which Purchaser acquired 9,111,108 shares of Common
Stock at a price of $7.75 per share and 1,434,883 shares of Preferred Stock at a
price of $27.50 per share on December 23, 1998, representing approximately 83.7%
of the outstanding shares of Common Stock and 99.9% of the outstanding shares of
Preferred Stock.
The consummation of the Offer was subject to several conditions, including
satisfaction of the Minimum Condition. See "THE MERGER AGREEMENT--The Offer."
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING
Pursuant to the Company's Articles of Incorporation and Nevada Law, the
Merger Agreement and the transactions contemplated thereby must be approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock and of sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Preferred Stock at a duly convened meeting of the
stockholders of the Company called for such purpose.
As a result of the consummation of the Offer, Purchaser owns a sufficient
number of Shares to cause the Merger to be approved and adopted without the
concurrence of any other holder of shares of Common Stock or Preferred Stock.
Pursuant to the Company's bylaws, any action required by Nevada Law to be taken
at any meeting of stockholders of the Company may be taken without a meeting,
without prior notice and without a vote of the stockholders of the Company if a
written consent, setting forth the action to be taken, shall be 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. Purchaser has
executed and delivered to the Company a written consent (the "Consent") in lieu
of a meeting of stockholders approving and adopting the Merger Agreement and the
transactions contemplated thereby and, in accordance with Rule 14c-2(b) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
authorizing the consummation of the Merger no earlier than 20 calendar days
after this Information Statement is first mailed to stockholders of the Company.
The Merger will become effective upon the filing of a articles of merger
with the Secretary of State of the State of Nevada in accordance with Nevada
Law. As used in this Information Statement, "Effective Time" means the effective
date of the Merger under Nevada Law.
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION
VALID SURRENDERS OF SHARES. A Letter of Transmittal for each of the shares
of Common Stock and the shares of Preferred Stock will be sent to you under
separate cover following the consummation of the Merger. For Shares to be
validly surrendered pursuant to the Merger, the appropriate Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
duly executed, with any required signature guarantees, must be received by First
Chicago Trust Company of New York, as the paying agent (the "Paying Agent") at
one of its addresses set forth in the Letter of Transmittal and certificates
representing Shares must be received by the Paying Agent.
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SIGNATURE GUARANTEES. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) of Shares surrendered therewith and such registered holder has not
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) if
such Shares are surrendered for the account of a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agent's Medallion
Program, or by any other "Eligible Guarantor Institution," as such term is
defined in Rule 17Ad-15 of the Exchange Act (each, an "Eligible Institution"
and, collectively, "Eligible Institutions"). In all other cases, all signatures
on the Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 4 to the Letter of Transmittal. If the certificates for
Shares are registered in the name of a person other than the signer of the
Letter of Transmittal, or if payment is to be made, or certificates for Shares
not surrendered or not accepted for payment are to be returned, to a person
other than the registered holder of the certificates surrendered, then the
surrendered certificates for such Shares must be endorsed or accompanied by
appropriate stock powers, in either case, signed exactly as the name or names of
the registered holders or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed as aforesaid. See Instructions 1
and 4 to the Letter of Transmittal.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF TRANSMITTAL
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE STOCKHOLDER.
IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED. SHARES WILL BE DEEMED DELIVERED ONLY WHEN
ACTUALLY RECEIVED BY THE PAYING AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE AGGREGATE MERGER CONSIDERATION PAYABLE TO A
STOCKHOLDER, SUCH STOCKHOLDER MUST PROVIDE THE PAYING AGENT WITH HIS CORRECT
TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT HE IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN
THE LETTER OF TRANSMITTAL.
ABSENCE OF APPRAISAL RIGHTS
Under Nevada Law, the holders of shares of Common Stock and Preferred Stock
are not entitled to dissent from the Merger and obtain payment in cash from the
Company of the fair value of the Shares. In addition, no appraisal rights were
available in connection with the Offer.
THE MERGER
BACKGROUND OF THE OFFER AND THE MERGER. Set forth below is a description of
the background of the Offer and the Merger, including a summary of certain
material meetings of the Board of Directors regarding the transactions described
herein. Until the consummation of the Offer, the Board of Directors consisted of
the following nine individuals: Joseph R. O'Gorman, Lee M. Hydeman, Donald L.
Beck, Barrie K. Brunet, Joe M. Kilgore, James T. Lloyd, Emmett E. Mitchell,
Wayne L. Stern, M.D., and Agnieszka Winkler.
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 Board of Directors in evaluating the
strategic landscape of the Company.
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Mr. Fornaro has held senior planning, scheduling and marketing positions at US
Airways, Northwest Airlines, Braniff International Airlines and Trans World
Airlines. 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. 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 Board of Directors on April 8, 1998 entitled "Competitive Assessment of Reno
Air." Among the recommendations made by Mr. O'Gorman to the Board of Directors
was 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
Parent, 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 President of Parent (Mr. Carty is now Chairman, President and Chief
Executive Officer of AMR Corporation and Parent, Chairman of Purchaser and a
Director of the Company), and Jeffrey C. Campbell, Vice President--Corporate
Development and Treasurer of Parent (Mr. Campbell is also Treasurer of Purchaser
and a Director of the Company). The meeting took place at Parent'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
Parent and the Company. Messrs. Carty and O'Gorman met privately following the
meeting and, in that subsequent private discussion, broached the possibility of
Parent purchasing the Company.
Andrew A. Cuomo, President of Airline Management Services, Inc., an
affiliate of Parent, met with Mr. O'Gorman, Joanne Smith, the Company's Senior
Vice President-Marketing and Planning, and Steven A. Rossum, the Company's
Senior Vice President, General Counsel, and Corporate Secretary, on or about May
11, 1998 at Parent'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 Parent (Mr. Arpey is also President of
Purchaser and a Director of the Company), Messrs. Campbell and O'Gorman and
Vicki W. Bretthauer, the Company's Vice President--Administration, met at the
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 entered into a confidentiality agreement (the "Confidentiality
Agreement") pursuant to which Parent 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 Parent
and the Company and further agreed to keep such material confidential.
Over the next several months, representatives of Parent conducted due
diligence on the Company. Throughout this process, Mr. O'Gorman met frequently
with the Board of Directors and the Executive Committee thereof. From April 7,
1998 through and including November 16, 1998, the Company's relationship with
Parent and the status of negotiations regarding a strategic alliance and/or
business combination were discussed at not less than 12 meetings of the Board of
Directors and six 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, Parent 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 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 Parent; Mr. Rossum;
W. Stephen Jackson, Senior Vice President-Finance 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 Parent. Salomon
also made a
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presentation to Parent 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 at LaGuardia Airport to continue the discussions regarding the
proposed transaction.
Discussions followed over the next several weeks between representatives of
Parent and the Company and their legal and financial advisors concerning a
proposed structure for the transaction, the scope of Parent's due diligence
investigations and the terms and conditions for the continued employment of the
Company's executive officers following a change of control of the Company.
On or about October 22, 1998, Mr. Carty had a telephone conversation with
Mr. O'Gorman proposing a meeting at Parent's headquarters on November 4, 1998 to
discuss terms of a potential merger. From and after October 23, 1998,
representatives of Parent and the Company and their legal and financial advisors
had numerous telephone conversations regarding various structural issues in
connection with a potential transaction between Parent 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 Parent
regarding a potential transaction, as well as the terms and conditions for the
continued employment of the Company's executive officers following a change of
control of the Company. On November 15, 1998, senior management and legal
advisors of each of the Company and Parent met at Parent's headquarters in Fort
Worth, Texas to review and negotiate the non-price terms of the Merger Agreement
and the executive employment arrangements.
Between November 16 and 18, 1998, Mr. Rossum continued negotiations with
various business and legal representatives of Parent at Parent's headquarters.
On November 17, 1998, Mr. Carty and Mr. O'Gorman met at Parent'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 Board of Directors held on November 18, 1998, the terms
and conditions of the proposed Merger Agreement were discussed. Representatives
of Salomon made a presentation to the Board of Directors and delivered its oral
opinion (which was subsequently confirmed in writing) to the effect that, as of
such date, the proposed $7.75 per share of Common Stock cash consideration to be
received by the holders of shares of Common Stock pursuant to the Offer and the
Merger, taken together, is fair to such holders from a financial point of view.
Salomon also made a presentation to the Board of Directors that the proposed
formula for determining the price to be received by the holders of shares of
Preferred Stock in the Offer and the Merger that is set forth in Annex B to the
Merger Agreement was in an amount that is economically equivalent to the present
value (as of the date of such opinion) 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. Mr.
Fornaro also orally reported to the Board of Directors 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
Parent) and the risk of Parent and its affiliates not renewing on favorable
terms the many commercial arrangements between the Company and Parent or its
affiliates.
Following a discussion of these presentations and the factors discussed
below under "THE MERGER--Reasons for the Recommendation," the Board of
Directors, by unanimous vote, (i) determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, taken
together, are fair to, and in the best interests of, the holders of shares of
Common Stock, (ii) approved and adopted the Merger Agreement, the Offer and the
transactions contemplated thereby, and (iii) recommended that the stockholders
of the Company accept the Offer and, if required by Nevada Law, approve and
adopt the Merger Agreement and the transactions contemplated thereby. On
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November 19, 1998, Parent, Purchaser and the Company signed the Merger
Agreement; Parent, the Company and the Executives (as defined below) executed
the American Employment Agreements (as defined below); and Parent and the
Company issued separate press releases announcing the Merger.
On November 24, 1998, Parent commenced the Offer. On December 8, 1998, at
11:59 p.m., the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), relating to the purchase
of shares of Common Stock pursuant to the Offer and the Merger, expired.
Purchaser acquired 9,111,108 shares of Common Stock at a price of $7.75 per
share and 1,434,883 shares of Preferred Stock at a price of $27.50 per share on
December 23, 1998, representing approximately 83.7% of the outstanding shares of
Common Stock and 99.9% of the outstanding shares of Preferred Stock,
respectively.
REASONS FOR THE RECOMMENDATION. In making the determinations and
recommendations described above, the Board of Directors considered a number of
factors including, without limitation, the following:
(i) The historical and recent market prices of the Common Stock and the
fact that the cash offer price of $7.75 per share of Common Stock provided
for in the Merger Agreement represented a premium of 37.9% over the average
trading prices of the Common Stock 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 Executive Committee of the Board of
Directors of Parent'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 share of Common Stock cash
consideration to be received by the holders of Common Stock in the 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 Annex II 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
share of Preferred Stock (and thereafter declining as provided in the Merger
Agreement) cash consideration, plus accrued and unpaid dividends, to be
received by the holders of Preferred Stock in the 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 Stock becomes optionally
redeemable in accordance with its terms.
(iv) The terms and conditions of the Merger Agreement and, in
particular, that the Company retained the ability to accept a superior
offer, subject to paying a $3 million termination fee plus expenses, and
that Parent had the ability to terminate the Offer and the Merger Agreement
only in a limited number of customary circumstances.
(v) The provisions of the Merger Agreement providing for the following:
(a) that between the date of entering into the Merger Agreement and the
earlier of the Effective Time or the termination of the Merger Agreement,
Parent agreed not to terminate the current commercial arrangements between
Parent and the Company, (b) the extension of certain commercial arrangements
between Parent (or an affiliate) and the Company upon entering into the
Merger Agreement, and (c) 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.
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(vi) The familiarity of the Board of Directors with the Company's
business, prospects, financial condition, results of operations and current
business strategy and its belief that the price per share of Common Stock
offered in the Offer and the Merger reflects the values inherent in the
Company, and that the price per share of Preferred Stock (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 Stock
becomes optionally redeemable in accordance with its terms.
(vii) The belief of the Board of Directors that a transaction with
Parent is the most advantageous scenario based upon the unique benefits
offered by the Company to Parent, particularly in light of Parent's desire
to expand its operations in the western United States, the existing
commercial arrangements between the Company and Parent, and Parent's
familiarity with the Company, which the Board of Directors believed would
enable Parent to make the most attractive offer to the Company's
stockholders.
(viii) The fact that no satisfactory indications of interest to acquire
the Company were forthcoming after the Company contacted several potential
purchasers, other than Parent's offer.
(ix) The belief by the Board of Directors that in the event the Company
did not enter into the Merger Agreement with Parent, 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 Parent.
(x) Parent'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 Board of Directors 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 Board of Directors may have given different weights to
different factors.
FAIRNESS OPINION OF SALOMON
Salomon was retained by the Company to act as its financial advisor in
connection with the Offer and Merger. In connection with such engagement, the
Company requested that Salomon evaluate the fairness, from a financial point of
view, to holders of Common Stock of the consideration to be received by such
holders pursuant to the terms of the Offer and the Merger Agreement. On November
18, 1998, at a meeting of the Board of Directors held to approve the Merger
Agreement, Salomon delivered an oral opinion, which was subsequently confirmed
in writing, to the Company to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated therein, the consideration
to be received in the Offer and the Merger, taken together, by holders of Common
Stock was fair from a financial point of view to such holders.
In arriving at its opinion, Salomon reviewed the Merger Agreement and held
discussions with certain officers and employees of the Company concerning the
business operations, financial condition and prospects of the Company. Salomon
examined certain publicly available information relating to the Company as well
as certain financial forecasts for the Company and other information and data
for the Company which were provided to or otherwise discussed with Salomon by
the management of the Company. Salomon reviewed the financial terms of the Offer
and the Merger in relation to, among other things: (i) current and historical
market prices and trading volumes of the Common Stock; (ii) the historical and
projected earnings and other operating data of the Company; and (iii) the
capitalization and financial condition of the Company. Salomon also considered,
to the extent publicly available, the financial terms of certain other similar
transactions effected which Salomon considered relevant in evaluating the Offer
and the Merger and analyzed certain financial, stock market and other publicly
available information
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relating to the businesses of other companies whose operations Salomon
considered relevant in evaluating those of the Company. In addition to the
foregoing, Salomon conducted such other analyses and examinations and considered
such other financial, economic and market criteria as Salomon deemed appropriate
in arriving at its opinion. Salomon noted that its opinion was necessarily based
upon information available and conditions as they existed and could be evaluated
on the date of its opinion.
In rendering its opinion, Salomon assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with Salomon. With respect to financial forecasts and other
information and data furnished to or otherwise reviewed by or discussed with
Salomon, the management of the Company advised Salomon that such forecasts and
other information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company. Salomon did not make and was
not provided with an independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of the Company nor did Salomon make any
physical inspection of the properties, facilities or assets of the Company.
At the meeting of the Board of Directors, held on November 18, 1998, Salomon
made a presentation to the Board of Directors regarding the Offer and the
Merger. The following is a summary of the material financial analyses of Salomon
included in such presentation:
Selected Airline Transactions Analysis. Using publicly available
information, Salomon analyzed the purchase price and implied transaction
multiples paid in four selected transactions in the airline industry consisting
of (target): Air Cal, Pacific Southwest, CCAIR and Air Tran (collectively, the
"Selected Transactions"). Salomon compared the purchase prices in such
transactions as multiples of, among other things, revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), and earnings before
interest, taxes, depreciation, amortization, and aircraft lease expense
("EBITDAR"). All multiples for the Selected Transactions were based on
information available at the time of announcement of the transactions. Applying
a range of selected multiples for the Selected Transactions of revenue, EBITDA
and EBITDAR to corresponding estimated 1999 financial data for the Company
resulted in an implied equity value range per share of Common Stock of
approximately $3.00 to $6.50 on a fully diluted basis, as compared to the $7.75
per share Common Stock value provided in the Offer.
Selected Public Company Analysis. Using publicly available information,
Salomon analyzed the market values and trading multiples of the Company and five
selected publicly traded airline carrier companies, consisting of: Air Tran
Holdings, Amtran, Inc., Frontier Airlines, Inc., Midway Airlines and Midwest
Express Holdings, Inc. (collectively, the "Selected Companies"). Salomon
compared, among other things, market values of the Selected Companies as
multiples of, among other things, estimated revenue, EBITDA, EBITDAR and net
income. Net income projections for the Company were based on management's
estimates. Net income projections for the Selected Companies were based on
estimates of selected investment banking firms. All multiples were based on
closing stock prices as of November 16, 1998. Applying a range of selected
multiples for the Selected Companies of estimated revenue, EBITDA, EBITDAR and
net income to corresponding estimated 1999 financial data of the Company
resulted in an implied equity value per share of Common Stock of approximately
$3.50 to $6.50 on a fully diluted basis, as compared to the $7.75 per share of
Common Stock value provided in the Offer.
No transaction, company or business used as a comparison in the "Selected
Airlines Transactions Analysis" or "Selected Public Company Analysis" is
identical to the Company, Parent or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the selected Transactions, Selected Companies
or the business segment, company or transaction to which they are being
compared.
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Discounted Cash Flow Analysis. Salomon performed a discounted cash flow
analysis of the Company to estimate a range of values for the Common Stock. The
discounted cash flow analysis for the Company was based upon certain financial
forecasts for the years 1999 through 2003 prepared by the management of the
Company. Salomon performed four analyses of discounted cash flow, each weighted
as to the estimated probability of occurrence, assuming certain levels of
revenues and costs in various market environments. Analysis of the forecasts for
the Company indicated an implied equity value range per share of Common Stock of
approximately $5.50 to $8.50 on a fully diluted basis.
In preparing its opinion to the Board of Directors, Salomon performed a
variety of financial and comparative analyses, including those described above,
in connection with its opinion dated November 18, 1998. The summary of such
analyses does not purport to be a complete description of the analyses
underlying Salomon's opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Salomon believes that its analyses must be
considered as a whole and that selecting portions of such analyses or any of the
individual factors considered, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses and its opinion. In its analyses, Salomon made numerous assumptions
with respect to the Company, industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of the Company. The estimates contained in such analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
Pursuant to the terms of Salomon's engagement, the Company has agreed to pay
Salomon for its services in connection with the Merger an aggregate financial
advisory fee of $3 million, a substantial portion of which is contingent upon
the consummation of the Merger. The Company has also agreed to indemnify Salomon
and related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of Salomon's engagement.
Salomon has advised the Company that, in the ordinary course of business,
Salomon and its affiliates may actively trade or hold the securities of the
Company and Parent for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Salomon has in the past provided certain investment banking services to Parent
unrelated to the Merger, for which services Salomon has received customary
compensation. In addition, Salomon and its affiliates (including Citigroup Inc.)
may maintain relationships with the Company and Parent.
Salomon is a nationally recognized investment banking firm and was selected
by the Company based on Salomon's experience, expertise and familiarity with the
Company and its business. Salomon regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON DATED NOVEMBER 18, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX II AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF COMMON STOCK ARE URGED TO READ THIS OPINION CAREFULLY
IN ITS ENTIRETY. SALOMON'S OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS AND
RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED BY HOLDERS OF COMMON STOCK IN THE OFFER AND THE
MERGER AND DOES NOT
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ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS. THE SUMMARY OF
THE OPINION OF SALOMON SET FORTH IN THIS INFORMATION STATEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY
PURPOSE OF THE OFFER. The purpose of the Offer and the Merger is for Parent
to acquire control of, and the entire equity interest in, the Company. The
purpose of the Merger is for Parent to acquire all Shares not purchased pursuant
to the Offer. Upon consummation of the Merger, the Company will become a
wholly-owned subsidiary of Parent.
CONVERTIBLE NOTES. As of September 30, 1998, $28,750,000 aggregate principal
amount of the Convertible Notes was outstanding. Under the Indenture dated as of
August 15, 1992 between the Company and Fleet National Bank (formerly known as
Shawmut Bank Connecticut, National Association) (the "Indenture"), any holder of
Convertible Notes may, at his option, convert the principal amount thereof into
that number of shares of Common Stock obtained by dividing the principal amount
thereof by the conversion price of $10.00, subject to adjustment under certain
circumstances. None of the Company, the Board of Directors, Parent or Purchaser
has made or will make any recommendation to the holders of the Convertible Notes
regarding the desirability of converting the Convertible Notes to Common Stock.
Holders of Convertible Notes who convert such Convertible Notes into shares of
Common Stock will have no right under the Indenture to revoke an effective
conversion. Pursuant to the Merger Agreement, on December 23, 1998, after the
acceptance of and payment for the shares of Common Stock tendered pursuant to
the Offer, the Company called for redemption the Convertible Notes in accordance
with their terms on the thirtieth day following the notice of redemption (with
the redemption price to be determined in accordance with the terms set forth in
the Indenture). The Convertible Notes were redeemed in accordance with their
terms on January 22, 1999.
WARRANTS. As of November 24, 1998, warrants (the "Warrants") issued pursuant
to the Placement Agreement dated as of March 14, 1994 (the "Warrant Agreement")
between the Company and Paradise Valley Securities, Inc. to purchase an
aggregate of 65,431 shares of Common Stock at a price of $8.63 per share of
Common Stock were outstanding. None of the Company, the Board of Directors,
Parent or Purchaser has made or will make any recommendation to the holders of
the Warrants regarding the desirability of exercising the Warrants to purchase
shares of Common Stock. Holders of Warrants who exercise such Warrants to
purchase shares of Common Stock will have no right under the Warrant Agreement
to revoke an effective exercise. From and after the Effective Time, pursuant to
the Warrants, the holder of each outstanding Warrant, shall, upon the payment of
the exercise price under such Warrant, have the right to exercise each such
Warrant for an amount of cash equal to the Common Stock Merger Consideration
which would be payable as a result of the Merger with respect to the number of
shares of Common Stock, or fraction thereof, for which such Warrant could have
been exercised immediately prior to the Effective Time.
PLANS FOR THE COMPANY. Parent has advised the Company that it expects that,
initially following the Merger, the business and operations of the Company will,
except as set forth in this Information Statement, be continued by the Company
substantially as they are currently being conducted, except that Parent intends
to manage the Company as part of the Airline Group of AMR Corporation. Parent
has advised that it will continue to evaluate the business and operations of the
Company after the consummation of the Offer and the Merger, and will take such
actions as it deems appropriate under the circumstances then existing. Parent
has advised that it intends to seek additional information about the Company
during this period. Thereafter, Parent has advised that it intends to review
such information as part of a comprehensive review of the Company's business,
operations, capitalization and management with a view to optimizing exploitation
of the Company's potential in conjunction with Parent's businesses. It is
expected that the business and operations of the Company will be combined with
those of Parent.
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Parent has advised that it may cause the Company to be merged with Parent after
the consummation of the Merger.
Pursuant to Section 6.03 of the Merger Agreement, following the purchase of
the shares of Common Stock by Purchaser pursuant to the Offer, on December 23,
1998 Purchaser designated the following four individuals for election as
directors of the Board of Directors: Gerard J. Arpey, Jeffrey C. Campbell,
Donald J. Carty and Charles D. MarLett. In addition, Purchaser requested that
the Company reduce the size of the Board of Directors from nine to seven
members. Effective December 23, 1998, the following six members of the Board of
Directors resigned: Lee M. Hydeman, Donald L. Beck, Joe M. Kilgore, Emmet E.
Mitchell, Wayne L. Stern, M.D. and Agnieszka Winkler. Thereafter, on such date,
Barrie K. Brunet, James T. Lloyd and Joseph R. O'Gorman, the remaining members
of the Board of Directors, took action by written consent to reduce the size of
the Board of Directors from nine to seven members and to appoint the four
Purchaser designees to the Board of Directors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to
the Merger, the stockholders of the Company should be aware that certain members
of the Board of Directors and management have certain interests in the Merger
that are in addition to the interests of the stockholders of the Company
generally.
MANAGEMENT CONTRACTS.
O'GORMAN EMPLOYMENT AGREEMENT. On February 18, 1998, the Board of Directors
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.
Under the O'Gorman Employment Agreement, Mr. O'Gorman received a base salary
of $250,000 per year. Mr. O'Gorman was also awarded options to purchase 250,000
shares of Common Stock, at an exercise price of $5.63, vesting in five equal
installments beginning on the date of grant at six-month intervals and options
to purchase 30,000 shares of Common Stock under the terms of the Company's stock
option plan for Directors. All stock options granted to Mr. O'Gorman became
immediately vested upon the consummation of the Offer pursuant to the "change of
control" provisions of the O'Gorman Employment Agreement. In addition, Mr.
O'Gorman became entitled to certain additional payments and benefits upon the
consummation of the Offer pursuant to such provisions.
Mr. O'Gorman and the Company entered into an agreement dated as of January
11, 1999 that was consented to and approved by Parent and Purchaser (the "New
O'Gorman Agreement"). The New O'Gorman Agreement terminated and superseded the
O'Gorman Employment Agreement, other than the provisions relating to
confidentiality and indemnification, which survived and were incorporated into
the New O'Gorman Agreement. Pursuant to the New O'Gorman Agreement, Mr. O'Gorman
(i) will receive, promptly following his execution of the New O'Gorman
Agreement, an amount in cash equal to four times his current base salary plus an
amount in cash equal to the amount he would have received pursuant to the Merger
Agreement immediately prior to the Effective Time in consideration for the
cancellation and payment of his vested options, (ii) will continue in his role
as Chairman of the Board of Directors, Chief Executive Officer and President of
the Company until February 28, 1999 (or such earlier date as
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determined by the Board of Directors) and will remain available to consult with
the management and the Board of Directors of the Company and Parent until June
30, 1999, (iii) will continue to be paid at his current base salary and receive
benefits available to the Company's officers until June 30, 1999 (unless Mr.
O'Gorman shall be appointed to a position as a senior executive officer at a
competitor of the Company or Parent in which case such salary payments and other
benefits shall cease), (iv) will receive lifetime air travel benefits on
Parent's route system and lifetime membership for the Admiral's Clubs for both
him and his wife (such benefits to be provided on the most favored terms,
practices and conditions available to Parent's active senior executive
officers), and (v) will be provided a parking space at Chicago O'Hare
International Airport free of charge until December 31, 2002.
EXECUTIVE EMPLOYMENT AGREEMENTS. On November 19, 1998, the Company and
Parent 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 Parent's incentive compensation plan.
Each of the Executives will be entitled to receive awards of deferred stock
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 employees of
Parent 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.
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) Parent 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 Effective Time, 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 Parent, 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 Parent,
such Executive shall receive a payment equal to two times such Executive's base
salary, and shall continue to receive air travel benefits at the same level as
existed during the employment period up until the 30-month anniversary of the
Effective Time.
In the event an American Employment Agreement is terminated by Parent (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, Nevada area
within 12 months from such date, Parent 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.
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STOCK OPTION PLANS. Pursuant to the Merger Agreement, immediately prior to
the Effective Time, each outstanding option to purchase shares of Common Stock
(in each case, an "Option") granted under (i) the Company's 1992 Stock Option
Plan, (ii) the Company's Employee Stock Incentive Plan and (iii) the Company's
Directors Stock Option Plan (collectively, the "Stock Option Plans"), whether or
not then exercisable, shall be cancelled by the Company, and each holder of a
cancelled Option shall be entitled to receive from Purchaser at the same time as
payment for shares of Common Stock is made by Purchaser in connection with the
closing of the Merger, in consideration for the cancellation of such Option, an
amount in cash equal to the product of (x) the number of shares of Common Stock
previously subject to such Option and (y) the excess, if any, of the Common
Stock Merger Consideration over the exercise price per share of Common Stock
previously subject to such Option.
COMMERCIAL ARRANGEMENTS. Parent 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 Parent. The agreement grants the Company a
license to use SABRE, a computerized travel reservation system. The agreement
expires in November 2004.
Parent and the Company entered into an Amended and Restated AAdvantage
Participating Carrier Agreement dated March 28, 1995, which has been
subsequently amended (the "AAdvantage Agreement"), and which provides for the
accrual and redemption of frequent flyer points by members of Parent'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. Pursuant to the AAdvantage Agreement, Parent has the right for 120
days following a change in control of the Company to (i) exclude any routes from
the accrual and redemption of frequent flyer points and (ii) to terminate the
agreement on 30 days prior written notice.
On October 24, 1994, Parent and the Company executed an Amended and Restated
Agreement of Sublease, which has been subsequently amended, relating to the
sublease by the Company from Parent of five gates and related terminal space and
facilities at San Jose International Airport in San Jose, California. This
agreement expires in November 2007. Pursuant to the sublease, the Company must
obtain Parent's consent, which may be withheld at Parent's sole discretion,
prior to any transfer, assignment or sublet by the Company.
The Company also subleases from Parent 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 March 31, 1999, and may be terminated by either party on prior
notice as provided therein.
In addition, Parent 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
varies from month to month based on a formula tied to the Company's and Parent'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
March 31, 1999 and may be terminated by either party on prior notice as provided
therein.
Parent 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.
The Merger Agreement provides that, until the earlier of the Effective Time
and the termination of the Merger Agreement, Parent shall not terminate (or take
other adverse action against the Company in respect of) the foregoing commercial
arrangements between Parent and the Company, provided, however,
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that no provision of the Merger Agreement shall restrict or prohibit Parent from
exercising any rights of Parent in the event of a default by the Company under
any contract between the parties. Parent also agreed to include the Company in
Parent's west coast promotions and advertisements for so long as there is a
frequent flyer arrangement between Parent and the Company. Additionally, Parent
agreed that the Company shall be included in written frequent flyer promotional
material (in-flight and newsletter) on a level equal to Parent's other frequent
flyer partners.
Under certain circumstances, the agreements described above may be modified
if the Merger is not consummated, as more fully described below under the
heading "THE MERGER AGREEMENT-Termination; Fees and Expenses; Commercial
Arrangements."
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, a copy
of which is attached hereto as Annex I.
THE OFFER. Pursuant to the Merger Agreement, Purchaser commenced the Offer
within five business days after the initial public announcement of Purchaser's
intention to commence the Offer. On December 23, 1998, Purchaser accepted for
payment and paid for the Shares tendered pursuant to the Offer.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with Nevada Law, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
will continue as the surviving corporation (the "Surviving Corporation") and
will become a subsidiary of Parent. Upon consummation of the Merger, each share
of Common Stock and Preferred Stock issued and outstanding (other than any
Shares held in the treasury of the Company, or owned by Purchaser, Parent or any
direct or indirect wholly-owned subsidiary of Parent and any Shares which are
held by stockholders who have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such Shares in accordance with Nevada Law) shall be cancelled or converted
automatically into the right to receive the Merger Consideration.
Pursuant to the Merger Agreement, each share of Common Stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock, par value $.01 per share, of
the Surviving Corporation.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement provides that, at the Effective Time, the Articles of
Incorporation of Purchaser, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation, and
the bylaws of Purchaser, as in effect immediately prior to the Effective Time,
will be the bylaws of the Surviving Corporation.
AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY. Pursuant to the Merger
Agreement, the Company has covenanted and agreed that, between the date of the
Merger Agreement and the Effective Time, unless Parent shall otherwise agree in
writing (which agreement shall not be unreasonably withheld or delayed), the
businesses of the Company shall be conducted only in, and the Company shall not
take any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company shall use its reasonable efforts
to preserve intact the business organization of the Company, to keep available
the services of the current officers, employees and consultants of the Company
and to preserve the current relationships of the Company with customers,
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suppliers and other persons with which the Company has significant business
relations. The Merger Agreement provides that by way of amplification and not
limitation, and except as contemplated therein, the Company has covenanted and
agreed that, between the date of the Merger Agreement and the Effective Time,
unless Parent shall otherwise agree in writing (which agreement shall not be
unreasonably withheld or delayed), it will not do any of the following: (a)
amend or otherwise change its Articles of Incorporation or bylaws or equivalent
organizational documents; (b) issue, sell, pledge, dispose of, grant, encumber,
or authorize the issuance, sale, pledge, disposition, grant or encumbrance of
(i) any shares of capital stock of any class of the Company, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company (except for the
issuance of a maximum of 3,757,070 shares of Common Stock issuable pursuant to
employee and director stock options and a maximum of 7,104,831 shares of Common
Stock issuable upon the exercise of the Warrants or upon conversion of the
shares of Preferred Stock or Convertible Notes, in each case outstanding on the
date of the Merger Agreement and the issuance of a maximum of 100,000 employee
stock options issued on terms consistent with prior practice, and a maximum of
100,000 shares of Common Stock issuable pursuant to such employee stock options,
issued after the date of the Merger Agreement) or (ii) any assets of the
Company, except for sales in the ordinary course of business and in a manner
consistent with past practice; (c) declare, set aside, make or pay any dividend
or other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except for regular quarterly dividends
payable on the Preferred Stock not to exceed $0.5625 per share of Preferred
Stock or in connection with the adoption of a shareholder rights plan; (d)
reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock; (e) except as disclosed to
Parent on the date of the Merger Agreement, (i) acquire (including, without
limitation, by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership, other business organization or any division thereof or
any material amount of assets, (ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or make any
loans or advances, except in the ordinary course of business and consistent with
past practice, (iii) enter into any contract or agreement other than in the
ordinary course of business, consistent with past practice, (iv) authorize any
single capital expenditure (other than expenditures for maintenance) which is in
excess of $500,000 or capital expenditures which are, in the aggregate, in
excess of $500,000, or (v) enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing matters; (f)
except as disclosed to Parent on the date of the Merger Agreement, increase the
compensation payable or to become payable to, or the benefits provided to, its
officers or key employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company who are not officers
of the Company, or grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other key
employee of the Company, or establish, adopt, enter into or amend in any
material respect any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee; (g) except as disclosed to Parent on the date of the Merger Agreement,
hire or retain any single employee or consultant at an annual rate of
compensation in excess of $125,000, or employees or consultants with annual
rates of compensation in excess of $250,000 in the aggregate; (h) except as
disclosed to Parent on the date of the Merger Agreement, take any action, other
than reasonable and usual actions in the ordinary course of business and
consistent with past practice, with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable); (i) except as disclosed
to Parent on the date of the Merger Agreement, make any tax election or settle
or compromise any material federal, state, local or foreign income tax
liability; (j) except as disclosed to Parent on the date of the Merger
Agreement, commence or settle any litigation, suit, claim, action, proceeding,
or investigation valued in excess of $300,000 either individually or in the
aggregate, provided, however, that upon prior notice to Parent, the Company may
commence actions relating to claims which are within 30 days of becoming barred
by the
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applicable statute of limitations or which constitute mandatory counterclaims in
any suit brought against the Company by any third party; or (k) amend, modify,
or consent to the termination of any material contract, or amend, modify, or
consent to the termination of the Company's rights thereunder, in a manner
materially adverse to the Company, other than in the ordinary course of business
consistent with past practice.
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 shares of Common Stock pursuant to the Offer, and from time to time
thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors as
shall give Purchaser representation on the Board of Directors equal to the
product of the total number of directors on the Board of Directors (giving
effect to the directors elected pursuant to this sentence), multiplied by the
percentage that the aggregate number of shares of Common Stock beneficially
owned by Purchaser or any affiliate of Purchaser following such purchase bears
to the total number of shares of Common Stock 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 of Directors or securing the resignations of incumbent
directors, or both. The Merger Agreement also provides that, 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 Directors of each committee of the Board of Directors
to the extent permitted by applicable law. Until the earlier of (i) the time
Purchaser acquires a majority of the then outstanding shares of Common Stock on
a fully diluted basis and (ii) the Effective Time, the Company shall use its
best efforts to ensure that all the members of the Board of Directors and each
committee of the Board of Directors as of the date of the Merger Agreement who
are not employees of the Company shall remain members of the Board of Directors
and of each such committee.
The Merger Agreement provides that following the election or appointment of
Purchaser's designees in accordance with the immediately preceding paragraph and
prior to the Effective Time, any amendment of the Merger Agreement or the
Articles of Incorporation or bylaws of the Company, any termination of the
Merger Agreement by the Company, any extension by the Company of the time for
the performance of any of the obligations or other acts of Parent or Purchaser
or waiver of any of the Company's rights thereunder, will require the
concurrence of a majority of the directors of the Company then in office who
neither were designated by Purchaser nor are employees of the Company (the
"Independent Directors"). If the number of Independent Directors shall be
reduced below two for any reason whatsoever, the remaining Independent Director
shall designate a person to fill such vacancy who shall be deemed to be an
Independent Director for purposes of the Merger Agreement or, if no Independent
Directors then remain, the other directors shall designate two persons to fill
such vacancies who shall not be officers or affiliates of the Company, or
officers or affiliates of Parent or any of its Subsidiaries, and such persons
shall be deemed to be Independent Directors for purposes of the Merger
Agreement. The Independent Directors shall have the authority to retain such
counsel and other advisors at the expense of the Company as are reasonably
appropriate to the exercise of their duties in connection with the Merger
Agreement, subject to approval by the Company of the terms of such retention,
which approval shall not be unreasonably withheld. In addition, the Independent
Directors shall have the authority to institute any action, on behalf of the
Company, to enforce performance of the Merger Agreement.
Pursuant to the Merger Agreement, until the Effective Time, the Company
shall, and shall cause the officers, directors, employees, auditors and agents
of the Company to, afford the officers, employees and agents of Parent and
Purchaser complete access at all reasonable times to the officers, employees,
agents, properties, offices, plants and other facilities, books and records of
the Company, and shall furnish Parent and Purchaser with all financial,
operating and other data and information as Parent or Purchaser, through its
officers, employees or agents, may reasonably request. Parent and Purchaser have
agreed to keep such information confidential, except in certain circumstances.
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The Company has agreed that it shall not, directly or indirectly, through
any officer, director, agent or otherwise, solicit, initiate or encourage the
submission of, any proposal or offer from any person relating to any acquisition
or purchase of all or (other than in the ordinary course of business) any
portion of the assets of, or any equity interest in, the Company or any business
combination with the Company or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
Notwithstanding the foregoing, the Merger Agreement permits the Board of
Directors to furnish information to, or enter into discussions or negotiations
with, any person in connection with an unsolicited (from the date of the Merger
Agreement) proposal in writing by such person to acquire the Company pursuant to
a merger, consolidation, share exchange, share purchase, business combination or
other similar transaction or to acquire all or substantially all of the assets
of the Company, if, and only to the extent that, (i) the Board of Directors,
after consultation with independent legal counsel (which may include its
regularly engaged independent legal counsel), determines in good faith that such
action is required for the Board of Directors to comply with its fiduciary
duties to stockholders imposed by Nevada Law and (ii) prior to furnishing such
information to, or entering into discussions or negotiations with, such person,
the Company uses its reasonable best efforts to obtain from such person an
executed confidentiality agreement on terms no less favorable to the Company
than those contained in the Confidentiality Agreement dated as of June 12, 1998
between Parent and the Company. Pursuant to the Merger Agreement, the Company
has agreed to immediately cease and cause to be terminated all existing
discussions or negotiations with any parties conducted prior to the date of the
Merger Agreement with respect to any of the foregoing. Moreover, the Company has
agreed (x) to notify Parent promptly if any such proposal or offer, or any
inquiry or contact with any person with respect thereto, is made and to indicate
in reasonable detail in such notice the identity of the person making such
proposal, offer, inquiry or contact and the terms thereof, and (y) not to
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which the Company is or may become a party.
The Merger Agreement provides that immediately prior to the Effective Time,
each outstanding Option granted under any of the Company's Stock Option Plans,
whether or not then exercisable, shall be cancelled by the Company, and each
holder of a cancelled Option shall be entitled to receive from Purchaser at the
same time as payment for shares of Common Stock is made by Purchaser in
connection with the closing of Merger, in consideration for the cancellation of
such Option, an amount in cash equal to the product of (x) the number of shares
of Common Stock previously subject to such Option and (y) the excess, if any, of
the Common Stock Merger Consideration over the exercise price per share of
Common Stock previously subject to such Option. The Company has agreed to
effectuate the cancellation of the Options by taking such action as may be
necessary under the Company's Stock Option Plans.
The Merger Agreement further provides that the Articles of Incorporation and
the bylaws of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in Article VIII of
the Articles of Incorporation and Article VII of the bylaws of the Company,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company, unless
such modification shall be required by law.
The Merger Agreement also provides that the Company shall, to the fullest
extent permitted under applicable law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former director,
officer, employee, fiduciary and agent of the Company (collectively, the
"Indemnified Parties") against all costs and expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation (whether arising before or after the
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Effective Time), whether civil, criminal, administrative or investigative,
arising out of or pertaining to, in whole or in part, any action or omission in
their capacity as an officer, director, employee, fiduciary or agent (including
in connection with the Merger Agreement and the transactions contemplated
thereby), whether occurring before or after the Effective Time, for a six-year
period after the date of the Merger Agreement. In the event of any such claim,
action, suit, proceeding or investigation, the Merger Agreement provides that
(i) the Company or the Surviving Corporation, as the case may be, shall pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably satisfactory to the Company or the Surviving
Corporation, promptly after statements therefor are received and (ii) the
Company and the Surviving Corporation shall cooperate in the defense of any such
matter; provided, however, that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent may not be unreasonably withheld or delayed); and
provided, further, that neither the Company nor the Surviving Corporation shall
be obligated to pay the fees and expenses of more than one counsel for all
Indemnified Parties in any single action except to the extent that two or more
of such Indemnified Parties shall have conflicting interests in the outcome of
such action; and provided, further, that, in the event that any claim for
indemnification is asserted or made within such six-year period, all rights to
indemnification in respect of such claim shall continue until the final
disposition of such claim.
The Merger Agreement provides that the Surviving Corporation shall use its
best efforts to maintain in effect for six years from the Effective Time and for
so long thereafter as any claim asserted prior to such date has not been fully
adjudicated, if available, the current directors' and officers' liability
insurance policies maintained by the Company or substitute therefor policies of
at least the same amounts and coverage containing terms and conditions which are
not materially less favorable to the insured with respect to matters occurring
prior to the Effective Time; provided, however, that in no event shall the
Surviving Corporation be required to expend more than an amount per year equal
to 150% of the current annual premiums paid by the Company for such insurance
(which annual premiums the Company has represented to Parent and Purchaser to be
approximately $175,000 in the aggregate).
The Merger Agreement provides that in the event the Company or the Surviving
Corporation or any of their respective successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision shall be made so that the
successors and assigns of the Company or the Surviving Corporation, as the case
may be, or at Parent's option, Parent, shall assume the obligations described
above. The Merger Agreement provides that the obligations described above shall
survive the Effective Time indefinitely.
The Merger Agreement provides that, subject to its terms and conditions,
each of the parties thereto shall (i) make promptly its respective filings, and
thereafter make any other required submissions, under the HSR Act with respect
to the transactions contemplated by the Merger Agreement and (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement, including, without
limitation, using its reasonable best efforts to obtain all licenses, permits
(including, without limitation, environmental permits), consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company as are necessary for the consummation of
the transactions contemplated by the Merger Agreement and to fulfill the
conditions to the Offer and the Merger.
In case at any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of the Merger Agreement, the proper
officers and directors of each party to the Merger Agreement are required to use
their reasonable best efforts to take all such action.
The Merger Agreement provides that pursuant to Section 8 of the Certificate
of Designations of the Preferred Stock (the "Certificate of Designations"), as
soon as practicable after the acceptance for
21
<PAGE>
payment of the shares of Common Stock pursuant to the Offer, the Company shall
provide the holders of all shares of Preferred Stock with a notice of "Ownership
Change" (as defined in the Certificate of Designations). Pursuant to the Merger
Agreement, each holder of shares of Preferred Stock, upon the occurrence of the
Ownership Change, shall have the right, at the holder's option, to convert all,
but not less than all, of such holder's shares of Preferred Stock into shares of
Common Stock, at an adjusted conversion price per share of Common Stock equal to
the Special Conversion Price (as defined in the Certificate of Designations),
subject to the option of the Company to provide to each such holder, in lieu of
Common Stock, cash equal to the Market Value (as defined in the Certificate of
Designations) of the shares of Common Stock multiplied by the number of shares
of Common Stock into which such shares of Preferred Stock would have been
convertible at the Special Conversion Price. The Company has agreed to exercise
its option under Section 8 of the Certificate of Designations to satisfy its
obligations thereunder by paying cash to the holders of shares of Preferred
Stock, in lieu of issuing to such holders Common Stock upon the conversion of
their shares of Preferred Stock.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company as to the Company's filings with the SEC, the
financial statements of the Company, the absence of certain changes or events
concerning the Company's business, compliance with law and certain contracts,
litigation, employee benefit plans, labor matters, real property and leases,
trademarks, patents and copyrights, environmental matters, taxes, aircraft,
slots and similar takeoff and landing rights at certain airports, and brokers.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (a) the Merger
Agreement and the Merger contemplated thereby shall have been approved and
adopted by the affirmative vote of the stockholders of the Company to the extent
required by Nevada Law and the Articles of Incorporation of the Company; (b) any
waiting period (and any extension thereof) applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated; (c) no foreign,
United States or state governmental authority or other agency or commission or
foreign, United States or state court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the acquisition of Shares by Parent or Purchaser or any affiliate of either of
them illegal or otherwise restricting, preventing or prohibiting consummation of
the transactions contemplated by the Merger Agreement; and (d) Purchaser or its
permitted assignee shall have purchased all shares of Common Stock validly
tendered and not withdrawn pursuant to the Offer; provided, however, that this
condition shall not be applicable to the obligations of Parent or Purchaser if,
in breach of the Merger Agreement or the terms of the Offer, Purchaser fails to
purchase any shares of Common Stock validly tendered and not withdrawn pursuant
to the Offer.
TERMINATION; FEES AND EXPENSES; COMMERCIAL ARRANGEMENTS. The Merger
Agreement provides that it may be terminated and the Merger and the other
transactions contemplated by the Merger Agreement may be abandoned at any time
following the purchase of shares of Common Stock by Purchaser pursuant to the
Offer and prior to the Effective Time, notwithstanding any requisite approval
and adoption of the Merger Agreement and the transactions contemplated by the
Merger Agreement by the stockholders of the Company: (a) by mutual written
consent duly authorized by the Board of Directors of Parent, Purchaser and the
Company or (b) by either Parent, Purchaser or the Company if any court of
competent jurisdiction or other governmental authority shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable. In the event of the termination of
the Merger Agreement pursuant to clause (a) or (b) above, the Merger Agreement
provides that it shall forthwith become void and there shall be no liability
thereunder on the part of any party thereto except
22
<PAGE>
(i) under certain other provisions of the Merger Agreement which survive
termination and (ii) liability of any party for willful breach of the Merger
Agreement. All costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated by the Merger Agreement shall be
paid by the party incurring such expenses, whether or not any such transaction
is consummated.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the principal federal income tax consequences
of the Merger to holders whose Shares are converted into the right to receive
cash in the Merger (whether upon receipt of the Merger Consideration or pursuant
to the proper exercise of dissenter's rights). The discussion applies only to
holders of Shares in whose hands Shares are capital assets, and may not apply to
Shares received pursuant to the exercise of employee stock options or otherwise
as compensation, or to holders of Shares who are not citizens or residents of
the United States of America.
THE TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION
PURPOSES ONLY AND IS BASED UPON PRESENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES
MAY DIFFER, EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR
TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED TO SUCH STOCKHOLDER AND
THE PARTICULAR TAX EFFECTS OF THE OFFER AND THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash pursuant to the Merger (whether as Merger Consideration
or pursuant to the proper exercise of dissenter's rights) will be a taxable
transaction for federal income tax purposes (and also may be a taxable
transaction under applicable state, local and other income tax laws). In
general, for federal income tax purposes, a holder of Shares will recognize gain
or loss equal to the difference between the holder's adjusted tax basis in the
Shares converted to cash in the Merger and the amount of cash received therefor.
Gain or loss must be determined separately for each block of Shares (I.E.,
Shares acquired at the same cost in a single transaction) converted to cash in
the Merger. Gain or loss will be capital gain or loss. Individual holders will
be subject to tax on the net amount of their gain at a maximum rate of 20%,
provided the Shares were held for more than 12 months. Special rules (and
generally lower maximum rates) apply to individuals in lower tax brackets. The
deduction of capital losses is subject to certain limitations, generally
limiting usable losses in any year to an amount equal to capital gains
recognized that year plus $3,000. The balance of unused capital losses generally
may be carried forward to subsequent tax years. Stockholders should consult
their own tax advisors in this regard.
Payments in connection with the Merger may be subject to backup withholding
at a 31% rate. Backup withholding generally applies if a stockholder (i) fails
to furnish his, her or its social security number or taxpayer identification
number ("TIN"), (ii) furnishes an incorrect TIN, (iii) fails properly to report
interest or dividends or (iv) under certain circumstances, fails to provide a
certified statement, signed under penalties of perjury, that the TIN provided is
the stockholder's correct number and that the stockholder is not subject to
backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons, including corporations and financial
institutions generally, are exempt from backup withholding. Penalties may apply
for failure to furnish correct information and for failure to include the
reportable payments in income. Each stockholder should consult with its own tax
advisor as to the stockholder's qualifications for exemption from withholding
and the procedure for obtaining an exemption.
23
<PAGE>
REGULATORY APPROVAL
GENERAL. The Company is not aware of any license or other regulatory permit
that appears to be material to the business of the Company which might be
adversely affected by the acquisition of Shares by Purchaser pursuant to the
Offer or the Merger or, except as set forth below, of any approval or other
action by any domestic (federal or state) or foreign governmental,
administrative or regulatory authority or agency which would be required prior
to the acquisition of Shares by Purchaser pursuant to the Offer or the Merger.
ANTITRUST. Under the HSR Act and the rules that have been promulgated
thereunder, certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the United
States Department of Justice (the "Antitrust Division") and the United States
Federal Trade Commission (the "FTC") and certain waiting period requirements
have been satisfied. The acquisition of Shares by Purchaser pursuant to the
Offer and the Merger is subject to such requirements.
Pursuant to the HSR Act, on November 23, 1998, Parent filed a Premerger
Notification and Report Form in connection with the purchase of Shares pursuant
to the Offer with the Antitrust Division and the FTC. Under the provisions of
the HSR Act applicable to the Offer, the purchase of Shares pursuant to the
Offer could not be consummated until the expiration of a 15-calendar day waiting
period following the filing by Parent. The waiting period under the HSR Act
expired at 11:59 p.m., New York City time, on Tuesday, December 8, 1998, without
a request from the FTC or the Antitrust Division for additional information or
documentary material. Accordingly, the condition to the Offer requiring the
expiration or early termination of such waiting period has been satisfied. No
separate filing or waiting period is required under the HSR Act with respect to
the Merger.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the acquisition of Shares by
Purchaser pursuant to the Offer and the Merger. At any time after the purchase
of Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking the divestiture of Shares
purchased by Purchaser or the divestiture of substantial assets of Parent, the
Company or their respective subsidiaries. Private parties and state attorneys
general may also bring legal action under federal or state antitrust laws under
certain circumstances. Based upon an examination of information available to the
Company relating to the businesses in which the Company and Parent and its
subsidiaries are engaged, the Company believes that the Offer and the Merger
will not violate the antitrust laws. Nevertheless, there can be no assurance
that a challenge to the Offer and the Merger on antitrust grounds will not be
made or, if such a challenge is made, what the result would be.
MARKET FOR THE SHARES
The shares of Common Stock are listed and principally traded on NASDAQ under
the symbol "RENO". The following table sets forth, for the quarters indicated,
the high and low sales prices per share of Common Stock on NASDAQ as reported by
the Dow Jones News Service, according to published financial sources. No cash
dividends have been declared by the Company on the Common Stock and the Company
does not anticipate that any dividends will be declared on the Common Stock for
the foreseeable future.
24
<PAGE>
COMMON STOCK MARKET DATA
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996:
First Quarter................. $12 5/8 $ 7
Second Quarter................ 14 1/4 10 1/4
Third Quarter................. 12 1/2 7 5/8
Fourth Quarter................ 8 5/8 6 3/4
1997:
First Quarter................. $ 7 5/8 $ 6 3/8
Second Quarter................ 8 15/16 6 1/2
Third Quarter................. 9 1/16 6 13/16
Fourth Quarter................ 7 5/8 4 1/2
1998:
First Quarter................. $ 8 1/2 $ 4 1/2
Second Quarter................ 8 1/2 6 11/16
Third Quarter................. 7 1/2 4 7/16
Fourth Quarter................ 8 3 1/2
1999:
First Quarter (through January
25, 1999)................... $ 7 21/32 $ 7 19/32
</TABLE>
On November 13, 1998, the last full trading day prior to the appearance of
certain news stories concerning a possible transaction between Parent and the
Company, the last trading price per share of Common Stock as reported on NASDAQ
was $6 9/16. On November 18, 1998, the last full trading day prior to the
announcement of the execution of the Merger Agreement and of Purchaser's
intention to commence the Offer, the last trading price per share of Common
Stock as reported on NASDAQ was $7 1/4. On November 23, 1998, the last full
trading day prior to the commencement of the Offer, the last trading price per
share of Common Stock as reported on NASDAQ was $7 1/4(.) On December 22, 1998,
the last full trading day prior to the closing of the Offer, the last trading
price per share of Common Stock as reported on NASDAQ was $7 23/32.
The shares of Preferred Stock are listed and principally traded on the
NASDAQ SmallCap Market under the Symbol "RENOP". The following table sets forth,
for the quarters indicated, the high and low sales prices per share of Preferred
Stock on the NASDAQ SmallCap Market, as well as the dividends paid on the shares
of Preferred Stock, according to published financial sources. The Preferred
Stock began trading on the NASDAQ SmallCap Market on May 19, 1998. Therefore,
there is no trading data available prior to these dates for the Preferred Stock.
PREFERRED STOCK MARKET DATA
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------- ------- -----------
<S> <C> <C> <C>
1998:
First Quarter........................................................................ -- -- $ 0.5625
Second Quarter (beginning May 19, 1998).............................................. $27 $21 7/8 $ 0.5625
Third Quarter........................................................................ 23 17 $ 0.5625
Fourth Quarter....................................................................... 27 1/2 15 $ 0.5625
1999:
First Quarter (through January 25, 1999)............................................. 27 1/2 27 1/2 n/a
</TABLE>
On November 13, 1998, the last full trading day prior to the appearance of
certain news stories concerning a possible transaction between Parent and the
Company, the last trading price per share of Preferred Stock as reported on
NASDAQ was $21. On November 18, 1998, the last full trading day prior to
25
<PAGE>
the announcement of the execution of the Merger Agreement and of Purchaser's
intention to commence the Offer, the last trading price per share of Preferred
Stock as reported on the NASDAQ SmallCap Market was $22. On November 23, 1998,
the last full trading day prior to the commencement of the Offer, the last
trading price per share of Preferred Stock as reported on the NASDAQ SmallCap
Market was $27 1/8. On December 17, 1998, the last full trading day (on which
shares of Preferred Stock actually traded) prior to the closing of the Offer,
the last trading price per share of Preferred Stock as reported on the NASDAQ
SmallCap Market was $27 1/4.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
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 shares of Common
Stock, 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............................................................. 934,800(1) 8.7%
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 Preferred Stock.
(2) Based on a Schedule 13G filed on June 15, 1998. Includes 552,900 shares of
Common Stock plus 217,391 shares obtainable upon the conversion of the
shares of 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.
On December 23, 1998, Purchaser acquired 9,111,108 shares of Common Stock at
a price of $7.75 per share and 1,434,883 shares of Preferred Stock at a price of
$27.50 per share, representing approximately 83.7% of the outstanding shares of
Common Stock and 99.9% of the outstanding shares of Preferred Stock,
respectively.
26
<PAGE>
COMMON STOCK OWNERSHIP OF MANAGEMENT. The following table reflects, as of
December 31, 1998, the ownership of Common Stock of each director, each
executive officer and former executive officer listed in the Summary
Compensation Table, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER: OWNED(1) OWNERSHIP(2)
- ----------------------------------------------------------------------------- -------------------- ---------------
<S> <C> <C>
Gerard J. Arpey.............................................................. 0(3) *
Vicki W. Bretthauer.......................................................... 100,000 *
Barrie K. Brunet............................................................. 10,000 *
Jeffrey C. Campbell.......................................................... 0(3) *
Beverley Grear............................................................... 150,000 1.4%
Donald J. Carty.............................................................. 0(3) *
W. Stephen Jackson........................................................... 175,000 1.6%
James T. Lloyd............................................................... 60,000 *
Charles D. MarLett........................................................... 0(3) *
Joseph R. O'Gorman........................................................... 280,000 2.6%
Steven A. Rossum............................................................. 175,000 1.6%
Joanne Smith................................................................. 135,000 1.2%
All executive officers and directors as a group (12 persons)................. 1,085,000 10.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes the following number of shares subject to options exercisable
within 60 days of December 31, 1998: Ms. Bretthauer: 100,000; Mr. Brunet:
10,000; Ms. Grear: 150,000; Mr. Jackson: 175,000; Mr. Lloyd: 60,000; Mr.
O'Gorman: 280,000; Mr. Rossum: 175,000; Ms. Smith: 135,000. The exercise
prices of the options held by each of the individuals listed above (other
than Messrs. O'Gorman and Rossum) are more than the Common Stock Merger
Consideration.
(2) Based on 10,884,650 shares of Common Stock outstanding on December 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, including those
not currently exercisable.
(3) Each individual disclaims beneficial ownership of the shares of Common
Stock, and the shares of Common Stock issuable upon conversion of the shares
of Preferred Stock, that are owned directly or indirectly by Parent, of
which each individual is an officer.
AVAILABLE INFORMATION
The Company is subject to the informational filing requirements of the
Exchange Act. In accordance therewith, the Company files periodic reports, proxy
statements and other information with the SEC under the Exchange Act relating to
its business, financial condition and other matters. Such reports, proxy
statements and other information may be inspected and copied at the SEC's office
at 450 Fifth Street, N.W., Washington D.C. 20549, and at the regional offices of
the SEC located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may also be obtained upon payment
of the SEC's prescribed fees by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington D.C. 20549. The SEC also maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements regarding registrants, such as the Company, that file electronically
with the SEC.
27
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company under the Exchange
Act with the SEC (File No. 0-20360) are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
(2) The Company's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(3) The Company's Proxy Statement dated April 8, 1998; and
(4) The Company's Current Reports on Form 8-K dated February 3, March 4, April
23, May 7, August 26, November 19, November 24, and December 28, 1998.
The Company will provide without charge to each person, including any
beneficial owner of such person, to whom a copy of this Information Statement
has been delivered, on written or oral request, a copy of any and all of the
documents referred to above that have been or may be incorporated by reference
herein other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference herein). Requests for such copies should
be directed to Reno Air, Inc., 220 Edison Way, Reno, Nevada 89502, attention:
Corporate Secretary.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Information Statement
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Information Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Information Statement.
28
<PAGE>
ANNEX I
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN AIRLINES, INC.
BONANZA ACQUISITIONS, INC.
AND
RENO AIR, INC.
DATED AS OF NOVEMBER 19, 1998
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
BACKGROUND STATEMENT....................................................................................... I-6
STATEMENT OF THE AGREEMENT................................................................................. I-6
ARTICLE I
THE OFFERS
SECTION 1.01. The Offers............................................................................. I-6
SECTION 1.02. Company Action......................................................................... I-8
ARTICLE II
THE MERGER
SECTION 2.01. The Merger............................................................................. I-9
SECTION 2.02. Effective Time; Closing................................................................ I-9
SECTION 2.03. Effect of the Merger................................................................... I-9
SECTION 2.04. Articles of Incorporation; By-laws..................................................... I-9
SECTION 2.05. Directors and Officers................................................................. I-10
SECTION 2.06. Conversion of Securities............................................................... I-10
SECTION 2.07. Employee Stock Options; Warrants....................................................... I-10
SECTION 2.08. Dissenting Shares...................................................................... I-11
SECTION 2.09. Surrender of Shares; Stock Transfer Books.............................................. I-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification......................................................... I-12
SECTION 3.02. Articles of Incorporation and By-laws.................................................. I-13
SECTION 3.03. Capitalization......................................................................... I-13
SECTION 3.04. Authority Relative to this Agreement................................................... I-13
SECTION 3.05. No Conflict; Required Filings and Consents............................................. I-14
SECTION 3.06. Compliance............................................................................. I-14
SECTION 3.07. SEC Filings; Financial Statements...................................................... I-14
SECTION 3.08. Absence of Certain Changes or Events................................................... I-15
SECTION 3.09. Absence of Litigation.................................................................. I-15
SECTION 3.10. Employee Benefit Plans................................................................. I-16
SECTION 3.11. Labor Matters.......................................................................... I-17
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement....................................... I-17
SECTION 3.13. Real Property and Leases............................................................... I-18
SECTION 3.14. Trademarks, Patents and Copyrights..................................................... I-18
SECTION 3.15. Taxes.................................................................................. I-19
SECTION 3.16. Environmental Matters.................................................................. I-19
SECTION 3.17. Aircraft............................................................................... I-19
SECTION 3.18. Slots.................................................................................. I-20
SECTION 3.19. Brokers................................................................................ I-20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 4.01. Corporate Organization................................................................. I-20
SECTION 4.02. Authority Relative to this Agreement................................................... I-20
SECTION 4.03. No Conflict; Required Filings and Consents............................................. I-20
SECTION 4.04. Offer Documents; Proxy Statement....................................................... I-21
SECTION 4.05. Brokers................................................................................ I-21
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger.................................. I-21
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting.................................................................. I-23
SECTION 6.02. Proxy Statement........................................................................ I-23
SECTION 6.03. Company Board Representation; Section 14(f)............................................ I-24
SECTION 6.04. Access to Information; Confidentiality................................................. I-25
SECTION 6.05. No Solicitation of Transactions........................................................ I-25
SECTION 6.06. Existing Contracts Between Parent and the Company...................................... I-26
SECTION 6.07. Directors' and Officers' Indemnification and Insurance................................. I-26
SECTION 6.08. Notification of Certain Matters........................................................ I-27
SECTION 6.09. Further Action; Reasonable Best Efforts................................................ I-27
SECTION 6.10. Redemption of Convertible Notes........................................................ I-27
SECTION 6.11. Preferred Stock........................................................................ I-27
SECTION 6.12. Public Announcements................................................................... I-27
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger............................................................... I-28
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination............................................................................ I-28
SECTION 8.02. Effect of Termination.................................................................. I-29
SECTION 8.03. Fees and Expenses; Commercial Arrangements............................................. I-29
SECTION 8.04. Amendment.............................................................................. I-31
SECTION 8.05. Waiver................................................................................. I-31
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements............................. I-31
SECTION 9.02. Notices................................................................................ I-31
SECTION 9.03. Certain Definitions.................................................................... I-32
SECTION 9.04. Severability........................................................................... I-33
SECTION 9.05. Entire Agreement; Assignment........................................................... I-33
SECTION 9.06. Parties in Interest.................................................................... I-33
SECTION 9.07. Specific Performance................................................................... I-33
SECTION 9.08. Governing Law.......................................................................... I-33
SECTION 9.09. Headings............................................................................... I-33
SECTION 9.10. Counterparts........................................................................... I-33
ANNEX A Conditions to the Offers............................................................... I-35
ANNEX B Per Preferred Share Amount............................................................. I-37
</TABLE>
I-3
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
Acquiring Person.......................................................................... Section 8.03(a)
affiliate................................................................................. Section 9.03(a)
Agreement................................................................................. Preamble
Alternative Merger........................................................................ Recitals
Articles of Merger........................................................................ Section 2.02
beneficial owner.......................................................................... Section 9.03(b)
Blue Sky Laws............................................................................. Section 3.05(b)
Board..................................................................................... Recitals
business day.............................................................................. Section 9.03(c)
Certificate of Designation................................................................ Section 2.04(a)
Certificates.............................................................................. Section 2.09(b)
Code...................................................................................... Section 3.10(a)
Common Shares............................................................................. Recitals
Common Stock Offer........................................................................ Recitals
Common Stock Merger Consideration......................................................... Section 2.06(a)
Company................................................................................... Preamble
Company Common Stock...................................................................... Recitals
Company Preferred Stock................................................................... Recitals
Competing Proposal........................................................................ Section 8.03(a)(i)
Confidentiality Agreement................................................................. Section 6.04(b)
control................................................................................... Section 9.03(d)
Convertible Notes......................................................................... Section 3.03(d)
Disclosure Schedule....................................................................... Section 3.01
Dissenting Shares......................................................................... Section 2.08(a)
Effective Time............................................................................ Section 2.02
Environmental Laws........................................................................ Section 3.16(a)
Environmental Permits..................................................................... Section 3.16(b)
ERISA..................................................................................... Section 3.10(a)
Exchange Act.............................................................................. Section 1.02(b)
Expenses.................................................................................. Section 8.03(b)
Fee....................................................................................... Section 8.03(a)
Hazardous Substances...................................................................... Section 3.16(a)
HSR Act................................................................................... Section 3.05(b)
HSR Condition............................................................................. Section 1.01(a)
Independent Directors..................................................................... Section 6.03(c)
Indemnified Parties....................................................................... Section 6.07(b)
IRS....................................................................................... Section 3.10(a)
knowledge and best knowledge.............................................................. Section 9.03(e)
Liens..................................................................................... Section 3.13(b)
Material Adverse Effect................................................................... Section 3.01(a)
Merger.................................................................................... Recitals
Merger Consideration...................................................................... Section 2.06(b)
Minimum Condition......................................................................... Section 1.01(a)
Multiemployer Plan........................................................................ Section 3.10(b)
Multiple Employer Plan.................................................................... Section 3.10(b)
1997 Balance Sheet........................................................................ Section 3.07(c)
Nevada Law................................................................................ Recitals
Offers.................................................................................... Recitals
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
Offer Documents........................................................................... Section 1.01(b)
Offer to Purchase......................................................................... Section 1.01(b)
Operations Agreement...................................................................... Section 8.03(e)
Option.................................................................................... Section 2.07
Parent.................................................................................... Preamble
Paying Agent.............................................................................. Section 2.09(a)
Per Common Share Amount................................................................... Recitals
Per Preferred Share Amount................................................................ Recitals
Per Share Amounts......................................................................... Recitals
Permitted Liens........................................................................... Section 3.13(b)
person.................................................................................... Section 9.03(f)
Plans..................................................................................... Section 3.10(a)
Preferred Shares.......................................................................... Recitals
Preferred Stock Merger Consideration...................................................... Section 2.06(b)
Preferred Stock Offer..................................................................... Recitals
Primary Merger............................................................................ Recitals
Proxy Statement........................................................................... Section 3.12
Purchaser................................................................................. Preamble
Returns................................................................................... Section 3.15
Schedule 14D-9............................................................................ Section 1.02(b)
Schedule 14D-1............................................................................ Section 1.01(b)
SEC....................................................................................... Section 1.01(a)
SEC Reports............................................................................... Section 3.07(a)
Securities Act............................................................................ Section 3.07(a)
Shares.................................................................................... Recitals
Slots..................................................................................... Section 3.18
Stockholder's Meeting..................................................................... Section 6.01(a)
Stock Option Plans........................................................................ Section 2.07
subsidiary................................................................................ Section 9.03(g)
Surviving Corporation..................................................................... Section 2.01
Tax....................................................................................... Section 3.15
Transactions.............................................................................. Section 3.04
WARN...................................................................................... Section 3.10(f)
Warrant Agreement......................................................................... Section 3.03
Warrants.................................................................................. Section 3.03
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
this 19th day of November, 1998, by and among American Airlines, Inc., a
Delaware corporation ("Parent"), Bonanza Acquisitions, Inc., a Nevada
corporation and a wholly owned subsidiary of Parent ("Purchaser"), and Reno Air,
Inc., a Nevada corporation (the "Company").
BACKGROUND STATEMENT
The Board of Directors of the Company has determined that it is in the best
interests of the Company and its stockholders, and the Boards of Directors of
Parent and Purchaser have determined that it is in the best interests of Parent
and Purchaser, for Parent to acquire the Company. In furtherance of such
acquisition, it is proposed that Purchaser shall make a cash tender offer (the
"Common Stock Offer") to acquire all the issued and outstanding shares of Common
Stock, $0.01 par value per share, of the Company ("Company Common Stock"; shares
of Company Common Stock being hereinafter collectively referred to as "Common
Shares") for $7.75 per Common Share (such amount, or any greater amount per
Common Share paid pursuant to the Common Stock Offer, being hereinafter referred
to as the "Per Common Share Amount"), net to the seller in cash. In addition,
Purchaser shall make a cash tender offer (the "Preferred Stock Offer; and
together with the Common Stock Offer, the "Offers"), to acquire any and all of
the issued and outstanding shares of Series A Cumulative Convertible
Exchangeable Preferred Stock, $0.001 par value per share, of the Company
("Company Preferred Stock"; shares of Company Preferred Stock being hereinafter
collectively referred to as "Preferred Shares"; and together with the Common
Shares, the "Shares") for $27.50 per Preferred Share plus accrued and unpaid
dividends through the date Purchaser accepts for payment the Preferred Shares
(such amount, subject to reduction as described herein, or any greater amount
per Preferred Share paid pursuant to the Preferred Stock Offer, being
hereinafter referred to as the "Per Preferred Share Amount"; and together with
the Per Common Share Amount, the "Per Share Amounts")), net to the seller in
cash. The Board of Directors of the Company (the "Board") has unanimously
approved the making of the Offers and resolved and agreed to recommend that
holders tender their Common Shares and Preferred Shares pursuant to the Offers.
Also, in furtherance of such acquisition, the Boards of Directors of Parent,
Purchaser and the Company have each approved the merger of Purchaser with and
into the Company in accordance with the General Corporation Law of the State of
Nevada ("Nevada Law") and Article II hereof following the consummation of the
Offers pursuant to which the remaining Shares shall be converted into the right
to receive cash (the "Primary Merger") or the Common Shares will be converted
into the right to receive cash and the Preferred Shares shall remain issued and
outstanding (the "Alternative Merger"; the Primary Merger, together with the
Alternative Merger, being hereinafter collectively referred to as the "Merger").
STATEMENT OF THE AGREEMENT
In consideration of the mutual promises, covenants, representations, and
warranties made herein and of the mutual benefits to be derived here from,
Parent, Purchaser, and the Company agree as follows:
ARTICLE I
THE OFFERS
SECTION 1.01. The Offers. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.01 and none of the events set forth
in Annex A hereto shall have occurred or be existing, Purchaser shall commence
the Offers as promptly as reasonably practicable after the date hereof, but in
no event later than five business days after the initial public announcement of
Purchaser's intention to commence the Offers. The obligation of Purchaser to
accept for payment and pay for Common Shares tendered pursuant to the Common
Stock Offer shall be subject to the condition (the "Minimum Condition") that the
number of Common Shares validly tendered and not withdrawn prior to the
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expiration of the Common Stock Offer shall constitute at least a majority of the
then outstanding Common Shares on a fully diluted basis (including, without
limitation, all Common Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights, but
excluding Common Shares issuable upon the conversion of any Preferred Shares to
be accepted for payment and paid for by Purchaser pursuant to the Preferred
Stock Offer) and also shall be subject to the satisfaction of the other
conditions set forth in Annex A hereto. The obligation of Purchaser to accept
for payment and pay for Preferred Shares tendered pursuant to the Preferred
Stock Offer is subject to the condition that Purchaser has accepted for payment
and paid for the Common Shares tendered pursuant to the Common Stock Offer.
Purchaser expressly reserves the right to waive any such condition (other than
the Minimum Condition or the HSR Condition (as defined below)), to increase the
price per Common Share or Preferred Share payable in the Offers, and to make any
other changes in the terms and conditions of the Offers; provided, however, that
no change may be made which decreases the price per Share payable in the Offers
(other than as herein provided in respect of the Preferred Shares), which
changes the form of consideration to be paid in the Offers, or which reduces the
maximum number of Shares to be purchased in the Offers, or which extends the
expiration date of the Offers (which shall initially be twenty (20) business
days), or which imposes conditions to the Offers in addition to those set forth
in Annex A hereto; provided, further, however, that subject to the right of the
parties to terminate this Agreement pursuant to Section 8.01, the Common Stock
Offer (i) shall be extended (A) if, at the scheduled expiration of the Offers,
the condition to the Common Stock Offer relating to the expiration of the
required waiting periods under the HSR Act (the "HSR Condition") shall not be
satisfied, until such time as such condition is satisfied, and (B) for any
period required by any rule, regulation or interpretation of the Securities and
Exchange Commission (the "SEC") or the staff thereof applicable to the Common
Stock Offer and (ii) may be extended (A) if, at the scheduled expiration of the
Offers, any of the conditions to the Common Stock Offer set forth in Annex A
hereto shall not be satisfied or waived, until such time as such condition is
satisfied or waived, and (B) for a period of not more than ten (10) business
days if Purchaser determines in its sole discretion to so extend the Common
Stock Offer, provided that this Agreement may not be terminated pursuant to
Section 8.01(b), (c) or (d) during any extension pursuant to this clause
(ii)(B). Purchaser may extend the Preferred Stock Offer for a period of not more
than twenty (20) business days after the date upon which Purchaser accepts for
payment and pays for Common Shares pursuant to the Common Stock Offer, if the
number of Preferred Shares validly tendered and not withdrawn prior to such date
shall constitute less than 66 2/3% of the then outstanding Preferred Shares. The
Preferred Share Amount shall be reduced to 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 time Purchaser accepts
Preferred Shares for payment pursuant to the Preferred Stock Offer. The Per
Share Amounts shall, subject to applicable withholding of taxes, be net to the
seller in cash, upon the terms and subject to the conditions of the Offers.
Subject to the terms and conditions of the Offers, Purchaser shall pay, as
promptly as practicable after expiration of each Offer, for all Shares validly
tendered to and not withdrawn from such Offer.
(b) As soon as reasonably practicable on the date of commencement of the
Offers, Purchaser shall file with the SEC a Tender Offer Statement on Schedule
14D-1 (together with all amendments and supplements thereto, the "Schedule
14D-1") with respect to the Offers, and take all steps necessary to cause the
Offer Documents (as defined below) to be disseminated to holders of Common
Shares and Preferred Shares as and to the extent required by applicable federal
securities laws. The Schedule 14D-1 shall contain or shall incorporate by
reference an offer to purchase (the "Offer to Purchase") and forms of the
related letter of transmittal and any related summary advertisement (the
Schedule 14D-1, the Offer to Purchase and such other documents, together with
all supplements and amendments thereto, being referred to herein collectively as
the "Offer Documents"). Parent, Purchaser and the Company agree to correct
promptly any information provided by any of them for use in the Offer Documents
which shall have become false or misleading, and Parent and Purchaser further
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to
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be disseminated to holders of Common Shares and Preferred Shares, in each case
as and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given an opportunity to review and comment on the
Schedule 14D-1 and any amendments thereto prior to the filing thereof with the
SEC. Parent and Purchaser will provide the Company and its counsel with a copy
of any written comments or telephonic notification of any verbal comments Parent
or Purchaser may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt thereof and will provide the Company and
its counsel with a copy of any written responses and telephonic notification of
any verbal response of Parent, Purchaser or its counsel.
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offers and represents that (i) the Board, at a meeting duly
called and held on November 18, 1998, unanimously has (A) determined that this
Agreement and the Transactions contemplated hereby, including each of the Offers
and the Merger, taken together, are fair to and in the best interests of the
holders of the Common Shares, (B) approved and adopted this Agreement, the
Offers and the transactions contemplated hereby and thereby (including, without
limitation, for purposes of Section 78.438 of the Nevada Law), (C) amended the
Company's By-Laws to provide that the provisions of Sections 78.378 through
78.3793 of the Nevada Law shall not apply to the Company and to permit the
stockholders of the Company to take action by written consent and (D)
recommended that the stockholders of the Company accept the Offers and approve
and adopt this Agreement and the transactions contemplated hereby, and (ii)
SalomonSmithBarney Inc has delivered to the Board a written opinion that the
consideration to be received by the holders of the Common Shares pursuant to the
Common Stock Offer and the Merger, taken together, is fair to the holders of
such Shares from a financial point of view. Subject to the fiduciary duties of
the Board under applicable law as advised in writing by independent counsel, the
Company hereby consents to the inclusion in the Offer Documents of the
recommendation of the Board described in the immediately preceding sentence. The
Company has been advised by each of its directors and executive officers that
they intend either to tender all the Shares beneficially owned by them to
Purchaser pursuant to the Offers or to vote the Shares beneficially owned by
them in favor of the approval and adoption by the stockholders of the Company of
this Agreement and the transactions contemplated hereby.
(b) As soon as reasonably practicable on the date of commencement of the
Offers, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing, subject to the fiduciary duties of
the Board under applicable law as advised in writing by independent counsel, the
recommendation of the Board described in Section 1.02(a) and shall disseminate
the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other
applicable federal securities laws. The Company, Parent and Purchaser agree to
correct promptly any information provided by any of them for use in the Schedule
14D-9 which shall have become false or misleading, and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to holders of the Shares, in each case
as and to the extent required by applicable federal securities laws. Parent,
Purchaser and their counsel shall be given an opportunity to review and comment
on the Schedule 14D-9 and any amendments thereto prior to the filing thereof
with the SEC. The Company will provide Parent and Purchaser and their counsel
with a copy of any written comments or telephonic notification of any verbal
comments the Company may receive from the SEC or its staff with respect to the
Offer Documents promptly after the receipt thereof and will provide Parent and
Purchaser and their counsel with a copy of any written responses and telephonic
notification of any verbal response of the Company or its counsel.
(c) The Company shall promptly cause to be furnished to Purchaser mailing
labels containing the names and addresses of all record holders of the Shares
and with security position listings of the Shares held in stock depositories,
each as of a recent date, together with all other available listings and
computer files containing names, addresses and security position listings of
record holders and beneficial owners of the Shares. The Company shall furnish
Purchaser with such additional information, including, without
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<PAGE>
limitation, updated listings and computer files of stockholders, mailing labels
and security position listings, and such other assistance as Parent, Purchaser
or their agents may reasonably request. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offers and
the Merger, Parent and Purchaser shall hold in confidence the information
contained in such labels, listings and files, shall use such information only in
connection with the Offers and the Merger, and, if this Agreement shall be
terminated in accordance with Section 8.01, shall deliver to the Company all
copies of such information then in their possession.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in Article VII, and in accordance with Nevada Law, at the Effective Time
(as hereinafter defined) Purchaser shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing this
Agreement or articles of merger (in either case, the "Articles of Merger") with
the Secretary of State of the State of Nevada, in such form as is required by,
and executed in accordance with the relevant provisions of, Nevada Law (the date
and time of such filing being the "Effective Time"). Prior to such filing, a
closing shall be held at the offices of American Airlines, Inc., 4333 Amon
Carter Boulevard, Fort Worth, Texas 78155, or such other place as the parties
shall agree, for the purpose of confirming the satisfaction or waiver, as the
case may be, of the conditions set forth in Article VII.
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Nevada Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the property, rights, privileges, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of the Company
and Purchaser shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; By-laws. (a) Unless otherwise
determined by Parent prior to the Effective Time, at the Effective Time (i) if
the Primary Merger is effected, the Articles of Incorporation of Purchaser, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation, until thereafter amended as provided
by law and such Articles of Incorporation, or (ii) if the Alternative Merger is
effected, the Articles of Incorporation of the Company, including, without
limitation, the Certificate of Designations of Series A Cumulative Convertible
Exchangeable Preferred Stock $.001 par value per share of the Company (the
"Certificate of Designations"), as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, (i) if the Primary Merger is effected, the By-laws of
Purchaser, as in effect immediately prior to the Effective Time, shall be the
By-laws of the Surviving Corporation until thereafter amended as provided by
law, the Articles of Incorporation of the Surviving Corporation and such By-laws
or (ii) if the Alternative Merger is effected, the By-laws of the Company, as in
effect immediately prior to the Effective Time, shall be the By-laws of the
Surviving Corporation until thereafter amended as provided by law, the Articles
of Incorporation of the Surviving Corporation and such By-laws.
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SECTION 2.05. Directors and Officers. The directors of Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time, by virtue of
the Primary Merger or the Alternative Merger and without any action on the part
of Purchaser, the Company or the holders of any of the following securities:
(a) Each Common Share issued and outstanding immediately prior to the
Effective Time (other than any Common Shares to be canceled pursuant to
Section 2.06(c) and any Dissenting Shares (as hereinafter defined)) shall,
pursuant to the Primary Merger, be canceled and shall be converted
automatically into the right to receive an amount equal to the Per Common
Share Amount in cash (the "Common Stock Merger Consideration") payable,
without interest, to the holder of such Common Share, upon surrender, in the
manner provided in Section 2.09, of the certificate that formerly evidenced
such Common Share;
(b) Each Preferred Share issued and outstanding immediately prior to the
Effective Time (other than any Preferred Shares to be canceled pursuant to
Section 2.06(c) and any Dissenting Shares) shall, pursuant to the Primary
Merger, be canceled and converted automatically into the right to receive an
amount equal to 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, together with accrued and
unpaid dividends through the Effective Time in cash (the "Preferred Stock
Merger Consideration"; and together with the Common Stock Merger
Consideration, the "Merger Consideration"), payable, without interest, to
the holder of such Preferred Share, upon surrender, in the manner provided
in Section 2.09, of the certificate that formerly evidenced such Preferred
Share, provided, however, that in the event that less than 66 2/3% of the
Preferred Shares have voted to approve this Agreement and the Primary
Merger, the Alternative Merger shall be effected instead of the Primary
Merger, and each Preferred Share shall remain issued and outstanding as a
share of the Series A Cumulative Convertible Exchangeable Preferred Stock,
$0.001 par value per share, of the Surviving Corporation, subject to the
terms and conditions of the Certificate of Designations. Pursuant to Section
7(e) of the Certificate of Designation, the holder of each Preferred Share
shall have the right to convert each such Preferred Share into the amount of
cash equal to the Common Stock Merger Consideration which would be payable
as a result of the Merger with respect to the number of Common Shares or
fraction thereof into which such Preferred Shares could have been converted
immediately prior to the Effective Time, and such holder shall be entitled
pursuant to Section 8 of the Certificate of Designations, to effect such
conversion at an adjusted conversion price equal to the Special Conversion
Price (as defined in the Certificate of Designation);
(c) Each Share held in the treasury of the Company and each Share owned
by Purchaser, Parent or any direct or indirect wholly owned subsidiary of
Parent immediately prior to the Effective Time shall be canceled without any
conversion thereof and no payment or distribution shall be made with respect
thereto, provided, however, that in the event that the Alternative Merger is
effected, each Preferred Share shall remain issued and outstanding and shall
remain subject to the terms and conditions of the Certificate of
Designations; and
(d) Each share of Common Stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 2.07. Employee Stock Options; Warrants. (a) Immediately prior to the
Effective Time, each outstanding option to purchase Common Shares (in each case,
an "Option") granted under (i) the
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Company's 1992 Stock Option Plan, (ii) the Company's Employee Stock Incentive
Plan and (iii) the Company's Directors Stock Option Plan (collectively, the
"Stock Option Plans"), whether or not then exercisable, shall be canceled by the
Company, and each holder of a canceled Option shall be entitled to receive from
Purchaser at the same time as payment for Common Shares is made by Purchaser in
connection with the closing of the Merger, in consideration for the cancellation
of such Option, an amount in cash equal to the product of (x) the number of
Common Shares previously subject to such Option and (y) the excess, if any, of
the Per Common Share Amount over the exercise price per Common Share previously
subject to such Option. The Company agrees to effectuate the cancellation of the
Options pursuant to this Section 2.07 by taking such action as may necessary
under the Company's 1992 Stock Option Plan, as amended and restated in 1994, the
Company's Employee Stock Incentive Plan and the Director's Stock Option Plan.
(b) From and after the Effective Time, pursuant to the Warrants, (as
hereinafter defined) the holder of each outstanding Warrant shall, upon the
payment of the exercise price under such Warrant, have the right to exercise
each such Warrant for an amount of cash equal to the Common Stock Merger
Consideration which would be payable as a result of the Merger with respect to
the number of Common Shares, or fraction thereof, for which such Warrant could
have been exercised immediately prior to the Effective Time.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, Common Shares and Preferred Shares that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such Common Shares and Preferred Shares in accordance with Nevada Law
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the Common Stock Merger Consideration or Preferred Stock
Merger Consideration, as applicable. To the extent required under Nevada Law,
such stockholders shall be entitled to receive payment of the appraised value of
such Shares held by them in accordance with the provisions of such law, except
that all Dissenting Shares held by stockholders who shall have failed to perfect
or who effectively shall have withdrawn or lost their rights to appraisal of
such Shares under such law shall thereupon be deemed to have been converted into
and to have become exchangeable for, as of the Effective Time, the right to
receive the applicable Merger Consideration, without any interest thereon, upon
surrender, in the manner provided in Section 2.09, of the certificate or
certificates that formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to Nevada Law and received by the Company and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Nevada Law. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a) Prior to the
Effective Time, Purchaser shall designate a bank or trust company reasonably
acceptable to the Company to act as agent (the "Paying Agent") for the holders
of Shares in connection with the Merger to receive the funds to which holders of
Shares shall become entitled pursuant to Section 2.06(a) and 2.06(b).
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
to be mailed to each person who was, at the Effective Time, a holder of record
of Shares entitled to receive the Merger Consideration pursuant to Section
2.06(a) or 2.06(b), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly
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completed and validly executed in accordance with the instructions thereto, and
such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly evidenced by such Certificate, and
such Certificate shall then be canceled. No interest shall accrue or be paid on
the Merger Consideration payable upon the surrender of any Certificate for the
benefit of the holder of such Certificate. If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered on the stock transfer books of the
Company, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed properly or otherwise be in proper form for transfer and that
the person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such taxes
either have been paid or are not applicable.
(c) At any time following the sixth month after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Common Shares (including, without limitation, all
interest and other income received by the Paying Agent in respect of all funds
made available to it), and thereafter such holders shall be entitled to look to
the Surviving Corporation (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither the Surviving Corporation nor the
Paying Agent shall be liable to any holder of a Share for any Merger
Consideration delivered in respect of such Share to a public official pursuant
to any abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers of Common Shares or, provided that the Primary
Merger (and not the Alternative Merger) has been effected, the Preferred Shares,
on the records of the Company. From and after the Effective Time, the holders of
Shares outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such Shares except as otherwise provided herein or by
applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that:
SECTION 3.01. Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect (as defined below). The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company, the term
"Material Adverse Effect" means any change or effect that, when taken together
with all other adverse changes and effects that are within the scope of the
representations and warranties made by the Company in this Agreement and which
are not individually or in the aggregate deemed to have a Material Adverse
Effect, is or is reasonably likely to be materially adverse to the business,
results of operations or financial condition of the Company, but excluding
changes or effects that (x) are directly caused by conditions affecting (A) the
United States economy as a whole or (B) the economy of the
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western region of the United States as a whole or affecting the United States
airline industry as a whole, which conditions do not affect the Company in a
disproportionate manner, (y) are related to or result from any action or
inaction on the part of Parent, Purchaser or any affiliate thereof, including
those in connection with the currently existing commercial arrangements between
such persons and the Company or (z) are related to or result from the
announcement of the Offers or the Merger. Except as set forth in Section 3.01 of
the Disclosure Schedule previously delivered by the Company to Parent (the
"Disclosure Schedule"), the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 3.02. Articles of Incorporation and By-laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation and the By-laws, each as amended to date, of the Company. Such
Articles of Incorporation and By-laws are in full force and effect. The Company
is not in violation of any provision of its Articles of Incorporation or
By-laws, except for such violations as would not have a Material Adverse Effect.
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 30,000,000 Common Shares and 10,000,000 Preferred Shares. As of
September 30, 1998, (i) 10,843,470 Common Shares were issued and outstanding,
all of which were validly issued, fully paid and nonassessable, (ii) 1,436,000
Preferred Shares were issued and outstanding, all of which were validly issued,
fully paid and nonassessable, (iii) no Common Shares were held in the treasury
of the Company, (iv) 3,757,070 Common Shares were reserved for future issuance
pursuant to Options granted pursuant to the Company's Stock Option Plans, (v)
4,164,400 Common Shares were reserved for issuance upon the conversion of
Preferred Shares, (vi) 65,431 Common Shares were reserved for issuance upon the
exercise of the warrants issued pursuant to the Placement Agreement (the
"Warrants") dated March 14, 1994 between the Company and Paradise Valley
Securities, Inc. (the "Warrant Agreement"), and (vii) 2,875,000 Common Shares
were reserved for issuance upon the conversion of the 9% Senior Convertible
Notes due September 30, 2002 issued by the Company pursuant to the Indenture
dated as of August 15, 1992 between the Company and Fleet National Bank
(formerly known as Shawmut Bank Connecticut, National Association) (the
"Convertible Notes"). Except as disclosed in Section 3.03 of the Disclosure
Schedule, since September 30, 1998 to the date of this Agreement, the Company
has not issued any Shares (other than pursuant to the exercise of Options
described in the preceding sentence), any warrants or other securities
convertible into or exercisable for Shares or granted any Options covering
Shares. Except as set forth in this Section 3.03 there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or obligating
the Company to issue or sell any shares of capital stock of, or other equity
interests in, the Company. All Common Shares subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable. There are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any Shares or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in any other person.
SECTION 3.04. Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby (the "Transactions"). The execution and delivery of this
Agreement by the Company and the consummation by the Company of the Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the then outstanding Common Shares and (in the case of
the Primary Merger) at least 66 2/3% of the Preferred Shares, if and to the
extent required by applicable law, and the filing and recordation of appropriate
merger documents as required by Nevada Law). This Agreement has been duly and
validly
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executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Purchaser, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not, (i) conflict with or violate the
Articles of Incorporation or By-laws of the Company, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or by which any property or asset of the Company is bound or affected,
or (iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of the
Company pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation, except,
with respect to clause (iii) above, those events which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Exchange Act, state securities or "blue
sky" laws ("Blue Sky Laws") and state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), and filing
and recordation of appropriate merger documents as required by Nevada Law and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Offers or the Merger, or otherwise prevent the Company from
performing its obligations under this Agreement, and would not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 3.06. Compliance. The Company is not in conflict with, nor in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or by which any property or asset of the
Company is bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any
property or asset of the Company is bound or affected, except for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1995, and has heretofore delivered to Parent, in the form filed
with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended
December 31, 1995, 1996, and 1997, respectively, (ii) its Quarterly Reports on
Form 10-Q for the periods ended March 31, 1998, June 30, 1998 and September 30,
1998, (iii) its Current Reports on Form 8-K filed on February 4, 1998, March 4,
1998, April 23, 1998, May 7, 1998 and August 26, 1998 and (iv) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since January 1, 1996 (other than preliminary proxy materials) and
(v) all other forms, reports and other registration statements (other than
Quarterly Reports on Form 10-Q not referred to in clause (ii) above) filed by
the Company with the SEC since December 31, 1995 (the forms, reports and other
documents referred to in clauses (i), (ii), (iii), (iv) and (v) above being
referred to herein, collectively, as the "SEC Reports"). The SEC Reports (i)
were prepared in all material respects in accordance with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange
Act, as the case may be, and the rules and regulations thereunder and (ii) did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
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(b) Each of the financial statements (including, in each case, any notes
thereto) contained in the SEC Reports was prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto) and each
fairly presented the financial position, results of operations and changes in
financial position of the Company as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which were not and are
not expected, individually or in the aggregate, to have a Material Adverse
Effect).
(c) Except as and to the extent set forth on the balance sheet of the
Company as at December 31, 1997, including the notes thereto (the "1997 Balance
Sheet"), the Company has no liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) which would be required to be
reflected on a balance sheet, or in the notes thereto, prepared in accordance
with generally accepted accounting principles, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1997 which would not, individually or in the
aggregate, have a Material Adverse Effect.
(d) The Company has heretofore furnished to Parent complete and correct
copies of all amendments and modifications that have not been filed by the
Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
SECTION 3.08. Absence of Certain Changes or Events. Since December 31, 1997,
except as contemplated by this Agreement or disclosed in any SEC Report filed
since December 31, 1997 and prior to the date of this Agreement or described in
any press release listed in Section 3.08 of the Disclosure Schedule, the Company
has conducted its business only in the ordinary course and in a manner
consistent with past practice and, since December 31, 1997, there has not been
(i) any change in the business, results of operations or financial condition of
the Company having, individually or in the aggregate, a Material Adverse Effect,
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to any property or asset of the Company and having, individually or in
the aggregate, a Material Adverse Effect, (iii) any change by the Company in its
accounting methods, principles or practices (other than as required by generally
accepted accounting principles), (iv) any revaluation by the Company of any
asset (including, without limitation, any writing down of the value of inventory
or writing off of notes or accounts receivable), other than in the ordinary
course of business consistent with past practice, (v) any entry by the Company
into any commitment or transaction material to the Company, (vi) any
declaration, setting aside or payment of any dividend or distribution in respect
of any capital stock of the Company or any redemption, purchase or other
acquisition of any of its securities other than regular quarterly dividends on
the Preferred Shares not in excess of $0.5625 per Preferred Share or (vii) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company, except in the
ordinary course of business consistent with past practice.
SECTION 3.09. Absence of Litigation. Except as disclosed in Section 3.09 of
the Disclosure Schedule or in the SEC Reports filed prior to the date of this
Agreement, there is no claim, action, proceeding or investigation pending or, to
the best knowledge of the Company, threatened against the Company, or any
property or asset of the Company, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which (i) individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect or (ii) as of the date hereof, seeks to delay or
prevent the consummation of any Transaction. As of the date hereof, neither the
Company nor any property or asset of the Company is subject to any order, writ,
judgment, injunction, decree, determination or award having, individually or in
the aggregate, a Material Adverse Effect.
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SECTION 3.10. Employee Benefit Plans. (a) Section 3.10 of the Disclosure
Schedule contains a true and complete list of all employee benefit plans (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) and all bonus, stock option, stock purchase,
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance or other contracts
or agreements to which the Company is a party, with respect to which the Company
has any obligation or which are maintained, contributed to or sponsored by the
Company for the benefit of any current or former employee, officer or director
of the Company (collectively, the "Plans"). Each Plan is in writing and the
Company has previously furnished Parent with a true and complete copy of each
Plan and a true and complete copy of each material document prepared in
connection with each such Plan, including, without limitation, (i) a copy of
each trust or other funding arrangement, (ii) each summary plan description and
summary of material modifications, (iii) the most recently filed Internal
Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS
determination letter for each such Plan, and (v) the most recently prepared
actuarial report and financial statement in connection with each such Plan. The
Company does not have any express or implied commitment (i) to create or incur
material liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than (x) with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code of 1986, as amended
(the "Code") or (y) a modification, change or termination which does not
materially increase benefit accruals or contributions required to be made by the
Company.a
(b) None of the Plans is a defined benefit pension plan subject to Title IV
of ERISA. None of the Plans is a multiemployer plan, within the meaning of
Section 3(37) of ERISA (a "Multiemployer Plan"), or other than as specifically
disclosed in Section 3.10 of the Disclosure Schedule, a single employer pension
plan, within the meaning of Section 4001(a)(15) of ERISA, for which the Company
could incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer
Plan"). Other than as disclosed in Section 3.10 of the Disclosure Schedule, none
of the Plans (i) provides for the payment of separation, severance, termination
or similar-type benefits to any person, (ii) obligates the Company to pay
separation, severance, termination or other benefits as a result of any
Transaction or (iii) obligates the Company to make any payment or provide any
benefit that could be subject to a tax under Section 4999 of the Code as a
result of any Transaction. Except as disclosed in Section 3.10 of the Disclosure
Schedule, none of the Plans provides for or promises retiree medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Company.
(c) Each Plan which is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the IRS that such Plan
is so qualified, and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that such trust is so
exempt. To the knowledge of the Company, no fact or event has occurred since the
date of any such determination letter from the IRS that could adversely affect
the qualified status of any such Plan or the exempt status of any such trust.
Each trust maintained or contributed to by the Company which is intended to be
qualified as a voluntary employees' beneficiary association exempt from federal
income taxation under Sections 501(a) and 501 (c)(9) of the Code has received a
favorable determination letter from the IRS that it is so qualified and so
exempt, and, to the knowledge of the Company, no fact or event has occurred
since the date of such determination by the IRS that could adversely affect such
qualified or exempt status.
(d) To the knowledge of the Company, there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Plan. The Company is not currently liable nor has it
previously incurred any material liability for any tax or penalty arising under
Section 4971, 4972, 4979, 4980 or 4980B of the Code or Section 502(c) of ERISA,
and, to the knowledge of the Company, no fact or event exists which could give
rise to any such liability. The Company has not incurred any liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
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premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee pension benefit plan subject to
Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple
Employer Plan, and, to the knowledge of the Company, no fact or event exists
which could give rise to any such liability. No complete or partial termination
has occurred within the five years preceding the date hereof with respect to any
Plan. No reportable event (within the meaning of Section 4043 of ERISA) has
occurred or is expected to occur with respect to any Plan subject to Title IV of
ERISA. No asset of the Company is the subject of any lien arising under Section
302(f) of ERISA or Section 4 12(n) of the Code; the Company has not been
required to post any security under Section 307 of ERISA or Section 401 (a)(29)
of the Code; and, to the knowledge of the Company, no fact or event exists which
could give rise to any such lien or requirement to post any such security.
(e) Each Plan is in compliance in all material respects in accordance with
the requirements of all applicable laws, including, without limitation, ERISA
and the Code, and the Company has performed all obligations required to be
performed by it under, is not in any respect in default under or in violation
of, and has no knowledge of any default or violation by any party to, any Plan.
No Plan has incurred an "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived. All
contributions, premiums or payments required to be made with respect to any Plan
are fully deductible for income tax purposes and no such deduction previously
claimed has been challenged by any government entity. The 1997 Balance Sheet
reflects an accrual of all amounts of employer contributions and premiums
accrued but unpaid with respect to the Plans.
(f) Other than as specifically disclosed in Section 3.10 of the Disclosure
Schedule, the Company has not incurred any liability under, and has complied in
all respects with, the Worker Adjustment Retraining Notification Act and the
regulations promulgated thereunder ("WARN") and does not reasonably expect to
incur any such liability as a result of actions taken or not taken prior to the
Effective Time. The Company has previously provided in writing to Parent true
and complete lists of the following: (i) all the employees terminated or laid
off by the Company during the 90 days prior to the date hereof and (ii) all the
employees of the Company who have experienced a reduction in hours of work of
more than 50% during any month during the 90 days prior to the date hereof and
describes all notices given by the Company in connection with WARN. The Company
will, by written notice to Parent and Purchaser, update such lists to include
any such terminations, layoffs and reductions in hours from the date hereof
through the Effective Time and will provide Parent and Purchaser with any
related information which they may reasonably request.
SECTION 3.11. Labor Matters. Except as set forth in Section 3.11 of the
Disclosure Schedule, (i) there are no controversies pending or, to the best
knowledge of the Company, threatened between the Company and any of its
employees, which controversies have or could have a Material Adverse Effect;
(ii) the Company is not a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by the Company, nor, to the
best knowledge of the Company, are there any activities or proceedings of any
labor union to organize any such employees; (iii) the Company has not materially
breached or otherwise failed to comply in any material respect with any material
provision of any such agreement or contract and there are no grievances
outstanding against the Company under any such agreement or contract; (iv) there
are no unfair labor practice complaints pending against the Company before the
National Labor Relations Board or any current union representation questions
involving employees of the Company; and (v) there is no strike, slowdown, work
stoppage or lockout, or, to the best knowledge of the Company, threat thereof,
by or with respect to any employees of the Company. The consent of the labor
unions which are a party to the collective bargaining agreements listed in
Section 3.11 of the Disclosure Schedule is not required to consummate the
Transactions.
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement. Neither the
Schedule 14D-9 nor any information supplied by the Company for inclusion in the
Offer Documents shall, at the respective times the Schedule 14D-9, the Offer
Documents, or any amendments or supplements thereto are filed with
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the SEC or are first published, sent or given to stockholders of the Company, as
the case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they are made, not misleading. Neither the proxy statement to be sent to the
stockholders of the Company in connection with the Stockholders' Meeting (as
hereinafter defined) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, being referred to herein as the "Proxy Statement"),
shall, at the date the Proxy Statement (or any amendment or supplement thereto)
is first mailed to stockholders of the Company, at the time of the Stockholders'
Meeting and at the Effective Time, be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading in any material respect. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied by
Parent or Purchaser or any of their respective representatives which is
contained in the Schedule 14D-9. The Schedule 14D-9 and the Proxy Statement
shall comply in all material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder.
SECTION 3.13. Real Property and Leases. (a) The Company has sufficient title
to, or leasehold interests in, all its properties and assets to conduct its
business as currently conducted or as contemplated to be conducted, with only
such exceptions as, individually or in the aggregate, would not have a Material
Adverse Effect.
(b) Except as set forth in Section 3.13 of the Disclosure Schedule, each
parcel of real property owned or leased by the Company (i) is owned or leased
free and clear of all mortgages, pledges, liens, security interests, conditional
and installment sale agreements, encumbrances, charges or other claims of third
parties of any kind (collectively, "Liens"), other than (A) Liens for current
taxes and assessments not yet past due, (B) inchoate mechanics' and
materialmen's Liens for construction in progress, (C) workmen's, repairmen's,
warehousemen's and carriers' Liens arising in the ordinary course of business of
the Company consistent with past practice, and (D) all matters of record, Liens
and other imperfections of title and encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect (collectively, "Permitted
Liens"), and (ii) is neither subject to any governmental decree or order to be
sold nor is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the best
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed.
(c) All leases of real property leased for the use or benefit of the Company
to which the Company is a party requiring annual rental payments in excess of
$500,000 during the period of the lease, and all amendments and modifications
thereto are in full force and effect and have not been modified or amended, and
there exists no default under any such lease by the Company, nor any event which
with notice or lapse of time or both would constitute a default thereunder by
the Company, except as, individually or in the aggregate, would not have a
Material Adverse Effect.
SECTION 3.14. Trademarks, Patents and Copyrights. To the best knowledge of
the Company, the Company owns or possesses adequate licenses or other valid
rights to use all patents, patent rights, trademarks, trademark rights, trade
names, trade name rights, copyrights, servicemarks, trade secrets, applications
for trademarks and for servicemarks, know-how and other proprietary rights and
information used or held for use in connection with, and material to, the
business of the Company as currently conducted, and the Company is unaware of
any assertion or claim challenging the validity of any of the foregoing which,
individually or in the aggregate, could have a Material Adverse Effect. The
conduct of the business of the Company as currently conducted does not and will
not conflict in any way with any patent, patent right, license, trademark,
trademark right, trade name, trade name right, service mark, or copyright of any
third party that, individually or in the aggregate, could have a Material
Adverse Effect. To the best
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knowledge of the Company, there are no infringements of any propriety rights
owned by or licensed by or to the Company which, individually or in the
aggregate, could have a Material Adverse Effect. To the best knowledge of the
Company, the Company has not licensed or otherwise permitted the use by any
third party of any proprietary information on terms or in a manner which,
individually or in the aggregate, could have a Material Adverse Effect.
SECTION 3.15. Taxes. The Company has filed all returns and reports
("Returns"), which are required to be filed by it in respect of any Taxes (as
hereinafter defined), and which the failure to file would have a Material
Adverse Effect. As of the time of filing and in all material respects, the
Returns correctly reflected the facts regarding the Taxes payable, income,
expenses, business, assets, operations and status of the Company and any other
information required to be shown thereon. The Company has paid or made provision
for payment of all Taxes shown on such Returns. Neither the IRS nor any other
taxing authority or agency, domestic or foreign, is now asserting or, to the
best knowledge of the Company, threatening to assert against the Company any
deficiency or claim for additional Taxes or interest thereon or penalties in
connection therewith. The Company has not granted any waiver of any statute of
limitations with respect to, or any extension of the period of assessment of,
any federal, state, county, municipal or foreign income tax. The Company has not
made an election under Section 341(1) of the Code. For purposes of this
Agreement, "Tax" means all taxes, including net income, capital gains, gross
income, gross receipts, sales, use, transfer, ad valorem, franchise, profits,
license, capital, withholding, payroll, employment, excise, goods and services,
severance, stamp, occupation, premium, property, windfall profits, customs
duties or taxes, fees or assessments, or other governmental charges of any kind
whatsoever, together with any interest, fines and any penalties, additions to
tax or additional amount incurred or accrued under applicable law or assessed,
charged or imposed by any governmental authority.
SECTION 3.16. Environmental Matters. (a) For purposes of this Agreement, the
following terms shall have the following meanings: (i) "Hazardous Substances"
means (A) those substances defined in or regulated under the following federal
statutes and their state counterparts, as each may be amended from time to time,
and all regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and
Rodenticide Act and the Clean Air Act; (B) petroleum and petroleum products
including crude oil and any fractions thereof; (C) natural gas, synthetic gas,
and any mixtures thereof; (D) radon; (E) any other contaminant; and (F) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation; and (ii)
"Environmental Laws" means any federal, state or local law relating to (A)
releases or threatened releases of Hazardous Substances or materials containing
Hazardous Substances; (B) the manufacture, handling, transport, use, treatment,
storage or disposal of Hazardous Substances or materials containing Hazardous
Substances; or (C) otherwise relating to pollution of the environment or the
protection of human health.
(b) To the best knowledge of the Company, except as described in Section
3.16 of the Disclosure Schedule: (i) the Company has not violated and is not in
violation of any Environmental Law; (ii) none of the properties owned or leased
by the Company (including, without limitation, soils and surface and ground
waters) are contaminated with any Hazardous Substance; (iii) the Company is not
actually or potentially nor, to the best knowledge of the Company, allegedly
liable for any off-site contamination; (iv) the Company is not actually or
potentially nor, to the best knowledge of the Company, allegedly liable under
any Environmental Law (including, without limitation, pending or threatened
liens); (v) the Company has all permits, licenses and other authorizations
required under any Environmental Law ("Environmental Permits") and (vi) the
Company has always been and is in compliance with its Environmental Permits.
SECTION 3.17. Aircraft. Set forth on Section 3.17 of the Disclosure Schedule
is a complete and accurate list of all aircraft operated by the Company at the
date hereof.
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SECTION 3.18. Slots. Set forth on Section 3.18 of the Disclosure Schedule is
a complete and accurate list of all takeoff and landing slots and other similar
takeoff and landing rights ("Slots") used by the Company on the date hereof at
Slot controlled airports, including a list of all slot lease agreements.
SECTION 3.19. Brokers. No broker, finder or investment banker (other than
SalomonSmithBarney Inc) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and
SalomonSmithBarney Inc pursuant to which such firm would be entitled to any
payment relating to the Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and warrant to
the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and Nevada, respectively, and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a material adverse effect on the business or operations of
Parent and Purchaser and their respective subsidiaries taken as a whole.
SECTION 4.02. Authority Relative to this Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Nevada Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser, enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation, Articles of Incorporation or
By-laws of either Parent or Purchaser, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Purchaser or
by which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any property or asset of Parent
or Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Purchaser is a party or by which Parent or Purchaser or any
property or asset of either of them is bound or affected , except for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, have a material adverse effect on the business
or operations of Parent or Purchaser and their respective subsidiaries taken as
a whole.
(b) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the performance of this Agreement by Parent and Purchaser will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky
Laws and state takeover laws,
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the HSR Act, and filing and recordation of appropriate merger documents as
required by Nevada Law and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Offers or the Merger, or
otherwise prevent Parent or Purchaser from performing their respective
obligations under this Agreement.
SECTION 4.04. Offer Documents; Proxy Statement. The Offer Documents will
not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the Proxy
Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading in any
material respect. Notwithstanding the foregoing, Parent and Purchaser make no
representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in any of the foregoing
documents or the Offer Documents. The Offer Documents shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.05. Brokers. No broker, finder or investment banker (other than
Morgan Stanley & Co., Incorporated) is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Parent or Purchaser.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. (a) The
Company covenants and agrees that, between the date of this Agreement and the
earlier of the time designees of Parent comprise a majority of the Board of
Directors of the Company or the Effective Time, unless Parent shall otherwise
agree in writing (which agreement shall not be unreasonably withheld or
delayed), it will do the following:
(i) conduct its business substantially as presently conducted in the
ordinary course of business consistent with past practice, and will use all
reasonable efforts to conduct its business in such a manner that on the
closing date of the Offers and at the Effective Time, the representations
and warranties of the Company will be true and correct in all material
respects as though made on each respective closing date;
(ii) continue to carry insurance with respect to its assets and to the
business substantially in the amounts and type carried by the Company on the
date of this Agreement;
(iii) continue to fund, in accordance with applicable requirements, all
employee benefit plans;
(iv) use all reasonable efforts to keep its business organization
intact, continue to operate in accordance with current industry practices,
preserve its labor force and make available to Parent its officers and
employees, and preserve for Parent the goodwill of suppliers and customers
of the Company and others having a business relationship with the Company;
(v) maintain all items of its tangible assets in their current
condition, ordinary wear and tear excepted, and make all ordinary and
necessary repairs;
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(vi) continue to use and operate the Slots used and operated by the
Company as of the date hereof in a manner consistent with prior practice and
in accordance with all applicable laws, and shall not enter into any
contract nor otherwise act, nor suffer or permit any other person to act, to
restrict, interfere with or prevent the use of such Slots;
(vii) perform in all material respects its obligations under all
material contracts;
(viii) comply in all material respects with all applicable laws and
regulations, including, without limitation, laws and regulations relating to
the timely, complete, and correct filing of all reports and maintenance of
all records required by any governmental authority to be filed or
maintained;
(ix) notify Parent upon a replacement or exchange of any aircraft or
engine; and
(x) notify Parent of any incidents or accidents involving an aircraft
owned or operated by the Company that resulted or could reasonably be
expected to result in losses to the Company of in excess of $2,000,000.
(b) The Company covenants and agrees that, between the date of this
Agreement and the earlier of the time designees of Parent comprise a majority of
the Board of Directors of the Company or the Effective Time, unless Parent shall
otherwise agree in writing (which agreement shall not be unreasonably withheld
or delayed), it will not do any of the following:
(i) amend or otherwise change its Articles of Incorporation or By-laws
or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares
of capital stock of any class of the Company, or any options, warrants,
convertible securities, or other rights of any kind to acquire any shares of
such capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of the Company (except for the issuance
of a maximum of 3,757,070 Common Shares issuable pursuant to Options
outstanding on the date hereof, a maximum of 7,104,831 Common Shares
issuable upon the exercise of Warrants or upon the conversion of Preferred
Shares or Convertible Notes, in each case outstanding on the date hereof,
and the issuance of a maximum of 100,000 Options issued on terms consistent
with prior practice, and a maximum of 100,000 Common Shares issuable
pursuant to such Options, issued after the date hereof), or (ii) any assets
of the Company, except for sales in the ordinary course of business and in a
manner consistent with past practice;
(iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of its capital stock, other than regular quarterly dividends payable on
the Preferred Shares not to exceed $0.5625 per Preferred Share or in
connection with the adoption of a Shareholder Rights Plan;
(iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(v) except as disclosed in Section 5.01(b)(v) of the Disclosure
Schedule, (A) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets; (B) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person, or
make any loans or advances, except in the ordinary course of business and
consistent with past practice; (C) enter into any contract or agreement
other than in the ordinary course of business, consistent with past
practice; (D) authorize any single capital expenditure (other than
expenditures for maintenance) which is in excess of $500,000 or capital
expenditures which are, in the aggregate, in excess of $500,000; or (E)
enter into or amend any contract, agreement, commitment or arrangement with
respect to any matter set forth in this Section 5.01(b);
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(vi) except as set forth in Section 5.01(b)(vi) of the Disclosure
Schedule, increase the compensation payable or to become payable to, or the
benefits provided to, its officers or key employees, except for increases in
accordance with past practices in salaries or wages of employees of the
Company who are not officers of the Company, or grant any severance or
termination pay to, or enter into any employment or severance agreement with
any director, officer or other key employee of the Company, or establish,
adopt, enter into or amend in any material respect any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(vii) except as set forth in Section 5.01(b)(vii) of the Disclosure
Schedule, hire or retain any single employee or consultant at an annual rate
of compensation in excess of $125,000, or employees or consultants with
annual rates of compensation in excess of $250,000 in the aggregate;
(viii) except as set forth in Section 5.01(b)(viii) of the Disclosure
Schedule, take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(ix) except as set forth in Section 5.01(b)(ix) of the Disclosure
Schedule, make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(x) except as set forth in Section 5.01(b)(x) of the Disclosure
Schedule, commence or settle any litigation, suit, claim, action,
proceeding, or investigation valued in excess of $300,000 either
individually or in the aggregate, provided, however, that upon prior notice
to Parent, the Company may commence actions relating to claims which are
within 30 days of becoming barred by the applicable statute of limitations
or which constitute mandatory counterclaims in any suit brought against the
Company by any third party; or
(xi) amend, modify, or consent to the termination of any material
contract, or amend, modify, or consent to the termination of the Company's
rights thereunder, in a manner materially adverse to the Company, other than
in the ordinary course of business consistent with past practice.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting. The Company, acting through the Board,
shall, if required by applicable law and the Company's Articles of Incorporation
and By-laws, (a) duly call, give notice of, convene and hold an annual or
special meeting of its stockholders as soon as practicable following
consummation of the Offers for the purpose of considering and taking action on
this Agreement and the transactions contemplated hereby (the "Stockholder's
Meeting") and (b) subject to its fiduciary duties under applicable law as
advised in writing by independent counsel, (i) include in the Proxy Statement
the unanimous recommendation of the Board that the stockholders of the Company
approve and adopt this Agreement and the transactions contemplated hereby and
(ii) use its best efforts to obtain such approval and adoption. At the
Stockholders' Meeting, Parent and Purchaser shall cause all Shares then owned by
them and their subsidiaries to be voted in favor of the approval and adoption of
this Agreement, the Merger and the transactions contemplated hereby.
SECTION 6.02. Proxy Statement. If required by applicable law, as soon as
practicable following consummation of the Offers, the Company shall file the
Proxy Statement with the SEC under the Exchange Act, and shall use its best
efforts to have the Proxy Statement cleared by the SEC. Parent, Purchaser and
the Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent of the receipt of any comments of
the SEC with respect to the Proxy Statement and of any requests by the SEC for
any amendment or supplement thereto or for additional information and shall
provide to Parent promptly copies of all correspondence between the Company or
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any representative of the Company and the SEC. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. Each of the Company, Parent and Purchaser
agrees to use its reasonable best efforts, after consultation with the other
parties hereto, to respond promptly to all such comments of and requests by the
SEC and to cause the Proxy Statement and all required amendments and supplements
thereto to be mailed to the holders of Shares entitled to vote at the
Stockholders' Meeting at the earliest practicable time.
SECTION 6.03. Company Board Representation; Section 14(f). 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 up to
such number of directors, 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, 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 hereof who are not employees of the Company shall remain members of the
Board and of each such committee.
(b) The Company shall promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under this Section 6.03 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-l.
(c) Following the election of designees of Purchaser pursuant to this
Section 6.03, prior to the Effective Time, any amendment of this Agreement or
the Articles of Incorporation or By-laws of the Company, any termination of this
Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or Purchaser or
waiver of any of the Company's rights hereunder shall require the concurrence of
a majority of the directors of the Company then in office who neither were
designated by Purchaser nor are employees of the Company (the "Independent
Directors"). If the number of Independent Directors shall be reduced below two
for any reason whatsoever, the remaining Independent Director shall designate a
person to fill such vacancy who shall be deemed to be an Independent Director
for purposes of this Agreement or, if no Independent Directors then remain, the
other directors shall designate two persons to fill such vacancies who shall not
be officers or affiliates of the Company, or officers or affiliates of Parent or
any of its Subsidiaries, and such persons shall be deemed to be Independent
Directors for purposes of this Agreement. The Independent Directors shall have
the authority to retain such counsel and other advisors at the expense of the
Company as are reasonably appropriate to the exercise of their duties in
connection with this Agreement, subject to approval by the Company of the terms
of such retention, which approval shall not be unreasonably withheld. In
addition, the Independent Directors shall have the authority to institute any
action, on behalf of the Company, to enforce performance of this Agreement.
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SECTION 6.04. Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause the officers,
directors, employees, auditors and agents of the Company to, afford the
officers, employees and agents of Parent and Purchaser complete access at all
reasonable times to the officers, employees, agents, properties, offices, plants
and other facilities, books and records of the Company, and shall furnish Parent
and Purchaser with all financial, operating and other data and information as
Parent or Purchaser, through its officers, employees or agents, may reasonably
request.
(b) All information obtained by Parent or Purchaser pursuant to this Section
6.04 shall be kept confidential in accordance with the confidentiality
agreement, dated June 12, 1998 (the "Confidentiality Agreement"), between Parent
and the Company.
(c) Pursuant to the requirements of the Confidentiality Agreement, in the
event of the termination of this Agreement in accordance with Section 8.01,
Parent and Purchaser shall, and shall use their reasonable best efforts to cause
their respective affiliates and their respective officers, directors, employees
and agents to, (i) return promptly every document furnished to them by the
Company or any officer, director, employee, auditor or agent of the Company in
connection with the Transactions and containing Confidential Information and all
copies thereof in their possession, and cause any other parties to whom such
documents may have been furnished promptly to return such documents and all
copies thereof, other than such documents as may have been filed with the SEC or
otherwise be publicly available, and (ii) destroy promptly all documents created
by them from any Confidential Information and all copies thereof in their
possession, and cause any other parties to whom such documents may have been
furnished to destroy promptly such documents and any copies thereof.
(d) No investigation pursuant to this Section 6.04 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.05. No Solicitation of Transactions. The Company shall not,
directly or indirectly, through any officer, director, agent or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from any
person relating to any acquisition or purchase of all or (other than in the
ordinary course of business) any portion of the assets of, or any equity
interest in, the Company or any business combination with the Company or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing; provided, however, that nothing
contained in this Section 6.05 shall prohibit the Board from furnishing
information to, or entering into discussions or negotiations with, any person in
connection with an unsolicited (from the date of this Agreement) proposal in
writing by such person to acquire the Company pursuant to a merger,
consolidation, share exchange, share purchase, business combination or other
similar transaction or to acquire all or substantially all of the assets of the
Company, if, and only to the extent that, (i) the Board, after consultation with
independent legal counsel (which may include its regularly engaged independent
legal counsel), determines in good faith that such action is required for the
Board to comply with its fiduciary duties to stockholders imposed by Nevada Law
and (ii) prior to furnishing such information to, or entering into discussions
or negotiations with, such person, the Company uses its reasonable best efforts
to obtain from such person an executed confidentiality agreement on terms no
less favorable to the Company than those contained in the Confidentiality
Agreement. The Company immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. The Company shall notify Parent promptly if any
such proposal or offer, or any inquiry or contact with any person with respect
thereto, is made and shall, in any such notice to Parent, indicate in reasonable
detail the identity of the person making such proposal, offer, inquiry or
contact and the terms and conditions of such proposal, offer, inquiry or
contact. The Company agrees not to release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which the Company
is a party.
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SECTION 6.06. Existing Contracts Between Parent and the Company. From the
date hereof until the earlier of the Effective Time and the termination of this
Agreement in accordance with Section 8.01, Parent shall not terminate (or take
other adverse action against the Company in respect of) the currently existing
commercial contracts between Parent and the Company, provided, however, that no
provision of this Section 6.06 shall restrict or prohibit Parent from exercising
any rights of Parent in the event of a default by the Company under any such
contract. Parent shall also include the Company in Parent's west coast
promotions and advertisements for so long as there is a frequent flyer
arrangement between Parent and the Company. Additionally, the Company shall be
included in written frequent flyer promotional material (in-flight and
newsletter) on a level equal to Parent's other frequent flyer partners.
SECTION 6.07. Directors' and Officers' Indemnification and Insurance. (a)
The Articles of Incorporation and By-laws of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than are
set forth in Article VIII of the Articles of Incorporation and Article VII of
the By-laws of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would affect adversely the rights thereunder of individuals who at
the Effective Time were directors, officers, employees, fiduciaries or agents of
the Company, unless such modification shall be required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
and regardless of whether the Merger becomes effective, indemnify and hold
harmless, and, after the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless, each
present and former director, officer, employee, fiduciary and agent of the
Company (collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), whether civil, criminal, administrative or investigative, arising out of
or pertaining to, in whole or in part any action or omission in their capacity
as an officer, director, employee, fiduciary or agent (including in connection
with this Agreement and the transactions contemplated hereby), whether occurring
before or after the Effective Time, for a six-year period after the date hereof.
In the event of any such claim, action, suit, proceeding or investigation, (i)
the Company or the Surviving Corporation, as the case may be, shall pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably satisfactory to the Company or the Surviving
Corporation, promptly after statements therefor are received and (ii) the
Company and the Surviving Corporation shall cooperate in the defense of any such
matter; provided, however, that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld or delayed); and
provided further that neither the Company nor the Surviving Corporation shall be
obligated pursuant to this Section 6.07(b) to pay the fees and expenses of more
than one counsel for all Indemnified Parties in any single action except to the
extent that two or more of such Indemnified Parties shall have conflicting
interests in the outcome of such action; and provided further that, in the event
that any claim for indemnification is asserted or made within such six-year
period, all rights to indemnification in respect of such claim shall continue
until the final disposition of such claim.
(c) The Surviving Corporation shall use its best efforts to maintain in
effect for six years from the Effective Time and for so long thereafter as any
claim asserted prior to such date has not been fully adjudicated, if available,
the current directors' and officers' liability insurance policies maintained by
the Company or substitute therefor policies of at least the same amounts and
coverage containing terms and conditions which are not materially less favorable
to the insured parties with respect to matters occurring prior to the Effective
Time; provided, however, that in no event shall the Surviving Corporation be
required to expend pursuant to this Section 6.07(c) more than an amount per year
equal to 150% of current annual premiums paid by the Company for such insurance
(which premiums the Company represents and warrants to be approximately $175,000
in the aggregate).
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(d) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, or at Parent's option, Parent, shall
assume the obligations set forth in this Section 6.07.
SECTION 6.08. Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate and (ii) any failure of the Company,
Parent or Purchaser, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 6.08
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 6.09. Further Action; Reasonable Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions and (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using its reasonable best efforts
to obtain all licenses, permits (including, without limitation, Environmental
Permits), consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company as are
necessary for the consummation of the Transactions and to fulfill the conditions
to the Offers and the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such action.
SECTION 6.10. Redemption of Convertible Notes. Immediately after the date on
which the Purchaser shall have accepted for payment all Common Shares validly
tendered and not withdrawn prior to the expiration date with respect to the
Common Stock Offer, the Company shall call for the redemption of, and thereafter
redeem, all of the outstanding Convertible Notes in accordance with their terms.
SECTION 6.11. Preferred Stock. The Company covenants and agrees as follows:
(a) Pursuant to Section 8 of the Certificate of Designations, as soon as
practicable after the acceptance for payment of the Common Shares pursuant
to the Common Stock Offer, the Company shall provide the holders of all
Preferred Shares with a notice of "Ownership Change" (as defined in the
Certificate of Designations). Each holder of Preferred Shares, upon the
occurrence of the Ownership Change shall have the right, at the holder's
option, to convert all, but not less than all, of such holder's Preferred
Shares into Common Shares, at an adjusted conversion price per Common Share
equal to the Special Conversion Price (as defined in the Certificate of
Designations), subject to the option of the Company to provide to each such
holder, in lieu of Common Stock, cash equal to the Market Value (as defined
in the Certificate of Designations) of the Common Shares multiplied by the
number of Common Shares into which such Preferred Shares would have been
convertible at the Special Conversion Price.
(b) The Company shall exercise its option under Section 8 of the
Certificate of Designations to satisfy its obligations thereunder by paying
cash to the holders of Preferred Shares, in lieu of issuing to such holders
Common Stock upon the conversion of their Preferred Shares.
SECTION 6.12. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any
I-27
<PAGE>
Transaction and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
listing agreement with a national securities exchange to which Parent or the
Company is a party.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective obligations of each
party to effect the Primary Merger or the Alternative Merger, as the case may
be, shall be subject to the satisfaction at or prior to the Effective Time of
the following conditions:
(a) Stockholder Approval. This Agreement and the Primary Merger or the
Alternative Merger contemplated hereby shall have been approved and adopted
by the affirmative vote of the stockholders of the Company to the extent
required by Nevada Law and the Articles of Incorporation of the Company;
(b) HSR Act. Any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or
been terminated;
(c) No Order. No foreign, United States or state governmental authority
or other agency or commission or foreign, United States or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the acquisition of Shares by Parent or
Purchaser or any affiliate of either of them illegal or otherwise
restricting, preventing or prohibiting consummation of the Transactions; and
(d) Offers. Purchaser shall have purchased all Common Shares validly
tendered and not withdrawn pursuant to the Common Stock Offer; provided,
however, that this condition shall not be applicable to the obligations of
Parent or Purchaser if, in breach of this Agreement or the terms of the
Common Stock Offer, Purchaser fails to purchase any Common Shares validly
tendered and not withdrawn pursuant to the Common Stock Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
and the other Transactions may be abandoned at any time prior to the Effective
Time, notwithstanding any requisite approval and adoption of this Agreement and
the transactions contemplated hereby by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of Directors
of Parent, Purchaser and the Company; or
(b) By either Parent, Purchaser or the Company if (i) Purchaser shall
not have purchased Common Shares pursuant to the Common Stock Offer on or
before June 30, 1999; provided, however, that (x) the right to terminate
this Agreement under this Section 8.01(b)(i) shall not be available to any
such party if such party's failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of such
purchase to occur on or before such date and (y) if the waiting period (and
any extension thereof) applicable to the consummation of the Transactions
under the HSR Act shall expire or terminate less than ten (10) business days
prior to June 30, 1999, the right to terminate this Agreement pursuant to
this clause (i) shall not become effective until the tenth business day
following the date of such expiration or termination, or (ii) any court of
competent jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action
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<PAGE>
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; or
(c) By Parent if due to an occurrence or circumstance that would result
in a failure to satisfy any condition set forth in Annex A hereto and
provided that, in the case of the conditions set forth in paragraph (e) or
(f) thereof, Parent shall have provided five business days prior written
notice of such failure to the Company and such condition shall have remained
unsatisfied, Purchaser shall have (i) terminated the Common Stock Offer
without having accepted any Common Shares for payment thereunder or (ii)
failed to pay for Common Shares pursuant to the Common Stock Offer prior to
June 30, 1999, unless such failure to pay for Common Shares shall have been
caused by or resulted from the failure of Parent or Purchaser to perform in
any material respect any material covenant or agreement of either of them
contained in this Agreement or the material breach by Parent or Purchaser of
any material representation or warranty of either of them contained in this
Agreement; and
(d) By the Company, upon approval of the Board, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any
condition set forth in Annex A hereto, Purchaser shall have (A) terminated
the Common Stock Offer without having accepted any Common Shares for payment
thereunder or (B) failed to pay for Common Shares pursuant to the Common
Stock Offer prior to June 30, 1999, unless such failure to pay for Common
Shares shall have been caused by or resulted from the failure of the Company
to perform in any material respect any material covenant or agreement of it
contained in this Agreement or the material breach by the Company of any
material representation or warranty of it contained in this Agreement or
(ii) prior to the purchase of Shares pursuant to the Offers, the Board shall
have withdrawn or modified in a manner adverse to Purchaser or Parent its
approval or recommendation of the Offers, this Agreement or the Merger in
order to approve the execution by the Company of a definitive agreement
providing for the acquisition of the Company or its assets by merger or
other business combination or in order to approve a tender offer or exchange
offer for Shares by a third party, in either case, as determined by the
Board in the exercise of its good faith judgment and after consultation with
its legal counsel and financial advisors, on terms more favorable to the
Company's stockholders than the Offers and the Merger taken together,
provided, however, that no termination pursuant to this Section 8.01(d)(ii)
shall be effective prior to the payment by the Company of the Fee (as
defined below) and the Expenses (as defined below).
SECTION 8.02. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
and there shall be no liability on the part of any party hereto, except (i) as
set forth in Sections 8.03 and 9.01 and (ii) nothing herein shall relieve any
party from liability for any wilful breach hereof.
SECTION 8.03. Fees and Expenses; Commercial Arrangements. (a) In the event
that:
(i) any person (A) shall have become the beneficial owner of more than
30% of the then outstanding Common Shares (an "Acquiring Person") or (B)
shall have commenced, proposed or communicated to the Company a proposal
that is publicly disclosed for a tender or exchange offer for 30% or more
(or which, assuming the maximum amount of securities which could be
purchased, would result in any person beneficially owning 30% or more) of
the then outstanding Common Shares or otherwise for the direct or indirect
acquisition of the Company or all or substantially all of its assets for per
Common Share consideration having a value greater than the Per Common Share
Amount (a "Competing Proposal") and (w) the Offers shall have remained open
for at least 20 business days, (x) the Minimum Condition shall not have been
satisfied, (y) this Agreement shall have been terminated pursuant to Section
8.01 and (z) such Competing Proposal shall be consummated or a transaction
of the type referred to in clause (B) above shall be consummated with an
Acquiring Person, in either case within 18 months following the date of
termination of this Agreement; or
(ii) this Agreement is terminated by the Company pursuant to
8.01(d)(ii);
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<PAGE>
then, in any such event, the Company shall pay Parent promptly (but in no event
later than one business day after the first of such events shall have occurred)
a fee of $3,000,000 (the "Fee"), which amount shall be payable in immediately
available funds, plus all Expenses (as hereinafter defined).
(b) If the Company is required to make any payment pursuant to Section
8.03(a), then the Company shall reimburse each of Parent and Purchaser (not
later than one business day after submission of statements therefor) for all
out-of-pocket expenses and fees up to $1,000,000 in the aggregate (including,
without limitation, fees and expenses payable to all banks, investment banking
firms, other financial institutions and other persons and their respective
agents and counsel, for arranging, committing to provide or providing any
financing for the Transactions or structuring the Transactions and all fees of
counsel, accountants, experts and consultants to Parent and Purchaser, and all
printing and advertising expenses) actually incurred or accrued by either of
them or on their behalf in connection with the Transactions, including, without
limitation, the financing thereof, and actually incurred or accrued by banks,
investment banking firms, other financial institutions and other persons and
assumed by Parent or Purchaser in connection with the negotiation, preparation,
execution and performance of this Agreement, the structuring and financing of
the Transactions and any financing commitments or agreements relating thereto
(all the foregoing being referred to herein collectively as the "Expenses").
(c) Except as set forth in this Section 8.03, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.
(d) In the event that the Company shall fail to pay the Fee or any Expenses
when due, the term "Expenses" shall be deemed to include the costs and expenses
actually incurred or accrued by Parent and Purchaser (including, without
limitation, fees and expenses of counsel) in connection with the collection
under and enforcement of this Section 8.03, together with interest on such
unpaid Fee and Expenses, commencing on the date that the Fee or such Expenses
became due, at a rate equal to the rate of interest publicly announced by
Citibank, N.A., from time to time, in the City of New York, as such bank's base
rate plus 2.00%.
(e) If Parent terminates this Agreement pursuant to Section 8.01(b) or
pursuant to Section 8.01(c) due to the failure to satisfy the conditions set
forth in paragraphs (a), (b), (e) or (f) of Annex A (other than termination by
Parent due to (i) a knowing or wilful breach by the Company of any of the
representations, warranties, covenants or agreements referenced in paragraphs
(e) or (f) of Annex A or (ii) a material breach by the Company of the covenant
contained in Section 6.05 of this Agreement), then Parent and the Company shall
take the following actions:
(i) extend the Amended and Restated Advantage Participating Carrier
Agreement dated March 28, 1995 between Parent and the Company through April
30, 2001 (after which date such agreement shall be terminable pursuant to
the current terms thereof);
(ii) extend the term of the Operations Agreement between Parent and the
Company dated October 18, 1994 (the "Operations Agreement") with respect to
50% of the Slots covered thereby through December 31, 1999 and with respect
to the remaining 50% of the Slots covered thereby through December 31, 2000
(which to the extent practicable shall consist of the most restrictive class
of Slots) (after which date the Operations Agreement shall be terminable
pursuant to the current terms thereof) and the Company agrees to waive any
claims that it may have any proprietary interest in any Slots covered by the
Operations Agreement;
(iii) for so long as there is a frequent flyer arrangement between
Parent and the Company, Parent shall include the Company (A) in Parent's
west coast promotions and advertisements and (B) in written frequent flyer
promotional material (in-flight and newsletter) on a level equal to Parent's
other frequent flyer partners; and
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<PAGE>
(iv) Parent shall take the following actions:
(A) discuss in good faith with the Company the provision to the
Company of out-sourcing services in various fields, including
reservations, purchasing, sales and yield management, subject to
regulatory approval;
(B) review, on a case-by-case basis, exceptions to the exclusivity
provisions of the codeshare and frequent flyer agreements between Parent
and the Company, except that the consent of Parent shall not be required
for any such arrangements with any airline that, as of the date hereof,
(x) presently codeshares with Parent, or (y) is a member of "oneworld"
(i.e., British Airways, Canadian Airlines International, Cathay Pacific
Airways, Qantas Airways); and
(C) review the possibility of placing the Company's code on certain
of Parent's flights, as Parent and the Company both determine to be
mutually beneficial;
SECTION 8.04. Amendment. Subject to Section 6.03, this Agreement may be
amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after the approval and adoption of this Agreement and
the transactions contemplated hereby by the stockholders of the Company, no
amendment may be made which would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of the
Merger or the Alternative Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any obligation or other
act of any other party hereto, (ii) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 8.01, as the case may be, except that the agreements set forth in
Article II and Section 6.07 shall survive the Effective Time indefinitely and
those set forth in Sections 6.04(b), 6.04(c) and 8.03 shall survive termination
indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 9.02):
if to Parent or Purchaser:
American Airlines, Inc.
4333 Amon Carter Boulevard
Ft. Worth, TX 76155
Attn: Corporate Secretary
Attn: Vice President--Corporate Development & Treasurer
Fax: (817) 967-4313
I-31
<PAGE>
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: John A. Marzulli, Jr., Esq,
Fax: (212) 848-7179
if to the Company:
Reno Air, Inc.
220 Edison Way
Reno, Nevada 89502
Attn: General Counsel
Fax: (702) 954-5000
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attn: Lawrence Lederman, Esq.
Robert Reder, Esq.
Fax: (212) 530-5219
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified person;
(b) "beneficial owner" with respect to any Common Shares means a person
who shall be deemed to be the beneficial owner of such Common Shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 promulgated under the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any Common Shares;
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
I-32
<PAGE>
(e) "knowledge" and "best knowledge" mean, with respect to the Company,
the actual knowledge of the executive officers of the Company and the
persons who report directly to such executive officers;
(f) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government; and
(g) "subsidiary" or "subsidiaries" of any person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.
SECTION 9.04. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Transactions is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
Transactions be consummated as originally contemplated to the fullest extent
possible.
SECTION 9.05. Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersede, except as set forth in Sections 6.04(c), all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Purchaser may assign all
or any of their rights and obligations hereunder to any affiliate of Parent
provided that no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 6.07 (which is intended to be for the benefit of
the persons covered thereby and may be enforced by such persons).
SECTION 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 9.08. Governing Law. Except to the extent that Nevada Law applies to
the Merger on a mandatory basis, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
SECTION 9.09. Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
AMERICAN AIRLINES, INC.
By: /s/ GERARD J. ARPEY
---------------------------------------
Name: Gerard J. Arpey
Title: Sr. Vice President-Finance and
Planning
BONANZA ACQUISITIONS, INC.
By: /s/ GERARD J. ARPEY
---------------------------------------
Name: Gerard J. Arpey
Title: President
RENO AIR, INC.
By: /s/ JOSEPH R. O'GORMAN
---------------------------------------
Name: Joseph R. O'Gorman
Title: Chairman, CEO and President
</TABLE>
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<PAGE>
ANNEX A
CONDITIONS TO THE OFFERS
Notwithstanding any other provision of the Offers, subject to the applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange
Act, Purchaser shall not be required to accept for payment or pay for any Common
Shares tendered pursuant to the Common Stock Offer, and may (except as provided
in the Merger Agreement) terminate or amend the Common Stock Offer and may
postpone the acceptance for payment of and payment for Common Shares tendered,
if (i) the Minimum Condition shall not have been satisfied, (ii) any applicable
waiting period under the HSR Act shall not have expired or been terminated prior
to the expiration of the Common Stock Offer, or (iii) at any time on or after
the date of this Agreement, and prior to the acceptance for payment of Common
Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding by any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, (i) challenging or seeking to make
illegal, materially delay or otherwise directly or indirectly restrain or
prohibit or make materially more costly the making of the Offers, the
acceptance for payment of, or payment for, any Shares by Parent, Purchaser
or any other affiliate of Parent or the consummation of any other
Transaction, or seeking to obtain material damages in connection with any
Transaction; (ii) seeking to prohibit or limit materially the ownership or
operation by the Company, Parent or any of their subsidiaries of all or any
material portion of the business or assets of the Company, Parent or any of
their subsidiaries, or to compel the Company, Parent or any of their
subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of the Company, Parent or any of their subsidiaries,
as a result of the Transactions; (iii) seeking to impose or confirm
limitations on the ability of Parent, Purchaser or any other affiliate of
Parent to exercise effectively full rights of ownership of any Shares,
including, without limitation, the right to vote any Shares acquired by
Purchaser pursuant to the Offers or otherwise on all matters properly
presented to the Company's stockholders, including, without limitation, the
approval and adoption of this Agreement and the transactions contemplated
hereby; (iv) seeking to require divestiture by Parent, Purchaser or any
other affiliate of Parent of any Shares; or (v) which otherwise has a
Material Adverse Effect or which is reasonably likely to have an adverse
effect on the business, results of operations or financial condition of
Parent that is material in relation to the benefits sought to be achieved by
Parent in the Transactions;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Parent, the Company or any subsidiary or affiliate of
Parent or the Company or (ii) any Transaction, by any legislative body,
court, government or governmental, administrative or regulatory authority or
agency, domestic or foreign, other than the routine application of the
waiting period provisions of the HSR Act to the Offers or the Merger, which
is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any change, condition, event or
development that has a Material Adverse Effect;
(d) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of 30% or more of the then outstanding Common Shares has been acquired
by any person, other than Parent or any of its affiliates or (ii) (A) the
Board or any committee thereof shall have withdrawn or modified in a manner
adverse to Parent or Purchaser the approval or recommendation of the Offers,
the Merger or the Merger Agreement or approved or recommended any takeover
proposal or any other acquisition of Common Shares other than the
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<PAGE>
Offers and the Merger or (B) the Board or any committee thereof shall have
resolved to do any of the foregoing;
(e) any representation or warranty of the Company in the Merger
Agreement (without regard to any materiality qualifiers contained therein)
shall not be true and correct, in each case as if such representation or
warranty was made as of such time on or after the date of this Agreement,
but only if the aggregate effect of any failures of such representations and
warranties to be true and correct would have a Material Adverse Effect, and
the Company shall not have delivered to Parent a certificate of the Company
to such effect signed by a duly authorized officer thereof and dated as of
the date on which Parent shall first accept Common Shares for payment;
(f) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms; or
(h) Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offers or postpone the acceptance for payment of or payment
for Shares thereunder.
Notwithstanding any other provisions of the Offers, Purchaser shall not be
required to accept for payment or pay for any Preferred Shares tendered pursuant
to the Preferred Stock Offer unless and until the Purchaser has accepted for
payment and paid for the Common Shares pursuant to the Common Stock Offer.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be asserted by Purchaser or Parent, subject to the terms of the Merger
Agreement, regardless of the circumstances giving rise to any such condition or
may be waived by Purchaser or Parent in whole or in part at any time and from
time to time in their sole discretion. The failure by Parent or Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right; the waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to any other facts
and circumstances; and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
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<PAGE>
ANNEX B
<TABLE>
<CAPTION>
PER PREFERRED SHARE
DIVIDEND PAYMENT DATE AMOUNT
- -------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C>
December 15, 1998........................................................................... 110.00% $ 27.50
March 15, 1999.............................................................................. 109.33% $ 27.33
June 15, 1999............................................................................... 108.68% $ 27.17
September 15, 1999.......................................................................... 108.02% $ 27.01
December 15, 1999........................................................................... 107.34% $ 26.83
March 15, 2000.............................................................................. 106.64% $ 26.66
June 15, 2000............................................................................... 105.95% $ 26.49
September 15, 2000.......................................................................... 105.25% $ 26.31
December 15, 2000........................................................................... 104.53% $ 26.13
December 20, 2000........................................................................... 104.50% $ 26.13
</TABLE>
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<PAGE>
ANNEX II
[LOGO]
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 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
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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 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
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Salomon Smith Barney
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