<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-37283
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMTRAN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
INDIANA 6719 35-1617970
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. KENNETH K. WOLFF
CHIEF FINANCIAL OFFICER
AMTRAN, INC.
7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
WILLIAM P. ROGERS, JR., ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHT AVENUE
NEW YORK, NY 10019
(212) 474-1000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] . . . . . . .
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER , 1997
PROSPECTUS
$100,000,000
OFFER FOR ALL OUTSTANDING 10 1/2% SENIOR NOTES DUE 2004
OF
AMTRAN, INC.
[LOGO]
- ----------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK
CITY TIME ON , 1997, UNLESS EXTENDED.
------------------------
Amtran, Inc., an Indiana corporation ('Amtran' or the 'Company'), hereby
offers (the 'Exchange Offer'), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the 'Letter
of Transmittal'), to exchange up to $100,000,000 aggregate principal amount of
its 10 1/2% Senior Exchange Notes due 2004 (the 'Exchange Notes') that have been
registered under the Securities Act of 1933, as amended (the 'Securities Act'),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like principal amount of its 10 1/2% Senior
Notes due 2004 (the 'Outstanding Notes' and, together with the Exchange Notes,
the 'Notes') with the holders thereof. The terms of the Exchange Notes are
identical in all material respects to the Outstanding Notes except for certain
transfer restrictions and registration rights relating to the Outstanding Notes
and except that, if the Exchange Offer is not consummated by January 24, 1998,
the interest rate borne by the Outstanding Notes will increase by amounts
specified herein until the Exchange Offer is consummated. The Outstanding Notes
were issued on July 24, 1997, pursuant to an offering (the 'Original Offering')
exempt from registration under the Securities Act.
Interest on the Exchange Notes is payable semi-annually on February 1 and
August 1 of each year, commencing February 1, 1998, at a rate of 10 1/2% per
annum. The Exchange Notes are redeemable, at the option of the Company, in whole
or in part, at any time on or after August 1, 2002, initially at 105.25% of
their principal amount, plus accrued interest, declining ratably to 100% of
their principal amount at maturity. In addition, at any time prior to August 1,
2000, the Company may redeem in aggregate up to 35% of the original principal
amount of the Exchange Notes with the proceeds of one or more sales of common
stock, at 110.50% of their principal amount, plus accrued interest. Upon the
occurrence of a Change of Control, each holder of the Exchange Notes has the
right, subject to certain conditions, to require the Company to purchase such
holder's Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.
There can be no assurance that the Company will have the financial resources
necessary to repurchase the Notes upon a Change of Control.
The Exchange Notes will be unconditionally guaranteed by American Trans
Air, Inc. ('ATA') and each of the other active subsidiaries of the Company. The
Exchange Notes and the Guarantees (as defined herein) will be general, unsecured
senior obligations of the Company and the Guarantors, respectively, ranking pari
passu in right of payment with all existing and future unsecured unsubordinated
obligations, and senior in right of payment to all existing and future
subordinated indebtedness of the Company and the Guarantors, respectively. At
September 30, 1997, on a consolidated basis, after giving effect to (x) the July
1997 offering of the Outstanding Notes, and (y) the replacement of
certain senior credit facilities with the New Credit Facility (as defined
herein), the Company had approximately $178.8 million of indebtedness
outstanding, approximately $71.7 million of which was secured.
The Company will accept for exchange any and all Outstanding Notes that are
validly tendered and not withdrawn on or prior to midnight, New York City time,
on the date the Exchange Offer expires (the 'Expiration Date'), which will be
, 1997 (20 business days following the commencement of the Exchange
Offer), unless the Exchange Offer is extended. Tenders of Outstanding Notes may
be withdrawn at any time prior to midnight, New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Outstanding Notes being tendered for exchange. Outstanding
Notes may be tendered only in integral multiples of $1,000. See 'The Exchange
Offer.'
For each Outstanding Note accepted for exchange, the holder of such
Outstanding Note will receive an Exchange Note having a principal amount equal
to that of the surrendered Outstanding Note. Interest on the Exchange Notes will
accrue from July 24, 1997. Holders of Outstanding Notes whose Outstanding Notes
are accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on such Outstanding Notes accrued from July 24,
1997 to the date of the issuance of the Exchange Notes. Consequently, holders
who exchange their Outstanding Notes for Exchange Notes will receive the same
interest
(cover continued on next page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 16 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER
THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
<PAGE>
(cover continued from previous page)
payment on February 1, 1998 (the first interest payment date with respect to the
Outstanding Notes and the Exchange Notes) that they would have received had they
not accepted the Exchange Offer. See 'The Exchange Offer -- Interest on the
Exchange Notes.'
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined herein). See 'The Exchange Offer -- Consequences of Exchanging
Outstanding Notes' for a discussion of the Company's belief, based on
interpretations by the staff of the Securities and Exchange Commission (the
'Commission') as set forth in no-action letters issued to third parties, as to
the transferability of the Exchange Notes upon satisfaction of certain
conditions. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivered a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any resale
of Exchange Notes. See 'Plan of Distribution.'
There is no established trading market for the Exchange Notes. The Company
does not currently intend to list the Exchange Notes on any securities exchange
or to seek approval for quotation through any automated quotation system.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Exchange Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all of the expenses incident to the Exchange Offer. In the
event the Company terminates the Exchange Offer and does not accept for exchange
any Outstanding Notes, the Company will promptly return the Outstanding Notes to
the holders thereof. See 'The Exchange Offer.'
2
<PAGE>
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information filed with the Commission:
(a) The Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997;
(d) The Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997; and
(e) The Company's Current Report on Form 8-K dated June 19, 1997.
Any statement contained in any documents incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purpose of this Prospectus to the extent that a subsequent statement
contained 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 Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
REPRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN OR ORAL REQUEST FROM KENNETH K. WOLFF, CHIEF FINANCIAL
OFFICER OF THE COMPANY, AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT
7337 WEST WASHINGTON STREET, INDIANAPOLIS, INDIANA 46231, TELEPHONE NUMBER (317)
247-4000. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST
SHOULD BE MADE AT LEAST 5 DAYS PRIOR TO THE EXPIRATION DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. In addition, pursuant to the Indenture covering the Notes, the
Company has agreed to file with the Commission the annual reports and the
information, documents and other reports otherwise required pursuant to Section
13 of the Exchange Act. All such information may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and the website
(http://www.sec.gov) maintained by the Commission and at the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus constitutes a part of a registration statement on Form S-4
(the 'Registration Statement') filed by the Company with the Commission under
the Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules thereto
for further information with respect to the Company and the securities offered
hereby. Statements contained herein concerning the provisions of any documents
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
3
<PAGE>
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Market data and certain industry forecasts used throughout this Prospectus
were obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified,
and the Company makes no representation as to the accuracy of such information.
This Prospectus includes 'forward-looking statements' within the meaning of
various provisions of the Securities Act and the Exchange Act. Such
'forward-looking statements' can be identified by the use of forward-looking
terminology such as 'believes', 'expects', 'may', 'will', 'should', or
'anticipates' or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. All statements, other than
statements of historical facts, included in this Prospectus which address
activities, events or developments which the Company expects or anticipates will
or may occur in the future, including such things as estimated future net
revenues from airline services (including charter and scheduled service), future
capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success, references to intentions as to future matters and other such
matters are forward-looking statements. See, e.g., 'Summary -- The
Company -- Strategy' and 'Summary -- The Company -- 1996 Restructuring of
Scheduled Service Operations', 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Business.' These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this Prospectus; general economic, market or business conditions;
the opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other airline carriers; changes in laws or
regulations; and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this
Prospectus are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences or effects on the Company or its business or operations.
------------------------
Amtran is an Indiana corporation which was organized in 1984. The Company's
executive offices are located at 7337 West Washington Street, Indianapolis,
Indiana 46231, and its telephone number is (317) 247-4000. The Company's common
stock is traded through the facilities of the Nasdaq Stock Market under the
symbol 'AMTR.'
4
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements of the Company and notes thereto included elsewhere in this
Prospectus. All references to the 'Company' in this Prospectus refer to Amtran,
Inc. and its subsidiaries collectively, unless the context otherwise requires.
THE COMPANY
Amtran is a leading provider of charter airline services, and on a targeted
basis scheduled airline services, to leisure and other value-oriented travelers.
Amtran, through its principal subsidiary, ATA, has been in operation for 24
years and currently operates the eleventh largest airline in the United States
in terms of 1996 revenue passenger miles ('RPMs'). ATA provides charter services
throughout the world to independent tour operators, corporations and the U.S.
military. The Company provides scheduled service primarily from its gateway
cities of Indianapolis, Chicago-Midway and Milwaukee to popular vacation
destinations such as Hawaii, Las Vegas, Florida, California, Mexico and the
Caribbean.
CHARTER SERVICE
The Company is the largest charter airline in the United States and
provides charter airline services throughout the world to U.S. and European tour
operators, U.S. military and government agencies and corporations. In 1996 and
for the first nine months of 1997, Amtran derived approximately 41% and 48%,
respectively, of consolidated revenues from charter operations. The charter
business is an attractive niche because it provides contractual revenues that
are more stable than revenues provided by scheduled service. The customer
generally pays a fixed price for the use of the aircraft and assumes the
responsibility and risk for the actual sale of the seats, as well as most of the
risk of fuel price increases. In addition, the Company is the largest domestic
provider of charter airline services. As a result of the Company's 1996
restructuring of its scheduled service operations, as described below (the '1996
Restructuring'), the Company expects that for 1997 as a whole, approximately 46%
of its consolidated revenues will be from charter operations.
Tour Operator Programs
Independent tour operators comprise the largest component of the Company's
charter service operations (representing approximately 30% and 31%,
respectively, of the Company's consolidated revenues for 1996 and the first nine
months of 1997). Independent tour operators typically contract with the Company
to provide repetitive, round-trip patterns to leisure destinations for specified
periods ranging from several weeks to several years. The Company believes that
its long standing relationships with tour operators provide it with a
competitive advantage. In addition, the Company believes that the low cost
leisure travel services provided by independent tour operators have historically
been less volatile than scheduled service operations as indicated by the
Company's 1990 to 1995 revenue and profitability, as compared to the major
scheduled service carriers for the same period.
Military/Government
The Company expects U.S. military and other government flight activity,
which has historically averaged 10-15% of consolidated revenues, to account for
approximately 16% of Amtran's 1997 revenues. The Company has provided charter
service to the U.S. military since 1983. Because this business is generally less
seasonal than leisure travel, it tends to have a stabilizing impact on the
Company's operations and earnings. The U.S. Government awards one year contracts
for its military charter business, and pre-negotiates contract prices for each
type of aircraft a carrier makes available. Such contracts are priced utilizing
the participating airlines' average costs, and are therefore more profitable for
low cost providers such as the Company. The Company believes its fleet of
aircraft, in particular its Boeing 757-200ERs, is well suited for the changing
requirements of military passenger service.
5
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<PAGE>
SCHEDULED SERVICE
The Company provides scheduled service primarily from its gateway cities of
Chicago-Midway, Indianapolis and Milwaukee to popular vacation destinations such
as Hawaii, Las Vegas, Florida, California, Mexico and the Caribbean. In its
scheduled service operations, the Company focuses primarily on providing low
cost, nonstop or direct flights on routes where it can be a principal provider.
In 1996, based on Department of Transportation ('DOT') statistics, the
Company had the lowest operating expense per available seat mile
('ASM'), approximately 6[c], of the eleven largest U.S. scheduled airlines.
Notwithstanding the Company's competitive cost position and business focus, the
Company began to incur losses in its scheduled service in the second half of
1995. In response to these losses, the Company, as part of the 1996
Restructuring described below, reduced its scheduled service by more than one
third of its departures and ASMs. As a result, the Company expects scheduled
service operations, which comprised 52% and 45%, respectively, of consolidated
revenues in 1996 and the first nine months of 1997, to comprise approximately
48% of consolidated revenues for full year 1997. The Company believes that the
1996 Restructuring strengthened its competitive position and improved both load
factors and yields in its scheduled service operations. The Company has
substantially improved the profitability of these operations in the first nine
months of 1997, versus the first nine months of 1996.
STRATEGY
The Company intends to enhance its position as a leading provider to
independent tour operators, the U.S. Military charter and of
targeted scheduled airline services by pursuing a strategy designed to increase
revenues and profitability. The key components of this strategy are:
(i) Maintain Low Cost Position. The Company believes it has one of the
lowest operating costs per ASM in the industry, with an average cost per
ASM of approximately 6[c] for the fiscal year ended December 31, 1996 and
for the nine months ended September 30, 1997. The Company believes that its
low cost structure provides a significant competitive advantage, which
allows it to compete effectively in both the charter and scheduled service
markets. The Company has achieved its low cost position primarily as a
result of its route structure, low overhead and distribution
costs, productive and flexible workforce and low aircraft rental and
ownership costs.
(ii) Strengthen Leading Position with Tour Operators. The
Company has successfully operated in the charter service business since
1981, and it expects to continue to enhance its leading position in this
business. By offering low cost air travel products that can be tailored to
meet the particular needs of its customers, primarily the tour operators,
the Company believes it is able to differentiate itself from most major
airlines, whose principal focus is on scheduled service, as well as from
smaller charter airlines, which do not have comparably diverse fleets or
the ability to provide a similar level of customer support. In addition to
its low cost, the Company believes that its product quality, reputation,
long standing relationships and ability to deliver a customized service
have become increasingly important to tour operators.
(iii) Maintain Leading Position as a Provider to the U.S. Military.
The Company has a long history of serving the military. Its contractor
teaming arrangement and its fleet of preferred aircraft will allow it to
maintain a strong competitive position for acquiring and servicing future
military charter contracts.
(iv) Selectively Participate in Scheduled Service. The Company's
strategy for its scheduled service is to focus primarily on providing low
cost, nonstop or direct flights from airports where there is
only limited competition. The Company believes that its high performance
Boeing 757 and 727 aircraft give it a competitive advantage in the
Chicago-Midway market. Unlike the aircraft used by most of the Company's
competitors at Chicago-Midway, the Boeing 757 and 727 can fly larger
passenger capacities substantially longer distances while operating from
the airport's short runways. In Indianapolis, the Company has a
name recognition advantage by being the city's hometown airline. In the
Milwaukee market, the Company is the only low cost scheduled alternative.
The Company significantly reduced its scheduled service operations in 1996
by exiting, or reducing service to, unprofitable markets such as Boston and
intra-Florida and has substantially improved its profitability in the first
nine months of 1997, versus the first nine months
6
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<PAGE>
of 1996. The Company is reviewing the opportunity to expand its Chicago-
Midway operation by three or four destinations by the spring of 1998.
(v) Capitalize on Selected Growth Opportunities. The Company seeks to
increase revenues and profitability by capitalizing on selected growth
opportunities in its core businesses. The Company believes that, as a
result of its low cost structure and its strong relationships with tour
operators and military contractors, it is well positioned to capture
additional opportunities to serve these markets. The Company intends to
purchase additional aircraft to meet demand from its military and tour
operator charter customers, and potentially scheduled service. In addition,
at various times since the second quarter of 1996 the Company has actively
considered possible business combinations with other air carriers and
others. The Company intends to continue to evaluate such transactions.
Accordingly, it is possible that the Company will enter into a transaction
in the first half of 1998 or thereafter that will result in a merger or
other change of control of the Company.
1996 RESTRUCTURING OF SCHEDULED SERVICE OPERATIONS
An analysis by the Company in 1996 of the profitability of its scheduled
service and charter service business units revealed that a significant number of
scheduled service markets being served by the Company had become unprofitable
at that point in time. The Company believes that several key factors
contributed to the deterioration of the profitability of its scheduled
service in late 1995 and 1996, including (i) a significant increase in
competition from larger carriers in the scheduled service markets served by
the Company, (ii) the negative impact on low fare carriers resulting from
unfavorable media coverage of the effects of the May 1996 ValuJet Airlines,
Inc. ('ValuJet') accident in Florida, (iii) a significant increase in fuel
costs and (iv) a federal excise tax on jet fuel beginning in the fourth
quarter of 1995.
In August 1996, the Company announced a significant reduction in scheduled
service operations. More than one-third of scheduled service departures and ASMs
were included in this schedule reduction. The Company eliminated its
unprofitable Boston and intra-Florida operations. The Company also exited, or
reduced in frequency, operations to other selected markets from Chicago-Midway,
Indianapolis and Milwaukee. In conjunction with its scheduled service reduction,
the Company announced a 15% reduction of its work force, including both
employees and contractors.
In addition, in 1996 the Company reconfigured its mix of aircraft. The
Company reduced the number of Boeing 757-200 aircraft it operates from eleven to
seven, and reduced operating costs by switching to an all Rolls-Royce powered
Boeing 757 fleet. The commonality of aircraft and engines yields benefits to
the Company in the form of decreased maintenance and training costs
on a unit basis.
NEW CHIEF EXECUTIVE OFFICER
On June 19, 1997, the Company announced the election of John P. Tague as
President and Chief Executive Officer of the Company. Mr. Tague originally
joined the Company in 1991, as Vice President of Marketing, and was elected
President and Chief Operating Officer in September 1993, a position he held
until his resignation in 1995. Mr. Tague subsequently served as Co-Chairman and
Chief Executive Officer of the Pointe Group, an aviation consulting firm, and as
Chief Executive Officer for both Vanguard Airlines, Inc. and Air South Airlines,
Inc. Mr. Tague brings over twelve years of management experience in the airline
industry to the Company.
7
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THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $100,000,000 aggregate
principal amount of Outstanding Notes for an equal aggregate principal amount of
Exchange Notes. The Exchange Notes are obligations of the Company entitled to
the benefits of the Indenture relating to the Outstanding Notes. The form and
terms of the Exchange Notes are the same as the form of the Outstanding Notes
except that the Exchange Notes have been registered under the Securities Act,
and following the completion of the Exchange Offer, the Exchange Notes generally
will not be entitled to a contingent increase in the interest rate otherwise
provided under certain circumstances.
<TABLE>
<S> <C>
Securities Offered........................ Up to $100,000,000 aggregate principal amount of 10 1/2% Senior
Exchange Notes due August 1, 2004, which have been registered under
the Securities Act. The terms of the Exchange Notes are identical
in all material respects to the Outstanding Notes except for
certain transfer restrictions and registration rights relating to
the Outstanding Notes and except that, if the Exchange Offer is not
consummated by January 24, 1998, the interest rate borne by the
Outstanding Notes will increase by amounts specified herein until
the Exchange Offer is consummated.
The Exchange Offer........................ $1,000 principal amount of Exchange Notes will be issued in exchange
for each $1,000 principal amount of Outstanding Notes validly
tendered pursuant to the Exchange Offer. As of the date hereof,
$100 million in aggregate principal amount of Outstanding Notes are
outstanding. The Company will issue the Exchange Notes to tendering
holders of Outstanding Notes on or promptly after the Expiration
Date.
Expiration of Exchange Offer.............. Midnight, New York City time, on the Expiration Date, unless the
Exchange Offer is extended, in which case the term 'Expiration
Date' means the latest date and time to which the Exchange Offer is
extended. See 'The Exchange Offer -- Terms of the Exchange Offer;
Period for Tendering Outstanding Notes.'
Conditions to the Exchange Offer.......... The Exchange Offer shall not be subject to any conditions, other than
that the Exchange Offer does not violate applicable law or any
applicable interpretation of the staff of the Commission. There can
be no assurance that any such condition will not occur. Holders of
Outstanding Notes will have certain rights against the Company
under the Registration Rights Agreement should the Company fail to
consummate the Exchange Offer. See 'The Exchange Offer -- Certain
Conditions to the Exchange Offer.'
Procedures for Tendering Outstanding
Notes................................... Each holder of Outstanding Notes wishing to accept the Exchange Offer
must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with any other required
documentation, to the Exchange Agent, (as defined herein) at the
address set forth herein and therein. See 'The Exchange Offer --
Procedures for Tendering Outstanding Notes.'
By executing the Letter of Transmittal, each holder will represent to
the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such Exchange
Notes, whether or not such person is the holder, (ii) neither the
holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of
such Exchange Notes and (iii) neither the holder nor any such other
person
</TABLE>
8
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<TABLE>
<S> <C>
is an 'affiliate,' as defined in Rule 405 under the Securities Act,
of the Company or, if an 'affiliate', such holder will comply with
the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Special Procedures for Beneficial
Holders................................. Any beneficial holder whose Outstanding Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender in the Exchange Offer should
contact such registered holder promptly and instruct such
registered holder to tender on its behalf. If such beneficial
holder wishes to tender on his own behalf, such beneficial holder
must, prior to completing and executing the Letter of Transmittal
and delivering its Outstanding Notes, either make appropriate
arrangements to register ownership of the Outstanding Notes in such
holder's name or obtain a properly competed bond power from the
registered holder. The transfer of record ownership may take
considerable time. See 'The Exchange Offer -- Procedures for
Tendering Outstanding Notes.'
Guaranteed Delivery Procedures............ Holders of Outstanding Notes who wish to tender their Outstanding
Notes and whose Outstanding Notes are not immediately available or
who cannot deliver their Outstanding Notes (or who cannot complete
the procedure for book-entry transfer on a timely basis) and a
properly completed Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Outstanding Notes according
to the guaranteed delivery procedures set forth in 'The Exchange
Offer -- Guaranteed Delivery Procedures.'
Withdrawal Rights......................... Tenders of Outstanding Notes may be withdrawn at any time prior to
midnight, New York City time, on the Expiration Date. See 'The
Exchange Offer -- Withdrawal of Tenders.'
Acceptance of Outstanding Notes and
Delivery of Exchange Notes.............. Subject to certain conditions (as summarized above in 'Conditions to
the Exchange Offer' and described more fully under 'The Exchange
Offer -- Certain Conditions to the Exchange Offer'), the Company
will accept for exchange any and all Outstanding Notes which are
properly tendered in the Exchange Offer and not validly withdrawn
prior to midnight, New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See 'The Exchange
Offer -- Terms of the Exchange Offer; Period for Tendering
Outstanding Notes.'
Federal Income Tax Considerations......... The exchange pursuant to the Exchange Offer should not be a taxable
event for federal income tax purposes. See 'Certain United States
Federal Income Tax Considerations.'
Exchange Agent............................ First Security Bank, N.A., the Trustee under the Indenture, is
serving as the exchange agent (the 'Exchange Agent') in connection
with the Exchange Offer. The address of the Exchange Agent is:
First Security Bank, N.A., 79 South Main Street, Salt Lake City,
Utah 84111, Attention: Corporate Trust Services.
Use of Proceeds........................... There will be no cash proceeds payable to the Company from the
issuance of the Exchange Notes pursuant to the Exchange Offer.
</TABLE>
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CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the
Outstanding Notes and the restrictions on transfer of such Outstanding Notes as
set forth in the legend thereon as a consequence of the issuance of the
Outstanding Notes pursuant to exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. In general, the Outstanding Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register Outstanding Notes under the Securities Act. Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such holder
which is an 'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that (i) the Exchange Notes received by such holder will be
acquired in the ordinary course of its business, (ii) at the time of the
consummation of the Exchange Offer such holder will have not engaged in, and
does not intend to engage in, a distribution of Exchange Notes and has no
arrangement or understanding to participate in a distribution of Exchange Notes
and (iii) such holder is not an affiliate of the Company within the meaning of
Rule 405 of the Securities Act or if it is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act, to the extent applicable. If any holder is an affiliate of the
Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirement of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See 'Plan of Distribution.' However, to
comply with state securities laws, the Exchange Notes may not be offered or sold
in any state unless they have been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with. The offer and sale of the Exchange Notes to 'qualified
institutional buyers' (as such term is defined under Rule 144A of the Securities
Act) is generally exempt from registration or qualification under state
securities laws. The Company currently does not intend to register or qualify
the sale of the Exchange Notes in any state where an exemption from registration
or qualification is required and not available. See 'The Exchange
Offer -- Consequences of Failure to Exchange and Requirements for Transfer for
Exchange Notes.'
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SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The terms of the Exchange Notes are identical in all material respects to
the terms of the Outstanding Notes, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes and except that, if an
exchange offer with respect to the Exchange Notes is not consummated by January
24, 1998, the rate per annum at which the Outstanding Notes bear interest will
be increased temporarily. See 'Registration Rights Agreement for Outstanding
Notes.' Interest on the Exchange Notes will accrue from July 24, 1997. Holders
of Outstanding Notes whose Outstanding Notes are accepted for exchange will be
deemed to have waived the right to receive any payment in respect of interest on
such Outstanding Notes accrued from July 24, 1997 to the date of the issuance of
the Exchange Notes. Consequently, holders who exchange their Outstanding Notes
for Exchange Notes will receive the same interest payment on February 1, 1998
(the first interest payment date with respect to the Outstanding Notes and the
Exchange Notes) that they would have received had they not accepted the Exchange
Offer. See 'The Exchange Offer -- Interest on the Exchange Notes.'
<TABLE>
<S> <C>
Securities Offered........................ $100,000,000 aggregate principal amount of 10 1/2% Senior Exchange
Notes due August 1, 2004, which have been registered under the
Securities Act, issued by the Company.
Interest.................................. Interest on the Notes is payable semiannually in cash on February 1
and August 1, commencing on February 1, 1998.
Optional Redemption by the Company........ The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after August 1, 2002, initially at 105.25%
of their principal amount, plus accrued and unpaid interest, if
any, declining to 100% of their principal amount, plus accrued and
unpaid interest, if any, at maturity. See 'Description of the
Notes -- Optional Redemption.' In addition, at any time prior to
August 1, 2000, the Company may redeem up to 35% of the aggregate
principal amount of the Notes with the proceeds of sales of common
stock by the Company at a redemption price of 110.50% of their
principal amount; provided that at least $65.0 million aggregate
principal amount of Notes remains outstanding after each such
redemption.
Ranking................................... The Notes will rank pari passu with all unsecured, unsubordinated
indebtedness of the Company existing or created in the future, will
be effectively subordinated to the Company's obligations under
secured indebtedness to the extent of such security and will be
senior to all subordinated indebtedness of the Company created in
the future. At September 30, 1997, on a consolidated basis, after
giving effect to (x) the July 1997 offering of 10 1/2% Senior Notes
due 2004, and (y) the replacement of certain senior credit
facilities with the New Credit Facility, the Company had
approximately $178.8 million of indebtedness outstanding,
approximately $71.7 million of which was secured. See 'Description
of the Notes -- Ranking.'
Guarantee................................. All payments with respect to the Notes (including principal and
interest) are unconditionally guaranteed on an unsecured
unsubordinated basis jointly and severally by each of the active
subsidiaries of the Company as of July 24, 1997 (the 'Closing
Date'), consisting of American Trans Air, Inc., Ambassadair Travel
Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans
Air Training Corporation, American Trans Air ExecuJet, Inc. and
Amber Air Freight Corporation (collectively, the 'Guarantors').
Such guarantees (the 'Guarantees') will rank pari passu with all
existing and future unsecured unsubordinated indebtedness of the
Guarantors, will be effectively
</TABLE>
11
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<TABLE>
<S> <C>
subordinated to secured indebtedness of the Guarantors to the
extent of such security and will be senior in right of payment to
all future subordinated indebtedness of the Guarantors. At
September 30, 1997, after giving effect to the offering and the
application of the net proceeds thereof, including to repay certain
Guarantor indebtedness, the Guarantors (on a consolidated basis
excluding indebtedness owed to the Company and indebtedness of
Amtran) would have had approximately $78.8 million of indebtedness
outstanding (other than the Guarantees), $71.7 million of which
would have been secured indebtedness.
Certain Covenants......................... The Indenture will contain certain covenants for the benefit of the
holders of the Notes, including, among other things, covenants
limiting the incurrence of indebtedness, restricted payments,
dividend and other payment restrictions affecting restricted
subsidiaries, the issuance and sale of capital stock of restricted
subsidiaries, the issuance of guarantees by restricted
subsidiaries, transactions with shareholders and affiliates, liens,
sale-leaseback transactions, asset sales and certain mergers and
consolidations. See 'Description of the Notes -- Covenants.'
Change of Control......................... Upon a Change of Control (as defined in 'Description of the Notes'),
each holder of the Notes will have the right, subject to certain
conditions, to require the Company to purchase such holder's Notes
at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase.
There can be no assurance that the Company will have the financial
resources necessary to purchase the Notes upon a Change of Control.
See 'Description of the Notes -- Repurchase of Notes upon a Change
of Control.'
Book-Entry; Delivery and Form............. The Exchange Notes will be represented by one permanent global
Exchange Note in definitive, fully registered form deposited with a
custodian for, and registered in the name of a nominee of, The
Depository Trust Company ('DTC') See 'Description of the
Notes -- Book-Entry; Delivery and Form.'
</TABLE>
12
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USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Placement Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Outstanding Notes in
like principal amount, the form and terms of which are the same as the form and
terms of the Exchange Notes (which they replace), except as otherwise described
herein. The Outstanding Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company.
The net proceeds from the offering of Outstanding Notes (the 'Original
Offering') were approximately $97 million. The net proceeds from the Original
Offering were used by the Company to repay bank indebtedness and for general
corporate purposes, which may include the purchase of additional aircraft and
the refinancing of existing aircraft. See 'Use of Proceeds.'
RISK FACTORS
For a description of certain factors that should be considered by holders
who tender their Outstanding Notes in the Exchange Offer, see 'Risk Factors'
beginning on page 16.
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated financial data are derived from the
consolidated financial statements of Amtran for the periods presented. The
consolidated financial statements for each of the five years ended December 31,
1996, have been audited by Ernst & Young LLP, independent auditors. The
consolidated financial data for the nine month periods ended September 30, 1996
and 1997 are unaudited but include all adjustments, consisting only of normal
recurring adjustments, which, in the opinion of management, are necessary for a
fair presentation of the financial position and results of operations for these
periods. The results for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year. The
consolidated financial data should be read in conjunction with the consolidated
financial statements of the Company and notes thereto and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...................... $421,790 $467,909 $580,522 $715,009 $750,851 $602,228 $597,262
Depreciation and amortization(1)........ 40,820 37,418 46,178 55,827 61,661 47,173 45,994
Operating income (loss)(2).............. 2,592 6,620 8,415 17,936 (36,056) (16,573) 14,076
Interest expense........................ 6,898 3,872 3,656 4,163 4,465 2,803 5,835
Income (loss) before income taxes....... (2,643) 3,866 5,879 14,653 (39,581) (18,645) 9,412
Net income (loss)....................... (2,140) 3,035 3,486 8,524 (26,674) (12,565) 4,220
Net income (loss) per adjusted
share(3).............................. (0.24) 0.28 0.30 0.74 (2.31) (1.09) 0.36
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.................................... $ 35,719 $ 45,024 $ 61,752 $ 92,741 $ 73,382 $ 72,802 $ 82,208
Non-cash working capital
(deficiency)(4)....................... (62,308) (48,601) (68,166) (80,639) (65,472) (58,975) (80,204)
Property and equipment, net............. 166,882 172,244 223,104 240,768 224,540 246,041 267,096
Total assets............................ 239,029 269,830 346,288 413,137 370,287 403,625 422,816
Short-term debt (including current
maturities)........................... 20,375 18,242 8,447 3,606 30,271 29,133 4,186
Long-term debt.......................... 67,574 61,090 109,659 134,641 119,786 129,908 174,656
Total debt.............................. 87,949 79,332 118,106 138,247 150,057 159,041 178,842
Shareholders' equity(5)................. 32,469 69,941 72,753 81,185 54,744 69,466 59,409
OTHER FINANCIAL DATA:
EBITDAR(6).............................. $ 82,446 $ 89,584 $103,868 $130,381 $ 91,972 $ 83,233 $102,999
EBITDA(6)............................... 45,075 45,156 55,713 74,643 26,545 31,331 61,241
Net cash provided by operating
activities............................ 53,741 33,896 75,297 87,078 32,171 27,343 70,732
Net cash used in investing activities... (28,325) (37,440) (80,400) (44,032) (63,161) (53,711) (60,652)
Net cash provided by (used in) financing
activities............................ (15,884) 12,849 21,831 (12,057) 11,631 6,429 (1,254)
Ratio of earnings to fixed charges(7)... -- 1.24 1.32 1.60 -- -- 1.36
Deficiency of earnings available to
cover fixed charges(7)................ $ 2,643 -- -- -- $ 40,931 $ 21,205 --
Pro forma interest expense.............. $ 10,744 8,512
Pro forma ratio of earnings to fixed
charges(7)............................ -- -- 1.18
Pro forma deficiency of earnings
available to cover fixed charges(7)... $ 47,359 -- --
</TABLE>
(footnotes on next page)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA FOR PASSENGER
SERVICE(8):
Available seat miles (millions)(9)... 7,521.2 8,232.5 10,443.1 12,521.4 13,295.5 10,706.6 9,731.1
Revenue passenger miles
(millions)(10)..................... 5,547.1 5,593.5 7,158.8 8,907.7 9,172.4 7,480.4 7,055.9
Passenger load factor(11)............ 73.8% 67.9% 68.6% 71.1% 69.0% 69.9% 72.5%
Revenue per available seat mile...... 5.61[c] 5.68[c] 5.56[c] 5.71[c] 5.65[c] 5.62[c] 6.14[c]
Operating expense per ASM(12)........ 5.57[c] 5.60[c] 5.48[c] 5.56[c] 5.92[c] 5.78[c] 5.99[c]
Block hours flown(13)................ 65,583 76,542 103,657 126,295 138,114 111,289 104,683
Average daily aircraft utilization
(block hours per day)(14):
Lockheed L-1011................. 7.36 7.07 7.24 8.88 6.55 7.02 6.79
Boeing 727-100.................. 5.28 -- -- -- -- -- --
Boeing 727-200ADV............... -- 7.96 8.24 9.28 7.62 8.04 7.86
Boeing 757-200.................. 9.73 10.26 10.91 11.71 11.06 11.25 10.89
Total aircraft....................... 25 31 41 46 45 49 45
</TABLE>
- ------------
(1) As of January 1, 1992, Amtran lengthened its estimate of the useful lives
of its L-1011 aircraft, which reduced depreciation expense by $3.4 million
in 1992.
(2) Amtran has reclassified gain (loss) on sale of operating assets for
1992-1995 from nonoperating gain (loss) to operating income (loss) to be
consistent with the 1996 presentation. Also, in the third quarter of 1996,
Amtran recorded a $4.7 million loss on the disposal of leased assets
associated with both Boeing 757-200 aircraft transactions. See
'Business -- 1996 Restructuring of Scheduled Service Operations.'
(3) Net income (loss) per adjusted share is based on average shares outstanding
during the period, adjusted to give effect to the reclassification effected
in December 1992 and the retroactive effect of the stock dividend
distributed in March 1993, which resulted in 9,090,000 shares outstanding
during all periods presented.
(4) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long term
debt).
(5) No dividends were paid in any of the periods presented.
(6) EBITDAR represents net income plus interest expense (net of capitalized
interest), income tax expense, depreciation, amortization and aircraft
rentals. EBITDA represents net income plus interest expense (net of
capitalized interest), income tax expense, depreciation and amortization.
EBITDAR and EBITDA are presented because each is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDAR and EBITDA should not be considered in isolation, as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(7) The 'ratio of earnings to fixed charges' represents earnings divided by
fixed charges, as defined in the following paragraph. The 'deficiency'
represents the amount of fixed charges in excess of earnings.
For purposes of these computations, earnings consist of income (loss)
before income taxes, plus fixed charges, adjusted to exclude the amount of
any interest capitalized during the period. Fixed charges include the total
of: (i) interest, whether expensed or capitalized; (ii) amortization of
debt expense relating to any indebtedness, whether expensed or capitalized;
and (iii) such portion of rental expense as can be demonstrated to be
representative of the interest factor.
(8) The operating data (other than revenue per ASM and operating expense per
ASM) pertain only to ATA and do not include information for other
subsidiaries of Amtran.
(9) 'Available seat miles' or 'ASMs' represent the number of seats available
for sale to passengers multiplied by the number of miles those seats are
flown.
(10) 'Revenue passenger miles' or 'RPMs' represent the number of miles flown by
revenue passengers.
(11) 'Passenger load factor' represents revenue passenger miles divided by
available seat miles.
(12) 'Operating expense per ASM' for any period represents the amount determined
by dividing total operating expense for such period by the total ASMs for
such period.
(13) 'Block hours flown' for any aircraft represents the elapsed time computed
from the moment the aircraft first moves under its own power from the
boarding ramp at one airport to the time it comes to rest at the boarding
ramp of the next point of landing.
(14) 'Average daily aircraft utilization' is determined with respect to each
aircraft type for any period by dividing the block hours flown by all
aircraft of such type during such period by the number of days during such
period that aircraft of such type were owned or leased by the Company.
15
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RISK FACTORS
This Prospectus contains certain forward-looking statements. While the
Company believes these statements are reasonable, prospective holders of the
Exchange Notes should be aware that actual results could differ materially from
those projected by such forward-looking statements as a result of the risk
factors set forth below or other factors.
Prospective holders of the Exchange Notes should consider carefully the
following factors as well as the other information and data included in this
Prospectus before tendering their Outstanding Notes in the Exchange Offer. The
Company cautions the reader, however, that this list of factors may not be
exhaustive and that these or other factors could have an adverse effect on the
Company's ability to service its indebtedness, including principal and interest
payments on the Exchange Notes.
SUBSTANTIAL LEVERAGE
At September 30, 1997, on a consolidated basis, after giving effect to (x)
the July 1997 offering of the Outstanding Notes, and (y) the replacement
of certain senior credit facilities with the New Credit Facility, the Company
had approximately $178.8 million of indebtedness outstanding, approximately
$71.7 million of which was secured. Total shareholders' equity of the Company on
a consolidated basis as of September 30, 1997 was approximately $59.4 million.
As of September 30, 1997, after giving effect to the Offering, the application
of the net proceeds thereof and entering into the New Credit Facility, the
Company's total debt was 75.1% of total capitalization, which represents
significant financial leverage, even in the highly leveraged airline industry.
In addition, the Company had substantial obligations under operating leases for
aircraft. See 'Capitalization' and 'Business -- Aircraft Fleet.'
On a pro forma basis, after giving effect to the Offering as if it had
occurred at the beginning of the period, the Company would have had interest
expense of approximately $10.7 million and $8.5 million, respectively, for 1996
and for the nine months ended September 30, 1997 which would have resulted in an
EBITDA to interest expense ratio for the Company of approximately 2.5 times and
7.2 times, respectively. Earnings of the Company were insufficient to cover
fixed charges by approximately $2.6 million and $40.9 million for the years
ended December 31, 1992 and 1996, respectively. The Company's ability to satisfy
its obligations will be dependent upon its future performance, which is subject
to general economic conditions and to financial, business and other factors,
including factors beyond the Company's control. The Company's operating results
and cash flow could be adversely affected by such factors as price competition,
increases in fuel costs, a downturn in general economic conditions and adverse
regulatory changes.
The degree to which the Company and the Guarantors are leveraged could have
important consequences to holders of Notes, including the following: (i) the
Company's and the Guarantors' ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or other purposes
may be impaired; (ii) the Company's and the Guarantors' degree of leverage and
related debt service obligations, as well as their obligations under operating
leases for aircraft, may make them more vulnerable than some of their
competitors in a prolonged economic downturn; and (iii) the Company's and the
Guarantors' financial position may restrict their ability to exploit new
business opportunities and limit their flexibility to respond to changing
business conditions. The Company's and the Guarantors' competitive positions may
also be affected by the fact that they may be more highly leveraged than some of
their competitors.
EFFECTIVE SUBORDINATION OF NOTES TO SECURED OBLIGATIONS OF SUBSIDIARIES
Claims of secured creditors of the Company's subsidiaries will have
priority to the extent of the security interests granted in the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Notes. ATA has implemented a new four-year secured
revolving credit facility (the 'New Credit Facility'), which provides for a $50
million revolving line of credit for general working capital purposes. Amounts
owed under the New Credit Facility are secured by a first priority perfected
security interest in certain aircraft and related engines. Accordingly, the
lenders under the New Credit Facility have priority over the holders of the
Notes with respect to,
16
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<PAGE>
and to the extent of, the pledged assets, and the Notes will be effectively
subordinated to such secured indebtedness, and to any other secured
indebtedness, of the Company's subsidiaries.
LIQUIDITY AND DEBT SERVICE
Although the Company, like most other airlines, generally operates with a
working capital deficit, it has been able to meet its obligations as they have
become due. In order to meet short-term cash needs, ATA maintains bank credit
facilities. In July 1997, in connection with the offering of the
Outstanding Notes, ATA amended its principal bank credit facility to
provide a $50.0 million revolving line of credit (the 'New Credit Facility').
At September 30, 1997, the Company's current assets were $146.9 million, and
current liabilities were $149.1 million. If the Existing Credit Facility had
not been fully drawn, at September 30, 1997 cash (and therefore current
assets) and long-term liabilities would decrease by approximately $25.0 million.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Credit Facilities' and
'Description of the New Credit Facility.'
The Company would have been required during 1997, 1998 and 1999, to make
payments on long-term debt under its Existing Credit Facility totalling $10.5
million, $18.0 million and $4.5 million, respectively with the $83.0 million
balance of this facility maturing on April 1, 1999. The Company will be required
to make no payments on the New Credit Facility of $50.0 million until its
maturity date of April 1, 2001. The Company expects to incur expenses under
non-cancellable operating leases during 1997, 1998, 1999, 2000 and 2001 and
thereafter of $61.1 million, $52.1 million, $49.9 million, $36.8 million, $34.6
million and $220.6 million, respectively. Following the implementation of the
New Credit Facility, the Company on a pro forma basis will be required during
the years ended 1997, 1998, 1999, 2000 and 2001 and thereafter to make payments
on long-term debt totalling $10.4 million, $1.5 million, $1.5 million, $1.5
million, $39.5 million and $117.6 million, respectively. The Company may seek to
supplement its current sources of financing with other sources of long-term
financing, including vendor financing, sale-leaseback transactions and public
and private debt. The Company may from time to time also seek additional equity
financing. There can be no assurance that any such external financing would be
available on satisfactory terms.
The Company currently expects that capital expenditures for 1997 will total
approximately $84.0 million. Such expenditures will be mainly for scheduled
heavy maintenance on the Company's aircraft. See 'Business -- Aircraft Fleet.'
NET LOSSES AND RESTRUCTURING
For the year ended 1996 the Company incurred operating and net losses of
$36.1 million and $26.7 million, respectively, as compared to operating and net
income of $17.9 million and $8.5 million, respectively, during 1995. The losses
in the 1996 period reflected a number of factors, including: (i) a significant
increase in competition from larger carriers in the scheduled service markets
served by the Company, (ii) the negative impact on low fare carriers resulting
from unfavorable media coverage of the effects of the ValuJet accident in
Florida and, to a lesser extent, the Company's own decompression incident, (iii)
a significant increase in fuel costs and (iv) a federal excise tax on jet fuel
that became effective on October 1, 1995. As a result, the Company entered into
the 1996 Restructuring. Although the Company realized a profit for the first six
months of 1997, there can be no assurance that the Company will continue to be
profitable. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
STRATEGIC ALTERNATIVES
In the second and third quarters of 1996, the Company undertook an analysis
of the profitability of its scheduled service, military and tour operator
operations, as well as the relative economics of the Company's three aircraft
fleet types. As a result of that analysis, among other things, the Company
significantly reduced its scheduled service operations, entered into
arrangements to reduce the growth of its Boeing 757 fleet and reallocated
aircraft from scheduled service to charter operations. The Company is continuing
to evaluate the profitability of each segment of its operations and to consider
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further restructuring or other alternatives with respect to those operations.
See 'Business -- 1996 Restructuring of Scheduled Service Operations.'
In addition, at various times since the second quarter of 1996 the Company
has actively considered possible business combinations with other air carriers
and others. The Company intends to continue to evaluate such transactions.
Accordingly, it is possible that the Company will enter into a transaction in
the first half of 1998 or thereafter that will result in a merger or other
change of control of the Company.
The New Credit Facility may be accelerated upon a merger or consolidation
of the Company or ATA, including any such transaction resulting in a change of
control of the Company or ATA. If any of the Company's credit facilities were to
be accelerated, there can be no assurance that the Company would have sufficient
liquidity to satisfy such obligations or that it would be able to secure
alternative financing. Failure to satisfy such obligations could cause a default
under the Notes and accelerate payment of principal and accrued interest
thereon. See 'Description of the Notes -- Events of Default.'
RESTRICTIONS UNDER FINANCING AGREEMENTS
The financing agreements relating to the Company's outstanding indebtedness
impose significant operating and financial restrictions on the Company. For
example, the New Credit Facility is secured by liens on certain Company-owned
L-1011 aircraft and engines. In addition, the New Credit Facility prohibits or
restricts in many respects the Company's ability to incur additional
indebtedness, create material liens on its assets, sell assets or engage in
mergers or consolidations, redeem or repurchase Notes, make certain investments,
pay cash dividends or engage in other significant transactions. See 'Description
of the New Credit Facility.'
Under certain of such financing agreements, the Company is required to
maintain compliance with certain specified covenants, restrictions, financial
ratios and other financial and operating tests. The Company's ability to comply
with any of the foregoing restrictions and with loan repayment provisions will
depend upon its future performance, which will be subject to prevailing economic
conditions and other factors, including factors beyond the control of the
Company. A failure to comply with any of these obligations could result in an
event of default under one or more of such financing agreements, which could
permit acceleration of the debt under such instrument and acceleration of debt
under the Company's other principal financing agreements and termination of the
Company's aircraft operating leases, some of which contain cross-default or
cross-acceleration provisions. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Credit Facilities.'
POSSIBLE LIMITATION ON NOL CARRYFORWARDS
The Company has approximately $81.7 million of net operating loss
carryforwards and $4.7 million of investment and other tax credit carryforwards
(as of December 31, 1996) which may, depending on the circumstances, be
available to reduce U.S. federal income taxes payable by the Company in the
future. However, if the Company undergoes an 'ownership change' within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the
'Code'), the Company's utilization of its net operating loss carryforwards and
investment tax credit carryforwards could be subject to limitation.
In general, an ownership change under Section 382 will occur if, over a
three-year period, certain stockholders who own directly or indirectly 5% or
more of the capital stock of the corporation (including the so-called 'public
group') increase their percentage ownership by more than 50 percentage points in
the aggregate. The effect on the Company of the imposition of a limitation on
the use of its tax attributes in the event of an ownership change in the future
would depend on a number of factors, including the profitability of the Company
and the timing of the sale of certain assets, some of which factors are beyond
the control of the Company. The impact on the Company of such a limitation could
be materially adverse under certain circumstances. In addition, for financial
reporting purposes, such an ownership change could, in certain circumstances,
require the Company to reduce the amount of its deferred tax benefits, with a
resulting charge to earnings.
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BONDING REQUIREMENTS
Under current DOT regulations with respect to charter transportation
originating in the United States, all charter airline tickets must generally be
paid for in cash and all funds received from the sale of charter seats (and in
some cases the costs of land arrangements) must be placed into escrow by the
tour operator or protected by a surety bond satisfying certain prescribed
standards. Currently, the Company provides a third-party bond which is unlimited
in amount in order to satisfy its obligations under these regulations. Under the
terms of its bonding arrangements, the issuer of the bond has the right to
terminate the bond at any time on 30 days' notice. The Company provides a $2.5
million letter of credit to secure its potential obligations to the issuer of
the bond. If the bond were to be materially limited or canceled, the Company,
like all other U.S. charter airlines, would be required to escrow funds to
comply with the DOT requirements summarized above. Compliance with such
requirements would reduce the Company's liquidity and require it to fund higher
levels of working capital ranging up to $16.0 million based on anticipated 1997
peak travel periods.
INSURANCE COVERAGE
The Company is subject to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims of injured passengers and others.
The Company is required by the DOT to carry liability insurance on each of its
aircraft. The Company currently maintains public liability insurance in the
amount of $1.25 billion. Although the Company currently believes its insurance
coverage is adequate, there can be no assurance that the amount of such coverage
will not be changed or that the Company will not be forced to bear substantial
losses from accidents. Substantial claims resulting from an accident could have
a material adverse effect on the business, financial condition and results of
operations of the Company, and could seriously inhibit passenger acceptance of
the Company's services. The Company's insurance policies also impose certain
geographic restrictions on where the Company may provide airline service. See
'Business -- Insurance.'
CUSTOMERS
The Company's largest customer during each of 1994, 1995 and 1996 was the
U.S. military, accounting for approximately 16%, 11% and 11%, respectively, of
the Company's total operating revenues. The Company expects that during 1997 the
U.S. military will continue to be its largest customer and will account for
approximately 16% of operating revenues. In 1996, the Company's five largest
non-military customers accounted for approximately 22% of total operating
revenues, and the Company's ten largest non-military customers accounted for
approximately 30% of total operating revenues. No single non-military customer
accounted for more than 10% of total operating revenues during this period.
The Company is subject to the risk that a customer which has contracted
with the Company will cancel or default on its contract or contracts and the
Company will be unable to obtain other business to cover the resulting loss in
revenues. If the size of the contract or contracts is significant enough, any
such default or cancelation could have a material adverse effect on the Company.
Included in the Company's scheduled service sales are bulk sales agreements
with tour operators. Under these arrangements, which are very similar to charter
sales, the tour operator may take up to 85% of an aircraft as a bulk-seat
purchase. To minimize its exposure in the event of non-payment by a tour
operator, the Company requires bonding or a security deposit for a significant
portion of the bulk-seat fare; however, the Company is still responsible for
providing travel to customers who have purchased tickets under bulk-sale
agreements.
EFFECTS OF SEASONALITY OF BUSINESS ON THE COMPANY
The Company's airline businesses are significantly affected by seasonal
factors. Typically, the Company experiences reduced demand during the second and
fourth quarters as demand for leisure airline services during such periods is
lower relative to other times of the year. The Company has
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recently experienced its strongest operating results in the first quarter. As a
result, the Company's results of operations for any one quarter are not
necessarily indicative of the Company's annual results of operations.
EMPLOYEE RELATIONS
In June 1991, the Company's flight attendants elected the Association of
Flight Attendants ('AFA') as their representative. In December 1994, the flight
attendants ratified a four-year collective bargaining agreement. In June 1993,
the Company's cockpit crews elected the International Brotherhood of Teamsters
('IBT') as their representative. Following three years of negotiations, in
September 1996 a four-year collective bargaining agreement was ratified by the
cockpit crews. The Company believes that its relations with its employees are
good. However, the existence of a significant dispute with any sizable number of
its employees could have a material adverse effect on the Company's operations.
RELIANCE ON TRAVEL AGENTS AND TOUR OPERATORS FOR TICKET SALES
Approximately 65% of the Company's revenues for the year ended December 31,
1996, were derived from tickets sold by travel agents or tour operators. Travel
agents and tour operators generally have a choice between one or more airlines
when booking a customer's flight. Accordingly, any effort by travel agencies or
tour operators to favor another airline or to disfavor the Company could
adversely impact the Company. The Company's relations with travel agencies and
tour operators could be affected for instance, by override commissions offered
by other airlines, by an increase in the Company's arrangements with other
distributors of its tickets or by the introduction of alternative methods of
selling tickets. Although management intends to continue to offer attractive and
competitive products to travel agencies and tour operators and to maintain
favorable relations with travel agencies and tour operators, there can be no
assurance that travel agencies or tour operators will not disfavor the Company
or favor other airlines in the future.
INDUSTRY CONDITIONS AND COMPETITION
The Company's products and services face varying degrees of competition in
diverse markets. The Airline Deregulation Act of 1978 has substantially
eliminated governmental authority to regulate domestic routes and fares and has
increased the ability of airlines to compete with higher flight frequencies and
lower fares. The Company generally competes on the basis of price, availability
of equipment, quality of service and convenience. In the leisure travel market,
the Company's principal focus of operations, the Company faces significant
competition from a large number of U.S., European and Mexican charter and
scheduled airlines, many of which are larger and have substantially greater
financial resources than the Company. The scheduled carriers compete for leisure
travel customers in a variety of ways, including wholesaling discounted seats on
scheduled flights to tour operators, promoting to travel agents prepackaged
tours for sale to retail customers and selling discounted, excursion airfare-
only products to the public. As a result, all charter airlines, including the
Company, generally are required to compete for customers against the lowest
revenue-generating seats of the scheduled airlines. During periods of dramatic
fare cuts by the scheduled airlines, the Company is forced to respond
competitively to these deeply discounted seats.
The Company also competes against scheduled airlines on the basis of
convenience. Due in part to the creation of numerous hub-and-spoke route
systems, many smaller cities are not served by direct or nonstop flights to
leisure destinations, and many secondary leisure destinations do not receive
direct or nonstop service from more than a few major U.S. cities. The Company
targets these markets by providing travelers with nonstop service to leisure
destinations on a limited-frequency basis.
In the United States, there are few barriers to entry into the airline
business, apart from the need for certain government licenses and the need for
and availability of financing, particularly for those seeking to operate on a
small scale with limited infrastructure and other support systems. As a result,
the Company may face increased competition from start-up airlines in selected
markets from time to time.
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The emergence in recent years of several new carriers, typically with low
cost structures, has further increased the competitive pressures on U.S.
airlines. In some cases, the new entrants have initiated or triggered price
discounting. Aircraft, skilled labor and gates at most airports continue to be
available to start-up carriers. The commencement of service by new carriers on
ATA's routes could negatively impact ATA's operating results. Although the
domestic airline industry has at present abandoned deeply discounted general
pricing structures, and fare levels have continued to increase from 1992 levels,
significant industry-wide discounts could be reimplemented at any time, and the
introduction of broadly available, deeply discounted fares by a major U.S.
airline would result in lower yields for the entire industry and could have a
material adverse effect on the Company's operating results.
The Company also competes directly against other charter airlines. In the
United States, these charter airlines are smaller in size than the Company. In
Europe, several charter airlines are at least as large or larger than the
Company. Certain of these charter airlines are affiliates of major scheduled
airlines or tour operators. As a result, in addition to greater access to
financial resources, these charter airlines may have greater distribution
capabilities, including, in certain cases, exclusive or preferential
relationships with affiliated tour operators.
Based upon bilateral aviation agreements between the U.S. and other
nations, and, in the absence of such agreements, comity and reciprocity
principles, the Company's charter operations are generally not restricted as to
the number or frequency of its flights to and from most destinations in Europe.
However, these agreements and reciprocity principles generally restrict the
Company to the carriage of passengers and cargo on flights which either
originate in the U.S. and terminate in a single European nation, or which
originate in a single European nation and terminate in the U.S. Proposals for
any additional charter service must generally be specifically approved by the
civil aeronautics authorities in the relevant countries. Approval of such a
proposal is typically based on considerations of comity and reciprocity and
cannot be guaranteed. As a consequence, the Company typically does not compete
in the large intra-European travel market. See 'Business -- Regulation.'
AIRCRAFT FUEL
Because fuel costs are a significant portion of the Company's operating
costs (approximately 21% for 1996 and 20% for the first nine months of 1997),
significant changes in fuel costs would materially affect the Company's
operating results. Fuel prices continue to be susceptible to, among other
factors, political and economic influences and the Company cannot control near-
or longer-term fuel prices. In the event of a fuel supply shortage resulting
from a disruption of oil imports or otherwise, higher fuel prices or curtailment
of scheduled service could result. However, the Company has been able to reduce
certain of the risks associated with a rise in fuel costs. For each of 1995 and
1996, approximately 52% and 49%, respectively, of the Company's total operating
revenues were derived from contracts which enabled the Company to pass through
increases in fuel costs, including contracts with the U.S. military. The Company
is exposed to increases in fuel costs that occur within 14 days of flight time,
to all increases associated with its scheduled service (other than bulk seat
sales) and to increases affecting contracts that do not include fuel cost
escalation provisions. The Company is also exposed to the risk that a
substantial rise in fuel costs could cause a reduction in leisure travel and/or
the cancellation or renegotiation of previously-booked commitments from tour
operators.
EFFECT OF GENERAL ECONOMIC CONDITIONS
The profitability of the Company's operations is influenced by the
condition of the U.S. and European economies, including fluctuations in currency
exchange rates, that may impact the demand for leisure travel and the Company's
competitive pricing position. The vast majority of the Company's charter and
scheduled airline business, other than military, is leisure travel. Because
leisure travel is discretionary, the Company has historically tended to
experience somewhat weaker financial results during economic downturns and other
events affecting international leisure travel, such as the Persian Gulf War.
Nevertheless, the Company's performance during these periods has been
significantly better than that of the U.S. airline industry as a whole.
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REGULATORY MATTERS
The Company is subject to regulation by the DOT and the Federal Aviation
Administration (the 'FAA') under the provisions of the Federal Aviation Act of
1958, as amended (the 'Federal Aviation Act'), and by certain other governmental
agencies. The DOT regulates principally economic issues affecting air service,
including, among other matters, air carrier certification and fitness,
insurance, certain leasing arrangements, allocation of route rights and
authorization of proposed scheduled and charter operations, consumer protection
and competitive practices. The FAA primarily regulates flight operations,
especially matters affecting air safety, including, among other matters,
airworthiness requirements for each type of aircraft the Company operates and
pilot and crew certification. The Company believes it is in compliance with all
requirements necessary to maintain in good standing its operating authority
granted by the DOT and its air carrier operating certificate issued by the FAA.
A modification, suspension or revocation of any of the Company's DOT or FAA
authorizations or certificates could have a material adverse effect upon the
Company.
In the last several years, the FAA has issued a number of maintenance
directives and other regulations relating to, among other things, collision
avoidance systems, airborne windshear avoidance systems, noise abatement and
increased inspection requirements. ATA expects to continue to incur expenditures
for the purpose of complying with the FAA's noise and aging aircraft
regulations.
On June 17, 1996, ValuJet temporarily suspended its flight operations at
the request of the FAA after an intensive inspection by the FAA. As a result of
events related to ValuJet, the FAA has announced that it will be increasing its
scrutiny of airlines, particularly in the areas of contract maintenance and
contract training. The Company currently maintains ten permanent maintenance
facilities and operates an internal training corporation. See
'Business -- Aircraft Fleet -- Maintenance and Support' and 'Business -- Other
Activities.' Additional operational or maintenance requirements mandated by the
FAA could have a material adverse impact on the Company.
The Company has a Certificate of Public Convenience and Necessity from the
DOT and an operating certificate from the FAA. Each such authority is subject to
continued compliance with applicable stated rules and regulations pertaining to
the airline industry, including any new rules or regulations that may be adopted
in the future.
The Company is subject to the jurisdiction of the Federal Communications
Commission regarding the use of radio facilities. In addition, the Company is
subject to regulation on its international flights by the Commerce Department,
the Customs Service, the Immigration and Naturalization Service, and the Animal
and Plant Health Inspection Service of the Department of Agriculture. Also,
while its aircraft are in foreign countries on international flights, the
Company must comply with the requirements of similar authorities in such
countries. The Company is also subject to compliance with standards for aircraft
exhaust emissions promulgated by the Environmental Protection Agency (the 'EPA')
pursuant to the Clean Air Act of 1970, as amended. The Company is also subject
to regulations adopted by the various local authorities which operate the
airports it serves throughout its route network, including but not limited to
aircraft noise regulations and curfews. While the Company intends to maintain
all appropriate government licenses and to comply with all appropriate
standards, there can be no assurance that such licenses can be maintained or
that such standards will not be changed in the future. See
'Business -- Regulation.'
At its aircraft line maintenance facilities, the Company uses materials
which are regulated as hazardous under federal, state and local law. The Company
is required to maintain programs to protect the safety of its employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with all such laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of materials into the
environment. The Company does not expect that the costs associated with ongoing
compliance with any such regulations at these facilities will have a material
adverse effect upon the Company's capital expenditures, earnings or competitive
position.
Additional laws and regulations have been proposed from time to time which
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations also have been considered from time to time that would prohibit or
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restrict the ownership and/or transfer of airline routes or takeoff and landing
slots. Also, the award of international routes to U.S. carriers (and their
retention) is regulated by treaties and related agreements between the United
States and foreign governments which are amended from time to time. The Company
cannot predict what laws and regulations will be adopted or what changes to
international air transportation treaties will be effected, if any, or how they
will affect ATA.
LOW MARGINS AND HIGH FIXED COSTS
The airline industry as a whole and scheduled service in particular is
characterized by low gross profit margins and high fixed costs. The costs of
operating each flight do not vary significantly with the number of passengers
carried and, therefore, a relatively small change in the number of passengers or
in fare pricing or traffic mix could, in the aggregate, have a significant
effect on operating and financial results. Accordingly, a minor shortfall from
expected revenue levels could have a material adverse effect on the Company's
growth or financial performance.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest to the date of repurchase. If a Change of Control were to occur, the
Company may not have the financial resources to repay the Notes, its credit
facilities and any other indebtedness that would become payable upon the
occurrence of such Change of Control. See ' -- Strategic Alternatives.' The
'Repurchase of Notes upon a Change of Control' covenant requiring the Company to
repurchase the Notes will, unless consents are obtained, require the Company to
repay all indebtedness then outstanding which by its terms would prohibit such
Note repurchase, including in particular the New Credit Facility, either prior
to or concurrently with such Note repurchase. See 'Description of the
Notes -- Repurchase of Notes upon a Change of Control' and 'Description of the
New Credit Facility.'
FRAUDULENT TRANSFER LAWS
Under federal or state fraudulent transfer laws, if a court of competent
jurisdiction were to find, in a lawsuit by an unpaid creditor or a
representative of creditors, a trustee in bankruptcy or a debtor-in-possession,
that the Company issued the Notes with the intent to hinder, delay or defraud
present or future creditors, or received less than a reasonably equivalent value
or fair consideration for any such indebtedness, and at the time of such
incurrence (i) was insolvent, (ii) was rendered insolvent by reason of such
incurrence, (iii) was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small capital to carry
on its business or (iv) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay as such debts
matured, such court could avoid the Company's obligations to the holders of the
Notes, subordinate the Company's obligations to the holders of the Notes to all
other indebtedness of the Company or take other action detrimental to the
holders of the Notes. In that event, there can be no assurance that any
repayment of principal and accrued interest on the Notes could ever be recovered
by the holders of the Notes. Any Guarantee may also be subject to challenge
under fraudulent transfer laws and, in any case, will be limited to amounts that
any such Guarantor can guarantee without violating such laws. See 'Description
of the Exchange Notes -- Guarantee.'
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Outstanding Notes are currently owned by a small number of beneficial
owners. The Outstanding Notes have not been registered under the Securities Act
and are subject to significant restrictions on resale. The Exchange Notes will
be a new issue of securities for which there is currently no trading market. If
the Exchange Notes are traded after their initial issuance, they may trade at a
discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities and other factors, including general
economic conditions and the financial condition and performance of, and
prospects for, the Company.
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EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Outstanding Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company of
Outstanding Notes, a properly completed and duly executed Letter of Transmittal
or an Agent's Message (as defined herein) in lieu thereof and all other required
documents. Therefore, holders of the Outstanding Notes desiring to tender their
Outstanding Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Outstanding Notes for
exchange. Outstanding Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions on transfer thereof. To the extent that
Outstanding Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Outstanding Notes could be
adversely affected. See 'The Exchange Offer.'
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF EXCHANGE
NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the
Outstanding Notes and the restrictions on transfer of such Outstanding Notes as
set forth in the legend thereon as a consequence of the issuance of the
Outstanding Notes pursuant to exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. In general, the Outstanding Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register Outstanding Notes under the Securities Act. Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such holder
which is an 'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that (i) the Exchange Notes received by such holder will be
acquired in the ordinary course of its business, (ii) at the time of the
consummation of the Exchange Offer such holder will have not engaged in, and
does not intend to engage in, a distribution of Exchange Notes and has no
arrangement or understanding to participate in a distribution of Exchange Notes
and (iii) such holder is not an affiliate of the Company within the meaning of
Rule 405 of the Securities Act or if it is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act, to the extent applicable. If any holder is an affiliate of the
Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirement of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See
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'Plan of Distribution.' However, to comply with state securities laws, the
Exchange Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. The offer and sale of the
Exchange Notes to 'qualified institutional buyers' (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from registration or
qualification under state securities laws. The Company currently does not intend
to register or qualify the sale of the Exchange Notes in any state where an
exemption from registration or qualification is required and not available. See
'The Exchange Offer -- Consequences of Failure to Exchange and Requirements for
Transfer for Exchange Notes.'
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OUTSTANDING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept for
exchange Outstanding Notes which are properly tendered on or prior to the
Expiration Date and not withdrawn as permitted below. As used herein, the term
'Expiration Date' means midnight, New York City time, on 1997;
provided, however, that if the Company, in its sole discretion, has extended the
period of time for which the Exchange Offer is open, the term 'Expiration Date'
means the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Outstanding Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1997, to
all holders of Outstanding Notes known to the Company. The Company's obligation
to accept Outstanding Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth below under 'Certain Conditions to
the Exchange Offer.'
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer remains open, and
thereby delay acceptance for exchange of any Outstanding Notes, by giving oral
or written notice of such extension in the manner described below. During any
such extension, all Outstanding Notes previously tendered will remain subject to
the Exchange Offer and may be accepted for exchange by the Company. Any
Outstanding Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as practicable after
the expiration or termination of the Exchange Offer.
Outstanding Notes tendered in the Exchange Offer must be in denominations
of principal amounts of $1,000 and any integral multiples thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the events specified below
under ' -- Certain Conditions to the Exchange Offer.' The Company will give oral
or written notice of any extension, amendment, non-acceptance or termination to
the holders of the Outstanding Notes as promptly as practicable, such notice in
the case of any extension to be issued by means of press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from July 24, 1997, payable
semiannually on February 1 and August 1 of each year commencing on February 1,
1998, at the rate of 10 1/2% per annum. Holders of Outstanding Notes accepted
for exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Outstanding Notes accrued from July 24, 1997 until
the date of the issuance of the Exchange Notes. Consequently holders who
exchange their Outstanding Notes for Exchange Notes will receive the same
interest payment on February 1, 1998 (the first interest payment date with
respect to the Outstanding Notes and the Exchange Notes) that they would have
received had they not accepted the Exchange Offer.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Outstanding Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal or (in the case of a book-entry
transfer) an Agent's Message in lieu of such Letter of Transmittal, to the
Exchange Agent at the address set forth below under ' -- Exchange Agent' on or
prior to the Expiration Date. In addition, either (i) certificates for such
Outstanding Notes must be
26
<PAGE>
<PAGE>
received by the Exchange Agent along with the Letter of Transmittal, or (ii) a
timely confirmation of a book-entry transfer (a 'Book-Entry Confirmation') of
such Outstanding Notes, if such procedure is available, into the Exchange
Agent's account at The Depository Trust Company ('DTC' or the 'Book-Entry
Transfer Facility') pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date with
the Letter of Transmittal or Agent's Message in lieu of such Letter of
Transmittal, or (iii) the holder must comply with the guaranteed delivery
procedures described below. The term 'Agent's Message' means a message,
transmitted by the Book-Entry Transfer Facility to and received by the Exchange
Agent and forming a part of a Book-Entry Confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by, and makes the representations and warranties
contained in, the Letter of Transmittal and that the Company may enforce such
Letter of Transmittal against such participant. THE METHOD OF DELIVERY OF THE
OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS
AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NO LETTER OF TRANSMITTAL OR
OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an 'eligible guarantor institution' within the meaning of Rule
17Ad-15 under the Exchange Act (collectively, 'Eligible Institutions'), unless
the Outstanding Notes tendered pursuant thereto are tendered (i) by a registered
holder of the Outstanding Notes who has not completed the box entitled 'Special
Issuance Instructions' or 'Special Delivery Instructions' on the Letter of
Transmittal or (ii) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by appropriate powers of attorney, in
either case signed exactly as the name of the registered holder or holders
appears on the Outstanding Notes.
If the Letter of Transmittal or any Outstanding Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Outstanding Notes not properly tendered or to not
accept any particular Outstanding Notes the Company's acceptance of which would,
in the opinion of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Outstanding Notes either before or
after the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Outstanding Notes in the Exchange Offer. The
Company's interpretation of the terms and conditions of the Exchange Offer as to
any particular Outstanding Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions therein) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have
27
<PAGE>
<PAGE>
been made until such irregularities have been cured or waived. Any Outstanding
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost by the Exchange Agent to the tendering holder of such
Outstanding Notes unless otherwise provided in the Letter of Transmittal as soon
as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Outstanding Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under ' -- Certain
Conditions to the Exchange Offer,' to terminate the Exchange Offer and (b) to
the extent permitted by applicable law, purchase Outstanding Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any such
purchases or offers may differ from the terms of the Exchange Offer.
By tendering, each holder of Outstanding Notes will represent to the
Company that, among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the holder,
that neither the holder nor any other person has an arrangement or understanding
with any person to participate in the distribution of the Exchange Notes. If any
holder or any such other person is an 'affiliate,' as defined under Rule 405 of
the Securities Act, of the Company, or is engaged in or intends to engage in or
has an arrangement or understanding with any person to participate in a
distribution of such Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder or any such other person (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Outstanding Notes, where such
Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See 'Plan of Distribution.' The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Outstanding
Notes properly tendered and will issue the Exchange Notes promptly, after
acceptance of the Outstanding Notes. See -- 'Certain Conditions to the Exchange
Offer'.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted properly tendered Outstanding Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent, with
written confirmation of any oral notice to be given promptly thereafter.
For each Outstanding Note accepted for exchange, the holder of such
Outstanding Note will receive an Exchange Note having a principal amount equal
to that of the surrendered Outstanding Note. Interest on the Exchange Notes will
accrue from July 24, 1997. Holders of Outstanding Notes whose Outstanding Notes
are accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on such Outstanding Notes accrued from July 24,
1997 to the date of the issuance of the Exchange Notes. Consequently, holders
who echange their Outstanding Notes for Exchange Notes will receive the same
interest payment on February 1, 1998 (the first interest payment date with
respect to the Outstanding Notes and the Exchange Notes) that they would have
received had they not accepted the Exchange Offer.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) certificates for such Outstanding
Notes or a timely Book-Entry Confirmation of such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility, (ii) a properly
completed and duly executed Letter of Transmittal or an Agent's Message in lieu
thereof and (iii) all other required
28
<PAGE>
<PAGE>
documents. If any tendered Outstanding Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Outstanding Notes
are submitted for a greater principal amount that the holder desired to
exchange, such unaccepted or non-exchanged Outstanding Notes will be returned
without expense to the tendering holder thereof (or, in the case of Outstanding
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, such non- exchanged Outstanding Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book- Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Outstanding Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof
or an Agent's Message in lieu thereof), with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at one of the addresses set forth below, under
' -- Exchange Agent' on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, or (ii) who cannot deliver
their Outstanding Notes, the Letter of Transmittal, or any other required
documents to the Exchange Agent prior to the Expiration Date, or if such holder
cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Outstanding Notes,
the certificate number or numbers of such Outstanding Notes and the
principal amount of Outstanding Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within three New York Stock
Exchange ('NYSE') trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof or an Agent's Message in lieu thereof),
with any required signature guarantees and any other documents required by
the Letter of Transmittal, will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or a
facsimile thereof or an Agent's Message in lieu thereof) with any required
signature guarantees, together with the certificate(s) representing all
physically tendered Outstanding Notes in proper form for transfer or
Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange ('NYSE') trading days after the
Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to midnight, New York City time, on the Expiration
Date.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a
facsimile transmission or letter notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to midnight, New York City
time, on the Expiration Date. Any such notice of withdrawal must
29
<PAGE>
<PAGE>
(i) specify the name of the person having deposited the Outstanding Notes to be
withdrawn (the 'Depositor'), (ii) include a statement that the Depositor is
withdrawing its election to have Outstanding Notes exchanged, and identify the
Outstanding Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Outstanding Notes), and (iii) specify the name in
which any such Outstanding Notes are to be registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Outstanding Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) for such withdrawal
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Outstanding Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Outstanding Notes
so withdrawn are validly retendered. Any Outstanding Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder (or, in the case of Outstanding Notes
tendered by book-entry transfer procedures described above, such Outstanding
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Outstanding Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be re-tendered by following one of the procedures
described above under ' -- Procedures for Tendering' at any time prior to
midnight, New York City time, on the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is not subject to any conditions, other than that the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the Commission. There can be no assurance that any such
condition will not occur. Holders of Outstanding Notes will have certain rights
against the Company under the Registration Rights Agreement should the Company
fail to consummate the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Outstanding Notes and
return any Outstanding Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Outstanding Notes tendered prior
to the Expiration Date, subject to the rights of such holders of tendered
Outstanding Notes to withdraw their tendered Outstanding Notes, or (iii) waive
such termination event with respect to the Exchange Offer and accept all
properly tendered Outstanding Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will disclose
such change by means of a supplement to this Prospectus that will be distributed
to each registered holder of Outstanding Notes, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Outstanding Notes, if the Exchange Offer would otherwise expire
during such period.
EXCHANGE AGENT
First Security Bank, N.A., the Trustee under the Indenture, has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
assistance and inquiries for additional copies of this
30
<PAGE>
<PAGE>
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail or Overnight Courier Facsimile Transmission Number By Hand
First Security Bank, N.A. (801) 246-5053 First Security Bank, N.A.
Corporate Trust Services (For Eligible Corporate Trust Services
79 South Main Street Institutions Only) Attention: Mr. Larry Montgomery
Salt Lake City, UT 84111 Confirm by Telephone c/o IBJ Schroder Bank & Trust Company
Attention: Mr. Larry Montgomery (801) 246-5822 One State Street Plaza
(If by Mail, Registered or New York, NY 10004
Certified Mail Recommended)
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated to be $ .
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register Exchange Notes in the name of, or request
that Outstanding Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the
Outstanding Notes and the restrictions on transfer of such Outstanding Notes as
set forth in the legend thereon as a consequence of the issuance of the
Outstanding Notes pursuant to exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. In general, the Outstanding Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register Outstanding Notes under the Securities Act. Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such holder
which is an 'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that (i) the Exchange Notes received by such holder will be
acquired in the ordinary course of its business, (ii) at the time of the
consummation of the Exchange Offer such holder will have
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<PAGE>
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes and has no arrangement or understanding to participate in a distribution
of Exchange Notes and (iii) such holder is not an affiliate of the Company
within the meaning of Rule 405 of the Securities Act or if it is such an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act, to the extent applicable. If any holder is
an affiliate of the Company, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirement of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See 'Plan of Distribution.' However, to
comply with state securities laws, the Exchange Notes may not be offered or sold
in any state unless they have been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with. The offer and sale of the Exchange Notes to 'qualified
institutional buyers' (as such term is defined under Rule 144A of the Securities
Act) is generally exempt from registration or qualification under state
securities laws. The Company currently does not intend to register or qualify
the sale of the Exchange Notes in any state where an exemption from registration
or qualification is required and not available.
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USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Placement Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Outstanding Notes in
like principal amount, the form and terms of which are the same as the form and
terms of the Exchange Notes (which they replace), except as otherwise described
herein. The Outstanding Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company.
The net proceeds of the Original Offering were approximately $97 million.
The net proceeds from the Original Offering were used by the Company to repay
bank indebtedness and for general corporate purposes, which may include the
purchase of additional aircraft and the refinancing of existing aircraft.
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<PAGE>
CAPITALIZATION
The following table sets forth at September 30, 1997 the unaudited actual
consolidated capitalization of the Company. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources' and 'Use of Proceeds.'
This table should be read in conjunction with the Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash(1).......................................................................... $ 82,208
-----------
Short-term debt (consisting of current maturities of long-term debt)............. $ 4,186
-----------
Long-term debt
Secured note due October 1998............................................... 27,950
Secured bank debt, due 2001(1).............................................. 25,000
Tax-exempt mortgage bonds, due 2020......................................... 6,000
Tax-exempt mortgage bonds, due 2025......................................... 10,000
10 1/2% Senior Notes due 2004............................................... 100,000
Unsecured debt.............................................................. 5,687
Other notes................................................................. 19
-----------
Total long-term debt................................................... 174,656
-----------
Total debt........................................................ 178,842
-----------
Total shareholders' equity................................... 59,409
-----------
Total capitalization(2)...................................... $ 238,251
-----------
-----------
</TABLE>
- ------------
(1) At September 30, 1997, the Company had borrowed $25 million under the New
Credit Facility, the proceeds of which were held in cash. On October 1,
1997, $25 million was repaid.
(2) The completion of the Offering will have no effect on the capitalization of
Amtran or ATA as of September 30, 1997.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of Amtran for the respective periods
presented. The consolidated financial statements for each of the five years
ended December 31, 1996, have been audited by Ernst & Young LLP, independent
auditors. The consolidated financial data for the nine month periods ended
September 30, 1996 and 1997 are unaudited but include all adjustments,
consisting only of normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of the financial position and
results of operations for these periods. The results for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year. The consolidated financial data should be read in conjunction
with the consolidated financial statements of the Company and notes thereto and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Charter............................. $324,064 $292,032 $295,890 $307,091 $310,569 $240,443 288,928
Scheduled service................... 61,117 138,089 240,675 361,967 386,488 318,788 271,282
Ground package...................... 17,641 17,189 20,248 20,421 22,302 17,606 16,347
Other............................... 18,968 20,599 23,709 25,530 31,492 25,391 20,705
-------- -------- -------- -------- -------- -------- --------
Total operating
revenues................ 421,790 467,909 580,522 715,009 750,851 602,228 597,262
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Salaries, wages and benefits........ 84,254 96,104 113,789 141,072 163,990 126,802 127,981
Fuel and oil........................ 80,217 85,418 106,057 129,636 161,226 126,108 118,890
Handling, landing and navigation
fees.............................. 42,870 48,918 60,872 74,400 70,122 57,353 54,368
Passenger service................... 23,904 20,918 29,804 34,831 32,745 26,364 25,751
Aircraft rentals.................... 37,371 44,428 48,155 55,738 65,427 51,902 41,758
Aircraft maintenance, materials and
repairs........................... 34,037 32,838 46,092 55,423 55,175 42,391 40,083
Depreciation and amortization(1).... 40,820 37,418 46,178 55,827 61,661 47,173 45,994
Other............................... 75,725 95,247 121,160 150,146 176,561 140,708 128,361
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses................ 419,198 461,289 572,107 697,073 786,907 618,801 583,186
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)(2).......... 2,592 6,620 8,415 17,936 (36,056) (16,573) 14,076
-------- -------- -------- -------- -------- -------- --------
Other income (expense):
Gain on sale of surplus
takeoff/landing slots............. 500 -- -- -- -- -- --
Interest income..................... 223 292 191 410 617 476 810
Interest expense.................... (6,898) (3,872) (3,656) (4,163) (4,465) (2,803) (5,835)
Other............................... 940 826 929 470 323 255 361
-------- -------- -------- -------- -------- -------- --------
Other income (expense),
net..................... (5,235) (2,754) (2,536) (3,283) (3,525) (2,072) (4,664)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes...... (2,643) 3,866 5,879 14,653 (39,581) (18,645) 9,412
Income taxes (credits)................. (503) 831 2,393 6,129 (12,907) (6,080) 5,192
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ (2,140) $ 3,035 $ 3,486 $ 8,524 $(26,674) $(12,565) $ 4,220
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per adjusted
share(3)............................ $ (0.24) $ 0.28 $ 0.30 $ 0.74 $ (2.31) $ (1.09) $ 0.36
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
35
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash............................. $ 35,719 $ 45,024 $ 61,752 $ 92,741 $ 73,382 $ 72,802 $ 82,208
Non-cash working capital
(deficiency)(4)............... (62,308) (48,601) (68,166) (80,639) (65,472) (58,975) (80,204)
Property and equipment, net...... 166,882 172,244 223,104 240,768 224,540 246,041 267,096
Total assets..................... 239,029 269,830 346,288 413,137 370,287 403,625 422,816
Short-term debt (including
current maturities)........... 20,375 18,242 8,447 3,606 30,271 29,133 4,186
Long-term debt................... 67,574 61,090 109,659 134,641 119,786 129,908 174,656
Total debt....................... 87,949 79,332 118,106 138,247 150,057 159,041 178,843
Shareholders' equity(5).......... 32,469 69,941 72,753 81,185 54,744 69,466 59,409
OTHER FINANCIAL DATA:
EBITDAR(6)....................... $ 82,446 $ 89,584 $103,868 $130,381 $ 91,972 $ 83,233 $102,999
EBITDA(6)........................ 45,075 45,156 55,713 74,643 26,545 31,331 61,241
Net cash provided by operating
activities.................... 53,741 33,896 75,297 87,078 32,171 27,343 70,732
Net cash used in investing
activities.................... (28,325) (37,440) (80,400) (44,032) (63,161) (53,711) (60,652)
Net cash provided by (used in)
financing activities.......... (15,884) 12,849 21,831 (12,057) 11,631 6,429 (1,254)
Ratio of earnings to fixed
charges(7).................... -- 1.24 1.32 1.60 -- -- 1.36
Deficiency of earnings available
to cover fixed charges(7)..... $ 2,643 -- -- -- $ 40,931 $ 21,505 --
</TABLE>
- ------------
(1) As of January 1, 1992, Amtran lengthened its estimate of the useful lives of
its L-1011 aircraft, which reduced depreciation expense by $3.4 million in
1992.
(2) Amtran has reclassified gain (loss) on sale of operating assets for
1992-1995 from nonoperating gain (loss) to operating income (loss) to be
consistent with the 1996 presentation. Also, in the third quarter of 1996,
Amtran recorded a $4.7 million loss on the disposal of leased assets
associated with both Boeing 757-200 aircraft transactions. See
'Business -- 1996 Restructuring of Scheduled Service Operations.'
(3) Net income (loss) per adjusted share is based on average shares outstanding
during the period, adjusted to give effect to the reclassification effected
in December 1992 and the retroactive effect of the stock dividend
distributed in March 1993, which resulted in 9,090,000 shares outstanding
during all periods presented.
(4) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long term
debt).
(5) No dividends were paid in any of the periods presented.
(6) EBITDAR represents net income plus interest expense (net of capitalized
interest), income tax expense, depreciation, amortization and aircraft
rentals. EBITDA represents net income plus interest expense (net of
capitalized interest), income tax expense, depreciation and amortization.
EBITDAR and EBITDA are presented because each is a widely accepted financial
indicator of a company's ability to incur and service debt. However, EBITDAR
and EBITDA should not be considered in isolation, as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(7) The 'ratio of earnings to fixed charges' represents earnings divided by
fixed charges, as defined in the following paragraph. The 'deficiency'
represents the amount of fixed charges in excess of earnings.
For purposes of these computations, earnings consist of income (loss) before
income taxes, plus fixed charges, adjusted to exclude the amount of any
interest capitalized during the period. Fixed charges include the total of:
(i) interest, whether expensed or capitalized; (ii) amortization of debt
expense relating to any indebtedness, whether expensed or capitalized; and
(iii) such portion of rental expense as can be demonstrated to be
representative of the interest factor.
36
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Amtran is a leading provider of charter airline services, and on a targeted
basis scheduled airline services, to leisure and other value-oriented travelers.
Amtran, through its principal subsidiary, ATA, has been in operation for 24
years and currently operates the eleventh largest airline in the United States
in terms of 1996 RPMs. ATA provides charter services throughout the world to
independent tour operators, specialty charter customers and the U.S. military.
The Company provides scheduled nonstop service primarily from its gateway cities
of Indianapolis, Chicago-Midway, and Milwaukee to popular vacation destinations
such as Hawaii, Las Vegas, Florida, California, Mexico and the Caribbean.
An analysis by the Company in 1996 of the profitability of its scheduled
service and charter service business units revealed that a significant number of
scheduled service markets being served by the Company had become increasingly
unprofitable. The Company believes that several key factors contributed to the
deterioration of the profitability of its scheduled service in late 1995 and
1996, including (i) a significant increase in competition from larger carriers
in the scheduled service markets served by the Company, (ii) the negative impact
on low fare carriers resulting from unfavorable media coverage of the effects of
the ValuJet accident in Florida and, to a lesser extent, the Company's own
decompression incident, (iii) a significant increase in fuel costs and (iv) a
federal excise tax on jet fuel beginning in the fourth quarter of 1995.
In August 1996, the Company announced a significant reduction in scheduled
service operations. More than one-third of scheduled service departures and ASMs
were included in this schedule reduction. The Company eliminated its Boston and
intra-Florida operations. The Company also exited, or reduced in frequency,
operations to other selected markets from Chicago-Midway, Indianapolis and
Milwaukee. In conjunction with its scheduled service reduction, the Company
completed a 15% reduction of its work force, including both employees and
contractors.
In addition, in 1996 the Company optimized its mix of aircraft. The Company
reduced the number of Boeing 757-200 aircraft from thirteen to seven units. An
advantage of the new fleet configuration is that all seven remaining Boeing
757-200 aircraft have been assigned to mission-specific routes that could not
have been served by the Company's other aircraft. The Company also reduced
operating costs by switching to an all Rolls-Royce powered Boeing 757 fleet. The
commonality of aircraft and engines yield benefits to the Company in the form of
decreased maintenance and training costs.
As a result of the 1996 Restructuring, the Company believes it has
established a better platform from which to pursue its strategy. The Company
also incurred substantial costs in 1996, which it does not expect to incur in
future years.
37
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, operating
revenues and expenses expressed as cents per ASM.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDING DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------------
1994 1995 1996 1996 1997
---- ---- ----- ----- -------------------
(CENTS PER ASM)
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 5.56 5.71 5.65 5.62 6.14
Operating expenses:
Salaries, wages and benefits..... 1.09 1.13 1.23 1.18 1.32
Fuel and oil..................... 1.02 1.03 1.21 1.18 1.22
Handling, landing and navigation
fees........................... 0.58 0.59 0.53 0.54 0.56
Depreciation and amortization.... 0.44 0.45 0.47 0.44 0.47
Aircraft rentals................. 0.46 0.44 0.49 0.48 0.43
Aircraft maintenance, materials
and repairs.................... 0.44 0.44 0.42 0.40 0.41
Passenger service................ 0.29 0.28 0.25 0.25 0.26
Crew and other employee travel... 0.25 0.25 0.27 0.26 0.29
Commissions...................... 0.17 0.20 0.20 0.20 0.20
Ground package cost.............. 0.14 0.13 0.14 0.13 0.14
Other selling expenses........... 0.08 0.12 0.13 0.13 0.11
Advertising...................... 0.07 0.07 0.08 0.08 0.10
Facilities and other rents....... 0.05 0.06 0.07 0.07 0.07
Disposal of assets............... -- -- 0.03 0.04 --
Other............................ 0.40 0.37 0.40 0.40 0.41
---- ---- ----- ----- -----
Total operating expenses.... 5.48 5.56 5.92 5.78 5.99
---- ---- ----- ----- -----
Operating income (loss)............... 0.08 0.15 (0.27) (0.16) 0.15
---- ---- ----- ----- -----
---- ---- ----- ----- -----
ASMs (in thousands)................... 10,443,123 12,521,405 13,295,505 10,706,622 9,731,059
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997, VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1996
OPERATING REVENUES
Total operating revenues for the nine months ended September 30, 1997
decreased 0.8% to $597.3 million from $602.2 million in the nine months ended
September 30, 1996. This decrease was due to a $47.5 million decrease in
scheduled service revenues, a $1.2 million decrease in ground package revenues
and a $4.7 million decrease in other revenues, partially offset by a $48.5
million increase in charter revenues.
Operating revenues for the nine months ended September 30, 1997, were 6.14
cents per ASM, an increase of 9.3% from the nine months ended September 30,
1996, of 5.62 cents per ASM.
Charter Revenues. The Company's charter revenues are derived principally
from independent tour operators, specialty charter customers and from the United
States military. The Company's charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. Total charter revenues increased 20.2% to $288.9 million in the first
nine months of 1997, as compared to $240.4 million in the same period of 1996.
Charter revenue growth, prior to scheduled service restructuring in late 1996,
had been constrained by the dedication of a significant portion of the Company's
fleet to scheduled service expansion, including the utilization of two Lockheed
L-1011 aircraft for scheduled services to Ireland and Northern Ireland between
May and September 1996. The Company's restructuring strategy, as reflected in
the Company's results of operations during the first nine months of 1997,
included a renewed emphasis on charter revenue sources. The Company
38
<PAGE>
<PAGE>
believes that tour operator, specialty charter and military operations are
businesses where the Company's experience and size provide meaningful
competitive advantage. Charter revenues represented 48.4% of total operating
revenues in the first nine months of 1997, as compared to 39.9% in the
comparable period of 1996.
Tour Operator Programs. Charter revenues derived from independent tour
operators decreased 0.1% to $184.9 million in the nine months ended September
30, 1997, as compared to $185.0 million in the nine months ended September 30,
1996. Tour operator RPMs decreased 2.9% to 2.804 billion in the nine months
ended September 30, 1997, from 2.888 billion in the comparable 1996 period,
while ASMs decreased 5.1% to 3.391 billion from 3.573 billion. Tour operator
RASM increased 5.2% to 5.45 cents from 5.18 cents between the same periods. Tour
operator passengers boarded increased 1.2% to 1,535,560 in the nine months ended
September 30, 1997, as compared to 1,517,405 in the comparable period of 1996;
tour operator departures decreased 2.9% to 8,712 in the nine months ended
September 30, 1997, as compared to 8,970 in the nine months ended September 30,
1996; and tour operator block hours decreased 4.2% to 30,268 in the nine months
ended September 30, 1997, as compared to 31,589 in the nine months ended
September 30, 1996.
The Company operates in two principal components of the tour operator
business, known as 'track charter' and 'specialty charter.' The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts.
The Company believes that although price is the principal competitive
criterion for its tour operator programs, product quality, reputation for
reliability and delivery of services which are customized to specific needs have
become increasingly important to the buyer of this product. Accordingly, as the
Company continues to emphasize the growth and profitability of this business
unit, it will seek to maintain its low-cost pricing advantage, while
differentiating itself from competitors through the delivery of customized
services and the maintenance of consistent and dependable operations. In this
manner, the Company believes that it will produce significant value for its tour
operator partners by delivering an attractively priced product which exceeds the
leisure traveler's expectations.
Specialty charter is a product which is especially designed to meet the
unique requirements of the customer and is a business characterized by lower
frequency of operation and by greater variation in city pairs served than the
track charter business. Specialty charter includes such diverse contracts as
flying university alumni to football games, transporting political candidates on
campaign trips and moving NASA space shuttle ground crews to alternate landing
sites. The Company also operates an increasing number of trips in
all-first-class configuration for certain corporate and high-end leisure
clients. Although lower utilization of crews and aircraft and infrequent service
to specialty destinations often result in higher average operating costs, the
Company has determined that the revenue premium earned by meeting special
customer requirements usually more than compensates for these increased costs.
In addition, specialty charter programs sometimes permit the Company to increase
overall aircraft utilization by providing filler traffic during periods of low
demand from other programs such as track charter. The Company believes that it
is competitively advantaged to attract this type of business due to the size and
geographic dispersion of its fleet, which reduces costly ferry time for aircraft
and crews and thus permits more competitive pricing. The diversity of the
Company's three fleet types also permits the Company to meet a customer's
particular needs by choosing the aircraft type which provides the most
economical solution for those requirements.
Military Programs. Charter revenues derived from the U.S. military
increased 87.7% to $104.0 million in the nine months ended September 30, 1997,
as compared to $55.4 million in the nine months ended September 30, 1996. U.S.
military RPMs increased 92.6% to 848.6 million in the nine months ended
September 30, 1997, from 440.5 million in the comparable 1996 period, while ASMs
increased
39
<PAGE>
<PAGE>
77.1% to 1.751 billion from 988.5 million. Military RASM increased 5.9% to 5.94
cents from 5.61 cents between the same time periods. U.S. military passengers
boarded increased 69.6% to 218,945 in the nine months ended September 30, 1997,
as compared to 129,121 in the comparable period of 1996; U.S. military
departures increased 76.6% to 3,917 in the nine months ended September 30, 1997,
as compared to 2,218 in the nine months ended September 30, 1996; and U.S.
military block hours increased 88.6% to 15,071 in the first nine months of 1997
as compared to 7,989 in the first nine months of 1996.
The Company participates in two related military programs known as 'fixed
award' and 'short-term expansion.' Pursuant to the U.S. military's fixed award
system, each participating airline is awarded certain 'mobilization value
points' based upon the number and type of aircraft made available by that
airline for military flying. In order to increase the number of points awarded,
in 1992 the Company entered into a contractor teaming arrangement with four
other cargo and passenger airlines serving the U.S. military. Under this
arrangement, the team has a greater likelihood of receiving fixed award business
and, to the extent that the award includes passenger transport, the opportunity
for the Company to operate this flying is enhanced, since the Company represents
a significant portion of the total passenger transport capacity of the team. As
part of its participation in this teaming arrangement, the Company pays a
commission to the team, which passes that revenue on to all team members based
upon their mobilization points. All airlines participating in the fixed award
business contract annually with the U.S. military from October 1 to the
following September 30. For each contract year, reimbursement rates are
determined for aircraft types and mission categories based upon operating cost
data submitted by the participating airlines. These contracts generally are not
subject to renegotiation once they become effective.
Short-term expansion business is awarded by the U.S. military first on a
pro rata basis to those carriers who have been awarded fixed contract business,
and then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.
The U.S. military business grew at a faster year-over-year rate than any
other business unit of the Company during the first nine months of 1997. In the
first nine months of 1997, the Company's U.S. military revenues represented
17.4% of total operating revenues, as compared to 9.2% in the same period of
1996. As a result of the restructuring of scheduled service and the
rationalization of the Company's fleet in 1996, the Company committed four of
its seven remaining Boeing 757-200 aircraft to the U.S. military for the year
ending September 30, 1997. As a result of an analysis undertaken during 1996,
the Company was also successful in more accurately documenting the actual costs
associated with military flying and was therefore able to obtain rate increases
for the contract year ending September 30, 1997. The Company has obtained
additional rate increases for the contract year ending September 30, 1998.
Because military flying is generally less seasonal than leisure travel
programs, the Company believes that a larger U.S. military business operation
will tend to have a stabilizing impact on seasonal earnings fluctuations. The
Company is also contractually protected from changes in fuel prices. The Company
further believes that its fleet of aircraft is competitively advantaged to
serving the transportation needs of the U.S. military. Although foreign bases
have been reduced in troop size, the U.S. military still desires to maintain its
service frequency to those bases and therefore often has a preference for
smaller-capacity, long-range aircraft such as the Company's Boeing 757-200.
Furthermore, in 1993, the Company became the first North American carrier
to receive FAA certification to operate Boeing 757-200 aircraft with 180-minute
Extended Twin Engine Operation (ETOPS), which permits these aircraft to operate
missions over water which can be up to three hours from the nearest alternate
airport. The Company believes that this certification, which applies to all of
the Company's Boeing 757-200 fleet, provides a competitive advantage in
receiving awards of certain military flying. Despite these advantages, the
Company believes that increases in U.S. military flying will moderate in future
periods.
Scheduled Service Revenues. Scheduled service revenues in the nine months
ended September 30, 1997, decreased 14.9% to $271.3 million from $318.8 million
in the nine months ended September 30, 1996. Scheduled service revenues
comprised 45.4% of total operating revenues in the nine months ended September
30, 1997, as compared to 52.9% of operating revenues in the same period of the
prior
40
<PAGE>
<PAGE>
year. Scheduled service RPMs decreased 16.1% to 3.388 billion from 4.038
billion, while ASMs decreased 23.7% to 4.556 billion from 5.968 billion,
resulting in an increase of 6.7 points in passenger load factor to 74.4% in the
nine months ended September 30, 1997, from 67.7% in the nine months ended
September 30, 1996. Scheduled service yield in the nine months ended September
30, 1997, increased 1.4% to 8.01 cents from 7.90 cents in the same period of
1996, while RASM increased 11.4% to 5.95 cents from 5.34 cents between the same
comparable periods. Scheduled service departures in the nine months ended
September 30, 1997, decreased 11.2% to 23,138 from 26,052 in the nine months
ended September 30, 1996; block hours decreased 15.9% to 58,900 in the nine
months ended September 30, 1997, from 70,011 in the same period of 1996; and
passengers boarded decreased 20.0% between periods to 2,341,468, as compared to
2,926,260.
The Company added scheduled service capacity during the second and third
quarters of 1996 which primarily included expanded direct and connecting
frequencies through the Company's four major gateway cities of Chicago-Midway,
Indianapolis, Milwaukee and Boston to west coast and Florida markets already
being served. New seasonal scheduled service was also introduced in the second
and third quarters of 1996 from New York to Shannon and Dublin, Ireland, and
Belfast, Northern Ireland, and from the midwest to Seattle. New year-round
service also commenced to San Diego, California, in the second quarter of 1996.
The introduction of this new capacity coincided closely, however, with the
May 11, 1996 ValuJet accident in Florida and the resulting persistent negative
media attention directed toward airline safety, and especially toward low-fare
airlines. On May 12, the Company experienced a cabin decompression incident on
one of its own flights which, although it resulted in no serious injury to crew
or passengers, nevertheless attracted additional negative media attention,
occurring as it did one day after the ValuJet tragedy. As a consequence, during
the second and third quarters of 1996, the Company estimates that it lost
significant scheduled service revenues from both canceled reservations and
reservations which were never received.
In association with the 1996 restructuring of the Company's scheduled
service operations, a significant reduction in scheduled service was announced
on August 26, 1996. Between September 4 and December 2, 1996, more than
one-third of the scheduled service capacity operating during the 1996 summer
months was eliminated. All scheduled service flights to and from Boston were
eliminated by December 2, 1996, including service to West Palm Beach, San Juan,
Montego Bay, St. Petersburg, Las Vegas, Orlando and Ft. Lauderdale.
Intra-Florida services connecting the cities of Ft. Lauderdale, Orlando, Miami,
Sarasota, St. Petersburg and Ft. Myers were eliminated as of October 27, 1996.
Other selected services from Indianapolis, Chicago-Midway and Milwaukee to
Florida and to west-coast destinations were also reduced or eliminated by
October 27, 1996. The Company's scheduled service between Chicago-Midway and the
cities of Indianapolis and Milwaukee was replaced with a code share agreement
with Chicago Express on October 27, 1996 as discussed further below. In
association with this service reduction, all scheduled service ceased at
Seattle, Grand Cayman, West Palm Beach, Montego Bay, Miami and San Diego.
On October 27, 1996 the Company also implemented a commuter code share
partnership with Chicago Express to provide incremental connecting traffic
between Indianapolis, Milwaukee and other smaller midwestern cities into the
Company's Chicago-Midway connections with certain Florida and west-coast
destinations. This partnership was replaced with a contractual agreement with
Chicago Express effective April 1, 1997, under which the Company now operates
19-seat Jetstream 31 propeller aircraft between its Chicago-Midway hub and the
cities of Indianapolis, Milwaukee, Des Moines, Dayton and Grand Rapids. The
Company has subsequently announced the expansion of this agreement to include
the cities of Lansing, Michigan and Madison, Wisconsin effective in the fourth
quarter of 1997.
After this scheduled service reduction, the Company's early 1997 core
scheduled service flying included flights between Chicago-Midway and five
Florida cities, Las Vegas, Phoenix, Los Angeles and San Francisco; Indianapolis
to four Florida cities, Las Vegas and Cancun; Milwaukee to three Florida cities;
Hawaii service to San Francisco, Los Angeles and Phoenix; and service between
Orlando and San Juan and Nassau.
41
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<PAGE>
As a result of the restructuring of scheduled service operations in the
manner described above, the scheduled service component of the Company's
operations was profitable in the first three quarters of 1997. Profitability was
achieved through a combination of significantly higher load factors between
periods, generating improved RASM, even though total revenues in scheduled
service declined between years. The Company believes that profitability was
enhanced in this business unit through the selective elimination of flights
which had previously produced below-average load factors and yield, and that the
elimination of intra-Florida flying in particular was a prominent factor in this
improvement. Profitability was further enhanced in certain scheduled service
markets through the reassignment of aircraft fleet types to provide better
balance within markets between revenues, costs, and aircraft operational
capabilities. Yield in the first nine months of 1997 increased 1.4% to 8.01
cents from 7.90 cents in the same period of 1996. Load factor growth was 9.9%
between the nine months ended September 30, 1997 and the comparable period of
1996. Due to the high proportion of fixed versus variable costs associated with
operating a scheduled flight, the positive profit contribution of increased load
factor was more significant than the effect of higher average yields between
periods.
Scheduled service profitability improvement in 1997 was accomplished in
spite of what would normally have been a demand-dampening effect from the
reintroduction of the U.S. departure and 10% federal excise taxes on tickets on
March 7, 1997, which had expired on January 1, 1997. In August 1997, federal
legislation was enacted which indefinitely extends these taxes. The U.S.
departure tax for international destinations was increased from $6 to $12 per
passenger, and a new U.S. arrivals tax of $12 per passenger was added for
passengers arriving into the United States from international cities. Effective
October 1, 1997, the new tax law also changes the method of computation of the
federal excise tax from a simple 10% of ticket sale value to a declining
percentage of ticket sale value (ranging from 9.0% to 7.5%), plus an increasing
inflation-indexed charge per passenger segment flown (ranging from $1 to $3).
The Company does not currently believe that the change in federal excise tax
computation has placed it at either a significant pricing advantage or
disadvantage as compared to the previous computation method. The Company does
believe that certain of its low-fare competitors may be disadvantaged by the new
computation method, however, due to their lower average segment fares and higher
average number of intermediate stops as compared to the Company in similar
markets.
The Company continues to evaluate the profit and loss performance of its
scheduled service business, and the Company may change the level of scheduled
service operations from time to time. The Company began new service in June
1997, between New York's John F. Kennedy International Airport and
Chicago-Midway, Indianapolis and St. Petersburg, and also added several
frequencies between the midwest and the west coast for the summer season. New
York service to Chicago-Midway and St. Petersburg has been retained for the
1997-98 winter season.
Ground Package Revenues. The Company earns ground package revenues through
the sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
through its Ambassadair Travel Club subsidiary exclusively to club members and
through its ATA Vacations subsidiary to the general public. For the nine months
ended September 30, 1997, ground package revenues decreased 6.8% to $16.4
million from $17.6 million in the similar 1996 period.
The Company's Ambassadair Travel Club offers hundreds of
tour-guide-accompanied vacation packages to its approximately 34,000 individual
and family members annually. For the nine months ended September 30, 1997, the
Club recorded a 1.5% increase in packages sold over the same 1996 period. For
the nine months ended September 30, 1997, average package revenue increased
10.1% as compared to the same period in 1996.
ATA Vacations offers numerous ground package combinations to the general
public for use on the Company's scheduled service flights throughout the United
States. These packages are marketed through travel agents as well as directly by
the Company's own reservations centers. During the nine months ended September
30, 1997, the number of ground packages sold decreased 2.6% as compared to the
same 1996 period. Reductions in the number of ground packages sold between the
nine month periods was mainly due to the reduction of the Company's scheduled
service operations between years. During the nine months ended September 30,
1997, the average package price decreased by 19.0% as compared to the same 1996
period.
42
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<PAGE>
The average revenue earned by the Company for a ground package sale is a
function of the mix of vacation destinations served, the quality and types of
ground accommodations offered and general competitive conditions with other air
carriers offering similar products in the Company's markets, all of which
factors can change from period to period.
Other Revenues. Other revenues are comprised of the consolidated revenues
of affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of ATA. Other revenues
decreased 18.5% to $20.7 million in the nine months ended September 30, 1997, as
compared to $25.4 million in the comparable 1996 period, primarily due to a
reduction in revenues earned between periods by providing substitute service to
other airlines, partially offset by increases in other miscellaneous revenue
categories. A substitute service agreement typically provides for the Company to
operate aircraft with its crews on routes designated by the customer airline to
carry the passengers of that airline for a limited period of time.
OPERATING EXPENSES
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost
of salaries and wages paid to the Company's employees, together with the
Company's cost of employee benefits and payroll-related state and federal taxes.
Salaries, wages and benefits expense for the nine months ended September 30,
1997, increased 0.9% to $128.0 million from $126.8 million for the nine months
ended September 30, 1996.
Approximately $2.2 million of the increase between the nine month periods
ending September 30, 1997 and 1996, was attributable to changes made in the
third quarter of 1996 in senior executive positions and associated senior
executive compensation plans. Special compensation totaling $3.0 million was
prepaid to the Company's former President and Chief Executive Officer during the
fourth quarter of 1996 and the first quarter of 1997, which was being amortized
to expense over the anticipated two year term of his employment ending August
1998. Due to his resignation in late May 1997, a one-time charge to expense for
the unamortized $2.0 million prepaid balance was made in the second quarter of
1997 to salaries, wages and benefits, whereas no such charge to expense was
incurred in the prior year.
The cost of salaries and wages earned by cockpit crew members and related
flight operations support staff for the nine months ended September 30, 1997,
were approximately $4.1 million higher than for the same period in 1996. These
cost increases were incurred even though jet block hours flown by cockpit crew
members declined by 11.7% in the nine months ended September 30, 1997, as
compared to the same period in 1996. This increase in the unit cost of cockpit
crews was attributable to the following significant factors: (i) the
implementation of the cockpit crew collective bargaining agreement in August
1996, under which a 7.5% rate increase and more restrictive work rules became
effective; (ii) crew utilization for U.S. military flying is significantly lower
than for scheduled service and tour operator flying, and U.S. military block
hours increased as a percentage of total block hours to 15.3% in the first nine
months of 1997, as compared to 7.2% in the first nine months of 1996; (iii)
cockpit crew shortages during the first three quarters of 1997 resulted in the
need to increase premium pay to cockpit crew members in order to adequately
staff the spring and summer flying schedule; and (iv) cockpit crew productivity
was further reduced by the fleet restructuring completed during 1996, which
increased the percentage of jet block hours flown by three-crew-member aircraft
(Lockheed L-1011 and Boeing 727-200) to 78.8% in the first nine months of 1997,
as compared to 69.6% in the comparable period of 1996. The Company estimates
that, as a result of these factors, a cockpit crew cost per ASM increase
equivalent to approximately $7.1 million was incurred for the nine months ended
September 30, 1997, as compared to the same period of 1996.
The salaries, wages and benefits cost for other employee groups declined by
$5.2 million in the nine months ended September 30, 1997, as compared to the
same period in 1996. These costs declined partially as a result of the decline
in equivalent full-time employment between periods, as well as due to the
restructuring of certain employee benefit plans effective January 1, 1997. Total
equivalent full-time employment declined by 12.7% for the nine months ended
September 30, 1997, as compared to the same period in 1996.
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In addition to planned staff reductions completed during the fourth quarter
of 1996, the change in salaries, wages and benefits expense for other employee
groups was significantly affected by reduced employment in Maintenance and
Engineering, which accounted for a $1.9 million reduction in expense in the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996. Employment of Maintenance and Engineering staff, such as airframe and
powerplant mechanics and engineers, was constrained in 1997 by broad shortages
in related labor markets attributable to very strong current demand for these
skills within the airline industry. The Company compensated for some of these
shortages in 1997 by acquiring these skills through third party contract labor
vendors. The cost of maintenance contract labor (which is a component of
Aircraft Maintenance, Materials and Repairs) increased by $2.4 million in the
nine months ended September 30, 1997 as compared to the same period in 1996.
Salaries, wages and benefits expense for the nine months ended September
30, 1997, was 1.32 cents per ASM, an increase of 11.9% from the nine months
ended September 30, 1996, of 1.18 cents per ASM.
Fuel and Oil. Fuel and oil expense for the nine months ended September 30,
1997, decreased 5.7% to $118.9 million from $126.1 million in the nine months
ended September 30, 1996. During the nine months ended September 30, 1997, as
compared to the same period in 1996, the Company consumed 7.4% fewer gallons of
jet fuel for flying operations, which resulted in a reduction in fuel expense of
approximately $12.1 million between periods. The reduction in jet fuel consumed
was due to the reduced number of block hours of flying operations between
periods. The Company flew 98,226 jet block hours in the nine months ended
September 30, 1997, as compared to 111,289 jet block hours in the nine months
ended September 30, 1996, a decrease of 11.7% between periods. During the nine
months ended September 30, 1997, the Company's average cost per gallon of fuel
consumed increased by 2.1% as compared to the same period in 1996, which
resulted in an increase in fuel and oil expense of approximately $2.6 million
between years. Virtually all of this jet fuel price increase was experienced
during the first quarter of 1997, as compared to the first quarter of 1996. Also
during the nine months ended September 30, 1997, the Company incurred
approximately $0.6 million in fuel and oil expense to operate the Jetstream 31
aircraft under its agreement with Chicago Express, which agreement was not in
effect in the nine months ended September 30, 1996.
Fuel and oil expense for the nine months ended September 30, 1997, was 1.22
cents per ASM, an increase of 3.4% from the nine months ended September 30,
1996, of 1.18 cents per ASM. The change in the cost per ASM of fuel and oil
expense for this period was partly due to the change in mix of jet block hours
flown from the more-fuel-efficient twin-engine Boeing 757-200 aircraft to the
less-fuel-efficient three-engine Boeing 727-200 and Lockheed L-1011 aircraft. In
the nine months ended September 30, 1997, 21.2% of total jet block hours were
flown by the Boeing 757-200 fleet, as compared to 30.4% in the comparable period
of 1996. Jet fuel prices were also a significant factor between periods in cost
per ASM changes.
Handling, Landing and Navigation Fees. Handling and landing fees include
the costs incurred by the Company at airports to land and service its aircraft
and to handle passenger check-in, security and baggage where the Company elects
to use third-party contract services in lieu of its own employees. Where the
Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are assessed when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees decreased by 5.2% to $54.4 million in
the nine months ended September 30, 1997, as compared to $57.4 million in the
same period of 1996. During the nine months ended September 30, 1997, the
average cost per system jet departure for third-party aircraft handling
increased 8.3% as compared to the same period of 1996, and the average cost of
landing fees per system jet departure increased 6.0% between the same periods.
The absolute number of system-wide jet departures between the nine months ended
September 30, 1997 and 1996, declined by 21.1% to 29,840 from 37,809, which
resulted in approximately $8.6 million in volume-related handling and landing
expense reductions between periods. This volume-related decline was partially
offset, however, by an approximately $3.3 million price-related handling and
landing expense increase between periods attributable to a change in jet
departure mix. Because each airport served by the Company has a
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different schedule of fees, including variable prices for different aircraft
types, average handling and landing fee costs are a function of the mix of
airports served and the fleet composition of departing aircraft. On average,
handling and landing fee costs for Lockheed L-1011 wide-body aircraft are higher
than for narrow-body aircraft, and average costs at foreign airports are higher
than at many U.S. domestic airports. As a result of the reduction in the
Company's narrow-body Boeing 757-200 fleet and the shift of revenue production
towards charter operations, the Company's jet departures in the nine months
ended September 30, 1997 included proportionately more international and
wide-body operations than in the same period of 1996. In the nine months ended
September 30, 1997, 22.3% of the Company's jet departures were operated with
wide-body aircraft, as compared to 19.3% in the comparable period of 1996, and
24.4% of the Company's jet departures in the nine months ended September 30,
1997, were from international locations, as compared to 18.4% in the same period
of the prior year. During the nine months ended September 30, 1997, an increase
of approximately $1.3 million in air navigation fees and de-icing costs was also
incurred as compared to the same period in 1996.
The cost per ASM for handling, landing and navigation fees increased 3.7%
to 0.56 cents in the nine months ended September 30, 1997, as compared to 0.54
cents in the comparable period of 1996.
Depreciation and Amortization. Depreciation reflects the periodic expensing
of the recorded cost of owned Lockheed L-1011 airframes and engines, and rotable
parts for all fleet types, together with other property and equipment owned by
the Company. Amortization is the periodic expensing of capitalized airframe and
engine overhauls for all fleet types on a units-of-production basis using
aircraft flight hours and cycles (landings) as the units of measure.
Depreciation and amortization expense decreased 2.5% to $46.0 million in the
nine months ended September 30, 1997, as compared to $47.2 million in the
comparable period of 1996.
Depreciation expense attributable to owned airframes and engines decreased
$0.8 million in the nine months ended September 30, 1997, as compared to the
nine months ended September 30, 1996. The Company reduced its year-over-year
investment in engines and airframe improvements due to the restructuring of the
Boeing 757-200 fleet in the fourth quarter of 1996. As a result of the net
reduction of four Boeing 757-200 aircraft at the end of 1996 as compared to the
end of 1995, and the complete elimination of Pratt-&-Whitney-powered Boeing
757-200s from the fleet, some airframe and leasehold improvements were disposed
of, and all spare Pratt & Whitney engines and rotable parts were reclassified as
Assets Held for Sale in the accompanying balance sheet. None of these assets
therefore gave rise to depreciation expense in the first three quarters of 1997.
The Company did increase its investment in computer equipment and furniture and
fixtures between years; placed the west bay of the renovated Midway Hangar No. 2
into service in mid-1996; and incurred increased debt issue costs between years
relating to debt facility and aircraft lease negotiations completed primarily in
the fourth quarter of 1996. These changes, together with increased costs
pertaining to remaining rotable components and the provision for obsolescence of
aircraft parts inventories, resulted in an increase in depreciation expense of
$0.4 million in the nine months ended September 30, 1997 as compared to the same
period of 1996.
Amortization of capitalized engine and airframe overhauls decreased by $0.4
million for the nine months ended September 30, 1997, as compared to the nine
months ended September 30, 1996. Reductions in the cost of overhaul amortization
were partly due to the reduction of total block hours and cycles flown between
comparable periods. This expense was also favorably impacted by the late-1996
restructuring of the Boeing 757-200 fleet and, in particular, the disposal of
all Pratt-&-Whitney-powered Boeing 757-200 aircraft. All unamortized net book
values of engine and airframe overhauls pertaining to the
Pratt-&-Whitney-powered aircraft were charged to the cost of the disposal of
these assets in the third quarter of 1996. The Company's seven remaining
Rolls-Royce-powered Boeing 757-200 aircraft, four of which were delivered new
from the manufacturer in late 1995 and late 1996, are not presently generating
any engine and airframe overhaul expense since the initial post-delivery
overhauls for the Rolls-Royce-powered Boeing 757-200s are not yet due under the
Company's maintenance programs. The net reduction in engine and airframe
amortization expense pertaining to the nine months ended September 30, 1997, as
compared to the same period of 1996 was approximately $4.2 million. Engine and
airframe amortization for the Company's fleet of Boeing 727-200 aircraft
increased by approximately $1.9 million between the nine month periods ended
September 30, 1997 and
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1996, due to the ongoing expansion of this fleet type and due to the completion
of new overhauls for Boeing 727-200 aircraft. The increase between years in
engine and airframe amortization expense for the Company's Lockheed L-1011 fleet
was approximately $1.2 million, for the nine months ended September 30, 1997 and
1996.
The cost of engine overhauls that become worthless due to early engine
failures and which cannot be economically repaired is charged to depreciation
and amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs decreased by $0.4 million
between the nine months ended September 30, 1997 and 1996. When these engine
failures can be economically repaired, the related repairs are charged to
aircraft maintenance, materials and repairs expense.
Depreciation and amortization expense per ASM increased 6.8% to 0.47 cents
in the nine months ended September 30, 1997, as compared to 0.44 cents in the
nine months ended September 30, 1996.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost
of expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for base and line maintenance activities, and other
non-capitalized direct costs related to fleet maintenance, including spare
engine leases, parts loan and exchange fees, and related shipping costs.
Aircraft maintenance, materials and repairs expense decreased 5.4% to $40.1
million in the nine months ended September 30, 1997, from $42.4 million in the
same period of 1996. The cost per ASM increased 2.5% to 0.41 cents in the nine
months ended September 30, 1997, from 0.40 cents in the same period of 1996.
Repair costs were $4.0 million lower for the nine months ended September
30, 1997, as compared to the same period of 1996. This was due to a reduction in
both the total number of repairs performed and the average unit cost of repairs
between periods. Negotiations were completed in early 1997 with several repair
vendors which resulted in reduced unit charges for some repair activity.
Additionally, the Company established a maintenance disposition board in late
1996 which carefully reviews significant repair decisions in light of
anticipated fleet requirements and the available quantity of serviceable
components in stock.
The cost of expendable parts consumed increased $0.5 million between the
nine-month periods ended September 30, 1997 and 1996. The periodic variations in
the cost of expendable parts consumed are closely related to seasonal
differences in the Company's heavy maintenance check programs for its fleet,
which were scheduled more effectively into lower periods of aircraft utilization
in 1997 than they were in 1996, when aircraft availability was more constrained
due to several late deliveries of Boeing 727-200 aircraft.
The cost of maintenance contract labor increased by $2.4 million for the
nine months ended September 30, 1997, as compared to the same period in 1996. As
explained above under 'Salaries, Wages and Benefits', the Company increased its
utilization of maintenance contract labor in 1997 to compensate for some
shortages of experienced airframe and powerplant mechanics and engineers.
The cost of parts loans and exchanges declined by $1.3 million in the nine
months ended September 30, 1997, as compared to the same period of 1996, due to
improved internal procedures to limit the need for such loans and exchanges.
All of the Company's aircraft under operating leases have certain return
conditions applicable to the maintenance status of airframes and engines as of
the termination of the lease. The Company accrues estimated return condition
costs as a component of maintenance, materials and repairs expense based upon
the actual condition of the aircraft as each lease termination date approaches,
and based upon the Company's ability to estimate the expected cost of conforming
to these conditions. Return condition expenses accrued in the nine months ended
September 30, 1997 were $0.8 million higher than for the nine months ended
September 30, 1996. This increase was primarily due to changes in the mix of
aircraft leases and associated return conditions which became effective between
years.
Aircraft Rentals. Aircraft rentals expense in the nine months ended
September 30, 1997, decreased 19.5% to $41.8 million from $51.9 million in the
same period of 1996. These decreases were primarily attributable to the
restructuring of the Company's Boeing 757-200 fleet in the fourth quarter of
1996, as a result of which the number of Boeing 757-200 aircraft operated by the
Company was reduced by four units. The reduction in the size of the Boeing
757-200 fleet was an integral component of the Company's
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1996 restructuring of scheduled service, based upon profitability analysis which
disclosed that, for some uses of the Boeing 757-200 in the Company's markets, it
was more profitable to substitute other aircraft with lower ownership costs.
Aircraft rentals expense declined $12.8 million between the nine month periods
ended September 30, 1997 and 1996, as a result of the Boeing 757-200 fleet
restructuring.
Four additional Boeing 727-200 aircraft were acquired and financed by
sale/leasebacks at various times during the first three quarters of 1996, while
one Boeing 727-200 aircraft previously on an operating lease was purchased
during the second quarter of 1996. The net increase in leased Boeing 727-200
aircraft between years added approximately $2.7 million in aircraft rentals
expense during the nine months ended September 30, 1997, as compared to the same
period of 1996.
Aircraft rentals expense for the nine months ended September 30, 1997, was
0.43 cents, a decrease of 10.4% from 0.48 cents for the same period of 1996. The
period-to-period decrease in the size of the Boeing 757-200 fleet was a
significant factor in these changes since the rental cost of ASMs produced by
this fleet type is significantly higher than for the Company's other aircraft.
With the reduction in the higher-ownership-cost Boeing 757-200 aircraft in late
1996, the Company anticipates that the cost per ASM produced by its leased
aircraft fleet will continue to be lower in future quarters.
Crew and Other Employee Travel. Crew and other employee travel is primarily
the cost of air transportation, hotels and per diem reimbursements to cockpit
and cabin crew members that is incurred to position crews away from their bases
to operate all Company flights throughout the world. The cost of air
transportation is generally more significant for the charter business unit since
these flights often operate between cities in which Company crews are not
normally based and may involve extensive international positioning of crews.
Hotel and per diem expenses are incurred for both scheduled and charter
services, although higher per diem and hotel rates generally apply to
international assignments.
The cost of crew and other employee travel was unchanged at $27.7 million
for the nine months ended September 30, 1997 and 1996. During the first nine
months of 1997, the Company's average full-time-equivalent cockpit and cabin
crew employment was 13.5% lower as compared to the prior year, even though jet
block hours decreased by only 11.7% between periods. Although the Company did
experience some crew shortages in the first quarter of 1996 associated with
severe winter weather, shortages of both cockpit and cabin crews were more
chronic in the first nine months of 1997, and per-crew-member travel costs were
consequently higher since crews spent greater amounts of time away from their
bases to operate the Company's schedule. In addition, average crew travel costs
for the U.S. military and specialty charter businesses are much higher than for
track charter and scheduled service since these flights more often operate away
from crew bases.
The cost per ASM for crew and other employee travel increased 11.5% to 0.29
cents in the nine months ended September 30, 1997, from 0.26 cents in the same
period of 1996.
Passenger Service. Passenger service expense includes the onboard costs of
meal and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For the nine-month periods
ended September 30, 1997 and 1996, catering represented 82.8% and 80.3%,
respectively, of total passenger service expense.
The cost of passenger service decreased 2.3% to $25.8 million in the nine
months ended September 30, 1997, from $26.4 million in the same period of 1996.
This reduction was partly caused by fewer system-wide jet passengers boarded,
which declined by 13.2% to 4,043,535 in the nine months ended September 30,
1997, as compared to 4,659,399 in the same period of 1996. However, the average
cost to cater each passenger boarded increased 10.7% between the nine-month
periods ended September 30, 1997 and 1996. Catering unit cost increased due to a
change in the mix of passengers boarded from fewer scheduled service toward more
charter and military passengers; the latter passengers, particularly military,
are the most expensive passengers to cater in the Company's business mix. For
the nine months ended September 30, 1997 military and charter passengers
accounted for 43.4% of passengers boarded, as compared to 35.3% of passengers
boarded in the nine months ended September 30, 1996.
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The cost per ASM of passenger service increased 4.0% to 0.26 cents in the
nine months ended September 30, 1997, from 0.25 cents in the same period of
1996.
Commissions. The Company incurs significant commissions expense in
association with the sale by travel agents of single seats on scheduled service.
In addition, the Company pays commissions to secure some tour operator and
military business. Commissions expense decreased 9.7% to $19.6 million in the
nine months ended September 30, 1997 from $21.7 million in the same period of
1996. Scheduled service commissions expense declined by $3.6 million, between
the nine-month periods ended September 30, 1997 and 1996, as a result of the
decline in scheduled service revenues earned between periods, partially offset
by non-recurring commission charges in the third quarter of 1996 (associated
with scheduled service restructuring and resulting flight cancellations) for
involuntary refunds of tickets issued by travel agencies for which related
commissions were not refunded to the Company. Military and tour operator
commissions expense increased by $1.8 million, between the same set of
comparative periods, due to the increased level of commissionable revenues
earned in those business units in 1997 as compared to 1996.
The cost per ASM of commissions expense was unchanged at 0.20 cents for the
nine month periods ended September 30, 1997 and 1996.
Ground Package Cost. Ground package cost includes the expenses incurred by
the Company for hotels, car rental companies, cruise lines and similar vendors
to provide ground and cruise accommodations to Ambassadair and ATA Vacations
customers. Ground package cost decreased 1.4% to $14.0 million in the nine
months ended September 30, 1997, as compared to $14.2 million in the same period
of 1996. The decrease in cost between the nine months ended September 30, 1997
and 1996 was attributable to nominal changes in both the average cost and the
number of ground packages sold.
Ground package cost per ASM increased by 7.7% to 0.14 cents in the nine
months ended September 30, 1997, from 0.13 cents in the same period of 1996. The
higher cost per ASM in 1997 resulted from a greater decline in total ASMs as
compared to the decline in ground package sales volumes between periods.
Other Selling Expenses. Other selling expenses are comprised of (i) booking
fees paid to computer reservation systems (CRSs) to reserve single-seat sales
for scheduled service; (ii) credit card discount expenses incurred when selling
single seats and ground packages to customers using credit cards for payment;
(iii) costs of providing toll-free telephone services, primarily to single-seat
and vacation package customers who contact the Company directly to book
reservations; and (iv) miscellaneous other selling expenses that are primarily
associated with single-seat sales. Other selling expenses decreased 24.3% to
$10.9 million in the nine months ended September 30, 1997, as compared to $14.4
million in the same period of 1996.
Credit card discount expense decreased $0.7 million in the nine months
ended September 30, 1997, as compared to the same periods in 1996, as a result
of the reduction in size of the scheduled service business unit of the Company
and the consequent reduction in total credit card sales, and due to a reduction
in the blended credit card discount rate between years. CRS fees decreased $1.8
million, in the nine months ended September 30, 1997, as compared to the same
periods in 1996, due to less bookings made for the smaller scheduled service
business unit between periods. Toll-free telephone usage declined by $0.9
million between the nine months ended September 30, 1997 and 1996 due to less
usage and lower rates.
Other selling cost per ASM declined 15.4% to 0.11 cents in the nine months
ended September 30, 1997, as compared to 0.13 cents in the same period of 1996.
Advertising. Advertising expense increased 19.5% to $9.8 million in the
nine months ended September 30, 1997, as compared to $8.2 million in the nine
months ended September 30, 1996. The Company incurs advertising costs primarily
to support single-seat scheduled service sales and the sale of air-and-ground
packages. Advertising support for these lines of business was increased in 1997
consistent with the Company's overall strategy to enhance RASM in these
businesses through increases in load factor and yield. Additionally, advertising
was comparatively low in the third quarter of 1996 due to the restructuring of
numerous scheduled service markets which was initiated in the latter part of
that quarter.
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The cost per ASM of advertising increased 25.0% to 0.10 cents in the nine
months ended September 30, 1997, as compared to 0.08 cents in the same period of
1996. These increases in cost per ASM resulted from higher absolute advertising
dollars being spent in a period of declining ASMs, but was nevertheless an
integral part of the Company's successful strategy in 1997 to enhance
profitability in the scheduled service business.
Facility and Other Rentals. Facility and other rentals includes the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facility and other
rentals decreased 8.3% to $6.6 million for the nine months ended September 30,
1997 as compared to $7.2 million in the nine months ended September 30, 1996.
There were some changes in specific facilities utilized by the Company between
periods, such as the addition of hangar space at Chicago-Midway and the
elimination of airport facilities at Boston. The Company reduced total facility
expense between years through the sublease of excess airport facilities to third
parties. The cost per ASM for facility and other rentals was unchanged at 0.07
cents for the nine months ended September 30, 1997 and 1996.
Other Operating Expenses. Other operating expenses decreased 6.6% to $39.8
million in the nine months ended September 30, 1997, as compared to $42.6
million in the same period in 1996. Other operating expenses which experienced
significant increases between both sets of comparative periods included the cost
of the Chicago Express commuter agreement effective April 1, 1997 and the cost
of property and sales taxes. Other operating expenses which experienced
significant decreases between both sets of comparative periods included the cost
of insurance and the cost of professional consulting fees. Many other categories
of other operating expenses were lower in 1997 than in 1996 primarily due to the
smaller size of the airline between periods.
Other operating cost per ASM increased 2.5% to 0.41 cents in the nine
months ended September 30, 1997, as compared to 0.40 cents in the same period of
1996.
Interest Income and Expense. Interest expense increased 107.1% to $5.8
million in the nine months ended September 30, 1997, as compared to $2.8 million
in the same period of 1996. The increase in interest expense between comparative
periods was primarily due to the change in the Company's capital structure which
resulted from the two financings completed on July 24, 1997, at which time the
Company (i) sold $100.0 million principal amount of 10.5% unsecured seven year
notes, and (ii) entered into a new $50.0 million secured revolving credit
facility, thereby replacing the former secured revolving credit facility of
$122.0 million.
The capital structure of the Company prior to completing these new
financings provided for outstanding borrowings under the former credit facility
of $122.0 million to be routinely adjusted to meet the expected cash flow
requirements of the Company, thereby minimizing the level of borrowings on which
interest would be paid. Under the new capital structure of the Company, the
level of borrowings outstanding under the 10.5% notes will remain fixed at
$100.0 million without regard to actual cash requirements at any point in time.
During the nine months ended September 30, 1997, the weighted average borrowings
outstanding were approximately $99.4 million, as compared to $75.1 million in
the same period of 1996.
The weighted average effective interest rate applicable to the Company's
outstanding borrowings was 8.42% for the nine months ended September 30, 1997 as
compared to 8.13% in the same period of 1996. The increase in the weighted
average effective interest rates between comparative periods was primarily due
to the 10.5% effective interest rate applicable to the $100.0 million in
unsecured notes issued on July 24, 1997, which was higher than the average
effective interest rate of 8.92% applicable to borrowings under the former
credit facility during the nine months ended September 30, 1996.
In order to minimize the interest expense impact of the $100.0 million
10.5% unsecured notes, the Company invested excess cash balances and thereby
earned $0.8 million in interest income in the nine months ended September 30,
1997, an increase of 60.0% over $0.5 million earned in the same period of 1996.
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INCOME TAX EXPENSE
For the nine months ended September 30, 1997, income tax expense of $5.2
million was recorded, as compared to a tax credit of $6.1 million in the same
period of 1996. The effective tax rates for the nine months ended September 30,
1997 and 1996 were 55.2% and 32.6%, respectively.
Income tax expense and credits between periods were significantly affected
by the non-deductibility for federal income tax purposes of 50% of amounts paid
for crew per diem. The effect of this permanent difference on the effective
income tax rate for financial accounting purposes becomes more pronounced in
cases where before-tax income or loss approaches zero, which was one reason for
the higher effective tax rates applicable to the nine month period ended
September 30, 1997 as compared to the comparable period of 1996.
Income tax expense and the effective tax rate for the nine months ended
September 30, 1997 were also significantly affected by the one-time $2.0 million
charge to salaries, wages and benefits in the second quarter of 1997 for the
prepaid executive compensation package provided to the Company's former
President and Chief Executive Officer. Of the total compensation paid to this
former executive of the Company in 1997, approximately $1.7 million is
non-deductible against the Company's federal income taxes, and thus constitutes
an additional significant permanent difference between income for federal income
tax purposes and financial accounting income which did not exist in 1996.
YEAR ENDED DECEMBER 31, 1996, VERSUS YEAR ENDED DECEMBER 31, 1995
OPERATING REVENUES
Total operating revenues in 1996 increased 5.0% to $750.9 million from
$715.0 million in 1995. This increase was due to a $24.5 million increase in
scheduled service revenues, a $3.5 million increase in charter revenues, a $1.9
million increase in ground package revenues, and a $6.0 million increase in
other revenues.
Scheduled Service Revenues. Scheduled service revenues in 1996 increased
6.8% to $386.5 million from $362.0 million in 1995. Scheduled service revenues
comprised 51.5% of total operating revenues in 1996, as compared to 50.6% of
operating revenues in 1995. Scheduled service RPMs increased 5.2% to 4.918
billion from 4.673 billion, while ASMs increased 10.6% to 7.305 billion from
6.605 billion, resulting in a reduction in passenger load factor to 67.3% in
1996 from 70.9% in 1995. Yield on scheduled service in 1996 increased 1.4% to
7.86 cents per RPM from 7.75 cents per RPM in 1995. Scheduled service departures
in 1996 increased 14.1% to 31,467 from 27,573 in 1995, while passengers boarded
increased 7.5% over such period to 3,551,141, as compared to 3,304,369.
Charter Revenues. Total charter revenues increased 1.1% to $310.6 million
in 1996, as compared to $307.1 million in 1995. Charter revenue growth, prior to
scheduled service restructuring in late 1996, was constrained by the dedication
of a significant portion of the Company's fleet to scheduled service expansion,
including the utilization of two Lockheed L-1011 aircraft for scheduled services
to Ireland and Northern Ireland between May and September 1996.
The analysis of profitability by business component which was performed by
the Company for the six quarters ended June 30, 1996, disclosed that both
military and tour operator components had produced consistent profits over the
period studied. The Company's Lockheed L-1011 fleet performed well in a charter
environment based upon relatively low frequency of operating and high passenger
load factors, and the Boeing 757-200 performed well in the military business
component while the Boeing 727-200 worked well with certain tour operators. The
Company began to implement strategies to improve the financial performance of
charter operations in the third and fourth quarters of 1996, and both tour
operator and military flying are expected to play a role of growing significance
in the Company's future business operations.
Charter revenues derived from independent tour operators (including the
Ambassadair Travel Club) decreased 1.4% to $226.4 million in 1996, as compared
to $229.5 million in 1995. Tour operator revenues comprised 30.2% of operating
revenues in 1996, as compared to 32.1% of operating revenues in 1995. Tour
operator ASMs decreased 2.0% to 4.363 billion from 4.450 billion and the revenue
per ASM (RASM) on tour operator revenues in 1996 increased 0.6% to 5.19 cents,
as compared to 5.16
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cents in 1995. Tour operator passengers boarded increased 0.8% to 1,854,262 in
1996, as compared to 1,839,386 in 1995, and tour operator departures decreased
3.6% to 10,920 in 1996, as compared to 11,324 in 1995.
Charter revenues derived from the U.S. military increased 8.7% to $84.2
million in 1996, as compared to $77.5 million in 1995. Military revenues
comprised 11.2% of total operating revenues in 1996, as compared to 10.8% of
total operating revenues in 1995. U.S. military ASMs increased 4.3% to 1.442
billion from 1.382 billion. The RASM on U.S. military revenues in 1996 increased
4.1% to 5.84 cents as compared to 5.61 cents in 1995. U.S. military passengers
boarded decreased 6.6% to 185,575 in 1996, as compared to 198,711 in 1995, and
U.S. military departures decreased 8.1% to 3,414 in 1996, as compared to 3,713
in 1995.
Ground Package Revenues. Ground package revenues increased 9.3% to $22.3
million in 1996, as compared to $20.4 million in 1995.
In 1996, total vacation packages sold by the Company's Ambassadair Travel
Club increased 2.4% as compared to 1995, and the average price of each ground
package sold increased 18.0% as compared to the prior year.
During 1996, the number of ATA Vacations ground packages sold increased
21.8% as compared to 1995, but the average price of each ground package sold
decreased 16.9% as compared to the prior year. The average price paid to the
Company for a ground package sale is a function of the mix of vacation
destinations served, the quality and types of ground accommodations offered, and
general competitive conditions with other air carriers offering similar products
in the Company's markets. Some ATA Vacations markets have experienced price
reductions in 1996 due to intense price competition. The average gross margin on
ATA Vacations ground packages sold in 1996 declined to 21.6% as compared to
26.6% in 1995, while the average gross margin on Ambassadair Travel Club ground
package sales declined to 14.5% in 1996, as compared to 15.9% in the prior year.
Other Revenues. Other revenues increased 23.5% to $31.5 million in 1996, as
compared to $25.5 million in 1995. Approximately $3.8 million of the revenue
increase between years was attributable to an increase in the number of block
hours of substitute service provided by the Company to other airlines. A
substitute service agreement typically provides for the Company to operate an
aircraft with its own crews on routes designated by the customer airline to
carry the passengers of that airline for a limited period of time. The remaining
increase in other revenues between periods was primarily due to revenue growth
in several of the Company's affiliated businesses.
OPERATING EXPENSES
Salaries, Wages and Benefits. Salaries, wages and benefits expense for 1996
increased 16.2% to $164.0 million from $141.1 million in 1995. Approximately
$15.9 million of the increase in 1996 was attributable to the addition of
cockpit and cabin crews, reservations agents, base station staff and maintenance
staff to support the Company's growth in capacity between periods, and
approximately $3.6 million of the increase was attributable to the related
growth in employee benefits costs. Average Company full-time-equivalent
employees increased by 11.7% in 1996 as compared to the prior year, although the
reduction-in-force implemented in late 1996 resulted in approximately 6.1% fewer
full-time-equivalent employees in the fourth quarter of 1996 as compared to the
fourth quarter of 1995. The Company substantially completed this reduction in
force in the fourth quarter of 1996, and recorded $183,000 in related severance
costs in 1996.
Salaries, wages and benefits expense in 1996 was 1.23 cents per ASM, an
increase of 8.9% from a cost of 1.13 cents per ASM in 1995. The cost per ASM
increased partially as a result of a 3.4% increase in the average rate of pay
for the Company's employees as compared to the prior year. In addition, the
Company has increased employment in several maintenance and base station
locations in lieu of continuing the use of third-party contractors, as it
believes it can provide more reliable operations and better customer service at
a lower total cost by using its own employees in these selected locations. The
Company has experienced related savings in the expense lines of handling,
landing and navigation fees, and in aircraft maintenance, materials and repairs,
as further described in those following sections.
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Fuel and Oil. Fuel and oil expense for 1996 increased 24.4% to $161.2
million from $129.6 million in 1995, due to an increase in fuel consumed to
operate the Company's expanded block hours of flying, an increase in the average
price paid per gallon of fuel consumed and the imposition of a 4.3-cent-per-
gallon excise tax on jet fuel consumed for domestic use effective October 1,
1995.
During 1996, the Company consumed 7.4% more gallons of jet fuel for flying
operations and flew 9.4% more block hours than in 1995, which accounted for
approximately $9.l million in additional fuel and oil expense between years
(excluding price and tax changes). The growth in gallons of fuel consumed was
lower than the growth in block hours flown between years due to a change in the
mix of block hours flown by fleet type. Of greatest significance was the 4.1%
reduction of total block hours flown by the Lockheed L-1011 fleet between
periods, since the fuel burn per block hour for this wide-body aircraft is
approximately twice as high as the burn rates for the Company's other fleet
types.
During 1996, the Company's average price paid per gallon of fuel consumed
(excluding the excise tax described in the following paragraph) increased by
12.8% as compared to 1995. Fuel price increases paid by the Company reflected
generally tighter supply conditions for aviation fuel, which persisted
throughout most of 1996 as compared to the prior year. The Company estimates
that the year-over-year increase in average price paid for jet fuel resulted in
approximately $16.1 million in additional fuel and oil expense between periods.
On October 1, 1995, the Company became subject to a 4.3-cent-per-gallon
excise tax on jet fuel consumed for domestic use by commercial air carriers. The
effect of this tax in the first three quarters of 1996, as compared to the first
three quarters of 1995, was to increase the Company's cost of jet fuel by
approximately $6.4 million.
Fuel and oil expense for 1996 was 1.21 cents per ASM, an increase of 17.5%
as compared to 1.03 cents per ASM in 1995. The increase in the cost per ASM of
fuel and oil expense was primarily as a result of higher prices and the new
excise tax, partially offset by the expanded use of the more fuel efficient
twin-engine Boeing 757-200 aircraft in the Company's fleet. During 1996, the
Company's Boeing 757-200 aircraft accounted for 29.4% of total block hours
flown, as compared to 27.8% of total block hours flown in 1995. Due to the
reduction of the Company's Boeing 757-200 fleet in late 1996, the Company's mix
of block hours flown in future years is expected to reflect a lower proportion
of fuel-efficient Boeing 757-200 block hours, and a higher proportion of the
less-fuel-efficient Boeing 727-200 and Lockheed L-1011 fleet types.
Handling, Landing and Navigation Fees. Handling, landing and navigation
fees decreased by 5.8% to $70.1 million in 1996, as compared to $74.4 million in
1995. During 1996, the average cost per system departure for third-party
aircraft handling declined 15.0% as compared to the prior year, and the average
cost of landing fees per system departure decreased 12.2% between the same
periods.
Because each airport served by the Company has a different schedule of
fees, including variable prices for different aircraft types, average handling
and landing fee costs are a function of the mix of airports served as well as
the fleet composition of departing aircraft. On average, these costs for narrow-
body aircraft are less than for wide-body aircraft, and the average costs at
domestic U.S. airports are less than the average costs at most foreign airports.
In 1996, 80.6% of the Company's departures were operated with narrow-body
aircraft, as compared to 77.6% in 1995, and 81.1% of the Company's departures
were from U.S. domestic locations, as compared to 79.6% in 1995.
The implementation by the Company in 1996 of a policy of 'self-handling' at
four domestic U.S. airports with significant operations resulted in lower
absolute third-party handling costs for these locations and contributed to lower
system average contract handling costs per departure for 1996, as compared to
1995. The Company incurred higher salaries, wages and benefits expense as a
result of this policy change, as noted in 'Salaries, Wages and Benefits.'
The cost per ASM for handling, landing and navigation fees decreased 10.2%
to 0.53 cents in 1996 from 0.59 cents in 1995.
Aircraft Rentals. Aircraft rentals expense for 1996 increased 17.4% to
$65.4 million from $55.7 million in 1995. This increase was attributable to
continued growth in the size of the Company's leased aircraft fleet, although
the Company significantly reduced the size of its Boeing 757-200 fleet in the
fourth quarter of 1996, as is more fully described in 'Disposal of Assets.'
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The addition of three leased Boeing 757-200 aircraft in the first three
quarters of 1996 resulted in approximately $10.6 million of increased aircraft
rentals for that time period, as compared to the prior year. The subsequent
reduction of this fleet type by a net four units (after including two new
deliveries from the manufacturer in December 1996) resulted in a year-over-year
fourth quarter reduction of aircraft rent expense of approximately $3.6 million.
The reduction in the size of the Boeing 757-200 fleet was an integral component
of the Company's restructuring of scheduled service, based upon profitability
analysis which disclosed that for some uses of the Boeing 757-200 in the
Company's markets prior to restructuring, it was more profitable to substitute
other aircraft with lower ownership costs.
Several additional Boeing-727-200 and Lockheed L-1011 aircraft leased in
1996 contributed $2.8 million and $0.5 million, respectively, in incremental
aircraft rentals between years. Aircraft rentals expense was reduced by $0.6
million for the first four months of 1996, as compared to the prior year, due to
the purchase of four Pratt & Whitney spare engines in May 1995, which had been
previously leased. Due to the elimination of all Pratt-&-Whitney-powered Boeing
757-200 aircraft from the Company's fleet, the Company has reclassified these
owned spare engines as 'Assets Held for Sale' in the accompanying balance sheet,
and is actively marketing these assets to users of Pratt-&-Whitney-powered
aircraft.
Aircraft rentals expense for 1996 was 0.49 cents per ASM, an increase of
11.4% from 0.44 cents per ASM in 1995. The period-over period increase in the
size of the Boeing 757-200 feet was a significant factor in this change, since
the rental cost of ASMs produced by this fleet type is significantly higher than
for the Company's other aircraft.
Depreciation and Amortization. Depreciation and amortization expense for
1996 increased 10.6% to $61.7 million from $55.8 million in 1995.
Depreciation expense attributable to owned airframes and engines, and other
property and equipment owned by the Company, increased $2.9 million in 1996 as
compared to the prior year. The Company increased its year-over-year ownership
of engines and rotable aircraft components to support the expanding fleet, and
increased its investment in computer equipment and furniture and fixtures. The
Company also placed the west bay of the renovated Midway Hangar No. 2 into
service in mid-1996 and incurred increased debt issue costs between years
related to debt facility and aircraft lease negotiations completed in 1996.
Amortization of capitalized engine and airframe overhauls increased $1.9
million in 1996 as compared to the prior year, after including the offsetting
amortization of approximately $1.0 million in associated manufacturers' credits.
The increasing cost of overhaul amortization reflects the increase in the number
of aircraft added to the Company's fleet and the increase in cycles and block
hours flown between years. New aircraft introduced into the Company's fleet
generally do not require airframe or engine overhauls until one or more years
after first entering service. Therefore, the resulting amortization of these
overhauls generally occurs on a delayed basis from the date the aircraft is
placed into service. Accordingly, the Company anticipates that the average cost
of engine and airframe amortization per block hour and cycle will increase in
future years for all fleet types, as all aircraft receive their initial engine
and airframe overhauls after being placed into service.
Depreciation and amortization expense attributable to write-offs relating
to the cost of engine overhauls that become worthless due to early engine
failures, and which cannot be economically repaired increased $1.1 million
between years.
Depreciation and amortization cost per ASM increased 4.4% to 0.47 cents in
1996, as compared to 0.45 cents in 1995.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance,
materials and repairs expense decreased 0.4% to $55.2 million in 1996, as
compared to $55.4 million in 1995. The cost per ASM decreased by 4.8% to 0.42
cents in 1996, as compared to 0.44 cents in the prior year.
Although the cost of repairs for repairable and rotable components
increased $1.4 million between periods, the cost of expendable parts consumed
decreased $2.1 million, and the cost of parts loans and exchanges increased $0.6
million. Aircraft maintenance, materials and repairs cost was also reduced by
$0.8 million in 1996, as compared to 1995, due to a planned reduction in the use
of third-party maintenance staff in favor of using more Company maintenance
employees for both base and line
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maintenance activities. The Company incurred higher salaries, wages and benefits
expense as a result of this policy change, as noted above.
The cost of the Company's maintenance, materials and repairs remained
essentially unchanged in 1996, as contrasted to the 6.2% increase in ASMs
between years, and the 9.4% increase in block hours. This favorable comparison
is partly due to the significant expansion of the Company's fleet during 1996.
The more favorable comparison to block hours between years is also indicative of
the faster growth in the Company's twin-engine Boeing 757-200 fleet, which is
composed of newer and more technologically advanced aircraft which require
relatively less routine maintenance than the Company's older three-engine
Lockheed L-1011 and Boeing 727-200 fleets. The Boeing 757-200 fleet accounted
for 29.4% of block hours in 1996, as compared to 27.8% in 1995. Nevertheless,
due to the reduction of the Company's Boeing 757-200 fleet in late 1996, the
Company's mix of block hours flown in future years is expected to reflect a
lower proportion of Boeing 757-200 block hours, and a higher proportion of block
hours flown by the older three-engine Lockheed L-1011 and Boeing 727-200 fleets.
Return condition expenses accrued in 1996 were $1.1 million more than in
1995. This increase was primarily due to changes in the mix of aircraft leases
and associated return conditions which became effective during 1996, offset by
both the extensive restructuring of the Boeing 757-200 fleet and the
sale/leaseback of six hushkitted Boeing 727-200 aircraft during 1996 under new
lease terms and conditions.
Crew and Other Employee Travel. The cost of crew and other employee travel
increased 14.0% to $35.9 million in 1996, as compared to $31.5 million in 1995.
During 1996, the Company increased its average full-time-equivalent crew head
count by 4.1% as compared to the prior year, even though departures increased by
8.4% and block hours increased by 9.4% between periods. In the first quarter of
1996, the Company experienced crew shortages, which were exacerbated by severe
winter weather, which caused significant flight delays, diversions and
cancellations. The Company's crew complement in the third quarter of 1996 was
again insufficient to effectively operate the flying schedule and resulted in
more crew time being spent away from base during that quarter.
The cost per ASM for crew and other employee travel increased 8.0% to 0.27
cents in 1996, as compared to 0.25 cents in the prior year. This increase in
unit cost was approximately equivalent to a 9.0% average increase in the cost
per crew member of hotel, positioning and per diem expenses between years.
Passenger Service. For 1996 and 1995, catering represented 80.3% and 84.9%,
respectively, of total passenger service expense. The cost of passenger service
decreased 6.0% in 1996 to $32.7 million, as compared to $34.8 million in 1995.
Although total passengers boarded increased by 5.8% to 5.68 million in 1996, as
compared to 5.37 million in 1995, the average cost to cater each passenger
declined 19.1% between years due to a planned reduction in catering service
levels in select charter and scheduled service markets beginning in the second
quarter of 1995. This cost reduction was partially offset by a 6.6% increase in
military passengers boarded between years, who are the most expensive passengers
to cater in the Company's business mix.
The cost of servicing passengers who were inconvenienced by trip
interruptions increased by $1.4 million between years. Approximately $0.7
million of this increase was incurred in association with the severe winter
weather and consequent flight schedule disruptions which occurred in the first
quarter of 1996.
The cost per ASM of passenger service decreased 10.7% to 0.25 cents in
1996, as compared to 0.28 cents in the prior year. The lower cost per ASM was
primarily due to the lower cost of catering per passenger boarded, partially
offset by the higher cost per ASM of servicing inconvenienced passengers.
Commissions. Commissions expense increased 7.7% to $26.7 million in 1996,
as compared to $24.8 million in 1995. The primary reason for the increase
between years was the corresponding increase in scheduled service revenues
earned, approximately two-thirds of which was generated through travel agencies
which received a commission on such sales. The cost per ASM of commissions
expense was unchanged at 0.20 cents for both 1996 and 1995.
Ground Package Cost. Ground package cost increased 14.5% to $18.2 million
in 1996, as compared to $15.9 million in 1995. This increase in cost is
primarily due to the increase in the number of ground
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packages sold between periods. In 1996, Ambassadair sold 2.4% more ground
packages, and ATA Vacations sold 21.8% more ground packages, than in 1995. The
average cost of each ground package sold by Ambassadair increased 19.9% between
years, while the average price of each ground package sold by ATA Vacations
decreased by 11.2% between periods.
Ground package cost per ASM increased by 7.7% to 0.14 cents in 1996, as
compared to 0.13 cents in 1995, which reflects the comparatively faster growth
in ground package sales produced by Ambassadair and ATA Vacations as compared to
the overall ASM growth of the Company between years.
Other Selling Expenses. Other selling expenses increased 18.1% to $17.6
million in 1996, as compared to $14.9 million in 1995. Approximately $1.1
million and $0.2 million, respectively, of this increase was attributable to
more credit card discounts and CRS fees incurred to support the growth in
scheduled service between years. Another $1.2 million of the increase was due to
higher usage of toll-free telephone service between periods, some of which was
associated with the accommodation of passengers onto other carriers' flights due
to the Company's reduction of scheduled service in the third and fourth quarters
of 1996.
Other selling cost per ASM increased 8.3% to 0.13 cents in 1996, as
compared to 0.12 cents in 1995.
Advertising. Advertising expense increased 15.7% to $10.3 million in 1996,
as compared to $8.9 million in 1995. Advertising support for single-seat
scheduled service sales and the sale of ground packages increased consistent
with the growth in associated revenues and the need to meet competitive actions
in the Company's markets.
The cost per ASM of advertising increased 14.3% to 0.08 cents in 1996, as
compared to 0.07 cents in 1995.
Facilities and Other Rentals. The cost of facilities and other rentals
increased 29.7% to $9.6 million in 1996, as compared to $7.4 million in 1995.
The increase in expense noted for 1996 was partly attributable to higher
facility costs resulting from the Company becoming a signatory carrier at
Orlando International Airport, together with a year-over-year increase in
facility costs for Boston operations prior to the elimination of scheduled
service at Boston in the fourth quarter of 1996. The increased facility costs at
Orlando International Airport have associated savings in lower handling and
landing fees for the Company's flights at Orlando International Airport.
Also in 1996, the Company incurred facility rental expense in association
with the late 1995 sale/leaseback of the Indianapolis hangar to the City of
Indianapolis, for the Chicago-Midway Hangar No. 2 and for the new Chicago
Reservations facility, which was first occupied in September 1995.
The cost per ASM for facility and other rents increased 16.7% to 0.07 cents
in 1996, as compared to 0.06 cents in 1995.
Disposal of Assets. During the third quarter of 1996, the Company committed
to a plan to dispose of up to seven Boeing 757-200 aircraft. A letter of intent
(the 'Letter of Intent') was signed with a major lessor on July 29, which
included the cancellation of operating leases on five aircraft and the return of
those aircraft to the lessor before the end of 1996. Negotiations also commenced
with a major lessor during the third quarter for the cancellation of operating
leases on two additional aircraft in 1996.
During the third quarter, the Company recorded a loss on disposal of the
initial five aircraft according to the terms and conditions negotiated and
agreed in the Letter of Intent. An estimate of the expected loss on disposal of
the additional two aircraft was also recorded in the third quarter, although a
specific Letter of Intent had not yet been signed. The total loss on disposal
recorded in the third quarter was $4.7 million for all aircraft. These aircraft
transactions were all completed during the fourth quarter of 1996, at which time
the estimated loss on disposal was reduced by $0.2 million to an actual loss of
$4.5 million.
The source of the loss on the termination of these aircraft leases was
primarily from the write-off of the unused net book value of the associated
airframe and engine overhauls. For several aircraft, the Company was required to
meet additional maintenance return conditions associated with airframes and
engines, the cost of which was charged to the loss on disposal. These costs were
partially offset by cash
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proceeds received from the lessor and by the application of associated deferred
aircraft rent credits and manufacturers' credits.
In addition to these costs, the Company owns four spare Pratt & Whitney
engines, together with consumable, repairable and rotable components that are
specific to the Pratt-&-Whitney-powered Boeing 757-200s. The net book value of
these engines and parts approximates $14.1 million as of December 31, 1996. The
Company was actively seeking to sell these assets and therefore reclassified
their net book value as Assets Held For Sale under current assets in the
accompanying balance sheet.
Other Expenses. Other operating expenses increased 15.2% to $53.8 million
in 1996, as compared to $46.7 million in 1995. Significant components of the
year-over-year variances include increases in substitute service and passenger
reprotection costs, professional fees, data communications costs, insurance
costs and consulting fees in connection with the detailed route profitability
study.
Other operating cost per ASM increased 8.1% to 0.40 cents in 1996, as
compared to 0.37 cents in 1995.
INCOME TAX EXPENSE
In 1996, the Company recorded ($12.9) million in tax credits applicable to
the loss before income taxes for that year, while income tax expense of $6.1
million was recognized pertaining to income before taxes for 1995. The effective
tax rate applicable to tax credits in 1996 was 32.6%, and the effective tax rate
for income earned in 1995 was 41.8%. The Company's effective income tax rates
were unfavorably affected by the permanent non-deductibility from taxable income
of 50% of crew per diem expenses incurred in both years. The impact of these
permanent differences on effective tax rates becomes more pronounced as taxable
income declines or losses increase.
YEAR ENDED DECEMBER 31, 1995, VERSUS YEAR ENDED DECEMBER 31, 1994
OPERATING REVENUES
Total operating revenues for 1995 increased $134.5 million, or 23.2%, to
$715.0 million. This increase from 1994 was due to a $121.3 million increase in
scheduled service revenues, a $11.2 million increase in charter revenues, a $0.2
million increase in ground package sales and a $1.8 million increase in other
revenues.
Operating revenues for 1995 were 5.71 cents per ASM, an increase of 2.7%
from 1994 revenues of 5.56 cents per ASM.
Scheduled Service Revenues. Scheduled service revenues increased 50.4% from
$240.7 million in 1994 to $362.0 million in 1995. The majority of this increase
was due to strong scheduled service traffic growth between periods, together
with an improvement in scheduled service yield.
Scheduled service RPMs increased 46.9% in 1995 compared to 1994 on a
capacity increase of 39.5% in ASMs between years, resulting in an improved
passenger load factor of 70.8% in 1995 as compared to 67.2% in 1994. Passengers
boarded increased 47.3% from 2.24 million in 1994 to 3.30 million in 1995.
Scheduled service departures increased 39.4% from 19,800 in 1994 to 27,600 in
1995. The Company increased scheduled service traffic from Indianapolis,
Chicago-Midway, Milwaukee and Boston to Florida, Las Vegas, Hawaii and selected
Caribbean destinations. Scheduled service flown in 1995 from St. Louis and
Boston had no comparable service in 1994. The Company ceased scheduled service
operations in St. Louis in August 1995, but continued to serve important charter
markets from St. Louis.
Scheduled service yield in 1995 was 7.75 cents per RPM, an increase of 2.4%
over the 1994 scheduled service yield of 7.57 cents per RPM. This yield
improvement was achieved gradually throughout 1995 as the result of several
revenue enhancement initiatives. During the first quarter of 1995, the Company
installed a yield management system which allowed for the introduction of
multiple fare levels for various classes of the Company's inventory of scheduled
service seats. These yield management procedures were applied with increasing
effectiveness through the final three quarters of 1995. Whereas first quarter
1995 yields were 15.2% lower than the first quarter of 1994, second quarter
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1995 yields were 4.8% higher than the second quarter of 1994; third quarter 1995
yields were 10.0% higher than the third quarter of 1994; and fourth quarter 1995
yields were 9.7% higher than the fourth quarter of 1994.
In the third quarter of 1994, the Company increased its level of
participation and effectiveness of schedule display in several important CRSs
used by travel agencies. In May 1995, the Company also introduced connecting
fares which offered new displays of multiple-city pairs for sale in CRS systems
which had previously not been offered against competing carriers serving those
connecting markets.
Charter Revenues. Charter revenues increased 3.8% from $295.9 million in
1994 to $307.1 million in 1995. Charter revenues derived from independent tour
operators increased 12.5% from $204.0 million in 1994 to $229.5 million in 1995.
Most of this revenue increase was derived from stronger tour operator traffic
between years, while tour operator yield improved 0.8% from 6.21 cents per RPM
in 1994 to 6.26 cents per RPM in 1995. Tour operator RPMs increased 12.0% from
3.17 billion in 1994 to 3.55 billion in 1995, while ASMs increased 11.0% from
4.01 billion in 1994 to 4.45 billion in 1995, resulting in an improved passenger
load factor of 79.8% in 1995 as compared to 79.1% in the prior year. Passengers
boarded increased 7.0% from 1.72 million in 1994 to 1.84 million in 1995, while
departures increased 9.7% from 10,300 in 1994 to 11,300 in 1995. Tour operator
departures for both 1994 and 1995 served numerous U.S. leisure destinations,
together with cities in Europe, Mexico, South America and Asia.
Charter revenues derived from the U.S. military decreased 15.6% from $91.8
million in 1994 to $77.5 million in 1995. Military revenues were unfavorably
impacted by declines in both traffic and yield between periods. Military RPMs
declined 9.9% from 0.71 billion in 1994 to 0.64 billion in 1995, while ASMs
decreased 12.1% from 1.57 billion in 1994 to 1.38 billion in 1995, resulting in
an improved passenger load factor of 46.4% in 1995 as compared to 45.2% in the
prior year. Passengers boarded decreased 13.0% from 0.23 million in 1994 to 0.20
million in 1995, while departures declined 14.0% from 4,300 in 1994 to 3,700 in
1995.
The Company and other competing air carriers are compensated for U.S.
military flying based upon reimbursement rates set by the United States
government. These reimbursement rates have generally declined over the last
several contract years, resulting in lower yields for this business segment.
Military yield in 1995 declined 6.1% to 12.11 cents per RPM as compared to 12.89
cents per RPM in 1994. Although the Company's military yields are comparatively
higher than for tour operators and scheduled service business segments, military
passenger load factors are comparatively much lower, and the Company can incur
substantial non-recurring costs to accommodate military flying which often
becomes available on short notice. The Company's reduction of military ASMs in
1995 was largely the result of decisions to deploy the Company's aircraft into
selected scheduled service and tour operator markets, where the Company believed
that more repetitive frequencies and more predictable revenues and costs could
be achieved in the long-term.
Ground Package Revenues. Ground package revenues increased 1.0% from $20.2
million in 1994 to $20.4 million in 1995. Ground packages, such as hotel and car
rentals, are sold in conjunction with the Company's air transportation product
to Ambassadair Travel Club members and to the general public through ATA
Vacations, Inc., its tour operator subsidiary.
Other Revenues. Other revenues increased 7.6% from $23.7 million in 1994 to
$25.5 million in 1995. Significant components of the change in other revenue
between 1994 and 1995 include a $2.1 million reduction in revenues derived from
subcontracting the Company's aircraft to fly short-term substitute service for
other airlines; a $1.0 million increase in administrative ticketing fees charged
to scheduled service passengers; a $0.7 million increase from the onboard sale
of liquor and headsets; a $0.6 million increase in cargo revenues; a $0.5
million increase from the sale of trip protection insurance to passengers
purchasing tour packages; a $0.5 million increase in commissions earned for the
sale of car rentals; and a $0.4 million increase in excess baggage fees.
OPERATING EXPENSES
Total operating expenses increased 21.8% from $572.1 million in 1994 to
$697.1 million in 1995. Operating expense increases were principally due to
increases in scheduled service capacity, traffic and passengers boarded between
years which affected most expense categories.
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Operating cost per ASM increased 1.5% from 5.48 cents in 1994 to 5.56 cents
in 1995. This increase in cost per ASM generally reflects growth in the
distribution costs of single-seat sales (such as travel agency commissions and
CRS fees), salaries and benefits, fuel and oil, aircraft handling and facility
rents, partially offset by reductions in the cost per ASM of aircraft rentals,
passenger service, ground package cost, and other operating expenses. There was
no change in cost per ASM between years for aircraft maintenance materials and
repairs, crew and other employee travel, and advertising.
Salaries, Wages and Benefits. This expense increased 24.0% from $113.8
million in 1994 to $141.1 million in 1995. The majority of the increase was due
to the addition of new employees (primarily cockpit and cabin crew, base
station, maintenance and reservations staff) to support the growth in scheduled
service and the addition of new aircraft to the Company's fleet. The Company
recorded additional vacation accrual costs of $1.4 million in 1995 to recognize
the phased implementation of a new vacation policy which became applicable to
most employees during 1995. The Company also recorded variable compensation
costs in association with higher 1995 profits which were not incurred in 1994.
These additional 1995 benefit and compensation costs contributed to a 3.7%
increase in the cost per ASM from 1.09 cents in 1994 to 1.13 cents in 1995.
The Company implemented a collective bargaining agreement with flight
attendants in December 1994, at which time this employee group received a base
pay rate increase of approximately 5%, together with some adjustments to
variable pay factors. In December 1995, the Company reached a tentative
agreement with cockpit crews on a collective bargaining agreement covering that
group of employees. In February of 1996, the Company was notified that the
cockpit crews had failed to ratify the tentative agreement. A new tentative
four-year collective bargaining agreement was reached with cockpit crews on
August 6, 1996, which was subsequently ratified by the IBT on September 23,
1996.
Fuel and Oil. The cost of fuel and oil increased 22.1% from $106.1 million
in 1994 to $129.6 million in 1995. Although the average price paid for fuel was
slightly higher in 1995, this unfavorable price effect was partially offset by
the fact that a larger proportion of the block hours in 1995 were flown by the
more fuel-efficient Boeing 757-200 fleet.
Total block hours flown increased 21.8% from 103,700 hours in 1994 to
126,300 hours in 1995. The Company's Boeing 757-200 fleet accounted for 27.8% of
block hours in 1995, as compared to 24.0% in 1994. The less fuel-efficient
Lockheed L-1011 fleet accounted for 28.1% of 1995 block hours, as compared to
30.8% in 1994. Block hours for the Boeing 727-200 fleet were also lower in 1995,
accounting for 44.1% of block hours as compared to 45.2% in 1994.
Effective October 1, 1995, the Company became subject to a 4.3
cent-per-gallon excise tax on jet fuel consumed for domestic use by commercial
air carriers. The effect of this tax in the fourth quarter of 1995 was to
increase the Company's cost of fuel subject to this tax by approximately 6%,
which added $1.6 million to total fuel and oil expense in the fourth quarter of
1995. The fuel tax caused the Company's 1995 cost per ASM for fuel and oil to
increase by 1.0% to 1.03 cents from 1.02 cents in 1994.
Handling, Landing and Navigation Fees. Handling, landing and navigation
fees increased 22.2% from $60.9 million in 1994 to $74.4 million in 1995. Most
of this increase was attributable to a 23.3% increase in the total number of
departures between years, from 34,700 in 1994 to 42,800 in 1995.
The average cost per departure declined 1.0% in 1995 as compared to 1994.
Because each airport served by the Company has a different schedule of fees
(including variable prices for different aircraft types), average departure
costs are a function of the mix of airports served and the fleet composition of
departing aircraft. On average, operations to international airports are more
expensive per departure than for U.S. domestic airports. In 1995, the share of
the Company's departures which operated from international airports declined
from 22.5% to 20.4% because the Company's growth in 1995 was concentrated mostly
in domestic scheduled service markets.
The cost per ASM for handling, landing and air navigation fees increased
1.7% from 0.58 cents in 1994 to 0.59 cents in 1995. This increase resulted from
a small decline in the average number of ASMs per departure between years and is
indicative of the growing proportion of departures which employ the Company's
smaller-capacity Boeing 727-200 and Boeing 757-200 aircraft rather than the
larger Lockheed L-1011 wide-body. In 1995, the percentage of departures made
with narrow-body aircraft increased to 77.6%, as compared to 75.0% in 1994.
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Depreciation and Amortization. Depreciation and amortization expense
increased 20.8% from $46.2 million in 1994 to $55.8 million in 1995. The cost
per ASM increased 2.3% from 0.44 cents in 1994 to 0.45 cents in 1995.
Depreciation expense increased approximately $5.0 million in 1995 as
compared to 1994 due to the addition of one Lockheed L-1011 and four Pratt &
Whitney engines, together with the purchase of other property, furniture and
equipment to support the Company's growth in operations.
Amortization of airframe and engine overhauls increased $4.6 million in
1995 as compared to 1994, net of $3.3 million in overhaul credits earned by the
Company under an engine purchase agreement with Rolls-Royce Commercial Aero
Engines Limited. The increasing cost of amortization expense reflects the recent
increase in the number of aircraft added to the Company's fleet. New aircraft
introduced into the fleet generally do not require airframe or engine overhauls
until as many as 12 or more months after first entering service. Therefore,
resulting amortization of these overhauls generally occurs on a delayed basis
from the date the aircraft is placed into service.
Aircraft Rentals. Aircraft rental expense increased 15.6% from $48.2
million in 1994 to $55.7 million in 1995. This increase in expense was due to
the addition of leased Lockheed L-1011, Boeing 757-200 and Boeing 727-200
aircraft into the Company's fleet during 1995, offset partially by reduced lease
costs on certain Boeing 757-200 aircraft under terms of operating leases
renegotiated in late 1994, and by the purchase of four previously leased Pratt &
Whitney engines.
Aircraft rental cost per ASM decreased 4.3% from 0.46 cents in 1994 to 0.44
cents in 1995. The year-over-year benefit realized from Boeing 757-200 operating
lease renegotiations in late 1994 was a significant factor in this change since
the ownership costs of each Boeing 757-200 aircraft are comparatively higher
than for the Company's other fleet types.
Aircraft Maintenance, Materials and Repairs. The cost of aircraft
maintenance, materials and repairs increased 20.2% from $46.1 million in 1994 to
$55.4 million in 1995. The cost per ASM remained unchanged at 0.44 cents for
both 1995 and 1994.
The cost of the Company's maintenance, materials and repairs increased in
1995 at approximately the same rate as the 19.9% increase in ASMs between years
and slightly slower than the 21.8% increase in block hours. The more favorable
comparison to block hours between years is indicative of the faster growth in
the twin-engine Boeing 757-200 fleet, which is also composed of newer and more
technologically advanced aircraft which require relatively less routine
maintenance than the Company's older three-engine Lockheed L-1011 and Boeing
727-200 fleets. The Boeing 757-200 fleet accounted for 27.8% of block hours in
1995, as compared to 24.0% in 1994.
All of the Company's aircraft under operating leases have certain return
conditions applicable to the maintenance status of airframes and engines as of
the termination of the lease. The Company accrues estimated return condition
costs as a component of maintenance, materials and repairs expense based upon
the actual condition of the aircraft as each lease termination date approaches.
Return condition expenses accrued in 1995 were $1.1 million less than in 1994,
primarily due to a change in return conditions negotiated on certain Boeing
757-200 aircraft leases in late 1994.
Passenger Service. The most significant portion of passenger service cost
is catering, which represented 84.9% and 85.8%, respectively, of total passenger
service expense in 1995 and 1994.
The cost of passenger service increased 16.8% from $29.8 million in 1994 to
$34.8 million in 1995. This increase was primarily due to the 26.7% increase in
the total number of passengers boarded from 4.24 million in 1994 to 5.37 million
in 1995. The cost of passenger service increased less rapidly than the increase
in passengers boarded due to a reduction in catering service levels in select
charter and scheduled service markets beginning late in the second quarter of
1995. In addition to this planned reduction in catering, the 13.0% reduction in
military passengers boarded between years also reduced the average cost of
catering since military catering is one of the most expensive per passenger in
the Company's business mix.
The cost per ASM of passenger service declined 3.4% from 0.29 cents in 1994
to 0.28 cents in 1995. This reduction was primarily due to reduced catering
costs, as the cost per ASM of the total of other components of passenger service
did not change materially between years.
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Crew and Other Employee Travel. The cost of crew and other employee travel
increased 20.2% from $26.2 million in 1994 to $31.5 million in 1995. The cost
per ASM remained unchanged at 0.25 cents for both years.
Commissions. Commissions expense increased 41.7% from $17.5 million in 1994
to $24.8 million in 1995. The cost of commissions per ASM increased 17.6% from
0.17 cents in 1994 to 0.20 cents in 1995.
Scheduled service commissions expense accounted for all of the increase in
this cost in 1995, which was consistent with the significant growth in
commissionable scheduled service sold by travel agencies. The average rate of
commission paid to travel agencies declined slightly between years due to the
elimination of selected sales incentives. The average percentage of revenues
sold by travel agencies increased between years due to the Company's
implementation of full participation in several CRSs in the third quarter of
1994 and because of the introduction of connecting fares in the second quarter
of 1995 which offered significantly expanded ATA schedule choices to travel
agencies.
Commissions paid for military flying were reduced in 1995 due to the
reduction in military departures between years. Commissions paid for tour
operator departures also declined slightly between years.
Ground Package Cost. Ground package cost for 1995 increased 7.4% from $14.8
million in 1994 to $15.9 million in 1995. The cost per ASM declined 7.1% from
0.14 cents in 1994 to 0.13 cents in 1995. The cost per ASM declined between
years due to the slower growth in ground package sales as compared to overall
growth in the Company's capacity as measured by ASMs. The cost of ground
accommodations sold to Ambassadair and ATA Vacations customers increased in some
markets in 1995, resulting in slightly lower gross margins in 1995 as compared
to 1994.
Other Selling Expenses. Other selling expenses are comprised primarily of
fees paid to CRS and the cost of inbound reservations lines provided for the use
of the Company's customers. These costs increased 86.3% from $8.0 million in
1994 to $14.9 million in 1995 and were generally incurred to support the sale of
scheduled services. Other selling cost per ASM increased 50.0% from 0.08 cents
in 1994 to 0.12 cents in 1995. Scheduled service passengers boarded increased
47.3% from 2.24 million to 3.30 million over the same comparative period, while
scheduled service ASMs increased 39.5% from 4.73 billion to 6.60 billion between
years.
The Company participates in SABRE as a multi-host user and is also
displayed in Galileo, Worldspan and System One. These CRSs, which display
competitive schedules and fares for all participating airlines, offer different
levels of services at different transaction costs. In order to expand the
Company's visibility of schedules and fares with travel agencies, the Company's
CRS service levels were increased in all of these systems effective in July
1994, resulting in a significant increase in billable transactions and higher
transaction rates. Although the Company believes that CRS participation has been
essential to rapid development of name recognition and sales in the Company's
new markets, more economic scheduled service distribution alternatives to CRSs
are now being evaluated.
Advertising. Advertising expense for 1995 increased 14.1% from $7.8 million
in 1994 to $8.9 million in 1995. The cost per ASM remained unchanged between
years at 0.07 cents. The Company incurs advertising costs primarily to support
scheduled service sales. Scheduled service ASMs increased 39.5% in 1995 compared
to 1994, and the cost of advertising per scheduled service ASM declined 18.8%
from 0.16 cents in 1994 to 0.13 cents in 1995.
Facilities and Other Rents. The cost of facilities and other rents
increased 34.5% from $5.5 million in 1994 to $7.4 million in 1995. The cost per
ASM increased 20.0% from 0.05 cents in 1994 to 0.06 cents in 1995. The
significant portion of growth in facilities leasing has originated from the
expansion of scheduled services, which has required the Company to add new
leased facilities at airport locations to accommodate the space needs of airport
passenger service and maintenance staff. The rate of increase in facilities
costs between years (34.5%) has been slightly lower than the 39.5% rate of
increase in scheduled service ASMs since the utilization of the Company's
facilities has improved with expanded scheduled service frequencies at certain
airports.
Other Expenses. Other expenses increased 12.5% from $41.5 million in 1994
to $46.7 million in 1995. The cost per ASM for other expenses declined 7.5% from
0.40 cents in 1994 to 0.37 cents in 1995. Significant components of the increase
of $6.6 million in other expenses between years include: $2.0
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million in additional general, hull and liability insurance expense associated
with the Company's expanded size and flying activity; $1.5 million in additional
property and sales taxes assessed on the Company's expanding asset base and
purchasing activity; and $1.5 million in additional communications costs related
to the Company's data network infrastructure for worldwide airport operations.
In 1995, the Company recognized a gain of $1.3 million on a transaction with the
City of Indianapolis involving the Company's headquarters facility (see Note 6
of Notes to Consolidated Financial Statements included elsewhere in this
Memorandum). There was no comparable gain recognized in 1994.
INCOME TAX EXPENSE
Income tax expense increased 154.2% from $2.4 million in 1994 to $6.1
million in 1995. The effective income tax rates were 41.8% and 40.7% for 1995
and 1994, respectively. Income tax expense increased in close proportion to the
149.2% increase in taxable income between years. The effective tax rate for 1994
included a more significant negative impact from non-deductible crew per diem
expense than did 1995. However, this effect was more than offset by the 1994 tax
benefit of adjustments in state tax rates and other tax reserve adjustments
recognized in that year.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company has historically financed its working capital and capital
expenditure requirements from cash flow from operations and long-term borrowings
from banks and other lenders. As described further below, in the third quarter
of 1997 the Company completed two separate financings designed to lengthen the
maturity of its long-term debt and diversify its credit sources, including the
issuance of the 10 1/2% Notes and the replacement of the former credit facility
with one of lesser borrowing availability.
For the nine months ended September 30, 1997 and 1996, net cash provided by
operating activities was $70.7 million and $27.3 million, respectively. The
increase in cash provided by operating activities between periods was
attributable to such factors as increased earnings, growth in scheduled service
air traffic liability associated with advanced ticket sales, the liquidation of
certain assets held for sale, and other factors. For 1996, 1995 and 1994, net
cash provided by operating activities was $32.2 million, $87.1 million and $75.3
million, respectively.
Net cash used in investing activities was $60.7 million and $53.7 million,
respectively, for the nine months ended September 30, 1997 and 1996. Such
amounts included cash capital expenditures totaling $63.5 million in the nine
months ended September 30, 1997, and $87.6 million in the same period of 1996,
for engine overhauls, airframe improvements and the purchase of rotable parts.
Proceeds from the sale of assets totaled $8.0 million for the nine months ended
September 30, 1997, and $30.2 million for the comparable period of 1996. Such
proceeds were primarily attributable to sale/leaseback transactions completed in
both years for Boeing 727-200 aircraft, although four such transactions were
completed in the 1996 period as compared to one such transaction in 1997. Cash
capital expenditures for the nine month periods ended September 30, 1997 and
1996 were supplemented with other capital expenditures, financed directly with
debt, totaling $30.7 million and $14.2 million, respectively. The $30.7 million
in new debt issued in 1997 was to directly finance the purchase of a Boeing
757-200 aircraft which had previously been subject to a month-to-month operating
lease.
The Company's capital spending program in the first nine months of 1997 was
reduced as compared to the prior year due to (i) the reduction of the fleet by
four units between years, and the absence of any aircraft deliveries during the
first nine months of 1997; and (ii) the accomplishment of statutory requirements
for a 65% Stage 3 fleet as of December 31, 1996, which resulted in the
hushkitting of six Boeing 727-200 aircraft during calendar year 1996. Although
the Company elected to hushkit an additional Boeing 727-200 aircraft during the
third quarter of 1997, the Company is not required to increase its Stage 3 fleet
composition until December 31, 1998, at which time 75% of the Company's fleet
must meet Stage 3 requirements. The Company currently expects to meet Stage 3
fleet requirements through additional hushkitting of Boeing 727-200 aircraft and
through future deliveries of other Stage-3-compliant aircraft.
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Net cash used in investing activities was $63.2 million, $44.0 million and,
$80.4 million for 1996, 1995 and 1994, respectively. Such amounts primarily
reflected cash capital expenditures totaling $69.9 million, $57.8 million and
$81.0 million in 1996, 1995 and 1994, respectively, for engine overhauls,
airframe improvements and the purchase of aircraft, engines and rotable parts.
These cash capital expenditures were supplemented by other capital expenditures
of $31.7 million in 1995 and $15.9 million in 1994 which were financed directly
with debt. The Company currently expects that capital expenditures for 1997 will
total approximately $84.0 million. Such expenditures will be mainly for
scheduled heavy maintenance on the Company's aircraft.
Net cash used in financing activities was $1.3 million in the nine months
ended September 30, 1997, compared with net cash provided by financing
activities of $6.4 million in the nine months ended September 30, 1996. Debt
proceeds in the 1996 period included the addition of $15.0 million in credit
facility availability for financing the installation of hushkits on Boeing
727-200 aircraft. Debt proceeds in the 1997 period included both the proceeds
from the issuance of the unsecured 10 1/2% Notes and the proceeds from borrowing
against the New Credit Facility as of September 30, 1997. Payments on long-term
debt in the 1997 period included the repayment of the former credit facility.
In 1995, $21.6 million in proceeds were generated from the sale of certain
facilities and equipment. Net cash provided by (used in) financing activities
was $11.6 million in 1996, $(12.1) million in 1995 and $21.8 million in 1994.
AIRCRAFT FLEET ADJUSTMENTS
In November 1994, the Company signed a purchase agreement for six new
Boeing 757-200s which, as subsequently amended, now provides for seven total
aircraft to be delivered between late 1995 and late 1998. In conjunction with
the Boeing purchase agreement, the Company entered into a separate agreement
with Rolls-Royce Commercial Aero Engines Limited for 15 RB211-535E4 engines to
power the seven Boeing 757-200 aircraft and to provide one spare engine. Under
the Rolls-Royce agreement, which became effective January 1, 1995, Rolls-Royce
has provided the Company various spare parts credits and engine overhaul cost
guarantees. If the Company does not take delivery of the engines, a prorated
amount of the credits that have been used are required to be refunded to
Rolls-Royce. The aggregate purchase price under these two agreements is
approximately $50.0 million per aircraft, subject to escalation. The Company
accepted delivery of the first four aircraft under these agreements in September
and December 1995, and November and December 1996, all of which were financed
under leases accounted for as operating leases. The final three deliveries under
this agreement are scheduled for November 1997, July 1998 and December 1998.
Advanced payments and interest totaling approximately $24.0 million ($8.0
million per aircraft) are required prior to delivery of the two remaining
aircraft, with the remaining purchase price payable at delivery. As of September
30, 1997 and 1996, the Company had recorded $12.8 million and $23.4 million,
respectively, in advanced payments and interest applicable to aircraft scheduled
for future delivery. The Company intends to finance future deliveries under this
agreement through sale/leaseback transactions accounted for as operating leases.
In the first quarter of 1996, the Company purchased four Boeing 727-200
aircraft, financing all of these through sale/leasebacks accounted for as
operating leases by the end of the third quarter of 1996. In the second quarter
of 1996, the Company purchased a fifth Boeing 727-200 aircraft which had been
previously financed by the Company through a lease accounted for as an operating
lease. This aircraft was financed through a separate bridge debt facility until
the completion of a sale/leaseback transaction during the third quarter of 1997.
On July 29, 1996, the Company entered into a letter of intent with a major
lessor to cancel several Boeing 757-200 and Lockheed L-1011 operating aircraft
leases then in effect. Under the terms of the letter of intent, the Company
canceled leases on five Boeing 757-200 aircraft powered by Pratt & Whitney
engines and returned these aircraft to the lessor by the end of 1996. The
Company was required to meet certain return conditions associated with several
aircraft, such as providing maintenance checks to airframes. The lessor
reimbursed the Company for certain leasehold improvements made to some aircraft
and credited the Company for certain prepayments made in earlier years to
satisfy qualified maintenance expenditures for several aircraft over their
original lease terms. The cancellation of these leases reduced the Company's
fleet of Pratt-&-Whitney-powered Boeing
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757-200 aircraft from seven to two units. The Company also agreed to terminate
existing operating leases on three Lockheed L-1011 aircraft and to purchase the
airframes pertaining to these aircraft for $1.5 million, while signing a new
operating lease covering only the nine related engines. The Lockheed L-1011
airframe and engine portion of this transaction was not completed until the
second quarter of 1997. The lessor also provided the Company with approximately
$6.9 million in additional unsecured financing for a term of seven years. This
transaction resulted in the recognition of a $2.3 million loss on disposal of
assets in the third quarter of 1996.
The Company also agreed to purchase one Rolls-Royce-powered Boeing 757-200
aircraft from the same lessor in the fourth quarter of 1996. This purchase was
not completed in 1996, and the aircraft was acquired from the lessor on a
short-term rental agreement pending the completion of the purchase in September
1997. The Company financed this purchase through the issuance of a $30.7 million
note maturing on October 15, 1998. The note requires monthly payments of
$400,000 in principal and interest from October 15, 1997 through September 15,
1998, with the balance due at maturity. Interest of 7.08% applies to the twelve
monthly payments, while interest of 8.08% applies to the balance due at
maturity. The company currently intends to sell this aircraft and repay this
note, subject to a short-term rental agreement under which the aircraft would
continue to be operated by the Company until the July 1998 delivery of a
replacement Boeing 757-200 from the manufacturer. The temporary acquisition of
this aircraft in late 1996, together with the delivery of two new
Rolls-Royce-powered Boeing 757-200 aircraft from the manufacturer in the fourth
quarter of 1996, and the return of the last two Pratt-&-Whitney-powered Boeing
757-200 aircraft discussed in the next paragraph, resulted in an all-Rolls-
Royce-powered Boeing 757-200 fleet of seven units by the end of 1996.
In September 1996, the Company began negotiations with a major lessor to
cancel existing operating leases on the Company's remaining two
Pratt-&-Whitney-powered Boeing 757-200 aircraft. These aircraft were returned to
the lessor by the end of 1996. This transaction resulted in the recognition of a
$2.4 million loss on disposal of assets in the third quarter of 1996.
ISSUANCE OF UNSECURED NOTES
On July 24, 1997, the Company completed two separate financings designed to
lengthen the maturity of the Company's long-term debt and diversify its credit
sources. On that date, the Company (i) sold $100.0 million principal amount of
unsecured seven year notes in a private offering under Rule 144A, and (ii)
entered into a new secured revolving credit facility.
The unsecured senior notes mature on August 1, 2004. Each note bears
interest at the effective annual rate of 10.5%, payable on February 1 and August
1 of each year beginning February 1, 1998. The Company is obligated to
consummate a registered exchange offer for the notes, or cause a registration
statement with respect to the resale of the notes to be declared effective, on
or prior to January 24, 1998, or the effective interest rate applicable to the
notes will increase to 11.0% per annum until such registration becomes
effective. The notes rank pari passu with all unsecured, unsubordinated
indebtedness of the Company existing now or created in the future, are
effectively subordinated to the Company's obligations under secured indebtedness
to the extent of such security, and will be senior to any subordinated
indebtedness of the Company created in the future. All payments of interest and
principal are unconditionally guaranteed on an unsecured, unsubordinated basis,
jointly and severally, by each of the active subsidiaries of the Company. The
Company may redeem the notes, in whole or in part, at any time on or after
August 1, 2002, initially at 105.25% of their principal amount plus accrued
interest, declining ratably to 100.0% of their principal amount plus accrued
interest at maturity. At any time prior to August 1, 2000, the Company may
redeem up to 35.0% of the original aggregate principal amount of the notes with
the proceeds of sales of common stock, at a redemption price of 110.5% of their
principal amount (plus accrued interest), provided that at least $65.0 million
in aggregate principal amount of the notes remains outstanding after such
redemption. The notes are subject to covenants for the benefit of the note
holders, including, among other things, limitations on: (1) the incurrence of
additional indebtedness; (ii) the making of certain restricted payments; (iii)
the creation of consensual restrictions on the payment of dividends and other
payments by certain subsidiaries; (iv) the issuance and sale of capital stock by
certain subsidiaries; (v) the issuance of guarantees by certain subsidiaries;
(vi) certain transactions with shareholders and affiliates; (vii) the creation
of liens on certain assets or
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properties; (viii) certain types of sale/leaseback transactions; and (ix)
certain sales, transfers or other dispositions of assets.
The net proceeds of the unsecured notes were approximately $97.3 million,
after application of costs and fees of issuance. The Company used a portion of
the net proceeds to repay in full the Company's prior bank facility and will use
the balance of the proceeds for general corporate purposes, which may include
the purchase of additional aircraft and/or the refinancing of existing leased
aircraft.
CREDIT FACILITIES
Concurrently with the issuance of the unsecured notes, on July 24, 1997 the
Company entered into a new $50.0 million revolving credit facility that includes
up to $25.0 million for stand-by letters of credit. ATA is the borrower under
the new credit facility, which is guaranteed by the Company and each of the
Company's other active subsidiaries. The principal amount of the new facility
matures on April 1, 2001, and borrowings are secured by certain Lockheed L-1011
aircraft and engines. The loan-to-value ratio for collateral securing the new
facility may not exceed 75% at any time. Borrowings under the new facility bear
interest, at the option of ATA, at either (i) LIBOR plus 1.50% to 2.50%
(depending upon certain financing ratios); or (ii) the agent bank's prime rate
plus 0.0% to 0.5% (depending upon certain financial ratios). The facility
contains various covenants including, among other things: (i) limitations on
incurrence of debt and liens on assets; (ii) limitations on capital
expenditures; (iii) restrictions on payment of dividends and other distributions
to stockholders; (iv) limitations on mergers and the sale of assets; (v)
restrictions on the prepayment or redemption of certain indebtedness including
the 10.5% notes; and (vi) maintenance of certain financial ratios such as
minimum tangible net worth, cash flow to interest expense and aircraft rentals
and total adjusted liabilities to tangible net worth.
The Company's former credit facility had initially provided a maximum of
$125.0 million, including $25.0 million for stand-by letters of credit, subject
to the maintenance of certain collateral value including certain owned Lockheed
L-1011 aircraft, certain receivables, and certain rotables and spare parts. As a
result of the Company's need to restructure its scheduled service business, the
Company renegotiated certain terms of the former credit facility effective
September 30, 1996, including the modification of certain loan covenants to take
into account the expected losses in the third and fourth quarters of 1996. In
return for this covenant relief, the Company agreed to implement changes to the
underlying collateral for the former facility and to change the interest rates
applicable to borrowings under the facility. The Company pledged additional
owned engines and equipment as collateral for the facility as of the
implementation date of the new agreement. The Company further agreed to reduce
the $63.0 million of borrowing availability secured by the owned Lockheed L-1011
fleet by $1.0 million per month from April 1997 through September 1997, and by
$1.5 million per month from October 1997 through April 1999. Loans under the
renegotiated facility were subject to interest, at the Company's option, at
either (i) prime to prime plus 0.75%, or (ii) the Eurodollar rate plus 1.50% to
2.75%. The former facility was scheduled to mature on April 1, 1999, and
contained various covenants and events of default, including: maintenance of a
specified debt-to-equity ratio and a minimum level of net worth; achievement of
a minimum level of cash flow; and restrictions on aircraft acquisitions, liens,
loans to officers, change of control, indebtedness, lease commitments and
payment of dividends.
At December 31, 1996, the Company had classified $19.9 million of former
credit facility borrowings to current maturities of long-term debt. Of this
amount, $10.5 million was attributable to the scheduled reduction of
availability secured by the owned Lockheed L-1011 fleet during the 12 months
ending December 31, 1997. The remaining $9.4 million represented the amount of
the spare Pratt & Whitney engines which were pledged to the credit facility and
which were to be repaid from the anticipated sale. The net book value of these
spare engines, which approximates estimated market value, is classified as
Assets Held for Sale in the accompanying balance sheet. In July, 1997, the
Company sold two of the four spare Pratt & Whitney engines, and the Company
continues to market the remaining two spare engines and parts to users of Pratt
& Whitney powerplants.
As of September 30, 1997, the Company had borrowed $25.0 million against
the new credit facility, all of which borrowings were repaid on October 1, 1997.
As of December 31, 1996, the Company had borrowed the maximum amount then
available against the former credit facility, of which $46.0 million was repaid
on January 2, 1997.
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The Company also maintains a $5.0 million revolving credit facility
available for its short-term borrowing needs and for securing the issuance of
letters of credit. Borrowings against this credit facility bear interest at the
lender's prime rate plus 0.25% per annum. There were no borrowings against this
facility as of September 30, 1997 or 1996; however, the Company did have
outstanding letters of credit secured by this facility aggregating $3.6 million
and $4.0 million, respectively.
STOCK REPURCHASE PROGRAM
In February 1994, the Board of Directors approved the repurchase of up to
250,000 shares of the Company's common stock. During 1996, the Company
repurchased 16,000 shares, bringing the total number of shares it has
repurchased under the program to 185,000 shares. No shares were repurchased
during the first nine months of 1997. The Company does not currently expect to
complete this stock repurchase program.
OTHER CAPITAL USES
In the third quarter of 1995, the Company completed the lease of Hangar No.
2 at Chicago's Midway Airport for an initial lease term of ten years, subject to
two five-year renewal options. Under this lease, the Company acquired the use of
both the west and east bays of the hangar and associated ramp and parking areas.
The Company is obligated to perform certain lease-mandated improvements to the
west bay and may, at its option, perform additional improvements to the east
bay. In the fourth quarter of 1995, the Company financed these improvements,
together with separate passenger terminal improvements at Midway, through the
issuance of $6 million in tax-exempt bonds. Initial construction activities in
the west bay area began in the fourth quarter of 1995.
RECENT DEVELOPMENTS
On September 15, 1997 the Company purchased one Boeing 757-200 aircraft
which had previously been on an operating lease. The Company paid cash of $5.0
million, and executed a $30,650,000 note for the remainder of the purchase
price. The note provides for monthly payments of $400,000 in principal and
interest from October 15, 1997 through September 15, 1998, with the remainder of
the note payable in full on October 15, 1998. Interest of 7.08% applies to the
initial twelve payments, and the final payment is subject to interest of 8.08%.
The purchase of this aircraft will increase the current portion of long-term
debt at September 30, 1997 by $2,700,000, and long-term debt by $27,950,000.
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BUSINESS
GENERAL
Amtran is a leading provider of charter airline services, and on a targeted
basis scheduled airline services, to leisure and other value-oriented travelers.
Amtran, through its principal subsidiary, ATA, has been in operation for 24
years and currently operates the eleventh largest airline in the United States
in terms of 1996 RPMs. ATA provides charter services throughout the world to
independent tour operators, corporations and the U.S. military. The Company
provides scheduled service primarily from its gateway cities of Indianapolis,
Chicago-Midway and Milwaukee to popular vacation destinations such as Hawaii,
Las Vegas, Florida, California, Mexico and the Caribbean.
CHARTER SERVICE
The Company is the largest charter airline in the United States and
provides charter airline services throughout the world to U.S. and European tour
operators, U.S. military and government agencies and to corporations. In 1996
and for the first nine months of 1997, Amtran derived approximately 41% and 48%,
respectively, of consolidated revenues from charter operations. The charter
business is an attractive niche because it provides contractual revenues that
are more stable than revenues provided by scheduled service. The customer
generally pays a fixed price for the use of the aircraft and assumes the
responsibility and risk for the actual sale of the seats, as well as most of the
risk of fuel price increases. In addition, the Company is the largest domestic
provider of charter airline services. As a result of the 1996 Restructuring, the
Company expects that for 1997 as a whole approximately 46% of its consolidated
revenues will be from charter operations.
TOUR OPERATOR PROGRAMS
Independent tour operators comprise the largest component of the Company's
charter service operations (representing approximately 30% and 31%,
respectively, of the Company's consolidated revenues for 1996 and the first nine
months of 1997). Independent tour operators typically contract with the Company
to provide repetitive, round-trip patterns to leisure destinations for specified
periods ranging from several weeks to several years. The Company believes that
its long standing relationships with tour operators provide it with a
competitive advantage. In addition, the Company believes that the low cost
leisure travel services provided by independent tour operators have historically
been less volatile than scheduled service operations as indicated by the
Company's 1990 to 1995 revenue and profitability, as compared to the major
scheduled service carriers for the same period.
MILITARY/GOVERNMENT
The Company expects U.S. military and other government flight activity,
which has historically averaged 10-15% of consolidated revenues, to account for
approximately 16% of Amtran's 1997 revenues. The Company has provided charter
service to the U.S. military since 1983. Because this business is generally less
seasonal than leisure travel, it tends to have a stabilizing impact on the
Company's operations and earnings. The U.S. Government awards one year contracts
for its military charter business, and pre-negotiates contract prices for each
type of aircraft a carrier makes available. Such contracts are priced utilizing
the participating airlines' average costs, and are therefore more profitable for
low cost providers such as the Company. The Company believes its fleet of
aircraft, in particular its Boeing 757-200ERs, is well suited for the changing
requirements of military passenger service.
SCHEDULED SERVICE
The Company provides scheduled nonstop service primarily from its gateway
cities of Chicago-Midway, Indianapolis and Milwaukee to popular vacation
destinations such as Hawaii, Las Vegas, Florida, California, Mexico and the
Caribbean. In its scheduled service operations, the Company focuses primarily on
providing low cost, nonstop or direct flights on routes where it can be a
principal provider. In 1996, based on DOT statistics, the Company had the lowest
operating expense per ASM, approximately 6, of the eleven largest U.S. scheduled
airlines. Notwithstanding the
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Company's competitive cost position and business focus, the Company began to
incur losses in its scheduled service in the second half of 1995. In response to
these losses, the Company, as part of the 1996 Restructuring described below,
reduced its scheduled service by more than one third of its departures and ASMs.
As a result, the Company expects scheduled service operations, which comprised
52% and 45%, respectively, of consolidated revenues in 1996 and the first nine
months of 1997, to comprise approximately 48% of consolidated revenues in 1997.
The Company believes that the 1996 Restructuring strengthened its competitive
position and improved both load factors and yields in its scheduled service
operations. The Company has substantially improved the profitability of these
operations in the first nine months of 1997, versus the first nine months of
1996.
FLEET/OPERATIONS
As of September 30, 1997, the Company operated a fleet of 45 aircraft
consisting of 14 Lockheed L-1011s, 24 Boeing 727-200ADVs and 7 Boeing 757-200s.
This fleet gives the Company the flexibility to respond to a wide variety of
market opportunities. To support its operations, the Company has a Maintenance
and Engineering Center at Indianapolis International Airport, maintains
permanent support facilities at ten other U.S. airports and has the ability to
dispatch maintenance and operational personnel and equipment as necessary to
support temporary operations throughout the world.
STRATEGY
The Company intends to enhance its position as a leading provider to
independent tour operators, the U.S. Military and of targeted scheduled airline
services by pursuing a strategy designed to increase revenues and profitability.
The key components of this strategy are:
(i) Maintain Low Cost Position. The Company believes it has one of the
lowest operating costs per ASM in the industry, with an average cost per
ASM of approximately 6[c] for the fiscal year ended December 31, 1996, and
for the nine months ended September 30, 1997. The Company believes that its
low cost structure provides a significant competitive advantage, which
allows it to compete effectively in both the charter and scheduled service
markets. The Company has achieved its low cost position
primarily as a result of its route structure, low overhead and distribution
costs, productive and flexible workforce and low aircraft rental and
ownership costs.
(ii) Strengthen Leading Position with Tour Operators. The
Company has successfully operated in the charter service business since
1981, and it expects to continue to enhance its leading position in this
segment. By offering low cost air travel products that can be tailored to
meet the particular needs of its customers, primarily the tour operators,
the Company believes it is able to differentiate itself from most major
airlines, whose principal focus is on scheduled service, as well as from
smaller charter airlines, which do not have comparably diverse fleets or
the ability to provide a similar level of customer support. In addition to
its low cost, the Company believes that its product quality, reputation,
long standing relationships and ability to deliver a customized service
have become increasingly important to tour operators.
(iii) Maintain Leading Position as a Provider to the U.S. Military.
The Company has a long history of serving the military. Its contractor
teaming arrangement and its fleet of preferred aircraft will allow it to
maintain a strong competitive position for acquiring and servicing future
military charter contracts.
(iv) Selectively Participate in Scheduled Service. The Company's
strategy for its scheduled service is to focus primarily on providing low
cost, nonstop or direct flights from airports where there is
only limited competition. The Company believes that its high performance
Boeing 757 and 727 aircraft give it a competitive advantage in the
Chicago-Midway market. Unlike the aircraft used by most of the Company's
competitors at Chicago-Midway, the Boeing 757 and 727 can fly larger
passenger capacities substantially longer distances while operating from
the airport's short runways. In Indianapolis, the Company has a
name recognition advantage by being the city's home town airline. In the
Milwaukee market, the Company is the only low cost scheduled alternative.
The Company significantly reduced its scheduled service operations in
1996 by exiting, or reducing service to, unprofitable markets such as
Boston and intra-Florida and has substantially improved its profitability
in the first nine months of 1997, versus the first nine months of 1996.
The Company is continuing reviewing the opportunity to expand its Chicago-
Midway operation by three or four destinations by the spring of 1998.
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(v) Capitalize on Selected Growth Opportunities. The Company seeks to
increase revenues and profitability by capitalizing on selected growth
opportunities in its core businesses. The Company believes that, as a
result of its low cost structure and its strong relationships with tour
operators and military contractors, it is well positioned to capture
additional opportunities to serve these markets. The Company intends to
purchase additional aircraft to meet demand from its military and tour
operator charter customers, and potentially scheduled service. In addition,
at various times since the second quarter of 1996 the Company has actively
considered possible business combinations with other air carriers and
others. The Company intends to continue to evaluate such transactions.
Accordingly, it is possible that the Company will enter into a transaction
in the first half of 1998 or thereafter that will result in a merger or
other change of control of the Company.
1996 RESTRUCTURING OF SCHEDULED SERVICE OPERATIONS
An analysis by the Company in 1996, of the profitability of its scheduled
service and charter service business units revealed that a significant number of
scheduled service markets being served by the Company had become unprofitable at
at that point in time. This analysis also showed that the Company's charter
operations were generally profitable during the same periods, although results
from these operations were also adversely affected by many of the factors that
affected scheduled service.
The Company believes that several key factors contributed to the
deterioration of profitability of scheduled service over this time period.
Beginning in January 1996, a growing amount of low-fare competition entered the
Boston-Florida and midwest-Florida markets, which increased total capacity in
these markets and decreased the average fares earned by the Company. Operating
revenues in all scheduled service markets were further adversely affected by the
ValuJet accident in Florida on May 11. This event focused significant negative
media attention on airline safety, and on low-fare carriers in particular. In
spite of the Company's excellent safety record since its inception in 1973,
during which no serious injuries or fatalities had ever occurred, the Company
estimates that it lost significant scheduled service revenues in the second and
third quarters of 1996 from canceled reservations and reservations which were
never received. Additionally, effective October 1, 1995, the Company became
subject to a federal excise tax of 4.3 per gallon on jet fuel consumed in
domestic use, which added approximately 3.5 to the average cost of each gallon
of jet fuel purchased. During 1996, the market price of jet fuel also increased
significantly as compared to prices paid in comparable 1995 periods, largely due
to tight jet fuel inventories relative to demand throughout this period. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
In August 1996, the Company announced a significant reduction in scheduled
service operations. More than one-third of scheduled service departures and ASMs
were included in this schedule reduction. The Company eliminated its
unprofitable Boston and intra-Florida operations. The Company also exited, or
reduced in frequency, operations to other selected markets from Chicago-Midway,
Indianapolis and Milwaukee. Exited operations were phased out over a three-month
period ended December 2, 1996. The Company believes this process strengthened
its competitive position and improved both load factors and yields in its
remaining scheduled service operations. The Company has substantially improved
its profitability of these operations in the first nine months of 1997, versus
the first nine months of 1996.
In conjunction with its scheduled service reduction, the Company announced
a 15% reduction of its work force, including both employees and contractors. A
significant portion of this reduction in force was attributable to furloughs of
cockpit and cabin crews, with the remainder attributable to base station and
administrative staff. Maintenance staff reductions were accomplished primarily
through the reduction of base and line maintenance contract labor.
In addition, in 1996 the Company reconfigured its mix of aircraft. The
Company reduced the number of remaining Boeing 757-200 aircraft it operates from
eleven to seven, all of which are powered by Rolls-Royce engines. One advantage
of the new fleet configuration is that all seven remaining Boeing 757-200
aircraft have been assigned to mission-specific routes that could not have been
served by the Company's other aircraft. The commonality of aircraft and engines
yields benefits to the Company in the form of decreased maintenance and training
costs on a unit basis. The Company also expects to sell surplus spare engines
and parts inventory, which are unique to the Pratt & Whitney-powered Boeing
757-200s for approximately $14 million. In the third quarter of 1996, the
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Company recorded a loss on disposal of assets associated with both Boeing
757-200 aircraft transactions of $4.7 million.
As noted above, the Company's tour operator and military operations were
profitable for 1996, and the Company has allocated additional aircraft to these
operations. As a result, the Company was able to contract for significantly more
tour operator and military flights than it had at the same time last year.
Additionally, after adjusting for the reduction in scheduled service capacity,
bookings for the remaining scheduled service are ahead of the same time as of
last year.
As a result of the 1996 Restructuring, the Company believes it has
established a better platform from which to pursue its strategy. The Company
also incurred substantial restructuring related and other non-recurring costs in
1996, which significantly contributed to its operating and net loss in that
year.
NEW CHIEF EXECUTIVE OFFICER
On June 19, 1997, the Company announced the election of John P. Tague as
President and Chief Executive Officer of the Company. Mr. Tague originally
joined the Company in 1991, as Vice President of Marketing, and was elected
President and Chief Operating Officer in September 1993, a position he held
until his resignation in 1995. Mr. Tague subsequently served as Co-Chairman and
Chief Executive Officer of the Pointe Group, an aviation consulting firm, and as
Chief Executive Officer for both Vanguard Airlines, Inc. and Air South Airlines,
Inc. Mr. Tague brings over twelve years of management experience in the airline
industry to the Company.
BACKGROUND
ATA flew its maiden flight on a Boeing 720 between Indianapolis and Orlando
in December 1973. It was certificated as a public charter carrier in 1981 and as
a scheduled air carrier in 1985. ATA grew from flying approximately 355 million
RPMs in 1982, its first full year as a public charter carrier, to approximately
9.2 billion RPMs in 1996. In 1973, the Company's fleet consisted of a single
leased Boeing 720. As of September 30, 1997, the Company operated a fleet of 45
aircraft. The following table illustrates the growth of the Company over the
past ten years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
revenues.......... $ 254.4 $ 253.9 $ 279.1 $ 371.4 $ 414.0 $ 421.8 $ 467.9 $ 580.5 $ 715.0 $ 750.9
EBITDA(1)........... $ 34.0 $ 49.9 $ 47.5 $ 45.5 $ 61.9 $ 45.1 $ 45.2 $ 55.7 $ 74.6 $ 26.5
Net income (loss)... $ 3.2 $ 7.0 $ 4.4 $ (2.0) $ 5.6 $ (2.1) $ 3.0 $ 3.5 $ 8.5 $ (26.7)
Total assets........ $ 183.0 $ 193.4 $ 238.4 $ 251.8 $ 237.4 $ 239.0 $ 269.8 $ 346.3 $ 413.1 $ 370.3
Block hours......... 48,870 42,642 49,222 57,847 60,177 65,583 76,542 103,657 126,295 138,114
ASMs (in
millions)......... 5,287 4,857 5,374 6,755 7,111 7,521 8,232 10,443 12,522 13,296
Employees (at period
end).............. 1,675 1,789 2,134 2,310 2,205 2,412 3,418 4,136 4,830 4,435
</TABLE>
- ------------
(1) EBITDA represents net income plus interest expense (net of capitalized
interest), income tax expense, depreciation and amortization.
SERVICES OFFERED
The Company generally provides its airline services to its customers in the
form of charter and scheduled service. The following table provides a summary of
the Company's total revenue for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Charter
Tour operator............. $276.9 $213.7 $204.0 $229.5 $226.4 $185.0 $ 184.9
Military.................. 47.1 78.4 91.8 77.5 84.2 55.4 104.0
------ ------ ------ ------ ------ -------- ---------
Total charter............. 324.0 292.1 295.8 307.0 310.6 240.4 288.9
Scheduled service.............. 61.1 138.0 240.7 362.0 386.5 318.8 271.3
Other.......................... 36.7 37.8 44.0 46.0 53.8 43.0 37.1
------ ------ ------ ------ ------ -------- ---------
Total..................... $421.8 $467.9 $580.5 $715.0 $750.9 $602.2 $ 597.3
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
</TABLE>
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CHARTER SALES
As illustrated in the above table, charter sales represented 41.4% of the
Company's total revenues for 1996 and 48.4% for the nine months ended September
30, 1997. The Company's principal customers for charter sales are tour
operators, military and government agencies, sponsors of incentive travel
packages and specialty charter customers.
TOUR OPERATOR PROGRAMS
Sales to tour operators accounted for approximately 33% of the Company's
ASMs for 1996 and 35% for the nine months ended September 30, 1997. These
leisure market programs are generally contracted for repetitive, round-trip
patterns, operating over extended periods of time. In such an arrangement, the
tour operator pays a fixed price for use of the aircraft (which includes the
services of the cockpit crew and flight attendants, together with check-in,
baggage handling and maintenance services, catering and all necessary aircraft
handling services) and assumes responsibility and risk for the actual sale of
the available aircraft seats. Because the Company operates primarily on a
contract basis, it can, subject to competitive constraints, structure the terms
of each contract to reflect the costs of providing the specific service,
together with an acceptable return.
In connection with its sales to tour operators, the Company seeks to
minimize its exposure to unexpected changes in operating costs. Under its
contracts with tour operators, the Company is able to pass through most
increases in fuel costs from a contracted price. Under these contracts, if the
fuel increase causes the tour operator's price to rise in excess of 10%, the
tour operator has the option of canceling the contract. These contracts provide
that the final fuel price is to be determined based on a blended average of the
Company's fuel costs two weeks prior to the flight date. The Company is exposed
to increases in fuel costs that occur within 14 days of flight time, to all
increases associated with its scheduled service (other than bulk-seat sales) and
to increases affecting any contracts that do not include fuel cost escalation
provisions. See 'Risk Factors -- Aircraft Fuel.'
The Company believes that although price is the principal competitive
criterion, product quality, reputation and the ability to deliver a service that
is customized to the customer's particular needs have become increasingly
important to independent tour operators. Accordingly, the Company seeks to
differentiate itself through increased emphasis on its ability to deliver
customized in-flight service (such as food service, foreign language flight
attendants and movie selections), consistency of product delivery, customer
handling, delivery support and operational reliability for the tour operator.
The ability to deliver a low cost tour product exceeding the leisure traveler's
quality expectations provides a significant marketing advantage to the tour
operator.
Although the Company serves tour operators on a worldwide basis, its
primary customers are U.S.-based and European-based tour operators. For 1996,
the Company's five largest tour operator customers represented approximately 22%
of the Company's consolidated revenues, and the ten largest tour operator
customers represented approximately 30% of the Company's consolidated revenues.
MILITARY/GOVERNMENT
In 1996 military/government sales were 11.2% of the Company's total
revenues and 10.8% of total ASMs and 17.4% and 18.0%, respectively, for the
first nine months of 1997. Traditionally, the Company's focus has been on
short-term 'contract expansion' business which is routinely awarded by the U.S.
Government based on price and availability of appropriate aircraft. The U.S.
Government awards one year contracts for its military charter business, and
pre-negotiates contract prices for each type of aircraft a carrier makes
available. Such contracts are awarded based upon the participating airlines'
average costs, and are therefore more profitable for low cost providers such as
Amtran. The short-term expansion business is awarded pro rata to the carriers
with aircraft availability who have been awarded the most fixed-award business,
and then to any additional carrier that has aircraft available. The Company's
contractor teaming arrangement with four other cargo and passenger airlines
significantly increases the likelihood that the team will receive both
fixed-award and contract expansion business, and increases the Company's
opportunity to provide such services because the Company represents a
significant portion of the team's passenger transport capacity. See ' -- Sales
and Marketing.'
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Military and other government flight activity is expected to remain a
significant factor in the Company's business mix. Because this business is
generally less seasonal than leisure travel, it tends to have a stabilizing
impact on the Company's operations and earnings. The Company believes its fleet
of aircraft is well suited for the changing requirements of military passenger
service. Although the military is reducing its troop size at foreign bases, the
military still desires to maintain its schedule frequency to these bases.
Therefore, the military has a need for smaller capacity aircraft possessing
long-range capability, such as the Company's Boeing 757-200ER aircraft. In 1993,
the Company became the first North American carrier to receive FAA certification
to operate Boeing 757-200 aircraft with 180-minute ETOPS. This certification
permits specially equipped Boeing 757-200 aircraft to participate in long-range
missions over water in which the aircraft may be up to three hours from the
nearest alternate airport. All of the Company's Boeing 757-200s are so equipped
and certified. The Company believes that this 180-minute ETOPS capability has
enhanced the Company's ability to obtain awards for certain long-range missions.
The Company is subject to biennial inspections by the military as a
condition of retaining its eligibility to perform military charter flights. The
last such inspection was undertaken in 1995 and the next is expected to occur in
the third or fourth quarter of 1997. As a result of the Company's military
business, it has been required to implement measures beyond those required by
the DOT, FAA, and other government agencies.
OTHER CHARTER SERVICES
Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for employees. The Company
has historically provided air travel for many corporate incentive programs.
Incentive travel customers range from national incentive marketing companies to
large corporations that handle their incentive travel programs on an in-house
basis.
The Company believes that its flexibility, diversity of aircraft and
attention to detail have helped to establish it as one of the leaders in
providing the air portion of incentive travel airline charter service.
Generally, incentive travel operations are a demanding and highly customized
part of the charter airline business. Incentive travel operations can vary from
a single round-trip to an extensive overseas pattern involving thousands of
employees and their families.
Specialty Charters. The Company operates a significant number of specialty
charter flights. These programs are normally contracted on a single round-trip
basis and vary extensively in nature, from flying university alumni to a
football game, to transporting political candidates on campaign trips, to moving
the NASA space shuttle ground crew to an alternate landing site. Traditionally,
these flights which are arranged on very short notice based on aircraft
availability, allow the Company to increase aircraft utilization during off-peak
periods.
The Company believes it is able to attract this business due to its fleet
size and diversity of aircraft. The size and location of the Company's fleet
reduces nonproductive ferry time for aircraft and crews, resulting in more
competitive pricing. The diversity of aircraft types in its fleet also allows
the Company to better match a customer's particular needs with the type of
aircraft best suited to satisfy those requirements.
SCHEDULED SERVICE SALES
In scheduled service, the Company markets air travel, as well as packaged
leisure travel products, directly to retail consumers in selected markets.
During 1996, scheduled service provided 51.5% of the Company's consolidated
revenues and 54.9% of ASMs, and 45.4% and 46.8%, respectively, during the first
nine months of 1997. The Company's strategy for its scheduled service is to
offer routine, low-frequency service which stresses nonstop convenience and a
simplified pricing structure oriented to the buyer of leisure travel services.
The Company focuses primarily on serving selected leisure destinations with low
cost, nonstop or direct flights from cities which do not have service or where
there is only limited competition.
The Company's scheduled service operations link the Company's gateway
cities of Indianapolis, Chicago-Midway and Milwaukee with several popular
vacation destinations such as Hawaii, Las Vegas,
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Florida and the Caribbean. In August 1996, the Company announced a significant
reduction in scheduled service operations. More than one-third of scheduled
service departures and ASMs were included in this schedule reduction. The
Company completely eliminated its unprofitable Boston and intra-Florida
operations. The Company also exited, or reduced in frequency, operations to
other selected markets from Chicago-Midway, Indianapolis and Milwaukee. The
Company is continuing to evaluate its scheduled service operations and believes
that it may be able, on a selective basis, to expand this business.
Included in the Company's scheduled service sales are bulk sales agreements
with tour operators. Under these arrangements, which are very similar to charter
sales, the tour operator may take up to 85% of an aircraft as a bulk-seat
purchase. The portion which the Company retains is sold through its own
scheduled service distribution. The advantage for the tour operators is that
their product appears in the CRS and through other scheduled service
distribution channels. Under this arrangement, the Company is obligated to
provide service to the tour operators' customers even in the event of
non-payment by the tour operator. To minimize its exposure under these
arrangements, the Company requires bonding or a security deposit for a
significant portion of the bulk-seat fare. Bulk seat sales amounted to $67.3
million in 1996 and $56.0 million in the first nine months of 1997, which
represented 9.0% and 9.4% of the Company's 1996 total consolidated revenue for
such periods.
OTHER REVENUES
In addition to its core charter and scheduled service businesses, the
Company operates several other smaller businesses that complement its core
businesses. In aggregate, these businesses accounted for 7.1% of the Company's
revenues in 1996 and 6.2% in the first nine months of 1997.
SALES AND MARKETING
CHARTER SALES
TOUR OPERATOR PROGRAMS
The Company markets its charter services to tour operators primarily
through its own sales force. The charter sales department's principal office is
in Indianapolis, but it also has offices in Orlando, New York, San Francisco,
Seattle, Boston, Chicago, Detroit, London and Frankfurt. Through this sales
force, the Company markets its charter, sub-service, military and specialty
products. While most of ATA's charter or customized sales are transacted
directly with the end customer, the Company also utilizes brokers with certain
customers.
In general, tour operators either package the Company's flights with
traditional ground components (e.g., hotels, rental cars, attractions) or sell
only the airline passage ('airfare only'). Tickets on the Company's flights
contracted to tour operators are issued by the tour operator either directly to
passengers or through retail travel agencies. Under the current DOT regulations
with respect to charter transportation originating in the United States, all
charter airline tickets must generally be paid for in cash and all funds
received from the sale of charter seats (and in some cases the costs of land
arrangements) must be placed into escrow by the tour operator or protected by a
surety bond satisfying certain prescribed standards. Currently, the Company
provides a third-party bond which is unlimited in amount in order to satisfy its
obligations under these regulations. Under the terms of its bonding
arrangements, the issuer of the bond has the right to terminate the bond at any
time on 30 days' notice. The Company provides a $2.5 million letter of credit to
secure its potential obligations to the issuer of the bond. If the bond were to
be materially limited or canceled, the Company, like all other U.S. charter
airlines, would be required to escrow funds to comply with the DOT requirements
summarized above. Compliance with such requirements would reduce the Company's
liquidity and require it to fund higher levels of working capital ranging up to
$16.0 million based on anticipated 1997 peak travel periods. See
' -- Regulation.'
In general, the Company enters into contracts with tour operators four to
nine months in advance of the commencement of the service to be provided.
Pursuant to these contracts, tour operators, who are often thinly capitalized,
are required generally to pay to the Company at the time the contract is
executed a deposit for as much as one week's revenue due under the contract (in
the case of recurring
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pattern contracts) to 10% to 30% of the total charter payment (in the case of
nonrecurring pattern contracts). Tour operators are required to pay the
remaining balance of the charter payment to the Company at least two weeks prior
to the flight date. In the event the tour operator fails to make the remaining
payment when due, the Company must either cancel the flight at least ten days
prior to the flight date or, pursuant to DOT regulations, perform under the
contract notwithstanding the breach by the tour operator. In the event the tour
operator cancels or defaults under the contract with the Company or otherwise
notifies the Company that such tour operator no longer needs charter service,
the Company is entitled under the contract to keep the contractually established
cancellation fees, which may be more or less than the deposit. Whether the
Company elects to exercise this right in a particular case will depend upon a
number of factors, including the Company's ability to redeploy the aircraft, the
amount of money on deposit or secured by a letter or credit, the relationship
the Company has with the tour operator and the general market conditions
existing at the time. The Company may choose to renegotiate a contract with a
tour operator from time to time based on market conditions. As part of any such
renegotiations a tour operator may seek to reduce the per-seat price or the
number of flights or seats per flight which the tour operator is obligated to
purchase.
MILITARY/GOVERNMENT
Traditionally, the Company's focus has been on short-term contract
expansion business which is routinely awarded by the U.S. Government based on
price and availability of appropriate aircraft. The short-term expansion
business is awarded pro rata to the carriers with aircraft availability who have
been awarded the most fixed-award business, and then to any additional carrier
that has aircraft available. Pursuant to the military's fixed-award system, each
participating airline is given certain 'mobilization value points' based on the
number and type of aircraft then available from such airline. A participant may
increase the number of its mobilization value points by teaming up with one or
more other airlines to increase the total number of mobilization value points of
the team. Generally, a charter passenger airline will seek to team up with one
or more cargo airlines and vice versa. When the military determines its
requirements for a particular period, it determines how much of each particular
type of service it will need (e.g., narrow-body, passenger service). It will
then award each type of business to those carriers or teams that have committed
to make available that type of aircraft and service, with the carriers or teams
with the highest amount of mobilization value points given a preference. When an
award is presented to a team, the charter passenger airline will generally
perform the passenger part of the award and a cargo airline will perform the
cargo part of the award.
In 1992, the Company entered into a contractor teaming arrangement with
four other cargo and passenger airlines serving the military. If the Company
used only its own mobilization value points, it would be entitled to a
fixed-award of approximately 1% of total awards under the system; however, when
all of the Company's team members are taken into account, their portion of the
fixed-award is approximately 34% of total awards under the system. As a result,
the contractor teaming arrangement significantly increases the likelihood that
the team will receive a fixed-award contract, and, to the extent the award
includes passenger transport, increases the Company's opportunity to provide
such service because the Company represents a significant portion of the team's
passenger transport capacity. In addition, since the expansion business is also
awarded as a function of the fixed-award system, the Company, through its
contractor teaming arrangement, should also receive a greater percentage of the
short-term expansion business. As part of its participation in this contract
teaming arrangement, the Company pays certain utilization fees to other team
members.
SCHEDULED SERVICE
In scheduled service, the Company markets air travel, as well as packaged
leisure travel products, directly, as well as through travel agents, to retail
consumers in selected markets. Approximately 67% of the Company's scheduled
service tickets are sold by travel agents through computer reservation systems
that have been developed and are controlled by other airlines. Travel agents
generally receive commissions based on the price of tickets sold. Accordingly,
airlines compete not only with respect to the price of tickets sold but also
with respect to the amount of commissions paid. Airlines often pay additional
commissions in connection with special revenue programs. Federal regulations
have been promulgated that are intended to diminish preferential schedule
displays and other practices with
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respect to the reservation systems that place the Company and other similar
users at a competitive disadvantage to the airlines controlling the systems. The
Company believes that by reducing its scheduled service operations to a few
selected markets, its marketing and advertising expenditures are much more
effective. The Company believes this process will strengthen its competitive
position and improve both load factors and yields in its scheduled service
operations.
AIRCRAFT FLEET
As of September 30, 1997, the Company operated a fleet of 14 Lockheed
L-1011s, 24 Boeing 727-200ADVs and 7 Boeing 757-200s.
Lockheed L-1011 Aircraft. The Company's 14 Lockheed L-1011 aircraft are
wide-body aircraft, 12 of which have a range of 2,971 nautical miles and 2 of
which have a range of 3,425 nautical miles. These aircraft conform to the FAA's
Stage 3 noise requirements and have a low ownership cost relative to most other
wide-body aircraft types. See ' -- Environmental Matters.' As a result, the
Company believes these aircraft offer a competitive advantage when operated on
long-range routes, such as on transatlantic, Caribbean and West Coast-Hawaii
routes. These aircraft have an average age of approximately 22 years. As of
September 30, 1997, thirteen of these aircraft were owned by the Company and one
was under an operating lease that expires in March 2001. Certain of the L-1011
aircraft owned by the Company are subject to mortgages and other security
interests granted in favor of the Company's lenders under its bank credit. The
terms of such security arrangements prohibit any sale or lease of such aircraft
without the consent of the secured party, subject, however, to certain
exceptions, including in most cases leases not in excess of six months where the
Company maintains operational control of the property. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources Credit Facilities.'
Boeing 727-200ADV Aircraft. The Company's 24 Boeing 727-200ADV aircraft are
narrow-body aircraft equipped with high thrust, JT8D-15/-15A/-17/-17A engines
and have a range of 2,050 nautical miles. These aircraft, of which 15 conform to
Stage 2 and 9 conform to Stage 3 noise requirements as of September 30, 1997,
have an average age of approximately 17 years. The Company leases all of these
aircraft, with initial lease terms that expire between December 1997 and
September 2003, subject to the Company's right to extend each lease for varying
terms. The Company may be required prior to December 31, 1998 and will be
required prior to December 31, 1999, to make expenditures for engine 'hushkits'
or to acquire replacement aircraft so that its entire fleet conforms to Stage 3
noise requirements in accordance with FAA regulations. In general, the lessors
of the Company's Boeing 727-200ADVs have agreed to finance hushkits for these
aircraft which, if accepted by the Company, will result in an automatic
extension of the lease term for each aircraft. Although Boeing 727-200ADV
aircraft are subject to the FAA's Aging Aircraft program, the Company does not
expect that its cost of compliance for these aircraft over the next two years
will be material. See ' -- Regulation.'
Boeing 757-200ADV Aircraft. The Company's 7 Boeing 757-200 aircraft are
modern, narrow-body aircraft, all of which have a range of 3,679 nautical miles.
These aircraft, six of which are leased, have an average age of approximately 3
years and meet Stage 3 noise requirements. The Company's Boeing 757-200s have
higher ownership costs than the Company's Lockheed L-1011 and Boeing 727-200ADV
aircraft, but relatively low operational costs. In addition, unlike most other
aircraft of similar size, the Boeing 757-200 has the capacity to operate on
extended flights over water. The leases for the Company's Boeing 757-200
aircraft have initial terms that expire on various dates between October 1997
and March 2015, subject to the Company's right to extend each lease for varying
terms.
FLIGHT OPERATIONS
Worldwide flight operations are planned and controlled by the Company's
Flight Operations Group operating out of its facilities located in Indianapolis,
Indiana, which are staffed on a 24-hour basis seven days a week. Logistical
support necessary for extended operations away from the Company's fixed bases
are coordinated through its global communications network. ATA's complex
operating environment demands a high degree of skill and flexibility from its
Flight Operations Group.
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In order to enhance the reliability of its service, the Company seeks to
maintain at least two spare L-1011 and three spare Boeing 727 aircraft at all
times. The spare aircraft can be dispatched on short notice to most locations in
the world where a substitute aircraft is needed for mechanical or other reasons.
The spare aircraft allows the Company to provide to its customers a dispatch
reliability that is hard for an airline of comparable or smaller size to match.
MAINTENANCE AND SUPPORT
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. The 120,000 square-foot facility was designed to meet the
maintenance needs of the Company's operations as well as provide contract
control of purchased services. The Company performs approximately 75% of its own
maintenance work, excluding engine overhauls and L-1011 and 727 heavy airframe
checks.
The Company currently maintains ten permanent maintenance facilities,
including its Indianapolis facility. In addition, the Company utilizes 'Road
Teams,' which are dispatched as flight operations require to arrange for and
supervise maintenance services at temporary locations. The Company sends Road
Teams to oversee the 25% of its airframe maintenance not performed in house.
The Maintenance and Engineering Center is an FAA-certificated repair
station and has the expertise to perform routine, as well as non-routine,
maintenance on L-1011, 727, and 757 aircraft. Capabilities of the Maintenance
and Engineering Center include: (i) airworthiness directive and service bulletin
compliance; (ii) modular teardown and buildup of Rolls Royce RB211-22B engines;
(iii) nondestructive testing, including radiographics, x-ray, ultrasound,
magnetic particle and eddy current; (iv) avionics component repair; (v) on-wing
engine testing; (vi) interior modification; (vii) repair and overhaul of
accessories and components, including hydraulic units and wheel and brake
assemblies; and (viii) sheet metal repair with hot bonding and composite
material capabilities. The Company contracts with third parties for certain
engine and airframe overhaul and other services if the Company does not have the
technical capability or facility capacity, or if such services can be obtained
on a more cost-effective basis from outside sources.
COMPETITION
The Company competes in a number of different markets because it offers
different products and services, and the nature and intensity of such
competition varies from market to market. In marketing its charter and scheduled
airline services, the Company emphasizes its ability to provide a simplified
product designed to meet the primary needs of leisure travelers. This includes
offering low fares, nonstop or direct flights from the customer's city of origin
and in-flight services that are comparable to standard coach service on
scheduled airlines. By offering low cost air travel products that can be
tailored to meet the specific needs of its customers, particularly independent
tour operators, the Company believes it is able to differentiate itself from
most major scheduled airlines, whose principal focus is on frequent scheduled
service on established routes, as well as from smaller charter airlines, which
often do not have comparably diverse fleets or the ability to provide similar
support or customization.
In the United States, there are few barriers to entry into the airline
business, apart from the need for certain government licenses and the need for
and availability of financing, particularly for those seeking to operate on a
small scale with limited infrastructure and other support systems. As a result,
the Company may face increased competition from startup airlines in selected
markets from time to time. In the leisure travel market, the Company's principal
business, the competition for airline passengers is significant. The Company
competes with both scheduled and charter airlines, both in the U.S. and
internationally. The Company generally competes on the basis of price,
availability of equipment, quality of service and convenience. See 'Risk
Factors -- Industry Conditions and Competition.'
COMPETITION FROM SCHEDULED AIRLINES
The Company competes against U.S., European and Mexican scheduled airlines,
most of which are significantly larger than the Company and many of which have
greater access to capital than the
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Company. These airlines compete for leisure travel customers in a variety of
ways, including wholesaling to tour operators discounted seats on scheduled
flights, promoting prepackaged tours to travel agents for sale to retail
customers and selling discounted, airfare-only products to the public. As a
result, all charter airlines, including the Company, generally are required to
compete for customers against the lowest revenue-generating seats of the
scheduled airlines.
Charter airlines generally have a lower cost structure than most scheduled
airlines. The major scheduled airlines typically incur higher costs related to
labor, marketing, reservation systems and airport facilities, among other items.
Because of their cost structures, the scheduled airlines generally do not
compete directly with charter airlines on a price basis. However, during periods
of dramatic fare cuts by the scheduled airlines, the Company is forced to
compete against these deeply discounted seats. The scheduled airlines do compete
with charter airlines by selling excess capacity to tour operators and
consolidators at bulk rates and also selling charter services on a limited
basis.
The Company's charter service also competes against the scheduled airlines
on the basis of convenience and quality of service. As the U.S. scheduled
airline industry has consolidated, the traffic patterns have evolved into what
is commonly referred to as the 'hub-and-spoke' system. Partially as a result of
the creation of numerous hub-and-spoke route systems, many smaller cities are
not served by direct or nonstop flights to leisure destinations, and many
secondary leisure destinations do not receive direct or nonstop service from
more than a few major U.S. cities. The Company, through tour operators, targets
these markets by offering nonstop service to leisure destinations on a
limited-frequency basis designed to appeal to the leisure traveler and to
provide relatively high load factors. The Company believes that a significant
amount of its charter flights provide nonstop convenience to destinations not
available to passengers through scheduled airlines.
The Company competes directly with several scheduled airlines on certain
leisure routes, particularly in the Indianapolis, Milwaukee and Chicago-Midway
markets. Although several airlines serve these markets, historically, the
Company has been able to compete successfully for the leisure customer. The
Company is continually evaluating these markets for their future potential.
COMPETITION FROM CHARTER AIRLINES
In addition to competing with major domestic, European and Mexican
scheduled airlines, the Company also faces competition from charter airlines. In
the U.S., the Company competes primarily with two smaller U.S. charter airlines.
This is the lowest number of charter carriers competing for business in many
years, a situation that could promote additional entries into the charter
market. In Europe, the Company competes with several large European charter
airlines, many of which are part of entities which also own tour operators and
travel agencies or scheduled airlines. To date, the Company has been able to
compete successfully against both the U.S. and European charter airlines. In the
case of the European charter airlines, the Company believes that its success has
been primarily due to the higher operating costs of such European airlines. In
Mexico, the Company competes against several Mexican charter airlines operating
charters between the U.S. and Mexico.
Based upon bilateral aviation agreements between the U.S. and other
nations, and, in the absence of such agreements, comity and reciprocity
principles, the Company, as a charter carrier, is generally not restricted as to
the number of frequency of its flights to and from most destinations in Europe.
However, these agreements generally restrict the Company to the carriage of
passengers and cargo on flights which either originate in the U.S. and terminate
in a single European nation, or which originate in a single European nation and
terminate in the U.S. Proposals for any additional charter service must
generally be specifically approved by the civil aeronautics authorities in the
relevant countries. Approval of such a proposal is typically based on
considerations of comity and reciprocity and cannot be guaranteed. See
' -- Regulation.'
PROPERTIES
The Company leases three adjacent office buildings in Indianapolis,
consisting of approximately 136,000 square feet. These buildings are located
approximately one mile from the Indianapolis International Airport and are used
for headquarters staff and for the operation of the Indianapolis reservations
center.
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The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the base maintenance needs of the Company's operations, as well as to provide
support services for other maintenance locations. The Indianapolis Maintenance
and Engineering Center is an FAA-certificated repair station and has the
capability to perform routine, as well as non-routine, maintenance on the
Company's aircraft.
In 1995, the Company completed the lease of Hangar No. 2 at Chicago's
Midway Airport for an initial lease term of ten years, subject to two five-year
renewal options. With the reduction in scheduled service in 1996, the Company is
reconsidering other options for the use of this hangar.
Also in 1995, the Company relocated and expanded its Chicago area
reservations unit to an 18,700 square-foot facility located near Chicago's
O'Hare Airport. This new property is expected to accommodate the continued
growth of the Company's scheduled service into the foreseeable future.
INSURANCE
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers
compensation. Under the Company's current insurance policies, it will not be
covered by such insurance were it to fly, without the consent of its insurance
provider, to certain high risk countries. The Company does not consider the
inability to operate into or out of any of these countries to be a significant
limitation on its business. The Company will support certain U.S. government
operations in areas where its insurance policy does not provide coverage for
losses when the U.S. government provides sufficient replacement insurance
coverage.
EMPLOYEES
As of September 30, 1997, the Company had 4,793 employees. In June 1991,
the Company's flight attendants elected the AFA as their representative. In
December 1994, the flight attendants ratified a four-year collective agreement.
In June 1993, the Company's cockpit crews elected the IBT as their
representative. In September 1996, following three years of negotiation, a
four-year collective agreement was ratified by the cockpit crews.
The Company believes that its relations with its employees are good.
However, the existence of a significant dispute with any sizable number of its
employees could have a material adverse effect on the Company's operations.
REGULATION
The Company is an air carrier subject to the jurisdiction of and regulation
by the DOT and the FAA. The DOT is primarily responsible for regulating consumer
protection and other economic issues affecting air services and determining a
carrier's fitness to engage in air transportation. In 1981, the Company was
granted a Certificate of Public Convenience and Necessity pursuant to Section
401 of the Federal Aviation Act authorizing it to engage in air transportation.
The Company is also subject to the jurisdiction of the FAA with respect to its
aircraft maintenance and operations. The FAA requires each carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
operate to specific airports using specified equipment. All of the Company's
aircraft must have and maintain certificates of airworthiness issued by the FAA.
The Company holds an FAA air carrier operating certificate under Part 121 of the
Federal Aviation Regulations.
The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authority granted by the DOT and its air
carrier operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
The FAA has issued a series of Airworthiness Directives under its 'Aging
Aircraft' program which are applicable to the Company's Lockheed L-1011 and
Boeing 727-200 aircraft. The Company does not currently expect the future cost
of these directives to be material.
Several aspects of airline operations are subject to regulation or
oversight by Federal agencies other than the DOT and FAA. The United States
Postal Service has jurisdiction over certain aspects of the transportation of
mail and related services provided by the Company through its cargo affiliate.
Labor relations in the air transportation industry are generally regulated under
the Railway Labor Act,
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which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. The Company is subject to the jurisdiction of the Federal
Communications Commission regarding the utilization of its radio facilities. In
addition, the Immigration and Naturalization Service, the U.S. Customs Service,
and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Company's aircraft,
passengers and cargo to ensure the Company's compliance with U.S. immigration,
customs and import laws. The Commerce Department also regulates the export and
reexport of the Company's U.S.-manufactured aircraft and equipment.
In addition to various federal regulations, local governments and
authorities in certain markets have adopted regulations governing various
aspects of aircraft operations, including noise abatement, curfews and use of
airport facilities. Many U.S. airports have adopted or are considering adopting
a 'Passenger Facility Charge' of up to $3.00 generally payable by each passenger
departing from the airport. This charge must be collected from passengers by
transporting air carriers, such as ATA, and must be remitted to the applicable
airport authority. Airport operators must obtain approval of the FAA before they
may implement a Passenger Facility Charge.
Based upon bilateral aviation agreements between the U.S. and other
nations, and, in the absence of such agreements, comity and reciprocity
principles, the Company, as a charter carrier, is generally not restricted as to
the frequency of its flights to and from most destinations in Europe. However,
these agreements generally restrict the Company to the carriage of passengers
and cargo on flights which either originate in the U.S. and terminate in a
single European nation, or which originate in a single European nation and
terminate in the U.S.
Proposals for any additional charter service must generally be specifically
approved by the civil aeronautics authorities in the relevant countries.
Approval of such requests is typically based on considerations of comity and
reciprocity and cannot be guaranteed.
ENVIRONMENTAL MATTERS
Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, the Company's aircraft fleet must comply with certain Stage 3 noise
restrictions by certain specified deadlines. These regulations require that the
Company achieve a 75% Stage 3 fleet by December 31, 1998. In general, the
Company would be prohibited from operating any Stage 2 aircraft after December
31, 1999. As of June 30, 1997, 65% of the Company's fleet met Stage 3
requirements. The Company expects to meet future Stage 3 fleet requirements
through Boeing 727-200 hushkit modifications, combined with additional future
deliveries of Stage 3 aircraft.
In addition to the aircraft noise regulations administered by the FAA, the
EPA regulates operations, including air carrier operations, which affect the
quality of air in the United States. The Company has made all necessary
modifications to its operating fleet to meet fuel-venting requirements and
smoke-emissions standards.
The Company maintains on its property in Indiana two underground storage
tanks which contain quantities of deicing fluid and emergency generator fuel.
These tanks are subject to various EPA and State of Indiana regulations. The
Company believes it is in substantial compliance with applicable regulatory
requirements with respect to these storage facilities.
At its aircraft line maintenance facilities, the Company uses materials
which are regulated as hazardous under federal, state and local law. The Company
maintains programs to protect the safety of its employees who use these
materials and to manage and dispose of any waste generated by the use of these
materials, and believes that it is in substantial compliance with all applicable
laws and regulations.
LEGAL PROCEEDINGS
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably foreseeable in
light of the nature of the Company's business. The majority of these suits are
covered by insurance. In the opinion of management, the resolution of these
claims will not have a material adverse effect on the business, operating
results or financial condition of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following serve as executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
J. George Mikelsons....................... 60 Chairman of the Board of Directors
John P. Tague............................. 35 President, Chief Executive Officer and Director
James W. Hlavacek......................... 61 Executive Vice President, Chief Operating Officer and
Director
Kenneth K. Wolff.......................... 51 Executive Vice President, Chief Financial Officer and
Director
Dalen D. Thomas........................... 30 Senior Vice President, Marketing, Sales and Strategic
Planning and Director
Robert A. Abel............................ 43 Director
William P. Rogers, Jr. ................... 46 Director
Andrejs P. Stipnieks...................... 56 Director
</TABLE>
J. George Mikelsons is the founder, Chairman of the Board of Directors and,
prior to the Company's initial public offering in May 1993, was the sole
shareholder of Amtran. Mr. Mikelsons founded American Trans Air, Inc. and
Ambassadair Travel Club, Inc. in 1973. Mr. Mikelsons currently serves on several
boards of directors, including the Allison Engine Company, where he is Chairman
of the Board, the Indianapolis Convention and Visitors Association, where he is
a member of the Executive Committee, the Air Transport Association, the National
Air Carrier Association and TWC Resources Corporation (formerly the Indianapolis
Water Company). Mr. Mikelsons has been an airline Captain since 1966 and remains
current on several jet aircraft.
John P. Tague was appointed President and Chief Executive Officer, and
elected a Director, in June 1997. Mr. Tague originally joined the Company in
1991, and in 1993 was promoted to the position of President and Chief Operating
Officer. Mr. Tague resigned from the Company in 1995, and founded and served as
Co-Chairman and Chief Executive Officer of the Pointe Group, an aviation
consulting firm. Recently, Mr. Tague served as the Chief Executive Officer of
both Vanguard Airlines, Inc. and Air South Airlines, Inc. Mr. Tague has over 12
years of management experience in the airline industry.
James W. Hlavacek was appointed Chief Operating Officer in 1995. He
continues to serve as Executive Vice President and President of ATA Training
Corporation. From 1986 to 1989, he was Vice President of Operations. Mr.
Hlavacek has been a commercial airline pilot for more than 30 years and has held
the rank of Captain for nearly 27 years. He was ATA's Chief Pilot from 1985 to
1986. Mr. Hlavacek is a graduate of the University of Illinois.
Kenneth K. Wolff was appointed Executive Vice President and Chief Financial
Officer in 1991. From 1990 to 1991, he was Senior Vice President and Chief
Financial Officer. From 1989 to 1990, he was President and Chief Executive
Officer of First of America Bank -- Indianapolis (which is a lender under
certain of the Company's credit facilities). From 1988 to 1989, he was President
and Chief Operating Officer of such bank. Prior to his appointment as President,
he held various positions at the bank since 1969. He is a graduate of Purdue
University with a B.S. Degree in Industrial Management. Mr. Wolff also holds a
Masters in Business Administration from Indiana University and was a member of
the faculty there for five years.
Dalen D. Thomas was appointed Senior Vice President, Marketing, Sales and
Strategic Planning, and was elected a Director, in August 1996. Mr. Thomas
worked at Bain & Company, Inc. for seven years. While at Bain, he worked on the
team that restructured Continental Airlines. He graduated and received a Masters
in Business Administration from Stanford University.
Robert A. Abel is a director in the public accounting firm of Blue & Co.,
LLC. Mr. Abel is a magna cum laude graduate of Indiana State University with a
B.S. Degree in Accounting. He is a certified public accountant with over 18
years of experience in the areas of auditing and corporate tax and has been
involved with aviation accounting and finance since 1976.
William P. Rogers, Jr., is a partner in the New York law firm of Cravath,
Swaine & Moore. After graduating from Case Western Reserve University School of
Law in 1978, he served as a clerk in the
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United States Court of Appeals for the Sixth Circuit based in Cincinnati. He
joined the Cravath firm a year later and became a partner in 1985. His practice
includes a wide variety of corporate matters, including public and private
financings, mergers and acquisitions and corporate restructurings.
Andrejs P. Stipnieks is a Senior Government Solicitor in the Office of
Commercial Law. Australian Government Solicitor's Office. He graduated from the
University of Adelaide, South Australia, and is a Barrister and Solicitor of the
Supreme Courts of South Australia and the Australian Capital Territory and of
the High Court of Australia. He has specialized in transport law and practice,
especially aviation law and practice and represented Australia on the Legal
Committee of the International Civil Aviation Organization at Montreal in 1983.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 1, 1997, the number of
shares of Common Stock of the Company owned by any person known by management to
beneficially own more than 5% of such stock and by all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF INDIVIDUAL/GROUP OWNED OF CLASS
- ----------------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
J. George Mikelsons.......................................................... 8,479,000 73.0
Dimensional Fund Advisors Inc. ............................................. 610,600(2) 5.3
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Heartland Advisors, Inc. ................................................... 600,000(3) 5.2
790 N. Milwaukee Street
Milwaukee, WI 53202
All directors and executive officers as a group(1) (excluding J. George
Mikelsons)................................................................. 263,300(4) -- (5)
</TABLE>
- ------------
(1) Group consists of six persons (Messrs. Hlavacek, Wolff, Thomas, Abel, Rogers
and Stipnicks).
(2) Dimensional Fund Advisors Inc. ('Dimensional'), a registered investment
advisor, has filed with the Commission its statement on Schedule 13G, dated
February 5, 1997, to the effect that it has sole voting power over 413,400
shares, and sole dispositive power over 610,600 shares. Such statement of
Dimensional's beneficial ownership, voting power, dispositive power and
percent of class as stated herein, is based solely on information stated
therein. Dismensional is deemed to have beneficial ownership of 610,600
shares of Amtran, Inc. stock as of December 31, 1996, all of which shares
are held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in a series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all of
such shares.
(3) Heartland Advisors, Inc. ('Heartland'), a registered investment advisor,
filed with the Commission its statement on Schedule 13G, dated February 12,
1997, to the effect that it has sole voting and sole dispositive power over
all these shares. Such statement of Heartland's beneficial ownership, voting
power, dispositive owner and percent of class as stated herein, is based
solely on information stated therein.
(4) Includes (a) presently exercisable options to purchase 36,000 shares each
granted to Messrs. Wolff and Hlavacek on July 7, 1993, under the Company's
1993 Incentive Stock Plan for Key Employees; (b) presently exercisable
options to purchase 10,000 shares each granted to Messrs. Hlavacek and Wolff
on February 25, 1994, under said Plan; (c) presently exercisable options to
purchase 12,000 shares each granted to Messrs. Wolff and Hlavacek on
February 14, 1995, under said Plan; (d) presently exercisable options to
purchase 10,000 shares each granted to Messrs. Wolff and Hlavacek on March
21, 1996, under said Plan; (e) presently exercisable options to purchase
75,000 shares granted to Mr. Thomas on August 9, 1996, under the Company's
1996 Incentive Stock Plan; and (f) presently exercisable options to purchase
3,500 shares each granted to Messrs. Abel, Rogers and Stipnicks under the
Company's Stock Option Plan for Non-Employee Directors.
(5) Represents less than 3% of the outstanding stock of the Company.
CERTAIN RELATED PARTY TRANSACTIONS
Mr. Mikelsons is the sole owner of Betaco, Inc., a Delaware corporation
('Betaco'). Betaco currently owns two helicopters (a Bell 206B JetRanger III and
an Aerospatiale 355F2), both of which are leased to ATA. The lease for the
JetRanger III currently requires a monthly payment of $7,000 and provides either
party the right to terminate the lease upon six months' notice. The lease for
the Aerospatiale 355F2 is on an 'as used' basis. The Company believes that the
current terms of the leases with Betaco for this equipment are, in general, no
less favorable to the Company than those that could be obtained from third
parties.
Prior to January 1, 1997, the Company had an arrangement with Betaco under
which Betaco made certain vessels available to the Company and the Company paid
or reimbursed certain cash operating expenses relating to the use and
maintenance of these vessels. Such arrangement was terminated as of January 1,
1997. For the year ending December 31, 1996, the Company made payments totaling
$194,000 pursuant to this arrangement.
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DESCRIPTION OF THE NEW CREDIT FACILITY
Concurrently with the closing of the Original Offering, the Company entered
into the New Credit Facility. The following summary of the material provisions
of the New Credit Facility does not purport to be complete, and is subject to,
and qualified in its entirety by reference to, the New Credit Facility, a copy
of which is available from the Company upon request.
ATA is the borrower under the New Credit Facility which is guaranteed by
the Company and each of the Company's other subsidiaries (including future
subsidiaries) that are Guarantors. The New Credit Facility provides for a $50
million revolving line of credit, including up to $25 million for stand-by
letters of credit. The New Credit Facility will terminate, and all amounts
borrowed thereunder will become due and payable on April 1, 2001. Borrowings
under the New Credit Facility are secured by certain L-1011 aircraft and engines
and such additional assets as may be required to provide a loan to value ratio
not in excess of 75%.
So long as no event of default (as defined in the New Credit Facility) is
continuing, borrowings under the New Credit Facility bear interest, at the
option of ATA, at either (i) LIBOR plus 1.50% to 2.50% (depending on certain
financial ratios) or (ii) the Agent Bank's prime rate plus 0% to 0.50%
(depending on certain financial ratios). ATA incurs a quarterly commitment fee
ranging from 0.25% to 0.50% per annum on the average unused portion of the
commitment (depending on certain financial ratios).
The New Credit Facility contains covenants which, absent the prior written
consent of the Required Banks (as defined in the New Credit Facility), among
other things, limit the amount of debt that the Company, ATA or any of their
subsidiaries may incur, limit the placement of liens on the Company's, ATA's or
any of their subsidiaries' assets, restrict the ability of the Company, ATA or
any of their subsidiaries to make capital expenditures, restrict the payment of
dividends, distributions to stockholders and other similar payments, restrict
the ability of the Company, ATA or any of their subsidiaries to merge with or
into another person or sell or dispose of their assets and prevent the Company,
ATA or any of their subsidiaries from prepaying or redeeming indebtedness,
including the Notes. Further, covenants require that, for specified periods, ATA
maintain a minimum tangible net worth of at least $50 million plus 50% of net
profits as of the end of each fiscal quarter, certain specified ratios of cash
flow to interest expense and aircraft rentals, and total adjusted liabilities to
tangible net worth.
Among other events of default, a reduction below 51% in (i) J. George
Mikelsons' or his heirs' beneficial ownership of the Company's outstanding
capital stock, or (ii) the Company's beneficial ownership of ATA's outstanding
capital stock, are both specified as events of default.
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DESCRIPTION OF THE NOTES
The Outstanding Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of July 24, 1997, among the Company, as issuer, American
Trans Air, Inc., Ambassadair Travel Club, Inc., ATA Vacations, Inc. (formerly
Amber Tours, Inc.), Amber Travel, Inc., American Trans Air Training Corporation,
American Trans Air ExecuJet, Inc., and Amber Air Freight Corporation, as
guarantors (collectively, the 'Guarantors'), and First Security Bank, N.A., as
trustee (the 'Trustee'). The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended (the 'Trust
Indenture Act'). Copies of the Indenture and the Notes are available upon
request from the Company. Whenever particular defined terms of the Indenture not
otherwise defined herein are referred to, such defined terms are incorporated
herein by reference. For definitions of certain capitalized terms used in the
following summary, see ' -- Certain Definitions.'
GENERAL
The Notes are unsecured senior obligations of the Company, initially
limited to $100 million aggregate principal amount, and will mature on August 1,
2004. Each Note will initially bear interest at 10 1/2% per annum from the
Closing Date or from the most recent Interest Payment Date to which interest has
been paid or provided for, payable semiannually (to Holders of record at the
close of business on the January 15 or July 15 immediately preceding the
Interest Payment Date) on February 1 and August 1 of each year, commencing
February 1, 1998.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York; provided that, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses as they appear in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See ' -- Book-Entry; Delivery and Form.' No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
For each Outstanding Note accepted for exchange, the Holder thereof will
receive an Exchange Note having a principal amount equal to that of the
surrendered Outstanding Note.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Outstanding Notes, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes and except that, if an
exchange offer with respect to the Exchange Notes is not consummated by January
24, 1998, the rate per annum at with the Outstanding Notes bear interest will be
increased temporarily. See 'Registration Rights Agreement for Outstanding
Notes.'
All Outstanding Notes and Exchange Notes will be treated as a single class
of securities for all purposes under the Indenture.
OPTIONAL REDEMPTION
In the event that more than 98% of the outstanding principal amount of the
Notes are tendered pursuant to an Offer to Purchase, as required by the
'Limitation on Asset Sales' or 'Repurchase of Notes upon a Change of Control'
covenant, the balance of the Notes will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time thereafter and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at a Redemption Price equal to the price specified in such Offer to
Purchase plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right
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of Holders of record on the relevant Regular Record Date that is on or prior to
the Redemption Date to receive interest due on an Interest Payment Date).
The Notes will also be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after August 1, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holders' last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing August
1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- ----------
<S> <C>
2002................................................................... 105.250%
2003................................................................... 102.625%
</TABLE>
In addition, at any time prior to August 1, 2000, the Company may redeem up
to 35% of the principal amount of the Notes with the proceeds of one or more
sales of its Common Stock, at any time or from time to time in part, at a
Redemption Price (expressed as a percentage of principal amount) of 110.500%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that at least $65 million aggregate principal amount of Notes remains
outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
GUARANTEE
The Company's obligations under the Notes are fully and unconditionally
guaranteed (the 'Note Guarantees') on an unsecured, unsubordinated basis,
jointly and severally, by the Guarantors; provided that no Note Guarantee shall
be enforceable against any Guarantor in an amount in excess of the net worth of
such Guarantor at the time that determination of such net worth is, under
applicable law, relevant to the enforceability of such Note Guarantee. Such net
worth shall include any claim of such Guarantor against the Company for
reimbursement and any claim against any other Guarantor for contribution.
Each Note Guarantee, other than the Note Guarantee provided by ATA, will
provide by its terms that it shall be automatically and unconditionally released
and discharged upon any sale, exchange or transfer to any Person that is not an
Affiliate of the Company, of all of the Company's and each Restricted
Subsidiary's Capital Stock issued by, or all or substantially all the assets of,
such Guarantor (which sale, exchange or transfer is not prohibited by the
Indenture).
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RANKING
The Indebtedness evidenced by the Notes and the Note Guarantees will rank
pari passu in right of payment with all existing and future unsubordinated
indebtedness of the Company and the Guarantors, respectively, and senior in
right of payment to all existing and future subordinated indebtedness of the
Company and the Guarantors, respectively. The Notes and Note Guarantees will
also be effectively subordinated to all existing and future secured indebtedness
of the Company and the Guarantors, to the extent of such security. At June 30,
1997, after giving pro forma effect to the Offering and the application of the
net proceeds thereof, the Company (on a consolidated basis) would have had
outstanding approximately $172.7 million of indebtedness (including the Notes),
approximately $63.9 million of which would have been secured. At June 30, 1997,
after giving pro forma effect to the Offering and the application of the net
proceeds thereof, the Guarantors (on a consolidated basis excluding indebtedness
owed to the Company and indebtedness of Amtran) would have had approximately
$72.7 million of indebtedness outstanding (other than the Note Guarantees),
approximately $63.9 million of which would have been secured indebtedness. See
'Capitalization.' The Credit Agreement is secured by thirteen L-1011 aircraft
and related engines, including spares and may be secured by other assets as
provided thereunder. See 'Description of the New Credit Facility.' The Notes
will be effectively subordinated to such indebtedness to the extent of such
security interests. See 'Risk Factors -- Effective Subordination of Notes to
Secured Obligations of Subsidiaries.'
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
'Acquired Indebtedness' means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
'Adjusted Consolidated Net Income' means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person that is not a Restricted Subsidiary, except to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such Person during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
'Limitation on Restricted Payments' covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary which is not a
Guarantor to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the 'Limitation on Restricted Payments'
covenant described below, any amount paid or accrued as dividends on Preferred
Stock of the Company or any Restricted Subsidiary owned by Persons other than
the Company and any of its Restricted Subsidiaries; and (vi) all extraordinary
gains and extraordinary losses.
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'Adjusted Consolidated Net Tangible Assets' means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the 'Commission Reports and Reports to Holders'
covenant.
'Affiliate' means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
'Asset Acquisition' means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
'Asset Disposition' means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Company or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
'Asset Sale' means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary
(other than directors' qualifying shares), (ii) all or substantially all of the
property and assets of an operating unit or business of the Company or any of
its Restricted Subsidiaries or (iii) any other property and assets of the
Company or any of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in each case, that is
not governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of the Company; provided that 'Asset Sale'
shall not include (a) sales or other dispositions of inventory, receivables and
other current assets, (b) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, to the extent that the consideration received would satisfy clause
(B) of the 'Limitation on Asset Sales' covenant or (c) sales or other
dispositions of assets in a single transaction or series of related transactions
having a fair market value, as determined in good faith by the Board of
Directors, of $2 million or less.
'Average Life' means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
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'Capitalized Lease' means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
'Capitalized Lease Obligations' means the discounted present value of the
rental obligations under a Capitalized Lease.
'Change of Control' means such time as (i) (x) a 'person' or 'group'
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate 'beneficial owner' (as defined in Rule 13d-3 under the Exchange
Act) of more than 35% of the total voting power of the Voting Stock of the
Company on a fully diluted basis and such ownership represents a greater
percentage of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date and (y) immediately following the occurrence of the
events specified in subsection (x), there shall have occurred any downgrading,
or notice shall have been given of any intended or potential downgrading, in the
rating accorded any of the Company's securities or (ii) individuals who on the
Closing Date constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination by the Board of
Directors for election by the Company's stockholders was approved by a vote of
at least two-thirds of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the Board of Directors then in
office.
'Closing Date' means the date on which the Notes are originally issued
under the Indenture.
'Consolidated EBITDA' means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses
arising out of sales of assets), (iii) depreciation expense, (iv) amortization
expense and (v) all other non-cash items reducing Adjusted Consolidated Net
Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all non-cash
items increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in the calculation of Adjusted Consolidated Net Income in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of shares of outstanding Common Stock of such
Restricted Subsidiary not owned on the last day of such period by the Company or
any of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of such
period.
'Consolidated Interest Expense' means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation but
without duplication, amortization of original issue discount on any Indebtedness
and the interest portion of any deferred purchase price payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and Indebtedness that is Guaranteed or secured by the
Company or any of its Restricted Subsidiaries) and the interest component of
rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by the Company and its Restricted Subsidiaries
during such period; excluding, however, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof), (ii) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes or the Credit Agreement,
all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP, and (iii) any interest or
other
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financing costs associated with loans to students of the Company's training
academy, unless such costs are paid by the Company or any Restricted Subsidiary.
'Consolidated Net Worth' means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
'Credit Agreement' means the credit agreement among ATA, NBD Bank, N.A., as
agent, the lenders named therein, the Company and the other Guarantors, as
guarantors, together with all other loan or credit agreements entered into from
time to time with one or more banks or other institutional lenders and all
instruments and documents executed or delivered pursuant thereto, in each case
as such agreements, instruments or documents may be amended (including any
amendment and restatement thereof), supplemented, replaced or otherwise modified
from time to time in one or more successive transactions (including any such
transaction that changes the amount available, replaces the relevant agreement
or changes one or more lenders).
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
'Disqualified Stock' means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an 'asset sale' or 'change of control'
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the 'asset sale' or 'change of control' provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in 'Limitation on Asset Sales' and
'Repurchase of Notes upon a Change of Control' covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
'Limitation on Asset Sales' and 'Repurchase of Notes upon a Change of Control'
covenants described below.
'Existing Stockholders' means J. George Mikelsons, his spouse, his issue,
any trust for any of the foregoing and any Affiliate of any of the foregoing.
'fair market value' means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture (i) shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture
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shall be made without giving effect to (A) the amortization of any expenses
incurred in connection with the offering of the Notes and (B) except as
otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17 and (ii) shall, insofar as
they involve the treatment for financial reporting purposes of amounts incurred
with engine overhauls, reflect the accounting policy of the Company as in effect
as of the Closing Date.
'Guarantee' means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
terms and are entered into in the ordinary course of business), to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term 'Guarantee' shall not include
endorsements for collection or deposit in the ordinary course of business. The
term 'Guarantee' used as a verb has a corresponding meaning.
'Incur' means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an 'Incurrence' of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
'Indebtedness' means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed
by such Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (A) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at the time of its issuance
as determined in conformity with GAAP, (B) that money borrowed and set aside at
the time of the Incurrence of any Indebtedness in order to prefund the payment
of the interest on such Indebtedness shall not be deemed to be 'Indebtedness'
and (C) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
'Interest Coverage Ratio' means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission (the 'Four Quarter Period') to (ii) the aggregate Consolidated
Interest Expense during such Four Quarter Period. In making the foregoing
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calculation, (A) pro forma effect shall be given to any Indebtedness Incurred or
repaid during the period (the 'Reference Period') commencing on the first day of
the Four Quarter Period and ending on the Transaction Date (other than
Indebtedness Incurred or repaid under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under any predecessor revolving
credit or similar arrangement) in effect on the last day of such Four Quarter
Period unless any portion of such Indebtedness is projected, in the reasonable
judgment of the senior management of the Company, to remain outstanding for a
period in excess of 12 months from the date of the Incurrence thereof), in each
case as if such Indebtedness had been Incurred or repaid on the first day of
such Reference Period; (B) Consolidated Interest Expense attributable to
interest on any Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months or, if shorter, at least equal to the
remaining term of such Indebtedness) had been the applicable rate for the entire
period; (C) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of proceeds
of any Asset Disposition) that occur during such Reference Period as if they had
occurred and such proceeds had been applied on the first day of such Reference
Period; and (D) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into the Company or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (C) or (D) of this sentence requires that pro forma effect be
given to an Asset Acquisition or Asset Disposition, such pro forma calculation
shall be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business of the Person,
that is acquired or disposed for which financial information is available.
'Interest Rate Agreement' means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
'Investment' in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the 'Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries' covenant; provided that the
fair market value of the Investment remaining in any Person that has ceased to
be a Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made
less the net reduction of such Investments. For purposes of the definition of
'Unrestricted Subsidiary' and the 'Limitation on Restricted Payments' covenant
described below, (i) 'Investment' shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer.
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'Lien' means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
'Note Guarantee' means any Guarantee of the Notes by a Guarantor.
'Offer to Purchase' means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the 'Payment Date'); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
'Option of the Holder to Elect Purchase' on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; (vii) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof; and (viii) if more than 98% of the
outstanding principal amount of the Notes is tendered pursuant to an Offer to
Purchase, the Company shall have the right to redeem the balance of the Notes at
the purchase price specified in such Offer to Purchase, plus (without
duplication) accrued and unpaid interest, if any, to the Redemption Date on the
principal amount of the Notes to be redeemed. On the Payment Date, the Company
shall (i) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to an Offer to
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Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
'Permitted Investment' means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
settlement or satisfaction of judgments or claims; (v) loans or advances to
employees in the ordinary course of business; and (vi) the non-cash portion of
the consideration received for any Asset Sale.
'Permitted Liens' means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; provided that (a) each such Lien is created
solely for the purpose of securing Indebtedness Incurred to finance the costs
(including transaction costs and the costs of improvement or construction) of
the item of property or assets subject thereto and such Lien is created prior
to, at the time of or within twelve months after, the later of the acquisition,
the completion of construction or the commencement of full operation of such
property or assets (b) the principal amount of the Indebtedness secured by such
Lien does not exceed 100% of such costs and (c) any such Lien shall not extend
to or cover any property or assets other than such item of property or assets
and any improvements on such item; (vii) Liens upon aircraft, engines and
buyer-furnished equipment attached thereto or incorporated therein other than as
permitted by the foregoing clause (vi); provided that, after giving effect
thereto and the Indebtedness secured thereby, the book value of assets of the
Company not subject to any Lien (other than Liens described in clauses (i)
through (v), (xiii) and (xvi) of the definition of 'Permitted Liens') shall be
not less than $125 million; (viii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (ix) Liens encumbering property
or assets under
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construction arising from progress or partial payments by a customer of the
Company or its Restricted Subsidiaries relating to such property or assets; (x)
any interest or title of a lessor in the property subject to any Capitalized
Lease or operating lease; (xi) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xii) Liens on property of, or on shares
of Capital Stock or Indebtedness of, any Person existing at the time such Person
becomes, or becomes a part of, any Restricted Subsidiary; provided that such
Liens do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets acquired; (xiii) Liens
with respect to the assets of a Restricted Subsidiary granted by such Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to secure
Indebtedness owing to the Company or such other Restricted Subsidiary; (xiv)
Liens arising from the rendering of a final judgment or order against the
Company or any Restricted Subsidiary that does not give rise to an Event of
Default; (xv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xvi) Liens in favor of customs
and revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvii) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are within
the general parameters customary in the industry and incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xviii) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Restricted Subsidiaries prior to the Closing
Date; and (xix) Liens on or sales of receivables.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'S&P' means Standard & Poor's Ratings Service and its successors.
'Significant Subsidiary' means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
'Stated Maturity' means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
'Subsidiary' means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
'Temporary Cash Investment' means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated 'A'
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in
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clause (ii) above, (iv) commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of 'P-1' (or higher) according to Moody's or 'A-1' (or higher) according
to S&P, and (v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least 'A' by S&P or
Moody's.
'Trade Payables' means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
'Transaction Date' means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an 'Incurrence' of such Indebtedness and an 'Investment' by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the 'Limitation on Restricted
Payments' covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the 'Limitation on Indebtedness' and 'Limitation on
Restricted Payments' covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
'Voting Stock' means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
'Wholly Owned' means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes, the Note
Guarantees and Indebtedness existing on the Closing Date); provided that the
Company may Incur Indebtedness if, after giving effect to the Incurrence of
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such Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be greater than 3:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of the Company or any Restricted Subsidiary that is a Guarantor
outstanding at any time under the Credit Agreement; provided, that after giving
effect to the Incurrence of any such Indebtedness, the book value of assets of
the Company not subject to any Lien (other than Liens described in clauses (i)
through (v), (xiii) and (xvi) of the definition of 'Permitted Liens') shall not
be less than $125 million; (ii) Indebtedness owed (A) to the Company evidenced
by an unsubordinated promissory note or (B) to any of its Restricted
Subsidiaries; provided that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness Incurred under clause (v) of this paragraph and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness that
is pari passu with, or subordinated in right of payment to, the Notes or Note
Guarantees shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes or Note Guarantees, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes or Note Guarantees, as the case may be, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes or Note Guarantees, as the case may be, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes or the Note Guarantees, as the case may be, at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes or the Note Guarantees, as the case may be, and (C) such new
Indebtedness, determined as of the date of Incurrence of such new Indebtedness,
does not mature prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided further that in no event may Indebtedness of the
Company be refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (iii) (other than pursuant to an Offer to Purchase);
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds provided
in the ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements (a) are designed solely to
protect the Company or its Restricted Subsidiaries against fluctuations in
foreign currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company, to the extent
the net proceeds thereof are promptly (A) used to purchase Notes tendered in an
Offer to Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as described below under 'Defeasance'; (vi) Guarantees of the
Notes, Guarantees by the Company or Restricted Subsidiaries of Indebtedness of
ATA under the Credit Agreement, and Guarantees of Indebtedness of the Company by
any Restricted Subsidiary provided the Guarantee of such Indebtedness is
permitted by and made in accordance with the 'Limitation on Issuance of
Guarantees by Restricted Subsidiaries' covenant described below; (vii)
Indebtedness of the Company or any Restricted Subsidiary Incurred to finance
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the cost of aircraft, engines and buyer-furnished equipment attached thereto or
incorporated therein; provided, that such Indebtedness is created solely for the
purpose of financing the costs (including transaction costs and the costs of
improvement or construction) of property or assets and is incurred prior to, at
the time of or within 12 months after, the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or assets, and (b) the principal amount of such Indebtedness does not
exceed 100% of such costs; and (viii) Indebtedness of the Company (in addition
to Indebtedness permitted under clauses (i) through (vii) above) in an aggregate
principal amount outstanding at any time not to exceed $10 million.
(b) Notwithstanding any other provision of this 'Limitation on
Indebtedness' covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this 'Limitation on Indebtedness'
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this 'Limitation on Indebtedness' covenant, (1) Indebtedness Incurred under the
Credit Agreement on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (i) of the second paragraph of this 'Limitation on
Indebtedness' covenant, (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (3) any Liens
granted pursuant to the equal and ratable provisions referred to in the
'Limitation on Liens' covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this 'Limitation on
Indebtedness' covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses (other than Indebtedness referred to in clause (1) of the preceding
sentence), the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company or any Guarantor that is subordinated in right of
payment to the Notes or to a Guarantor's Note Guarantee, as the case may be, or
(iv) make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) above being
collectively 'Restricted Payments') if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) the Company could not Incur at least $1.00
of Indebtedness under the first paragraph of the 'Limitation on Indebtedness'
covenant or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by the Company or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on the first
day of the fiscal quarter immediately following the Closing Date and ending on
the last day of the last
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fiscal quarter preceding the Transaction Date for which reports have been filed
with the Commission or provided to the Trustee pursuant to the 'Commission
Reports and Reports to Holders' covenant, plus (2) the aggregate Net Cash
Proceeds received by the Company after the Closing Date from the issuance and
sale permitted by the Indenture of its Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary of the Company, including an issuance
or sale permitted by the Indenture of Indebtedness of the Company for cash
subsequent to the Closing Date upon the conversion of such Indebtedness into
Capital Stock (other than Disqualified Stock) of the Company, or from the
issuance to a Person who is not a Subsidiary of the Company of any options,
warrants or other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Disqualified Stock or any options, warrants or other rights
that are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes), plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the
sale of any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
'Investments'), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary, minus (4) the sum of the amounts by which the Pro Forma
Consolidated Net Worth after giving effect to each consolidation, merger and
sale of assets effectuated pursuant to clause (iii) under the 'Consolidation,
Merger and Sale of Assets' covenant was less than the Base Consolidated Net
Worth immediately prior to such consolidation, merger and sale of assets, plus
(5) $5 million.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the 'Limitation on Indebtedness' covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company or
an Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company or any Guarantor which is subordinated in right of payment to the Notes
or the Note Guarantees, as the case may be, in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of the Capital Stock
(other than Disqualified Stock) of the Company or any Guarantor (or options,
warrants or other rights to acquire such Capital Stock); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) Investments acquired in exchange for Capital Stock
(other than Disqualified Stock) of the Company; provided that, except in the
case of clauses (i) and (iii), no Default or Event of Default shall have
occurred and be continuing or occur as a consequence of the actions or payments
set forth therein; or (vii) the purchase or redemption of subordinated
Indebtedness pursuant to asset sale or change of control provisions contained in
the Indenture or other governing instrument relating thereto; provided, however,
that (a) no offer or purchase obligation may be triggered in respect of such
Indebtedness unless a corresponding obligation also arises for the Notes and (b)
in all events, no repurchase or redemption of such Indebtedness may be
consummated unless and until the Company shall have satisfied all repurchase
obligations with respect to any required purchase offer made with respect to the
Notes.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
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thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this 'Limitation on
Restricted Payments' covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this 'Limitation on Restricted Payments' covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary that is not a Guarantor to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Credit Agreement, the
Indenture or any other agreements in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements; provided
that the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced; (ii) existing under or by
reason of applicable law; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this 'Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries' covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction applies only
in the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders of the Notes
than is customary in comparable financings (as determined by the Company) and
(C) the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes. Nothing contained in this 'Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries' covenant shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in the 'Limitation on Liens'
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
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Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; or (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the 'Limitation on Restricted Payments' covenant if made on the
date of such issuance or sale.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary that is not a
Guarantor, directly or indirectly, to Guarantee any Indebtedness of the Company
which is pari passu with or subordinate in right of payment to the Notes
('Guaranteed Indebtedness'), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee (a 'Subsidiary Guarantee') of payment of the Notes by
such Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will
not in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
Incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the
Notes or the Note Guarantees, then the Guarantee of such Guaranteed Indebtedness
shall be pari passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the Notes or the Note Guarantees, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes or the Note Guarantees, as the case may be.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors, or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned
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Restricted Subsidiaries or solely between Wholly Owned Restricted Subsidiaries;
(iii) the payment of reasonable and customary regular compensation (whether in
cash or securities) and expense reimbursements to directors of the Company who
are not employees of the Company; (iv) any payments or other transactions
pursuant to any tax-sharing agreement between the Company and any other Person
with which the Company files a consolidated tax return or with which the Company
is part of a consolidated group for tax purposes; or (v) any Restricted Payments
not prohibited by the 'Limitation on Restricted Payments' covenant.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this 'Limitation on Transactions with
Shareholders and Affiliates' covenant and not covered by clauses (ii) through
(v) of this paragraph, (a) the aggregate amount of which exceeds $1 million in
value, must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above and (b) the aggregate amount of which exceeds $3
million in value, must be determined to be fair in the manner provided for in
clause (i)(B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes (or in the case of a Lien on assets or properties of a Guarantor, the Note
Guarantee of such Guarantor) and all other amounts due under the Indenture to be
directly secured equally and ratably with (or, if the obligation or liability to
be secured by such Lien is subordinated in right of payment to the Notes or the
Note Guarantee, prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date, including Liens securing obligations under the Credit Agreement;
(ii) Liens granted after the Closing Date on any assets or Capital Stock of the
Company or its Restricted Subsidiaries created in favor of the Holders; (iii)
Liens with respect to the assets of a Restricted Subsidiary granted by such
Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to
secure Indebtedness owing to the Company or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of the second
paragraph of the 'Limitation on Indebtedness' covenant; provided that such Liens
do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens on any property or assets of a
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted under the 'Limitation on Indebtedness' covenant; or (vi) Permitted
Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the 'Limitation on
Asset Sales' covenant described below.
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Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
(including the fair market value, as determined in good faith by the Board of
Directors, of any non-cash consideration) consists of (w) cash, (x) Temporary
Cash Investments, (y) marketable securities which are liquidated for cash within
90 days following the consummation of such Asset Sale, and (z) the assumption of
Indebtedness of the Company or any Restricted Subsidiary (other than the Notes
and the Note Guarantees); provided, that (1) such Indebtedness is not
subordinate in right of payment to the Notes and the Note Guarantees and (2) the
Company or such Restricted Subsidiary is irrevocably released and discharged
from such Indebtedness. In the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries from one
or more Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its Subsidiaries has
been filed with the Commission), then the Company shall or shall cause the
relevant Restricted Subsidiary to (i) within twelve months after the date Net
Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company, or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the 'Limitation on Issuances of
Guarantees by Restricted Subsidiaries' covenant described above or Indebtedness
of any other Restricted Subsidiary, in each case owing to a Person other than
the Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment and (ii) apply
(no later than the end of the 12-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraph of this 'Limitation on Asset Sales'
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute 'Excess Proceeds.'
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
'Limitation on Asset Sales' covenant totals at least $10 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date. In the event that more
than 98% of the outstanding principal amount of the Notes are tendered pursuant
to such Offer to Purchase, the balance of the Notes will be redeemable, at the
Company's option, in whole or in part, at any time or from time to time
thereafter, at a Redemption Price equal to the price specified in such Offer to
Purchase plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date).
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date. In the event that more than 98% of the
outstanding principal amount of the Notes are tendered pursuant to such Offer to
Purchase, the balance of the Notes will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time thereafter, at a
Redemption Price equal to the price specified in such
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Offer to Purchase plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date).
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, including in particular the New Credit Facility, either prior to or
concurrently with such Note repurchase. See 'Description of the New Credit
Facility.'
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company or any Guarantor is then required to file
reports with the Commission, the Company and each Guarantor shall file with the
Commission all such reports and other information as they would be required to
file with the Commission by Sections 13(a) or 15(d) under the Exchange Act if
they were subject thereto. The Company shall supply the Trustee and each Holder
or shall supply to the Trustee for forwarding to each such Holder, without cost
to such Holder, copies of such reports and other information.
EVENTS OF DEFAULT
The following events will be defined as 'Events of Default' in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or a Guarantor or the failure to
make or consummate an Offer to Purchase in accordance with the 'Limitation on
Asset Sales' or 'Repurchase of Notes upon a Change of Control' covenant; (d) the
Company or a Guarantor defaults in the performance of or breaches any other
covenant or agreement of the Company or a Guarantor in the Indenture or under
the Notes (other than a default specified in clause (a), (b) or (c) above) and
such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes; (e) there occurs with respect to any issue or
issues of Indebtedness of the Company, any Guarantor or any Significant
Subsidiary having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company, any Guarantor or any
Significant Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; (g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; (h) the Company or any Significant Subsidiary (A)
commences a
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voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors or (i) any Note Guarantee ceases to be in full force and effect
(except pursuant to its terms) or is declared null and void or any Guarantor
denies that it has any further liability under any Note Guarantee, or gives
notice to such effect.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company or any Guarantor)
occurs and is continuing under the Indenture, the Trustee or the Holders of at
least 25% in aggregate principal amount of the Notes, then outstanding, by
written notice to the Company (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare the
principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable.
In the event of a declaration of acceleration because an Event of Default set
forth in clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured by the Company, any Guarantor or the relevant Significant
Subsidiary or waived by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (g) or (h) above occurs with respect to the Company
or any Significant Subsidiary, the principal of, premium, if any, and accrued
interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see ' -- Modification and Waiver.'
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture will require certain officers of the Company and each
Guarantor to deliver to the Trustee on or before a date not more than 90 days
after the end of each fiscal year, an Officers' Certificate stating whether or
not such officers know of any Default or Event of Default that occurred during
such fiscal year. The Company and each Guarantor will also be obligated to
notify the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither the Company nor any Guarantor will consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into the Company or any Guarantor unless:
(i) the Company or the Guarantor shall be the continuing Person, or the Person
(if other than the Company or the Guarantor) formed by such consolidation or
into which the Company or the Guarantor is merged or that acquired or leased
such property and assets of the Company or the Guarantor shall be a corporation
organized and validly existing under the laws of the United States of America or
any jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the obligations of the
Company or the Guarantor, as the case may be, on all of the Notes or the Note
Guarantees, as the case may be, and under the Indenture; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis, the Company or any Guarantor, as the case may
be, or any Person becoming the successor obligor of the Notes or the Note
Guarantees, as the case may be, shall have a Consolidated Net Worth (a 'Pro
Forma Consolidated Net Worth') which is equal to or greater than the
Consolidated Net Worth of the Company or the Guarantor, as the case may be,
immediately prior to such transaction (the 'Base Consolidated Net Worth'), or if
the Pro Forma Consolidated Net Worth is less than the Base Consolidated Net
Worth, the amount by which the Pro Forma Consolidated Net Worth is less than the
Base Consolidated Net Worth shall, if considered as a Restricted Payment, be
permitted to be paid at the time under the 'Limitation on Restricted Payments'
covenant; (iv) immediately after giving effect to such transaction on a pro
forma basis the Company or any Guarantor, as the case may be, or any Person
becoming the successor obligor of the Notes or the Note Guarantees, as the case
may be, could Incur at least $1.00 of Indebtedness under the first paragraph of
the 'Limitation on Indebtedness' covenant; provided that this clause (iv) shall
not apply to a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth; and provided further that, in connection
with any such merger or consolidation, no consideration (other than Capital
Stock (other than Disqualified Stock) in the surviving Person, the Company or
any Guarantor) shall be issued or distributed to the stockholders of the Company
or the Guarantor; and (v) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided, however, that
clauses (iii) and (iv) above do not apply if, in the good faith determination of
the Board of Directors of the Company, whose determination shall be evidenced by
a Board Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Company or any Guarantor; and provided further
that any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company and
each Guarantor will be deemed to have paid and will be discharged from any and
all obligations in respect of the Notes and the Note Guarantees on the 123rd day
after the deposit referred to below, and the provisions of the Indenture will no
longer be in effect with respect to the Notes and the Note Guarantees (except
for, among other matters, certain obligations to register the transfer or
exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain
paying agencies and to hold monies for payment in trust) if, among other things,
(A) the Company or the Guarantors have deposited with the Trustee, in trust,
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, (B) the Company has
delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for federal income tax purposes
as a result of the Company's exercise of its option under this 'Defeasance'
provision and will be subject to federal income tax on the same amount and in
the
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same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must be
based upon (and accompanied by a copy of) a ruling of the Internal Revenue
Service to the same effect unless there has been a change in applicable federal
income tax law after the Closing Date such that a ruling is no longer required
or (y) a ruling directed to the Trustee received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of Counsel and (ii) an
Opinion of Counsel to the effect that the creation of the defeasance trust does
not violate the Investment Company Act of 1940, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound and (D) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under 'Consolidation,
Merger and Sale of Assets' and all the covenants described herein under
'Covenants,' clause (c) under 'Events of Default' with respect to such clauses
(iii) and (iv) under 'Consolidation, Merger and Sale of Assets,' clause (d) with
respect to such other covenants and clauses (e) and (f) under 'Events of
Default' shall be deemed not to be Events of Default upon, among other things,
the deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments and the Guarantors' Note Guarantees with respect
to such payments will remain in effect.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of each
Holder affected thereby, (i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes, (vii) reduce the percentage or aggregate
principal amount of
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outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults or (viii) release any Guarantor from its Note Guarantee or otherwise
modify the terms of the Note Guarantees in a material respect adverse to the
Holders.
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee without notice to or the consent of any Holder
(i) to cure any ambiguity, defect or inconsistency, (ii) to comply with the
'Consolidation, Merger and Sale of Assets' covenant, (iii) to comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act, (iv) to evidence and provide for the
acceptance of appointment by a successor Trustee, (v) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (vi) to
add one or more Subsidiary Guarantees on the terms required by the Indenture, or
(vii) to make any change that does not adversely affect the rights of any Holder
in any material respect.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company or the Guarantors in the
Indenture, or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of the Company or the
Guarantors or of any successor Person thereof. Each Holder, by accepting the
Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or a Guarantor, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will be represented by one permanent global Exchange
Note in definitive, fully registered form without interest coupons (the 'Global
Exchange Note') and will be deposited with the Trustee as custodian for, and
registered in the name of a nominee of, DTC.
Ownership of beneficial interests in the Global Exchange Note will be
limited to persons who have accounts with DTC ('participants') or persons who
hold interests through participants. Ownership of beneficial interests in the
Global Exchange Note will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by the Global
Exchange Note for all purposes under the Indenture and the Notes. No beneficial
owner of an interest in the Global Exchange Note will be able to transfer that
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the Indenture.
Payments of the principal of, and interest on, the Global Exchange Note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Company, the Trustee nor
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any Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Exchange Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Exchange
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Exchange Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Exchange Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the Global Exchange
Note for definitive Exchange Notes in certificated form, which it will
distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a 'banking organization'
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a 'clearing corporation' within the meaning of the Uniform Commercial
Code and a 'Clearing Agency' registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ('indirect participants').
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among participants
of DTC it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC
or its respective participants or indirect participants of its respective
obligations under the rules and procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Exchange Note and a successor depositary is not appointed by the
Company within 90 days, the Company will issue definitive Exchange Notes in
certificated form in exchange for the Global Exchange Note.
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REGISTRATION RIGHTS AGREEMENT FOR OUTSTANDING NOTES
Holders of Exchange Notes are not entitled to any registration rights with
respect to the Exchange Notes. The Company has agreed pursuant to the
registration rights agreement (the 'Registration Rights Agreement'), for the
benefit of the holders of the Notes, that the Company will, at its cost, (i) as
expeditiously as possible prepare and file a Registration Statement with the
Commission with respect to a registered offer to exchange the Outstanding Notes
for Exchange Notes of the Company having terms substantially identical in all
material respects to the Outstanding Notes (except that the Exchange Notes will
not contain terms with respect to transfer restrictions), (ii) promptly commence
the Exchange Offer after the Registration Statement has been declared effective
and (iii) use its best efforts to cause the Exchange Offer to be consummated not
later than 60 days after the date the Registration Statement has been declared
effective. Upon the effectiveness of the Registration Statement, the Company
will offer the Exchange Notes in exchange for the surrender of the Outstanding
Notes. The Company will keep the Exchange Offer open for not less than 20
business days (or longer if required by applicable law) after the date notice of
the Exchange Offer is mailed to the holders of the Notes. For each Outstanding
Note surrendered to the Company pursuant to the Exchange Offer, the holder of
such Outstanding Note will receive an Exchange Note having a principal amount
equal to that of the surrendered Outstanding Note. The Exchange Notes will bear
interest from July 24, 1997, payable semiannually on February 1 and August 1 of
each year commencing on February 1, 1998, at the rate of 10 1/2% per annum.
Holders of Outstanding Notes accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Outstanding Notes
accrued from July 24, 1997 until the date of the issuance of the Exchange Notes.
Consequently holders who exchange their Outstanding Notes for Exchange Notes
will receive the same interest payment on February 1, 1998 (the first interest
payment date with respect to the Outstanding Notes and the Exchange Notes) that
they would have received had they not accepted the Exchange Offer.
In the event that (i) the Company determines that the Exchange Offer is not
available or may not be consummated as soon as practicable after the date upon
which the last Outstanding Note has been tendered because it would violate
applicable law or the applicable interpretations of the staff of the Commission,
(ii) the Exchange Offer is not for any other reason consummated by January 24,
1998 or (iii) the Exchange Offer has been completed and in the opinion of
counsel for the Placement Agents a Registration Statement must be filed and a
prospectus must be delivered by the Placement Agents in connection with any
offering or sale of Exchange Notes, the Company will, at its cost, (a) as
promptly as practicable, file a Shelf Registration Statement covering resales of
the Outstanding Notes or the Exchange Notes, as the case may be, (b) use all
reasonable efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until July 24, 1999. The Company will, in the event a Shelf
Registration Statement is filed, among other things, provide to each holder for
whom such Shelf Registration Statement was filed copies of the prospectus which
is a part of the Shelf Registration Statement, notify each such holder when the
Shelf Registration Statement has become effective and take certain other actions
as are required to permit unrestricted resales of the Outstanding Notes or the
Exchange Notes, as the case may be. A holder selling such Outstanding Notes or
Exchange Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
In the event the Exchange Offer is not consummated and a Shelf Registration
Statement is not declared effective on or prior to January 24, 1998 (a 'Failure
to Register'), additional interest will accrue on the Outstanding Notes at the
rate of 0.5% per annum from and including the date on which any such Failure to
Register shall occur until the date on which such Failure to Register has been
cured. Such interest is payable in addition to any other interest payable from
time to time with respect to the Outstanding Notes.
The Company will be entitled to close the Exchange Offer 20 business days
after the commencement thereof provided that it has accepted all Outstanding
Notes theretofore validly tendered in accordance with the terms of the Exchange
Offer.
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In the case of a Shelf Registration Statement, the Company may suspend the
availability of such Shelf Registration Statement (i) during any consecutive
365-day period, for up to two periods of up to 30 consecutive days each (except
that none of such periods may occur during the 60-day period immediately prior
to the maturity of the Notes) if the Company's Board of Directors determines in
good faith that there is a valid purpose for the suspension and (ii) upon giving
notice to the holders of the Outstanding Notes of the happening of any event
during the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related prospectus untrue
in any material respect or which requires the making of any changes in such
Registration Statement or prospectus in order to make the statements therein not
misleading, until such holder receives copies of a supplemented or amended
prospectus, provided, that any such notice may be given only twice during any
365-day period and any such suspensions may not exceed 30 days for each
suspension and there may not be more than two suspensions in effect during any
365 day period.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes to initial purchasers of Outstanding Notes who are United States
Holders (as defined below) and the principal United States federal income and
estate tax consequences of the purchase, ownership, exchange and disposition of
the Notes to initial purchasers of Outstanding Notes who are Foreign Holders (as
defined below). This discussion was prepared by representatives of the Company
and is based on currently existing provisions of the Code, existing, temporary
and proposed Treasury regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect or proposed on the date
hereof and all of which are subject to change, possibly with retroactive effect,
or different interpretations. This discussion does not address the tax
consequences to subsequent purchasers of Notes and is limited to purchasers of
Outstanding Notes who hold the Notes as capital assets, within the meaning of
section 1221 of the Code. This discussion also does not address the tax
consequences to Foreign Holders that are subject to United States federal income
tax on a net basis on income realized with respect to a Note because such income
is effectively connected with the conduct of a U.S. trade or business. Such
Foreign Holders are generally taxed in a similar manner to United States
Holders, but certain special rules do apply. Moreover, this discussion is for
general information only and does not address all of the tax consequences that
may be relevant to particular initial purchasers of Outstanding Notes in light
of their personal circumstances or to certain types of initial purchasers of
Outstanding Notes (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities or persons who have hedged the risk
of owning a Note).
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
As used herein, the term 'United States Holder' means a holder of a Note
that is, for United States federal income tax purposes, (a) a citizen or
resident of the United States, (b) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof or (c) an estate or trust the income of which is subject to
United States federal income taxation regardless of source.
109
<PAGE>
<PAGE>
Payment of Interest on Notes. Interest paid or payable on a Note will be
taxable to a United States Holder as ordinary interest income, generally at the
time it is received or accrued, in accordance with such holder's regular method
of accounting for United States federal income tax purposes.
Sale, Exchange or Retirement of the Notes. The exchange of an Outstanding
Note by a United States Holder for an Exchange Note should not constitute a
taxable exchange. For purposes of determining gain or loss on the subsequent
sale or exchange of the Exchange Notes, a Holder's basis in the Exchange Notes
should be the same as the Holder's basis in the Outstanding Notes exchanged
therefor. Holders should be considered to have held the Exchange Notes from the
time of their original acquisition of the Outstanding Notes.
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a United States Holder generally will recognize taxable
gain or loss equal to the difference between the sum of cash plus the fair
market value of all other property received on such disposition (except to the
extent such cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary income and such United States Holder's
adjusted tax basis in the Note. A United States Holder's adjusted tax basis in a
Note generally will equal the cost of the Note to such United States Holder,
less any principal payments received by such United States Holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss and will be long-term capital gain or loss if, at the time
of such disposition, the United States Holder's holding period for the Note is
more than one year.
Backup Withholding and Information Reporting. Backup withholding and
information reporting requirements may apply to certain payments of principal,
premium, if any, and interest on a Note, and to proceeds of the sale or
redemption of a Note before maturity. The Company, its agent, a broker, the
Trustee or any paying agent, as the case may be, will be required to withhold
from any payment that is subject to backup withholding a tax equal to 30% of
such payment if a United States Holder fails to furnish his taxpayer
identification number (social security or employer identification number),
certify that such number is correct, certify that such holder is not subject to
backup withholding or otherwise comply with the applicable requirements of the
backup withholding rules. Certain United States Holders, including all
corporations, are not subject to backup withholding and information reporting
requirements. Any amounts withheld under the backup withholding rules from a
payment to a United States Holder will be allowed as a credit against such
United States Holder's United States federal income tax and may entitle the
holder to a refund, provided that the required information is furnished to the
Internal Revenue Service ('IRS').
UNITED STATES FEDERAL INCOME TAXATION OF FOREIGN HOLDERS
As used herein, the term 'Foreign Holder' means a holder of a Note that is,
for United States federal income tax purposes, (a) a nonresident alien
individual, (b) a foreign corporation, (c) a nonresident alien fiduciary of a
foreign estate or trust or (d) a foreign partnership.
Payment of Interest on Notes. In general, payments of interest received by
a Foreign Holder will not be subject to a United States federal withholding tax,
provided that (i)(a) the Foreign Holder does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (b) the Foreign Holder is not a controlled foreign
corporation that is related to the Company actually or constructively through
stock ownership, (c) the Foreign Holder is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code, and (d) either (I) the beneficial
owner of the Note, under penalties of perjury, provides the Company or its agent
with such beneficial owner's name and address and certifies on Form W-8 (or a
suitable substitute form) that it is not a United States Holder or (II) a
securities clearing or business (a 'financial institution') holds the Note and
provides a statement to the Company or its agent under penalties or perjury in
which it certifies that such an IRS Form W-8 (or a suitable substitute) has been
received by it from the beneficial owner of the Notes or qualifying intermediary
and furnishes the Company or its agent a copy thereof or (ii) the Foreign Holder
is entitled to the benefits of an income tax treaty under which interest on the
Notes is exempt from United States withholding tax and the Foreign Holder or
such Foreign Holder's agent provides a properly executed IRS Form 1001 claiming
the exemption. Payments of interest not
110
<PAGE>
<PAGE>
exempt from United States federal withholding tax as described above will be
subject to such withholding tax at the rate of 30% (subject to reduction under
an applicable income tax treaty).
Sale, Exchange or Retirement of the Notes. The exchange of an Outstanding
Note by a Foreign Holder for an Exchange Note should not constitute a taxable
exchange. For purposes of determining gain or loss on the subsequent sale or
exchange of the Exchange Notes, a Holder's basis in the Exchange Notes should be
the same as the Holder's basis in the Outstanding Notes exchanged therefor.
Holders should be considered to have held the Exchange Notes from the time of
their original acquisition of the Outstanding Notes. Moreover, a Foreign Holder
generally will not be subject to United States federal income tax (and generally
no tax will be withheld) with respect to gain realized on the sale, exchange,
redemption, retirement at maturity or other disposition of a Note unless the
Foreign Holder is an individual who is present in the United States for a period
or periods aggregating 183 or more days in the taxable year of the disposition
and, generally, either has a 'tax home' or an 'office or other fixed place of
business' in the United States.
Backup Withholding and Information Reporting. Backup withholding and
information reporting requirements do not apply to payments of interest made by
the Company or a paying agent to Foreign Holders if the certification described
above under ' -- United States Federal Income Taxation of Foreign
Holders -- Payment of Interest on Notes' is received, provided that the payor
does not have actual knowledge that the holder is a United States Holder. If any
payments of principal and interest are made to the beneficial owner of a Note by
or through the foreign office of a foreign custodian, foreign nominee or other
foreign agent of such beneficial owner, or if the foreign office of a foreign
'broker' (as defined in applicable Treasury regulations) pays the proceeds of
the sale of a Note or a coupon to the seller thereof, backup withholding and
information reporting will not apply. Information reporting requirements (but
not backup withholding) will apply, however, to a payment by a foreign office of
a broker that is a United States person, that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, or that is a 'controlled foreign corporation' (generally, a foreign
corporation controlled by certain United States shareholders) with respect to
the United States unless the broker has documentary evidence in its records that
the holder is a Foreign Holder and certain other conditions are met or the
holder otherwise establishes an exemption. Payment by a United States office of
a broker is subject to both backup withholding at a rate of 31% and information
reporting unless the holder certifies under penalties of perjury that it is a
Foreign Holder or otherwise establishes an exemption.
The procedures described above for withholding tax on interest payments,
and some of the associated backup withholding and information reporting rules,
are currently the subject of new proposed regulations, which are proposed to be
effective for payments made after December 31, 1997, subject to certain
transition rules. The proposed regulations, if adopted in their current form,
would not substantially change the treatment of Foreign Holders described above,
except that a Form W-8 generally would be required for certification purposes.
Federal Estate Taxes. Subject to applicable estate tax treaty provisions,
Notes held at the time of death (or Notes transferred before death but subject
to certain retained rights or powers) by an individual who at the time of death
is a Foreign Holder will not be included in such Foreign Holder's gross estate
for United States federal estate tax purposes provided that the individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote or hold the Notes
in connection with a U.S. trade or business.
111
<PAGE>
<PAGE>
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Outstanding Notes that were acquired
for the account of such broker-dealer as a result of market-making or other
trading activities (other than Outstanding Notes acquired directly from the
Company or any affiliate of the Company) may exchange such Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer; provided, however, that each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of 180 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resales.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other holder of Exchange Notes. Exchange Notes received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an 'underwriter' within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an 'underwriter' within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
in the event that the Company is required to file a Shelf Registration
Statement, on receipt of notice from the Company (i) that the Company is
suspending the availability of the Shelf Registration Statement or (ii) of the
happening of any event which makes any statement in the Shelf Registration
Statement or the related prospectus untrue in any material respect or which
requires the making of any changes in the Shelf Registration Statement or the
related prospectus in order to make the statements therein not misleading (which
notice the Company agrees to deliver promptly to the broker-dealer), the
broker-dealer will suspend use of such prospectus until the Company has amended
or supplemented the prospectus to correct the misstatement or omission and has
furnished copies of the amended or supplemental prospectus to the broker-dealer.
If the Company shall give any such notice to suspend the use of the prospectus,
it shall extend the 180-day period referred to above by the number of days
during the period from and including the date of the giving of the notice to and
including when broker-dealers shall have received copies of the supplemented or
amended prospectus necessary to permit resales of the Exchange Notes.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Exchange Notes in
connection with the Exchange Offer are being passed upon for the Company by
Cravath, Swaine & Moore, New York, New York. William P. Rogers, Jr., a partner
at Cravath, Swaine & Moore, is a director of the Company, and
112
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<PAGE>
beneficially owns 4,500 shares of common stock of the Company and options to
purchase 4,000 shares of such common stock.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
included in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
113
<PAGE>
<PAGE>
AMTRAN, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Audited Financial Statements:
Reports of Independent Auditors....................................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995............................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994............ F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1995
and 1994............................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............ F-6
Notes to Consolidated Financial Statements............................................................ F-7
Unaudited Interim Financial Statements
Consolidated Balance Sheet at September 30, 1997 and 1996............................................. F-17
Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1997
and 1996............................................................................................. F-18
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........... F-19
Notes to Consolidated Financial Statements............................................................ F-20
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Board of Directors
AMTRAN, INC.
We have audited the accompanying consolidated balance sheets of Amtran,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amtran, Inc.
and subsidiaries at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Indianapolis, Indiana
February 7, 1997
F-2
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 73,382 $ 92,741
Receivables, net of allowance for doubtful accounts (1996 -- $1,274;
1995 -- $1,303)................................................................... 20,239 24,158
Inventories, net................................................................... 13,888 13,959
Assets held for sale............................................................... 14,112 --
Prepaid expenses and other current assets.......................................... 14,672 25,239
--------- ---------
Total current assets.......................................................... 136,293 156,097
--------- ---------
Property and equipment:
Flight equipment................................................................... 381,186 384,476
Facilities and ground equipment.................................................... 51,874 40,290
--------- ---------
433,060 424,766
Accumulated depreciation........................................................... (208,520) (183,998)
--------- ---------
224,540 240,768
Deposits and other assets............................................................... 9,454 16,272
--------- ---------
Total Assets............................................................. $ 370,287 $ 413,137
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................... $ 30,271 $ 3,606
Accounts payable................................................................... 13,671 11,152
Air traffic liabilities............................................................ 49,899 56,531
Accrued expenses................................................................... 64,813 76,312
--------- ---------
Total current liabilities..................................................... 158,654 147,601
Long-term debt, less current maturities................................................. 119,786 134,641
Deferred income taxes................................................................... 20,216 37,949
Other deferred items.................................................................... 16,887 11,761
Commitments and contingencies
Shareholders' equity:
Preferred stock; authorized 10,000,000 shares; none issued......................... -- --
Common stock, without par value; authorized 30,000,000 shares; issued
11,799,852 -- 1996; 11,790,752 -- 1995............................................ 38,341 38,259
Additional paid-in capital......................................................... 15,618 15,821
Treasury stock: 185,000 shares -- 1996; 169,000 shares -- 1995..................... (1,760) (1,581)
Retained earnings.................................................................. 4,678 31,352
Deferred compensation -- ESOP...................................................... (2,133) (2,666)
--------- ---------
54,744 81,185
--------- ---------
Total Liabilities and Shareholders' Equity............................... $ 370,287 $ 413,137
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Scheduled service.............................................. $ 386,488 $ 361,967 $ 240,675
Charter........................................................ 310,569 307,091 295,890
Ground package................................................. 22,302 20,421 20,248
Other.......................................................... 31,492 25,530 23,709
----------- ----------- -----------
Total operating revenues.................................. 750,851 715,009 580,522
----------- ----------- -----------
Operating expenses:
Salaries, wages and benefits................................... 163,990 141,072 113,789
Fuel and oil................................................... 161,226 129,636 106,057
Handling, landing and navigation fees.......................... 70,122 74,400 60,872
Aircraft rentals............................................... 65,427 55,738 48,155
Depreciation and amortization.................................. 61,661 55,827 46,178
Aircraft maintenance, materials and repairs.................... 55,175 55,423 46,092
Crew and other employee travel................................. 35,855 31,466 26,171
Passenger service.............................................. 32,745 34,831 29,804
Commissions.................................................... 26,677 24,837 17,469
Ground package cost............................................ 18,246 15,926 14,767
Other selling expenses......................................... 17,563 14,934 8,008
Advertising.................................................... 10,320 8,852 7,759
Facilities and other rentals................................... 9,625 7,414 5,500
Disposal of assets............................................. 4,475 -- --
Other.......................................................... 53,800 46,717 41,486
----------- ----------- -----------
Total operating expenses.................................. 786,907 697,073 572,107
----------- ----------- -----------
Operating income (loss)............................................. (36,056) 17,936 8,415
Other income (expense):
Interest income................................................ 617 410 191
Interest (expense)............................................. (4,465) (4,163) (3,656)
Other.......................................................... 323 470 929
----------- ----------- -----------
Total other expenses...................................... (3,525) (3,283) (2,536)
----------- ----------- -----------
Income (loss) before income taxes................................... (39,581) 14,653 5,879
Income taxes (credits).............................................. (12,907) 6,129 2,393
----------- ----------- -----------
Net income (loss)................................................... $ (26,674) $ 8,524 $ 3,486
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share......................................... $ (2.31) $ 0.74 $ 0.30
----------- ----------- -----------
----------- ----------- -----------
Average shares outstanding.......................................... 11,535,425 11,481,861 11,616,196
</TABLE>
See accompanying notes.
F-4
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL DEFERRED
COMMON TREASURY PAID-IN RETAINED COMPENSATION
STOCK STOCK CAPITAL EARNINGS ESOP
------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.......................... $37,667 $ -- $ 16,132 $ 19,342 $ (3,200)
Net income..................................... -- -- -- 3,486 --
Issuance of common stock for ESOP.............. -- -- (46) -- 267
Restricted stock grants........................ 274 -- (78) -- --
Purchase of 115,000 shares of treasury stock... -- (1,091) -- -- --
------- -------- ---------- --------- ------------
Balance, December 31, 1994.......................... 37,941 (1,091) 16,008 22,828 (2,933)
Net income..................................... -- -- -- 8,524 --
Issuance of common stock for ESOP.............. -- -- (111) -- 267
Restricted stock grants........................ 152 -- (19) -- --
Stock options exercised........................ 166 -- (57) -- --
Purchase of 54,000 shares of treasury stock.... -- (490) -- -- --
------- -------- ---------- --------- ------------
Balance, December 31, 1995.......................... 38,259 (1,581) 15,821 31,352 (2,666)
Net loss....................................... -- -- -- (26,674) --
Issuance of common stock for ESOP.............. -- -- (173) -- 533
Restricted stock grants........................ 32 -- (7) -- --
Stock options exercised........................ 50 -- (23) -- --
Purchase of 16,000 shares of treasury stock.... -- (179) -- -- --
------- -------- ---------- --------- ------------
Balance, December 31, 1996.......................... $38,341 $ (1,760) $ 15,618 $ 4,678 $ (2,133)
------- -------- ---------- --------- ------------
------- -------- ---------- --------- ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................................................... $(26,674) $ 8,524 $ 3,486
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization.............................................. 61,661 55,827 46,178
Deferred income taxes (credits)............................................ (13,246) 4,025 2,226
Other non-cash items....................................................... 28,185 9,699 2,131
Changes in operating assets and liabilities:
Receivables................................................................ 3,919 (6,768) (1,728)
Inventories................................................................ (948) 2,739 (3,027)
Assets held for sale....................................................... (14,112) -- --
Prepaid expenses........................................................... 6,081 (4,061) (3,572)
Accounts payable........................................................... 2,519 (166) (4,243)
Air traffic liabilities.................................................... (6,632) 10,466 1,293
Accrued expenses........................................................... (8,582) 6,793 32,553
-------- ------- -------
Net cash provided by operating activities....................................... 32,171 87,078 75,297
-------- ------- -------
Investing activities:
Proceeds from sales of property and equipment.............................. 529 21,564 358
Capital expenditures....................................................... (69,884) (57,835) (81,015)
Reductions of (additions to) other assets.................................. 6,194 (7,761) 257
-------- ------- -------
Net cash used in investing activities........................................... (63,161) (44,032) (80,400)
-------- ------- -------
Financing activities:
Proceeds from long-term debt............................................... 21,390 6,000 45,000
Payments on long-term debt................................................. (9,580) (17,567) (22,078)
Purchase of treasury stock................................................. (179) (490) (1,091)
-------- ------- -------
Net cash provided by (used in) financing activities............................. 11,631 (12,057) 21,831
-------- ------- -------
Increase (decrease) in cash and cash equivalents................................ (19,359) 30,989 16,728
Cash and cash equivalents, beginning of period.................................. 92,741 61,752 45,024
-------- ------- -------
Cash and cash equivalents, end of period........................................ $ 73,382 $92,741 $61,752
-------- ------- -------
-------- ------- -------
Supplemental disclosures:
Cash payments for:
Interest.............................................................. $ 3,823 $ 4,515 $ 3,376
Income taxes.......................................................... 515 1,069 835
Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital expenditures............... $ -- $31,708 $15,851
</TABLE>
See accompanying notes.
F-6
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND BUSINESS DESCRIPTION
The consolidated financial statements include the accounts of Amtran, Inc.
(the 'Company') and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The Company operates principally in one business segment through American
Trans Air, Inc. ('ATA'), its principal subsidiary, which accounts for
approximately 95% of the Company's operating revenues. ATA is a
U.S.-certificated air carrier providing domestic and international charter and
scheduled passenger services. Approximately 51.5% of the Company's 1996
operating revenues were generated through scheduled services to such
destinations as Hawaii, Las Vegas, Florida and the Caribbean, while
approximately 41.4% of 1996 operating revenues were derived from charter
operations with independent tour operators and U.S. military services to
numerous destinations throughout the world.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents are carried at cost and are primarily comprised of
investments in U.S. Treasury bills and time deposits which are purchased with
original maturities of three months or less (see Note 2).
ASSETS HELD FOR SALE
Assets held for sale are carried at the lower of net book value or
estimated net realizable value.
INVENTORIES
Inventories consist primarily of expendable aircraft spare parts, fuel and
other supplies. Aircraft parts inventories are stated at cost and reduced by an
allowance for obsolescence. The obsolescence allowance is provided by amortizing
the cost of the aircraft parts inventory, net of an estimated residual value,
over its estimated useful service life. The obsolescence allowance at December
31, 1996 and 1995, was $6.6 million and $5.6 million, respectively. Inventories
are charged to expense when consumed.
REVENUE RECOGNITION
Revenues are recognized when the transportation is provided. Customer
flight deposits and unused passenger tickets sold are included in air traffic
liability. As is customary within the industry, the Company performs periodic
evaluations of this estimated liability, and any adjustments resulting
therefrom, which can be significant, are included in the results of operations
for the periods in which the evaluations are completed.
PASSENGER TRAFFIC COMMISSIONS
Passenger traffic commissions are recognized as expense when the
transportation is provided and the related revenue is recognized. The amount of
passenger traffic commissions paid but not yet recognized as expense is included
in prepaid expenses and other current assets in the accompanying consolidated
balance sheets.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated to residual
value over its estimated useful service life using the straight-line method.
Advanced payments for future aircraft purchases are
F-7
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded at cost. As of December 31, 1996 and 1995, the Company had made
advanced payments for future aircraft deliveries totaling $2.7 million and $4.9
million, respectively. The estimated useful service lives for the principal
depreciable asset classifications are as follows:
<TABLE>
<CAPTION>
ASSET ESTIMATED USEFUL SERVICE LIFE
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Aircraft and related equipment:
Lockheed L-1011............................... 16 years
Major rotable parts, avionics and assemblies....... Life of equipment to which applicable (Generally
ranging from 10 - 16 years)
Improvements to leased flight equipment............ Period of benefit or term of lease
Other property and equipment....................... 3 - 7 years
</TABLE>
The costs of major airframe and engine overhauls are capitalized and
amortized over their estimated useful lives based upon usage (or to earlier
fleet common retirement dates) for both owned and leased aircraft.
FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents, receivables and both
variable-rate and fixed-rate debt (see Note 5) approximate fair value. The fair
value of fixed-rate debt, including current maturities, is estimated using
discounted cash flow analysis based on the Company's current incremental rates
for similar types of borrowing arrangements.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding plus common share
equivalents arising from restricted shares issued during the period. No effect
has been given to options outstanding under the Company's incentive stock plans,
as no material dilutive effect would result from their exercise (see Note 9).
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash.............................................................................. $18,523 $21,714
U.S. Treasury bill repurchase agreements.......................................... 54,859 71,027
------- -------
$73,382 $92,741
------- -------
------- -------
</TABLE>
Cash equivalents of $6.3 million and $6.0 million at December 31, 1996 and
1995, respectively, are pledged to collateralize amounts which could become due
under letters of credit. At December 31, 1996 and 1995, there were no amounts
drawn against letters of credit (see Note 4).
F-8
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Flight equipment, including airframes, engines and other........................ $381,186 $384,476
Less accumulated depreciation................................................... 182,392 163,846
-------- --------
198,794 220,630
-------- --------
Facilities and ground equipment................................................. 51,874 40,290
Less accumulated depreciation................................................... 26,128 20,152
-------- --------
25,746 20,138
-------- --------
$224,540 $240,768
-------- --------
-------- --------
</TABLE>
4. SHORT-TERM BORROWINGS
The Company maintains a $5.0 million revolving credit facility available
for its short-term borrowing needs and for issuance of letters of credit. The
credit facility is available until June 1997 and is collateralized by certain
aircraft engines. Borrowings against the facility bear interest at the bank's
prime rate plus .25%. There were no borrowings against this credit facility at
December 31, 1996 or 1995. At December 31, 1996 and 1995, the Company had
outstanding letters of credit aggregating $4.1 million and $2.9 million,
respectively, under such facility.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks; prime to prime plus .75% (8.25% and 9% at December 31,
1996), payable in varying installments through April 1999..................... $123,246 $112,337
Note payable to institutional lender; fixed rate of 7.8% payable in varying
installments through September 2003........................................... 9,106 2,860
City of Indianapolis Economic Development Revenue Bond; 9.88%, payable in
quarterly installments through July 1997...................................... 875 1,375
City of Chicago variable rate special facility revenue bonds (4.75% at December
31, 1996), payable in December 2020........................................... 6,000 6,000
Notes payable to banks and institutional lenders................................ -- 4,205
Capitalized lease obligations and other......................................... 10,830 11,470
-------- --------
150,057 138,247
Less current maturities......................................................... 30,271 3,606
-------- --------
$119,786 $134,641
-------- --------
-------- --------
</TABLE>
The Company's 1996 credit facility provides a maximum of $125.0 million,
including a $25.0 million letter of credit facility. The collateral for the
facility consists of certain owned Lockheed L-1011 aircraft, certain receivables
and certain rotables and spare parts. Effective September 30, 1996, the Company
renegotiated certain terms of the bank credit facility along with the
modification of certain loan covenants. In return for this covenant relief, the
Company has agreed to implement changes to the underlying collateral for the
facility and to change the interest rate applicable to borrowings under the
facility. The Company has pledged additional owned engines and equipment as
collateral for the facility
F-9
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as of the implementation date of the new agreement. The Company has further
agreed to begin reducing the maximum borrowing availability of $63.0 million
collateralized by the owned Lockheed L-1011 fleet by $1.0 million per month from
April 1997 through September 1997, and by $1.5 million per month from October
1997 through April 1999. Loans outstanding under the renegotiated facility bear
interest, at the Company's option, at either (i) prime to prime plus 0.75%, or
(ii) the Eurodollar rate plus 1.50% to 2.75%. The facility matures on April 1,
1999, and contains various covenants and events of default, including:
maintenance of a specified debt-to-equity ratio and a minimum level of net
worth; achievement of a minimum level of cash flow; and restrictions on aircraft
acquisitions, liens, loans to officers, change of control, indebtedness, lease
commitments and payment of dividends.
In December 1995, the Company issued $6.0 million in variable rate special
revenue bonds through the City of Chicago. The Company is obligated to perform
certain mandatory improvements to its Chicago-Midway Airport Maintenance
facility with the bond proceeds.
In December 1995, the Company entered into a sale/lease transaction with
the City of Indianapolis on its maintenance facility at the Indianapolis
International Airport which resulted in the advance of $10.0 million in cash to
the Company, as secured by the maintenance facility. The Company is obligated to
pay $0.6 million per year to the City of Indianapolis for five years, which
represents interest on the City's associated outstanding debt obligation. As of
December 2000, the Company is required to repay the advance of $10.0 million to
the City of Indianapolis, and may elect to repay the balance using special
facility bonds underwritten by the City's Airport Authority, or by using the
Company's own funds.
At December 31, 1996, the Company has reclassified $19.9 million of bank
credit facility borrowings from long-term debt to current maturities of
long-term debt. Of this amount, $10.5 million is attributable to the scheduled
reduction of availability collateralized by the owned Lockheed L-1011 fleet over
the next 12 months. The remaining $9.4 million represents the amount of the
spare Pratt & Whitney engines which are pledged to the bank facility and which
will be repaid from the anticipated sale of the engines. The estimated market
value of these spare engines is classified under current assets.
The Company has made voluntary prepayments of long-term debt which has had
the effect of reducing interest expense by approximately $5.9 million and $5.5
million during 1996 and 1995, respectively. The Company reborrowed the full
amounts available to it as of December 31, 1996 and 1995.
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
1997.................................................. $ 30,271
1998.................................................. 19,486
1999.................................................. 79,615
2000.................................................. 1,483
2001.................................................. 1,476
Thereafter............................................ 17,726
-----------------
$ 150,057
-----------------
-----------------
</TABLE>
Interest capitalized in connection with long-term asset purchase agreements
was $1.4 million and $1.3 million in 1996 and 1995, respectively.
6. LEASE COMMITMENTS
At December 31, 1996, the Company had aircraft leases on four Lockheed
L-1011s, 23 Boeing 727-200s, and seven Boeing 757-200s. The Lockheed L-1011s
have an initial term of 60 months. The Boeing 757-200s have initial lease terms
that expire from 1997 through 2015. The Boeing 727-200s have initial terms of
three to seven years.
F-10
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is responsible for all maintenance costs on these aircraft and
must meet specified airframe and engine return conditions. The Company had
previously been required to make maintenance reserve payments based upon the
usage of certain leased aircraft, but is no longer subject to such requirements.
As of December 31, 1996, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance facilities,
with original lease terms that vary from 3 to 40 years and expire at various
dates through 2035. The lease agreements relating to the ground facilities,
which are primarily owned by governmental units or authorities, generally do not
provide for transfer of ownership nor do they contain options to purchase.
In December 1995, the Company sold its option to purchase its headquarters
facility to the City of Indianapolis for $2.9 million, and thereafter entered
into a capital lease agreement with the City relating to the continued use of
the headquarters and maintenance facility. A gain on the sale of the option
equal to $1.3 million was recognized in income in 1995, with the remainder of
the gain to be amortized to income during the periods the headquarters
facilities are used. The headquarters agreement has an initial term of four
years, with two options to extend of three and five years, respectively, and is
cancelable after two years with advance notice. The maintenance facility lease
has a term of 39 years. The Company is responsible for maintenance, taxes,
insurance and other expenses incidental to the operation of the facilities.
Future minimum lease payments at December 31, 1996, for noncancelable
operating leases with initial terms of more than one year are as follows:
<TABLE>
<CAPTION>
FACILITIES
FLIGHT AND GROUND
EQUIPMENT EQUIPMENT TOTAL
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1997.................................................. $ 55,513 $ 5,572 $ 61,085
1998.................................................. 46,890 5,229 52,119
1999.................................................. 45,205 4,662 49,867
2000.................................................. 32,272 4,505 36,777
2001.................................................. 31,457 3,143 34,600
Thereafter............................................ 200,209 20,377 220,586
--------- ---------- --------
$411,546 $ 43,488 $455,034
--------- ---------- --------
--------- ---------- --------
</TABLE>
Rental expense for all operating leases in 1996, 1995 and 1994 was $65.0
million, $63.0 million and $53.0 million, respectively, including maintenance
reserve payments of $3.4 million in 1994.
7. INCOME TAXES
The provision for income tax expense (credit) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current................................................... $ -- $1,280 $ (14)
Deferred.................................................. (11,798) 4,399 2,357
-------- ------ ------
(11,798) 5,679 2,343
State
Current................................................... 161 107 181
Deferred.................................................. (1,270) 343 (131)
-------- ------ ------
(1,109) 450 50
-------- ------ ------
Income tax expense (credit)............................... $(12,907) $6,129 $2,393
-------- ------ ------
-------- ------ ------
</TABLE>
F-11
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differed from the amount obtained by
applying the statutory federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate (credit)................ $(13,457) $4,982 $1,999
State income taxes, net of federal benefit..................... (732) 535 295
Non-deductible expenses........................................ 1,282 998 1,155
Benefit of change in estimate of state income tax rate......... -- (258) (468)
Benefit of tax reserve adjustments............................. -- (203) (610)
Other, net..................................................... -- 75 22
-------- ------ ------
Income tax expense (credit).................................... $(12,907) $6,129 $2,393
-------- ------ ------
-------- ------ ------
</TABLE>
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The principal temporary differences relate to the use of accelerated
methods of depreciation and amortization for tax purposes. Deferred income tax
liability components are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book depreciation................... $56,885 $57,167
Other taxable temporary differences............................... 476 228
------- -------
Deferred tax liabilities..................................... 57,361 57,395
Deferred tax assets:
Amortization of lease credits..................................... 2,044 2,109
Tax benefit of net operating loss carryforwards................... 29,852 17,420
Investment and other tax credit carryforwards..................... 4,720 4,506
Other deductible temporary differences............................ 4,928 4,296
------- -------
Deferred tax assets.......................................... 41,544 28,331
Deferred taxes classified as:
Current asset.......................................................... 4,399 8,885
------- -------
Non-current liability.................................................. $20,216 $37,949
------- -------
------- -------
</TABLE>
At December 31, 1996, for federal tax reporting purposes, the Company had
approximately $81.7 million of net operating loss carryforwards available to
offset future federal taxable income and $4.7 million of investment and other
tax credit carryforwards available to offset future federal tax liabilities. The
net operating loss carryforwards expire as follows: 2002, $11.9 million; 2003,
$8.1 million; 2004, $9.0 million; 2005, $3.6 million; 2009, $14.8 million; 2011,
$34.4 million. Investment tax credit carryforwards of $.9 million expire
principally in 2000 and other tax credit carryforwards of $3.8 million have no
expiration dates.
8. RETIREMENT PLAN
The Company has a defined contribution 401(k) savings plan which provides
for participation by substantially all the Company's employees who have
completed one year of service. The Company has elected to contribute an amount
equal to 30% of the amount contributed by each participant up to the first six
percent of eligible compensation. Company matching contributions expensed in
1996, 1995 and 1994 were $1.3 million, $1.2 million, and $1.0 million,
respectively.
F-12
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, the Company added an Employee Stock Ownership Plan ('ESOP')
feature to its existing 401(k) savings plan. The ESOP used the proceeds of a
$3.2 million loan from the Company to purchase 200,000 shares of the Company's
common stock. The selling shareholder was the Company's principal shareholder.
The Company recognized $0.3 million, $0.4 million, and $0.2 million in 1996,
1995 and 1994, respectively, as compensation expense related to the ESOP. Shares
of common stock held by the ESOP will be allocated to participating employees
annually as part of the Company's 401(k) savings plan contribution. The fair
value of the shares allocated during the year is recognized as compensation
expense.
9. SHAREHOLDERS' EQUITY
In the first quarter of 1994, the Board of Directors approved the
repurchase of up to 250,000 shares of the Company's common stock. As of December
31, 1996, the Company had repurchased 185,000 shares at a total cost of $1.8
million.
The Company's 1993 Incentive Stock Plan (1993 Plan) authorizes the grant of
options to key employees for up to 900,000 shares of the Company's common stock.
The Company's 1996 Incentive Stock Plan for key employees (1996 Plan),
authorizes the grant of options to key employees for up to 3,000,000 shares of
the Company's common stock. Options granted have 5 to 10-year terms and
generally vest and become fully exercisable over specified periods up to three
years of continued employment.
A summary of common stock option changes follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994.............................. 313,050 $13.73
Granted....................................................... 190,000 $ 8.71
Exercised..................................................... 10,417 $10.56
Canceled...................................................... 97,333 $11.73
---------
Outstanding at December 31, 1995.............................. 395,300 $11.92
Granted....................................................... 1,302,400 $ 7.87
Exercised..................................................... 3,100 $ 8.94
Canceled...................................................... 64,700 $10.87
---------
Outstanding at December 31, 1996.............................. 1,629,900 $ 8.74
---------
---------
Options exercisable at December 31, 1996...................... 497,015 $ 9.99
---------
---------
</TABLE>
During 1996, the Company adopted FASB Statement No. 123 'Accounting for
Stock-Based Compensation' (FAS 123) with respect to its stock options. As
permitted by FAS 123, the Company has elected to continue to account for
employee stock options following Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to Employees' (APB 25) and related Interpretations.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The weighted-average fair value of options granted during 1996 and 1995 is
estimated at $4.49 and $5.74 per share, respectively, on the grant date. These
estimates were made using the Black-Scholes option pricing model with the
following weighted-average assumptions for 1996 and 1995, respectively:
risk-free interest rates of 6% and 7.92%; expected market price volatility of
.48 and .40; weighted-average expected option life equal to the contractual
term; estimated forfeitures of 5%; and no dividends.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models use highly
subjective assumptions including the expected stock price volatility.
F-13
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employees' stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period (1 to 3 years).
Therefore, because FAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income (loss) as reported.................................... $(26,674) $8,524
Net income (loss) pro forma...................................... (28,864) 8,456
Earnings (loss) per share as reported............................ (2.31) .74
Earnings (loss) per share pro forma.............................. (2.50) .74
</TABLE>
Options outstanding at December 31, 1996 expire from August 2001 to
February 2006. A total of 2,270,100 shares are reserved for future grants as of
December 31, 1996 under the 1993 and 1996 Plans. The following table summarizes
information concerning outstanding and exercisable options at December 31, 1996:
<TABLE>
<S> <C> <C>
Range of Exercise Prices......................................... $7 - 11 $12 - 16
Options outstanding:
Weighted-Average Remaining Contractual Life................. 3.3 years 8.3 years
Weighted-Average Exercise Price............................. $7.48 $14.28
Number...................................................... 1,328,700 301,200
Options exercisable:
Weighted-Average Exercise Price............................. $7.67 $16.00
Number...................................................... 358,315 138,700
</TABLE>
10. MAJOR CUSTOMER
The United States Government is the only customer that accounted for more
than 10% of consolidated revenues. U.S. Government revenues accounted for 11%,
11% and 16% of consolidated revenues for 1996, 1995 and 1994, respectively.
11. COMMITMENTS AND CONTINGENCIES
In November 1994, the Company signed a purchase agreement for six new
Boeing 757-200s which, as subsequently amended, provides for deliveries of
aircraft between 1995 and 1998. As of December 31, 1996, the Company had taken
delivery of four Boeing 757-200s under this purchase agreement and financed
those aircraft using operating leases. In conjunction with the Boeing purchase
agreement, the Company entered into a separate agreement with Rolls-Royce
Commercial Aero Engines Limited for 13 RB211-535E4 engines to power the six
Boeing 757 aircraft and to provide one spare engine. Under the Rolls-Royce
agreement, which was effective January 1, 1995, Rolls-Royce provides the Company
various credits for spare parts and maintenance purchases, together with engine
overhaul cost guarantees for certain qualified Rolls-Royce engines currently
used by the Company.
If the Company does not take delivery of the purchased engines, the credits
and cost guarantees that have been used are refundable to Rolls-Royce. These two
agreements have an aggregate purchase price of approximately $50.0 million per
aircraft, subject to escalation. Advance payments totaling approximately $22.0
million ($11.0 million per aircraft) are required to be made for the undelivered
aircraft, with the balance due upon delivery. As of December 31, 1996 and 1995,
the Company had
F-14
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
made $2.7 million and $5.0 million in advanced payments, respectively,
pertaining to aircraft deliveries scheduled to take place within one year.
In the first quarter of 1996, the Company purchased four additional Boeing
727-200 aircraft, and had financed all of these through sale/leasebacks
accounted for as operating leases by the end of the third quarter of 1996. In
the second quarter of 1996, the Company purchased a fifth Boeing 727-200
aircraft which had been previously financed by the Company through an operating
lease. This aircraft was financed through the separate bridge debt facility as
of September 30, 1996, but is expected to be financed long-term through a
sale/leaseback transaction.
The Company entered into an agreement in October 1995 with a supplier which
provides for the purchase of four engine hushkits and for the option to purchase
three additional hushkits on the same terms, for installation on newly acquired
Boeing 727-200 aircraft.
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably foreseeable in
light of the nature of the Company's business. The majority of these suits are
covered by insurance. In the opinion of management, the resolution of these
claims will not have a material adverse effect on the business, operating
results or financial condition of the Company.
F-15
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1996 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues......................................... $207,135 $195,395 $199,698 $ 148,623
Operating expenses......................................... 201,918 198,498 218,776 168,106
Operating income (loss).................................... 5,217 (3,103) (19,078) (19,483)
Other expenses............................................. (855) (471) (355) (1,453)
Income (loss) before income taxes.......................... 4,362 (3,574) (19,433) (20,936)
Income taxes (credits)..................................... 2,009 (1,289) (6,800) (6,827)
Net income (loss).......................................... $ 2,353 $ (2,285) $(12,633) $ (14,109)
Net income (loss) per share................................ $ .21 $ (.20) $ (1.09) $ (1.23)
</TABLE>
1995 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues......................................... $182,618 $173,338 $194,427 $ 164,626
Operating expenses......................................... 171,811 167,332 186,783 171,147
Operating income (loss).................................... 10,807 6,006 7,644 (6,521)
Other expenses............................................. (825) (597) (758) (1,103)
Income (loss) before income taxes.......................... 9,982 5,409 6,886 (7,624)
Income taxes (credits)..................................... 4,578 2,085 3,295 (3,829)
Net income (loss).......................................... $ 5,404 $ 3,324 $ 3,591 $ (3,795)
Net income (loss) per share................................ $ .46 $ .29 $ .31 $ (.32)
</TABLE>
F-16
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 82,208 $ 72,802
Receivables, net of allowance for doubtful accounts (1997 -- $1,403;
1996 -- $1,182)................................................................... 21,065 27,340
Inventories, net................................................................... 14,175 14,457
Assets held for sale............................................................... 8,842 13,883
Prepaid expenses and other current assets.......................................... 20,594 17,020
--------- ---------
Total current assets.......................................................... 146,884 145,502
Property and equipment:
Flight equipment................................................................... 453,805 394,172
Facilities and ground equipment.................................................... 53,635 49,803
--------- ---------
507,440 443,975
Accumulated depreciation........................................................... (240,344) (197,934)
--------- ---------
267,096 246,041
Deposits and other assets............................................................... 8,836 12,082
--------- ---------
Total Assets.................................................................. $ 422,816 $ 403,625
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................... $ 4,186 $ 29,133
Accounts payable................................................................... 6,151 9,640
Air traffic liabilities............................................................ 63,638 49,192
Accrued expenses................................................................... 75,091 72,843
--------- ---------
Total current liabilities............................................................... 149,066 160,808
Long-term debt, less current maturities................................................. 174,656 129,908
Deferred income taxes................................................................... 28,711 29,408
Other deferred items.................................................................... 10,974 14,005
Commitments and contingencies
Shareholders' equity:
Preferred stock: authorized 10,000,000 shares; none issued......................... -- --
Common stock, without par value: Authorized 30,000,000 shares; issued
11,798,852 -- 1997; 11,793,852 -- 1996............................................ 38,359 38,309
Additional paid-in capital......................................................... 15,513 17,397
Treasury stock: 185,000 shares -- 1997; 185,000 shares -- 1996..................... (1,760) (1,760)
Retained earnings.................................................................. 8,897 18,787
Deferred compensation -- ESOP...................................................... (1,600) (2,133)
--------- ---------
59,409 69,466
--------- ---------
Total Liabilities and Shareholders' Equity.................................... $ 422,816 $ 403,625
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-17
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ -----------------------------------
1997 1996 1997 1996
--------------- ----------------- --------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenues:
Charter......................... $ 95,563 $ 84,213 $ 288,928 $240,443
Scheduled service............... 102,024 102,669 271,282 318,788
Ground package.................. 5,322 4,744 16,347 17,606
Other........................... 7,881 8,072 20,705 25,391
--------------- ----------------- --------------- ----------------
Total operating revenues... 210,790 199,698 597,262 602,228
--------------- ----------------- --------------- ----------------
Operating expenses:
Salaries, wages and benefits.... 43,574 44,896 127,981 126,802
Fuel and oil.................... 41,820 45,437 118,890 126,108
Handling, landing and navigation
fees.......................... 19,906 21,006 54,368 57,353
Depreciation and amortization... 16,558 16,468 45,994 47,173
Aircraft rentals................ 13,474 17,506 41,758 51,902
Aircraft maintenance, materials
and repairs................... 15,158 14,508 40,083 42,391
Crew and other employee
travel........................ 10,378 10,442 27,684 27,685
Passenger service............... 9,977 9,450 25,751 26,364
Commissions..................... 6,964 6,724 19,553 21,688
Ground package cost............. 4,548 4,074 14,042 14,165
Other selling expenses.......... 4,122 4,294 10,916 14,449
Advertising..................... 3,160 2,339 9,818 8,161
Facility and other rentals...... 2,200 2,786 6,551 7,214
Disposal of Assets.............. -- 4,744 -- 4,744
Other operating expenses........ 13,625 14,102 39,797 42,602
--------------- ----------------- --------------- ----------------
Total operating expenses... 205,464 218,776 583,186 618,801
--------------- ----------------- --------------- ----------------
Operating income (loss).............. 5,326 (19,078) 14,076 (16,573)
Other income (expense):
Interest income................. 585 208 810 476
Interest (expense).............. (2,515) (626) (5,835) (2,803)
Other........................... 178 63 361 255
--------------- ----------------- --------------- ----------------
Other expenses....................... (1,752) (355) (4,664) (2,072)
--------------- ----------------- --------------- ----------------
Income (loss) before income taxes.... 3,574 (19,433) 9,412 (18,645)
Income taxes (credits)............... 1,828 (6,800) 5,192 (6,080)
--------------- ----------------- --------------- ----------------
Net income (loss).................... $ 1,746 $ (12,635) $ 4,220 $(12,565)
--------------- ----------------- --------------- ----------------
--------------- ----------------- --------------- ----------------
Net income (loss) per share.......... $ 0.15 $ (1.09) $ 0.36 $ (1.09)
--------------- ----------------- --------------- ----------------
--------------- ----------------- --------------- ----------------
Average shares outstanding........... 11,586,330 11,592,583 11,577,706 11,526,398
</TABLE>
See accompanying notes.
F-18
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1997 1996
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net income (loss)...................................................... $ 4,220 $(12,565)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 45,994 47,173
Deferred income taxes............................................. 8,495 (6,036)
Other non-cash items.............................................. (1,653) 24,064
Changes in operating assets and liabilities:
Receivables............................................................ (826) (3,182)
Inventories............................................................ (1,103) (1,134)
Assets held for sale................................................... 5,206 (13,883)
Prepaid expenses....................................................... (6,024) 5,745
Accounts payable....................................................... (7,521) (1,512)
Air traffic liabilities................................................ 13,739 (7,339)
Accrued expenses....................................................... 10,205 (3,988)
--------------- ----------------
Net cash provided by operating activities.................... 70,732 27,343
--------------- ----------------
Investing activities:
Proceeds from sale of assets........................................... 7,959 30,222
Capital expenditures................................................... (63,519) (87,597)
Reductions of (additions to) other assets.............................. (5,092) 3,664
--------------- ----------------
Net cash used in investing activities........................ (60,652) (53,711)
--------------- ----------------
Financing activities:
Proceeds from long-term debt........................................... 125,000 19,250
Payments on long-term debt............................................. (126,254) (12,642)
Purchase of common stock............................................... -- (179)
--------------- ----------------
Net cash provided by (used in) financing activities.......... (1,254) 6,429
--------------- ----------------
Increase (decrease) in cash and cash equivalents............................ 8,826 (19,939)
Cash and cash equivalents, beginning of period.............................. 73,382 92,741
--------------- ----------------
Cash and cash equivalents, end of period.................................... $ 82,208 $ 72,802
--------------- ----------------
--------------- ----------------
Supplemental disclosures:
Cash payments (refunds) for:
Interest.......................................................... $ 5,043 $ 2,679
Income taxes...................................................... (314) 501
Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital expenditures...... $ 30,650 $ 14,186
</TABLE>
See accompanying notes.
F-19
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements of Amtran, Inc.
and subsidiaries (the 'Company') have been prepared in accordance with
instructions for reporting interim financial information on Form 10-Q and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
The consolidated financial statements for the quarters ended June 30, 1997
and 1996 reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for such periods. Results for the
nine months ended September 30, 1997, are not necessarily indicative of results
to be expected for the full fiscal year ending December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996.
2. ACCOUNTING PRONOUNCEMENTS PENDING ADOPTION
In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement 128, 'Earnings Per Share,' which establishes new standards for the
calculation of earnings per share effective for interim and annual periods
ending after December 15, 1997. Subsequent to this effective date, all prior
period earnings per share amounts disclosed in financial statements are required
to be restated to conform to the new standards under Statement 128. Due to the
small number of dilutive common stock equivalents currently included in earnings
per share calculations, the Company does not currently expect that the impact
from restatement of prior period earnings per share will be material.
3. SUBSEQUENT DEBT TRANSACTIONS
On July 24, 1997, the Company completed two separate financings designed to
lengthen the maturity of the Company's long-term debt and diversify its credit
sources. On that date the Company (i) sold $100.0 million principal amount of
10.5% unsecured seven year notes in a private offering under rule 144A, and (ii)
entered into a new $50.0 million secured revolving credit facility. The net
proceeds of the unsecured notes were approximately $97.0 million, after
application of costs and fees of issuance. The Company used a portion of the net
proceeds to repay in full the Company's prior bank facility and will use the
balance of the proceeds for general corporate purposes, which may include the
purchase of additional aircraft and/or the refinancing of existing leased
aircraft.
F-20
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference............................................................................ 3
Available Information...................................................................................................... 3
Disclosure Regarding Forward-Looking Statements............................................................................ 4
Prospectus Summary......................................................................................................... 5
Risk Factors............................................................................................................... 16
The Exchange Offer......................................................................................................... 26
Use of Proceeds............................................................................................................ 33
Capitalization............................................................................................................. 34
Selected Consolidated Financial Data....................................................................................... 35
Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 37
Business................................................................................................................... 66
Management................................................................................................................. 79
Principal Shareholders..................................................................................................... 81
Certain Related Party Transactions......................................................................................... 81
Description of the New Credit Facility..................................................................................... 82
Description of the Notes................................................................................................... 83
Registration Rights Agreement for Outstanding Notes........................................................................ 108
Certain United States Federal Income Tax Considerations.................................................................... 109
Plan of Distribution....................................................................................................... 112
Legal Matters.............................................................................................................. 112
Experts.................................................................................................................... 113
Index to Consolidated Financial Statements................................................................................. F-1
</TABLE>
$100,000,000
AMTRAN, INC.
10 1/2% SENIOR EXCHANGE
NOTES DUE 2004
---------------------
PROSPECTUS
---------------------
DECEMBER , 1997
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Information relating to indemnification of directors and officers is
incorporated by reference herein from Item 14 of the Company's Registration
Statement on Form S-1 (No. 33-59630).
ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER'D' DESCRIPTION
-------- -----------------------------------------------------------------------------------------------------
<C> <S>
*3.1 -- Restated Articles of Incorporation of the Company.
*3.2 -- By-laws of the Company.
4.1 -- Indenture, dated as of July 24, 1997, between the Company, the Guarantors and First Security Bank,
N.A., as trustee.
4.2 -- Form of 10 1/2% Senior Exchange Note due 2004 (included in Exhibit 4.1).
4.3 -- Placement Agreement, dated July 17, 1997, between the Company, the Guarantors and Morgan Stanley &
Co. Incorporated and Salomon Brothers Inc.
4.4 -- Registration Rights Agreement, dated July 24, 1997, between the Company, the Guarantors and Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc.
**5.1 -- Opinion of Brian T. Hunt, General Counsel of the Company.
**5.2 -- Opinion of Cravath, Swaine & Moore.
**10.1 -- Credit Agreement, dated July 24, 1997, among ATA, the Company, NBD Bank, N.A., as agent, and the
banks party thereto.
**10.2 -- Guarantee Agreement, dated July 24, 1997, among the Company, Ambassadair Travel Club, Inc., ATA
Vacations, Inc., Amber Travel, Inc., American Trans Air Training Corporation, American Trans Air
ExecuJet, Inc., Amber Air Freight Corporation and the lenders party thereto.
**10.3 -- Security Agreement, dated July 24, 1997, between ATA and NBD Bank, N.A. as agent.
**11.1 -- Statement re computation of per share earnings.
12.1 -- Statements re computation of ratios.
23.1 -- Consent of Ernst & Young LLP.
**23.2 -- Consent of Brian T. Hunt, General Counsel of the Company (included in Exhibit 5.1).
**23.3 -- Consent of Cravath, Swaine & Moore (included in Exhibit 5.2).
24.1 -- Powers of Attorney (contained on signature page).
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of First Security
Bank, N.A. on Form T-1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.4 -- Form of Letter to Clients.
</TABLE>
- ------------
'D' Unless otherwise indicated, the exhibits have been previously filed as part
of this Registration Statement.
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-59630), and incorporated herein by reference.
** Filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
II-1
<PAGE>
<PAGE>
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated document by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Indianapolis, State of
Indiana, on this 26th day of November, 1997.
AMTRAN, INC.
By /s/ J. GEORGE MIKELSONS
------------------------------------
J. GEORGE MIKELSONS
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATES
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ J. GEORGE MIKELSONS Chairman of the Board of Directors November 26, 1997
- ------------------------------------------
(J. GEORGE MIKELSONS)
* President and Chief Executive Officer and November 26, 1997
- ------------------------------------------ Director
(JOHN P. TAGUE)
* Executive Vice President and Chief Operating November 26, 1997
- ------------------------------------------ Officer and Director
(JAMES W. HLAVACEK)
* Executive Vice President and Chief Financial November 26, 1997
- ------------------------------------------ Officer and Director
(KENNETH K. WOLFF)
* Senior Vice President, Sales, Marketing and November 26, 1997
- ------------------------------------------ Strategic Planning and Director
(DALEN D. THOMAS)
Director , 1997
- ------------------------------------------
(ROBERT A. ABEL)
* Director November 26, 1997
- ------------------------------------------
(WILLIAM P. ROGERS, JR.)
/s/ ANDREJS P. STIPNIEKS Director November 26, 1997
- ------------------------------------------
(ANDREJS P. STIPNIEKS)
*By /S/ J. GEORGE MIKELSONS
J. GEORGE MIKELSONS November 26, 1997
AS ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER'D' DESCRIPTION PAGE
-------- --------------------------------------------------------------------------------------------- ----
<C> <S> <C>
*3.1 -- Restated Articles of Incorporation of the Company.........................................
*3.2 -- By-laws of the Company....................................................................
4.1 -- Indenture, dated as of July 24, 1997, between the Company, the Guarantors and First
Security Bank, N.A., as trustee...........................................................
4.2 -- Form of 10 1/2% Senior Exchange Note due 2004 (included in Exhibit 4.1)...................
4.3 -- Placement Agreement, dated July 17, 1997, between the Company, the Guarantors and Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc.......................................
4.4 -- Registration Rights Agreement, dated July 24, 1997, between the Company, the Guarantors
and Morgan Stanley & Co. Incorporated and Salomon Brothers Inc............................
**5.1 -- Opinion of Brian T. Hunt, General Counsel of the Company..................................
**5.2 -- Opinion of Cravath, Swaine & Moore........................................................
**10.1 -- Credit Agreement, dated July 24, 1997, among ATA, the Company, NBD Bank, N.A., as agent,
and the banks party thereto...............................................................
**10.2 -- Guarantee Agreement, dated July 24, 1997, among the Company, Ambassadair Travel Club,
Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air Training Corporation,
American Trans Air ExecuJet, Inc., Amber Air Freight Corporation and the lenders party
thereto...................................................................................
**10.3 -- Security Agreement, dated July 24, 1997, between ATA and NBD Bank, N.A. as agent..........
**11.1 -- Statement re computation of per share earnings............................................
12.1 -- Statements re computation of ratios.......................................................
23.1 -- Consent of Ernst & Young LLP..............................................................
**23.2 -- Consent of Brian T. Hunt, General Counsel of the Company (included in Exhibit 5.1)........
**23.3 -- Consent of Cravath, Swaine & Moore (included in Exhibit 5.2)..............................
24.1 -- Powers of Attorney (contained on signature page)..........................................
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of First
Security Bank, N.A. on Form T-1...........................................................
99.1 -- Form of Letter of Transmittal.............................................................
99.2 -- Form of Notice of Guaranteed Delivery.....................................................
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees..................................................................................
99.4 -- Form of Letter to Clients.................................................................
</TABLE>
- ------------
'D' Unless otherwise indicated, the exhibits have been previously filed as part
of this Registration Statement.
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-59630), and incorporated herein by reference.
** Filed herewith.
STATEMENT OF DIFFERENCES
------------------------
The cent symbol shall be expressed as ...................................[c]
<PAGE>
<PAGE>
EXHIBIT 5.1
[AMTRAN, INC. LETTERHEAD]
November 24, 1997
Amtran, Inc.
7337 West Washington Street
Indianapolis, IN 46231
RE: Amtran, Inc.
Registration Statement on Form S-4
----------------------------------
Dear Sirs:
I am the General Counsel of Amtran, Inc., an Indiana corporation
(the "Company"), and am rendering this opinion in connection with the
Registration Statement on Form S-4 (the "Registration Statement") of the
Company, with respect to $100,000,000 aggregate principal amount of 10- 1/2%
Senior Exchange Notes due 2004 (the "Exchange Notes") of the Company. The
Exchange Notes are being issued in exchange for $100,000,000 aggregate principal
amount of the Company's 10-1/2% Senior Notes due 2004 (the "Outstanding Notes"),
pursuant to an exchange offer (the "Exchange Offer"). The Outstanding Notes were
originally issued in a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act").
I have examined (i) the Indenture (the "Indenture"), dated July
24, 1997, among the Company, as issuer, American Trans Air, Inc., Ambassadair
Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air
Training Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight
Corporation, as guarantors (the "Guarantors"), and First Security Bank, N.A., as
trustee (the "Trustee"), pursuant to which the Exchange Notes will be issued,
and (ii) I have examined such other documents and made such other investigations
as I have deemed necessary or advisable for purposes of this opinion. Based
thereon, I am of the opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Indiana.
2. Each of the Guarantors is a corporation duly organized and
validly existing under the laws of the State of Indiana.
<PAGE>
<PAGE>
2
3. The Indenture has been duly authorized, executed and delivered by
each of the Company, the Guarantors and the Trustee.
4. The Guarantees (as defined in the Indenture) have been duly
authorized and issued by the Guarantors.
5. At the time the Exchange Offer is consummated, the Exchange Notes
will have been duly authorized, executed, authenticated by each
of the Company, the Guarantors and the Trustee, and delivered in
exchange for the Outstanding Notes pursuant to the Exchange
Offer.
I am admitted to practice in the State of Indiana, and I express
no opinion as to matters governed by any laws other than the laws of the State
of Indiana and the Federal laws of the United States of America.
I hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. I also consent to the use of my name under the
caption "Legal Opinions" in the Prospectus contained in the Registration
Statement.
Very truly yours,
Brian T. Hunt
<PAGE>
<PAGE>
EXHIBIT 5.2
[Letterhead of]
CRAVATH, SWAINE & MOORE
November 24, 1997
AMTRAN, INC.
$100,000,000
10-1/2% SENIOR EXCHANGE NOTES DUE 2004
Ladies and Gentlemen:
We have acted as counsel for Amtran, Inc., an Indiana corporation
(the "Company"), in connection with the registration under the Securities Act
of, of 1933, as amended (the "Securities Act"), of $100,000,000 aggregate
principal amount of the Company's 10-1/2% Senior Exchange Notes due 2004 (the
"Exchange Notes"), to be issued under an Indenture dated as July 24, 1997 (the
"Indenture"), among the Company, as issuer, American Trans Air, Inc.,
Ambassadair Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American
Trans Air Training Corporation, American Trans Air Execujet, Inc. and Amber Air
Freight Corporation, as guarantors (the "Guarantors"), and First Security Bank,
N.A., as trustee (the "Trustee"), in exchange for $100,000,000 aggregate
principal amount of 10-1/2% Senior Notes due 2004 (the "Outstanding Notes"),
pursuant to an exchange offer (the "Exchange Offer"). The Outstanding Notes were
originally issued in a transaction exempt from the registration requirements of
the Securities Act.
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including the Indenture.
Based on the foregoing, we are of opinion as follows:
1. Assuming that the Indenture has been duly authorized, executed
and delivered by each of the Company, the Guarantors and the Trustee, the
Indenture constitutes a
<PAGE>
<PAGE>
2
legal, valid and binding obligation of the Company and the Guarantors,
enforceable against the Company and the Guarantors in accordance with its terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether such enforceability is considered in a proceeding
in equity or at law).
2. Assuming that the Exchange Notes have been duly authorized by
the Company, the Notes, when executed and authenticated in accordance with the
provisions of the Indenture and delivered in exchange for the Outstanding Notes
pursuant to the Exchange Offer, will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms and entitled to the benefits of the Indenture (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws affecting creditors' rights generally from time to time in effect and to
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
such enforceability is considered in a proceeding in equity or at law); in
expressing the opinion set forth in this paragraph 7, we have assumed, that the
form of the Notes will conform to those included in the Indenture.
3. Assuming that the Guarantees (as defined in the Indenture)
have been duly authorized by the Guarantors, and assuming the due execution and
delivery of the Indenture in accordance with its terms by the Guarantors and the
Company, the Guarantees will be legal, valid and binding obligations of each of
the Guarantors, enforceable against the Guarantors in accordance with their
terms and entitled to the benefits of the Indenture (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws affecting creditors' rights generally from time to time in effect and to
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
such enforceability is considered in a proceeding in equity or at law).
We are admitted to practice in the State of New York, and we
express no opinion as to matters governed by any laws other than the laws of the
State of New York and the Federal laws of the United States of America. In
particular, we do not purport to pass on any matter governed by the laws of the
State of Indiana.
<PAGE>
<PAGE>
3
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. We also consent to the use of our name under the
caption "Legal Opinions" in the Prospectus contained in the Registration
Statement.
Very truly yours,
Cravath, Swaine & Moore
Amtran, Inc.
7337 West Washington Street
Indianapolis, IN 46231
<PAGE>
<PAGE>
Execution Copy
================================================================================
CREDIT AGREEMENT
dated as of July 24, 1997
among
AMERICAN TRANS AIR, INC.
AMTRAN, INC.
THE BANKS PARTY THERETO
and
NBD BANK, N.A., as Agent
================================================================================
<PAGE>
<PAGE>
CREDIT AGREEMENT
This Credit Agreement is entered into as of July 24, 1997 among
AMERICAN TRANS AIR, INC., an Indiana corporation ("Borrower"), AMTRAN, INC., an
Indiana corporation ("Amtran"), each of the lenders listed on the signature
pages hereof or otherwise becoming a party hereto from time to time
(collectively the "Banks" and individually as a "Bank"), NBD BANK, N.A. ("NBD"),
a national banking association, as agent for the Banks (in such capacity,
together with its successors in such capacity, the "Agent").
RECITALS
A. The Borrower, Amtran, the Banks and other lenders and co-agent
party thereto and NBD Bank, N.A., as agent, entered into a Second Amended and
Restated Credit Agreement dated as of December 7, 1994 (as amended, the "Prior
Credit Agreement"), which Prior Credit Agreement amended and restated previous
credit agreements.
B. The parties desire to amend and restate the Prior Credit
Agreement as herein provided, and the parties are willing to so amend and
restate the Prior Credit Agreement in its entirety as herein provided.
AGREEMENT
In consideration of the premises and of the mutual agreements herein
contained, the Prior Credit Agreement is hereby amended and restated in its
entirety as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Definitions. In addition to the terms defined elsewhere
in this Agreement, the following terms have the meanings indicated for purposes
of this Agreement:
"Adjustment Date" shall mean the first day of each February
and October, commencing October 1, 1997.
"Adjusted Net Profit" shall mean, for any period, the
consolidated net income (after taxes), but excluding any gains or losses (net of
related tax benefits) from any sale of assets in excess of $250,000 for any
single transaction and $1,000,000 in the aggregate for multiple transactions or
any other extraordinary gain (or loss) items and their related tax benefits, of
Amtran and its Affiliates for such period, on a consolidated basis, determined
in accordance with GAAP.
"Advance" means a loan by the Banks to Borrower pursuant to
this Agreement.
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<PAGE>
"Affiliate" means, (i) with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control of such Person and (ii) which other Person in accordance
with generally accepted accounting principles is to be included in the
consolidated financial statements of Amtran. A Person shall be deemed to control
a corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding anything in this definition to the contrary, neither
J. George Mikelsons nor any member of the board of directors of any Person that
is a corporation shall be deemed a Person as used in this Agreement.
"Aviation Property" shall mean:
(i) each of the Lockheed Model L-1011 aircraft
identified on Schedule 1 attached to this Agreement (the "L-1011
Aircraft"), together with all appliances, parts, instruments,
appurtenances, accessories and equipment (including, without limitation,
communications and radar equipment) owned by Borrower now or hereafter
incorporated or installed in or attached to any of the L-1011 Aircraft,
and all substitutions, replacements and renewals of any and all thereof
owned by Borrower and all other property owned by Borrower which shall
hereafter become physically incorporated or installed in or attached to
any of the L-1011 Aircraft, whether any of the foregoing is now owned by
Borrower or hereafter acquired by it;
(ii) each of the aircraft engines identified on Schedule
2 attached to this Agreement (the "L-1011 Engines") and any aircraft
engine described in any supplemental security agreement which shall be
hereafter delivered to the Banks pursuant to the provisions of the
Security Agreement covering any of the Aviation Property, together with
all appliances, parts, instruments, appurtenances, accessories and
equipment owned by Borrower now or hereafter incorporated, installed in or
attached to any of such engines or L-1011 Engines, and all substitutions,
replacements and renewals of any and all thereof owned by Borrower and all
other property owned by Borrower which shall hereafter become physically
incorporated or installed in or attached to any of such engines or L-1011
Engines, whether any of the foregoing is now owned by Borrower or
hereafter acquired by it;
(iii) all proceeds of any of and all the properties
described in (i) and (ii) above, including, without limitation, all
warranty and tort claims and all insurance proceeds (and Borrower's right
to receive any such proceeds) from any loss or damage to any of such
properties and all other assets subject to or otherwise described as
collateral in the Security Agreements at any time, provided, however that
notwithstanding anything contained in (i) and (ii) above, Aviation
Property shall not include any appliances, parts, instruments,
appurtenances, accessories, and equipment (including without limitation,
communication and radar equipment) removed from Aviation Property and for
which a comparable substitution, replacement or renewal has been made.
Notwithstanding the foregoing, L-1011 Aircraft and L-1011 Engines shall also
include any Lockheed Model L-1011 aircraft and the related engines,
respectively, acquired by the Borrower after the Closing Date, provided that (A)
appraisals for such aircraft and engines acceptable to the Agent are received by
the Agent, (B) such aircraft and engines and related assets become subject to
the Security Agreement and the Borrower delivers all agreements, opinions and
documents requested by the Agent in connection therewith, all in form and
substance satisfactory to the Agent, and (C) such aircraft and engines are
otherwise acceptable to the Agent.
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"Avmark" shall mean Avmark, Inc., or its successors as may be
acceptable to the Agent.
"Banking Day" means a day on which banks are open for
substantially all of their banking functions in Indiana other than Saturdays,
Sundays or legal holidays.
"Borrowing Base" means, as of any date as of which the amount
thereof is to be determined, an amount equal to 75% of the value (as determined
pursuant to Section 2.01(c)) of the L-1011 Aircraft and the L-1011 Engines
constituting Aviation Property subject to the Security Agreement.
"Capital Expenditures" means, for any period, the aggregate of
all expenditures for plant, property and equipment and other capital
expenditures as determined under GAAP made by Amtran or any of its Affiliates,
as applied on an accrual basis, for such period.
"Capital Lease" means any lease which, in accordance with
GAAP, is or should be capitalized.
"Capital Lease Payments" means, for any period, the aggregate
payments due during such period on any Capital Lease of Amtran or any of its
Affiliates.
"Cash Equivalents" means, for any period, with respect to the
covenant contained in Section 6.11 hereof, the sum, as of the last day of such
period, of (i) the amount of cash in a deposit account at any Bank and
certificates of deposit of any Bank owned by Borrower and/or Amtran, provided
that each such certificate of deposit has a maturity date not later than one (1)
year by Borrower and/or Amtran, and provided, further, that any such cash or
certificate of deposit is not subject to any Lien (except any Lien in favor of
the Banks) or other restriction, such as any cash held in escrow to secure any
air traffic liability, plus (ii) the fair market value of securities owned by
Borrower and/or Amtran with maturities of one (1) year or less from the date of
acquisition and which are issued or fully guaranteed or insured by the United
States Government or any agency thereof, plus (iii) commercial paper of any
United States issuer rated at least investment grade by Standard & Poor's
Corporation and Moody's Investors Services, Inc. (i.e., rated at least BBB- by
Standard & Poor's Corporation or at least Baa3 by Moody's Investors Service,
Inc.) and in each case maturing within six (6) months after the date of
acquisition, plus (iv) repurchase agreements reasonably acceptable to the Agent
and with a term of less than thirty (30) days, plus (v) the net cash surrender
value of any life insurance policies for which the Borrower is sole beneficiary
after deduction for any loans owing by the Borrower and/or Amtran or any other
party, prepaid premiums or other amounts with respect thereto, minus all Letter
of Credit Advances including without limitation those which are cash
collateralized pursuant to Section 3.04 hereof.
"Cash Flow" means, as of any date as of which the amount
thereof is to be determined, the difference of (i) the sum of: (A) Adjusted Net
Profit for the twelve month period immediately preceding such date of
determination; (B) Non-Cash Expenses for the twelve month period immediately
preceding such date of determination; (C) Interest Expense for the twelve month
period immediately preceding such date of determination; (D) Projected Lease
Payments as of such date of determination; and (E) the amount of income taxes
paid by Amtran and its Affiliates for the twelve month period immediately
preceding such date of determination; and (ii) Dividends paid or payable for the
twelve month period immediately preceding such date of determination. In
calculating Cash Flow hereunder, any lease and/or rental obligations
constituting either deposits or reserves on aircraft engines and/or aircraft
frames which would be viewed as Projected Lease Payments shall not be included.
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<PAGE>
"Cash Flow Coverage Ratio" means the ratio of Cash Flow to the
sum of (a) Interest Expense plus (b) Projected Lease Payments.
"Closing Date" means the date of execution of this Agreement
by all parties hereto, which shall be the effective date of this Agreement.
"Commitment" shall mean, with respect to each Bank, the
commitment of each such Bank to make Advances and to participate in Letter of
Credit Advances made through the Agent, in amounts not exceeding an aggregate
principal amount outstanding at any time equal to the respective commitment
amounts for each such Bank set forth next to the name of each such Bank on the
signature pages hereof or otherwise established pursuant to an Assignment and
Acceptance under Section 10.03, as such amounts may be reduced and/or otherwise
adjusted from time to time pursuant hereto. As of the Closing Date, the
aggregate Commitments equal $50,000,000.
"Consolidated" or "consolidated" shall mean, when used with
reference to any financial term of this Agreement, the aggregate for two or more
Persons of the amounts signified by such term for all such Persons determined on
a consolidated basis in accordance with GAAP.
"Default" means an event which with notice or lapse of time or
both, would become an Event of Default.
"Disposition" shall mean the sale or other transfer to any
Person by Borrower of any of the Aviation Property.
"Dividends" of any Person shall mean any dividend, payment or
other distribution in respect of any class of its capital stock or any dividend,
payment or other distribution in connection with the redemption, purchase,
retirement or other acquisition, directly or indirectly, of any of its capital
stock. As used in this Agreement, capital stock shall include all capital stock
and any securities exchangeable for or convertible into capital stock and any
warrants, rights or other options to purchase or otherwise acquire capital stock
or such securities or any other form of equity securities or any other form or
ownership interest.
"Dollars" and "$" means the lawful money of the United States
of America.
"ERISA" means the Employee Retirement Income Security Act of
1974 and all the rules and regulations promulgated pursuant thereto, as amended
from time to time.
"Eurodollar Business Day" means, with respect to any
Eurodollar Rate Advance, a day which is both a Banking Day and a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Eurodollar Interest Period" means, with respect to any
Eurodollar Rate Advance, the period commencing on the day such Eurodollar Rate
Advance is made or converted to a Eurodollar Rate Advance and ending on the date
one, two, three or six months thereafter, as the Borrower may elect under
Section 2.02(b) or 2.13, and each subsequent period commencing on the last day
of the immediately preceding Eurodollar Interest Period and ending on the date
one, two, three or six months thereafter, as the Borrower may elect under
Section 2.02 provided, however, that (a) any Eurodollar Interest Period which
commences on the last Eurodollar Business Day of a calendar month
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<PAGE>
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Eurodollar Business
Day of the appropriate subsequent calendar month, (b) each Eurodollar Interest
Period which would otherwise end on a day which is not a Eurodollar Business Day
shall end on the next succeeding Eurodollar Business Day or, if such next
succeeding Eurodollar Business Day falls in the next succeeding calendar month,
on the next preceding Eurodollar Business Day, and (c) no Eurodollar Interest
Period which would end after the Termination Date shall be permitted.
"Eurodollar Rate" means, with respect to any Eurodollar Rate
Advance and the related Eurodollar Interest Period, the per annum rate that is
equal to the sum of:
(a) the Margin, plus
(b) the rate per annum obtained by dividing (i) the per annum
rate of interest at which deposits in Dollars for such Eurodollar Interest
Period and in an aggregate amount comparable to the amount of such Eurodollar
Rate Advance to be made by the Administrative Agent in its capacity as a Bank
hereunder are offered to the Administrative Agent by other prime banks in the
London interbank market at approximately 11:00 a.m. London time on the second
Eurodollar Business Day prior to the first day of such Eurodollar Interest
Period by (ii) an amount equal to one minus the stated maximum rate (expressed
as a decimal) of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) that is specified
on the first day of such Eurodollar Interest Period by the Board of Governors of
the Federal Reserve System (or any successor agency thereto) for determining the
maximum reserve requirement with respect to eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board)
maintained by a member bank of such System;
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%).
"Eurodollar Rate Advance" means any Advance which bears
interest at the Eurodollar Rate.
"Event of Default" means any event set forth in Sections 8.01
to 8.10, inclusive, hereof.
"Federal Funds Rate" means, for any day, the average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published by the Federal
Reserve Bank of New York for such day, or, if such rate is not so published for
any day, the average of the quotations for such rates received by the Agent from
three federal funds brokers of recognized standing selected by the Agent in its
discretion from time to time as the opening federal funds rate paid or payable
by the Agent in its regional federal funds market for overnight borrowings from
other banks;
"Funded Indebtedness" of any person shall mean, as of any
date, the sum of all Indebtedness of such person for borrowed money which by its
terms has a final maturity, duration or payment date more than one year from
such date (including any such Indebtedness having a final maturity, duration or
payment date within one year from such date which, pursuant to the terms of a
revolving credit or similar agreement or otherwise, may be renewed or extended
for more than one year from such date, whether or not theretofore renewed or
extended), provided, however, that Funded
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<PAGE>
Indebtedness shall not include (i) Indebtedness of such person which is
subordinated to the Obligations pursuant to a Subordination Agreement
satisfactory in form and substance to the Agent, or (ii) any payment in respect
of Funded Indebtedness (whether installments, serial maturity or sinking fund
payments or otherwise) due within one year from such date.
"GAAP" means generally accepted accounting principles applied
on a basis consistent with that reflected in the financial statements referred
to in Section 5.13.
"Guarantors" shall mean, collectively Amtran and each present
and future subsidiary of Amtran or the Borrower, other than Amber Holdings,
Inc., or any other person executing a Guaranty at any time.
"Guaranty" shall mean any guaranty of any of the Obligations
executed by Amtran and its Affiliates, or any of them, at any time, as amended
or modified from time to time.
"Hazardous Material" means and includes any hazardous, toxic
or dangerous waste, substance or material defined as such in or for the purpose
of the Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other federal, state or local
statute, law, ordinance, code, rule, regulation, order, decree or other
requirement of any governmental authority regulating, relating to, or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
waste or material, as now or at any time hereafter may be in effect.
"Hedging Agreement" means any agreement, or arrangement
entered into by the Borrower and any Bank providing for payments protecting the
Borrower against fluctuations of interest rates, including interest rate swaps,
interest rates caps or similar agreements.
"Indebtedness" of any Person means: (i) all obligations of
such Person (including without limitation all fees, costs or unpaid accrued
interest) for or with respect to borrowed money or for the deferred purchase
price of property or services (other than accounts payable in the ordinary
course of business); (ii) all obligations of such Person created or arising
under any conditional sale or other title retention agreement with respect to
any property acquired by such Person and all obligations created or arising
under such agreement even though the rights and remedies of the seller or lender
thereunder are limited to repossession or sale of such property in the event of
default; (iii) all obligations of such Person under Capital Leases; (iv) all
guarantees and other obligations (contingent or otherwise) of such Person to
assure a creditor against loss (including, without limitation, letters of
responsibility or comfort letters, arrangements to purchase or repurchase
property or obligations, pay for property, goods or services whether or not
delivered or rendered, maintain working capital, equity capital or other
financial statement condition of, or lend or contribute to or invest in, any
such Person) in respect of obligations of any other Person; (v) all endorsements
of such Person (other than in the case of instruments, for deposit or collection
in the ordinary course of business); (vi) all obligations of such Person for
extensions of credit to or on behalf of such Person, whether or not representing
obligations for borrowed money, including, without limitation, all reimbursement
obligations of such Person in respect of letters of credit, or similar
obligations and all obligations pursuant to any interest rate or currency swaps,
rate caps or similar transactions; (vii) all accrued, non-contingent liabilities
of such Person in respect of unfunded vested liabilities under any Plan of such
Person or of any member of a controlled group of which such Person is a member;
and (viii) all obligations or indebtedness described in clauses (i) through
(vii) secured by a Lien on any property owned by such Person, whether or not
such Person has assumed or become liable for the payment thereof.
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"Independent Public Accountant" means Ernst & Young or other
public accounting firm of national reputation selected by Borrower and
acceptable to the Required Banks.
"Interest Expense" shall mean, for any period, the aggregate
gross interest expense paid or payable by Amtran and its Affiliates for such
period.
"Interest Payment Date" means (a) with respect to any
Eurodollar Rate Advance, the last day of each Eurodollar Rate Interest Period
with respect to such Eurodollar Rate Advance and, in the case of any Eurodollar
Interest Period exceeding three months, those days that occur during such
Eurodollar Interest Period at intervals of three months after the first day of
such Eurodollar Interest Period, and (b) in all other cases, the first Banking
Day of each month occurring after the date hereof, commencing with the first
such Banking Day occurring after the date of this Agreement.
"Investment" means: (i) any loan, advance, guarantee,
extension of credit (other than in the ordinary course of business to trade
customers) or contribution of capital by Amtran or any of its Affiliates to any
Person or the purchase of any Person's notes, stock, bonds or other securities,
(ii) advances by Amtran or any of its Affiliates to employees of a Person other
than in the ordinary course of business for the purpose of defraying travel,
relocation or business expenses and (iii) any contribution of capital or
property or services contributed or committed to be contributed by Amtran or any
of its Affiliates in connection with the purchase of debt or equity or other
ownership interests of any Person.
"Letter of Credit" shall mean a standby letter of credit
having a stated expiry date not later than the earlier of (i) one year after the
date of issuance thereof, and (ii) the Termination Date, issued by the Agent on
behalf of the Banks for the account of Borrower under an application and related
documentation acceptable to the Agent requiring, among other things, immediate
reimbursement by Borrower to the Agent in respect of all drafts or other demand
for payment honored thereunder and all expenses paid or incurred by the Agent
relative thereto. For purposes of this Agreement, the aggregate outstanding
principal amount of any unexpired or outstanding Letter of Credit or Letter of
Credit Advance shall be deemed the face amount of such Letter of Credit.
"Letter of Credit Advance" shall mean any issuance of a Letter
of Credit hereunder by the Agent in which each Bank shall acquire a pro rata
risk participation pursuant to Section 2.11.
"Letter of Credit Documents" shall have the meaning ascribed
thereto in Section 2.12.
"Leverage Ratio" means, as of any date as of which the amount
thereof is to be determined, the ratio of Total Adjusted Liabilities to Tangible
Net Worth.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to provide any
of the foregoing), any conditional sale or other title retention agreement or
any lease in the nature thereof, or any filing or agreement to file a financing
statement as debtor on any property leased to any Person under a lease which is
not in the nature of a conditional sale or title retention agreement.
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<PAGE>
"Loan Documents" means, collectively, this Agreement,the
Notes, the Security Agreement, the Guaranty, the Letter of Credit Documents,
Hedging Agreements and any other documents evidencing, guaranteeing or securing
the Obligations.
"Margin" shall mean the applicable percentage per annum, based
on the Cash Flow Coverage Ratio and Leverage Ratio of the Borrower, as
determined by reference to the following table:
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<PAGE>
Margin
- --------------------------------------------------------------------------------
Letter of Non-Use
Credit Fee Fee Payable
Financial Prime Rate Eurodollar Payable Under Under
Ratios Advances Rate Advances Section 2.06(c) Section 2.06(b)
- --------------------------------------------------------------------------------
If the (a) Cash Flow 0.0% 1.50% 1.125% 0.25%
Coverage Ratio is
greater than or equal
to 2.05 to 1.00 and (b)
Leverage Ratio is less
than 4.0 to 1.0
- --------------------------------------------------------------------------------
If the (a) Cash Flow 0.0% 1.75% 1.25% 0.30%
Coverage Ratio is less
than 2.05 to 1.00 and
greater than or equal
to 1.80 to 1.00 and (b)
Leverage Ratio is less
than 4.0 to 1.0
- --------------------------------------------------------------------------------
If the (a) Cash Flow 0.0% 2.00% 1.375% 0.35%
Coverage Ratio is less
than 1.80 to 1.00 and
greater than or equal
to 1.65 to 1.00 and (b)
Leverage Ratio is less
than 4.0 to 1.0
- --------------------------------------------------------------------------------
If the Leverage Ratio 0.25% 2.25% 1.50% 0.40%
is equal to or greater
than 4.0 to 1.0 but
less than or equal to
4.5 to 1.0
- --------------------------------------------------------------------------------
If the Leverage Ratio 0.375% 2.375% 1.625% 0.45%
is greater than 4.5 to
1.0 but less than 5.0
to 1.0
- --------------------------------------------------------------------------------
If the Leverage Ratio 0.50% 2.50% 1.75% 0.50%
is equal to or greater
than 5.0 to 1.0
- --------------------------------------------------------------------------------
For purposes of determining the Margin, the Cash Flow Coverage Ratio
and Leverage Ratio shall be determined on the last day of each fiscal quarter,
for the fiscal quarter then ending, and the Margin shall be adjusted on the
first day of the second fiscal quarter following each such fiscal quarter based
on the Cash Flow Coverage Ratio and Leverage Ratio for such fiscal quarter,
which Margin shall
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remain in effect until the first day of the following fiscal quarter.
Notwithstanding the above, upon and during the continuance of any Event of
Default the Margin for each category shall be based upon the highest margin
possible in each category, regardless of the Cash Flow Coverage Ratio or
Leverage Ratio, upon and during the continuance of any Event of Default.
"Margin Stock" has the meaning ascribed to it in Regulation U
of the Board of Governors of the Federal Reserve System.
"Net Profit" shall mean, for any period, the consolidated net
income (after taxes) of Amtran and its Affiliates for such period, on a
consolidated basis, determined in accordance with GAAP.
"Net Worth" means consolidated total assets of Amtran and its
Affiliates less the consolidated total liabilities and reserves of Amtran and
its Affiliates, computed on a consolidated basis in accordance with GAAP.
"Non-Cash Expenses" shall mean, for any period, the sum of the
amount of depreciation and amortization expense during such period of Amtran and
its Affiliates, on a consolidated basis, to the extent deducted from Adjusted
Net Profit, all as determined in accordance with GAAP.
"Note" means any note executed by Borrower in the form of
Exhibit A hereto, as amended, supplemented or modified from time to time and
together with any promissory note or notes issued in exchange or replacement
therefor and "Notes" shall mean all of such notes.
"Obligations" means all present and future obligations,
indebtedness and liabilities of Borrower or Amtran under the Loan Documents.
"Operating Lease Payments" shall mean, for any period, the
aggregate payments due during such period on all operating leases of Amtran or
any of its Affiliates which individually originally have (or had) aggregate
payments paid or payable, from the original commencement of such lease until its
expiry, in excess of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00).
"Overdue Rate" means (a) in respect of principal of Prime Rate
Advances a rate per annum that is equal to the sum of two percent (2%) per annum
plus the Prime Rate plus the Margin (b) in respect of principal of Eurodollar
Rate Advances, a rate per annum that is equal to the sum of two percent (2%) per
annum plus the per annum rate in effect thereon until the end of the then
current Eurodollar Interest Period for such Eurodollar Rate Advance and,
thereafter, a rate per annum that is equal to the sum of two percent (2%) per
annum plus the Prime Rate plus the Margin, and (c) in respect of all other
amounts payable by the Borrower hereunder (other than interest), a per annum
rate that is equal to the sum of two percent (2%) per annum plus the Prime Rate
plus the Margin.
"PBGC" means the Pension Benefit Guaranty Corporation created
under Section 4002(a) of ERISA or any successor thereto.
"Permitted Liens" means:
(i) Liens for taxes not yet due or which are being
actively contested in good faith by appropriate proceedings (in a
manner sufficient to prevent enforcement
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of the matter under contest) and as to which adequate reserves have
been set aside in amounts determined in accordance with GAAP;
(ii) Other Liens incidental to the conduct of the
business of Amtran and its Affiliates or the ownership of their
respective properties and assets which were not incurred in
connection with the incurring of Indebtedness, and which do not
detract from the value of such property or assets or impair the use
thereof in the operation of Amtran's and its Affiliates' business
including, without limitation, Liens imposed by mechanics, laborers
or materialmen but only to the extent that such Liens are being
contested in good faith by the Borrower and the resolution thereof
is being diligently pursued by Borrower;
(iii) Liens on property or assets of an Affiliate to
secure obligations of such Affiliate to Borrower or another
Affiliate;
(iv) Liens existing on the Closing Date and approved in
writing by the Banks but no extension, modification or renewal of
any such Lien shall be permitted;
(v) Liens created pursuant to the Security Agreement and
Liens expressly permitted by the Security Agreement;
(vi) Purchase money mortgages for equipment, inventory,
spare parts and appliances used in the Borrower's ordinary course of
business provided that any such purchase will not result in a
violation of Section 7.01 of this Agreement;
(vii) Liens to Rolls Royce plc pursuant to a Security
Agreement dated as of May 20, 1993, as amended and restated as of
November 1, 1994, on certain spare parts and certain RB211 engines
bearing the following manufacturer serial numbers: 10388, 10426,
10502, 10519 and 10528;
(viii) Liens to First of America Bank-Indiana pursuant
to a Security Agreement dated May 31, 1989 as amended on September
30, 1991; and
(ix) Notwithstanding anything contained herein to the
contrary, Liens on Borrower's accounts, general intangibles or
inventory shall not be Permitted Liens except as set forth in
clauses (i) and (ii) above and Liens on any of the Aviation Property
shall not be Permitted Liens.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or an agent or instrumentality thereof.
"Plan" means any defined benefit plan maintained or
contributed to by Amtran or any of its Affiliates or by any trade or business
(whether or not incorporated) under common control with Amtran or any of its
Affiliates as defined in Section 4001(b) of ERISA and insured by the PBGC under
Title IV of ERISA.
"Prime Rate" means the per annum rate that is equal to the
greater of (i) the per annum rate of interest announced from time to time by NBD
as its "prime rate", which rate may not
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<PAGE>
necessarily be the lowest rate charged by NBD to any of its customers, or (ii)
the Federal Funds Rate plus one-half percent (1/2%) per annum. The Prime Rate
shall change simultaneously with any change in such "prime rate" or such Federal
Funds Rate, if applicable.
"Prime Rate Advance" means a loan made by the Banks to
Borrower under Section 2.01 and bearing interest at a rate equal to the Prime
Rate plus the Margin.
"Projected Lease Payments" means, as of any date as of which
the amount thereof is to be determined, the aggregate amount of all payments to
be paid in the future by the Borrower, Amtran or any of their Subsidiaries under
any operating or capital lease; provided, however, that such payments under any
such capital or operating lease shall only be included in this definition of
Projected Lease Payments only for the period of time commencing on such date of
determination of Projected Lease Payments and ending twelve months after such
date, and all such payments under any such capital or operating lease after such
one year period shall not be included in this definition of Projected Lease
Payments.
"Reportable Events" shall be as defined in ERISA.
"Required Banks" shall mean at any time while no Revolving
Credit Loans are outstanding, any combination of Banks having more than 60% of
the aggregate amount of the Commitments, and, at any time while Revolving Credit
Loans are outstanding, any combination of Banks holding more than 60% of the
outstanding aggregate principal amount of Revolving Credit Loans and Letter of
Credit Advances.
"Revolving Credit Loans" means the borrowing under Section
2.01 of this Agreement, which are on a revolving basis under the terms of this
Agreement.
"Security Agreement" means, collectively, the Security
Agreement and Chattel Mortgage dated the Closing Date and all other present and
future security agreements and other related documents, each in form and
substance acceptable to the Agent, pursuant to which the Banks are granted the
security interests described in Section 3.01, and any other present or future
collateral securing the Obligations, as the same are now or hereafter renewed,
extended, amended, modified, supplemented or restated.
"Senior Unsecured Debt Documents" means the Senior Unsecured
Indenture, the Senior Unsecured Notes and all of their agreements, documents and
instruments executed in connection therewith, as amended from time to time in
compliance with the terms of this Agreement.
"Senior Unsecured Indenture" means the Indenture dated the
Closing between the Borrower and __________, as trustee, as amended from time to
time in compliance with the terms of this Agreement.
"Senior Unsecured Notes" shall mean the ___% Senior Notes due
_________, 2004 in the aggregate principal amount of $100,000,000, as amended
from time to time in compliance with the terms of this Agreement.
"Tangible Net Worth" means Net Worth, less:
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(i) goodwill (including the unallocated excess purchase
cost of assets acquired in a transaction accounted for as a purchase
over the aggregate fair market value thereof on the date of
acquisition), patents, trademarks, trade names, copyrights,
franchises, deferred charges, (including unamortized debt discount
and expense, deferred research and development expenses and
organizational costs), treasury stock and all other items that would
be treated as intangible assets under GAAP, except that in excluding
intangible assets, the excluded assets shall not include deferred
pre-operating costs of Borrower which do not exceed One Million and
00/100 Dollars ($1,000,000.00) in the aggregate;
(ii) any Investments of Amtran or any of its Affiliates
or any extensions of credit to stockholders, officers, directors, or
employees of Amtran or any of its Affiliates greater than Ten
Thousand and 00/100 Dollars ($10,000.00) to any one individual or
greater than one Hundred Thousand and 00/100 ($100,000.00) in the
aggregate; and
(iii) any write-up of assets of Amtran or any of its
Affiliates after the Closing Date other than a write-up of assets of
an Affiliate of Amtran in connection with the acquisition of such
Affiliate and in accordance with GAAP.
"Termination Date" means:
(a) the earlier to occur of
(i) April 1, 2001, or such extended date as may
be established in accordance with Section
2.18, or
(ii) the date on which the Commitments are
terminated, the Revolving Credit Loans
accelerated or both pursuant to Article
VIII.
"Total Adjusted Liabilities" shall mean, without duplication,
(A) the sum of (i) Funded Indebtedness of Amtran and its Affiliates, (ii) any
payment in respect of Funded Indebtedness of Amtran and its Affiliates due
within one year from any date of determination, (iii) the total accrued Interest
Expenses, and (iv) three and one-half (3 1/2) times Amtran's and its Affiliates'
projected capital and operating lease rental expenses for the immediately
succeeding twelve month period less (B) the total amount of all Cash
Equivalents.
1.02 Rules of Construction. All accounting terms used herein and not
expressly defined in this Agreement shall (unless otherwise expressly indicated)
have the respective meanings given to them in accordance with GAAP. All
financial computations made under this Agreement for the purpose of determining
compliance with the financial requirements of this Agreement shall be made, and
all financial information required under this agreement shall be prepared, in
accordance with GAAP, as in effect on the Closing Date, consistently applied.
All computations made under this Agreement for the purpose of determining
compliance with the financial covenants herein shall be made on a consolidated
basis. All defined terms used herein shall include both the singular and the
plural forms thereof and shall be construed accordingly.
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ARTICLE II.
THE CREDIT
2.01 Revolving Credit Loans.
(a) Each Bank severally agrees, subject to the terms and
conditions of this Agreement, to make available to the Borrower, for the
purposes set forth in Section 6.01, Revolving Credit Loans and to participate in
Letter of Credit Advances to the Borrower which in an aggregate amount do not
exceed the Commitment of each Bank, provided, however, that the sum of the
aggregate amount of the Revolving Credit Loans and the maximum amount available
to be drawn on all outstanding Letters of Credit shall not exceed the lesser of
the Borrowing Base (as the Borrowing Base is reduced pursuant to Section 2.05 or
otherwise) or the Commitments; provided, however, that the aggregate amount of
Letter of Credit Advances (including, without limitation, the Letter of Credit
Advances cash collateralized pursuant to Section 3.04 hereof) outstanding at any
time shall not exceed Twenty-Five Million and 00/100 Dollars ($25,000,000).
Notwithstanding anything herein to the contrary, the Borrower may not obtain any
Advance or Letter of Credit Advance on the last day of any calendar quarter.
(b) Advances made pursuant to this Section 2.01 shall
constitute revolving credit, subject to the provisions of Section 2.10 hereof,
and prior to the Termination Date Borrower may borrow, repay and reborrow
Revolving Credit Loans.
(c) For the purpose of this Agreement, the value of Aviation
Property shall be based on the Appraisal Report of Aviation Property by Avmark
dated November 15, 1994. Such value shall be adjusted on a semi-annual basis on
each Adjustment Date based on Avmark's most recently published values of
L-1011-50 aircraft by the same percentage change in the base values of such
L-1011-50 aircraft which have occurred since the Avmark publication of November
15, 1994 through January, 1997. Within 120 days after the Closing Date, the
Agent will be having an appraisal of the Aviation Property by an independent
third party appraiser acceptable to the Required Banks and at the expense of the
Borrower, and the value of the Aviation Property shall be adjusted as determined
by the Agent based on the results of such appraisals. Upon the acquisition of
any aircraft or engines by the Borrower which are to be subject to the Security
Agreement and part of the Aviation Property, the Agent may require an appraisal
of such new Aviation Property by an independent third party appraiser acceptable
to the Required Banks and at the expense of the Borrower, and the value of such
new Aviation Property for the Borrowing Base shall be based on the results of
such appraisals. Additionally, if required by the Required Banks, 90 days after
each Adjustment Date the Required Banks may request an appraisal of the Aviation
Property by an independent third party appraiser acceptable to the Required
Banks and at the expense of the Borrower and the value of the Aviation Property
shall also be adjusted based on the results of such appraisals. In the event
that the aggregate Commitments become greater than the Borrowing Base determined
by the method described in the first sentence of this clause (c) and the
Required Banks have not requested an appraisal pursuant to the immediately
preceding sentence, Borrower may, at its own expense, have the Aviation Property
physically appraised by Avmark, or any other independent third party appraiser
acceptable to the Required Banks, within the thirty (30) day period following an
Adjustment Date to establish the value of Aviation Property and the value of the
Aviation Property shall be based on the results of such appraisals. If
acceptable to the Required Banks in their sole discretion, an appraisal report
from an independent third party appraiser other than Avmark may be substituted
for the appraisal report of Avmark for purposes of this Section 2.01(c).
(d) In the event Avmark fails or ceases to publish valuation
reports, the Agent shall establish a procedure to determine the value of the
Aviation Property for purposes of Section
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2.01(c). Such procedure shall be acceptable to the Required Banks and based upon
a recognized independent third-party valuation source, and shall also be
established in consultation with the Borrower, but without the approval of the
Borrower.
(e) The Borrower shall have the right to terminate or reduce
the Commitments at any time and from time to time provided that (i) the Borrower
shall give three (3) Banking Days prior written notice of such termination or
reduction to the Agent specifying the amount and effective date thereof, (ii)
each partial reduction of the Commitments shall be in a minimum amount of
$5,000,000 and in an integral multiple of $1,000,000 and shall reduce the
Commitments of all of the Banks proportionately and in accordance with the
respective Commitment amounts for each Bank, (iii) no such termination or
reduction shall be permitted with respect any portion of the Commitments as to
which a request for an Advance or Letter of Credit Advance is pending and (iv)
the Commitments cannot be terminated if any Advance or Letter of Credit Advance
is then outstanding and may not be reduced below the principal amount of the
Advances and Letter of Credit Advances. The Commitments or any portion thereof
terminated or reduced may not be reinstated.
2.02 Requests for Advance.
(a) Subject to the terms and conditions of this Agreement,
Advances shall be made available to Borrower prior to the Termination Date,
provided that the Agent receives, at the time and in accordance with the terms
of this Section 2.02, a request ("Request") specifying the amount thereof. All
Advances shall be made on a pro rata basis in accordance with each Bank's
Commitment.
(b) The Borrower shall give the Agent notice of its Request
not later than (i) 11:30 a.m. Indianapolis time (A) three Eurodollar Business
Days prior to the date such Advance is requested to be made if such Advance is
to be made as a Eurodollar Rate Advance, and (B) one day prior to the date such
Advance is requested to be made if such Advance is to be made as a Prime Rate
Advance, which notice shall specify whether a Eurodollar Rate Advance or a Prime
Rate Advance is requested and, in the case of each requested Eurodollar Rate
Advance, the Eurodollar Interest Period to be initially applicable to such
Advance. The Agent, on the same day such Request is received, shall provide
notice of such Request to each Bank.
(c) Not later than 1:00 p.m. Indianapolis time, on the date of
the Advance, each Bank shall make available the amount of its pro rata share of
each Advance to be made on such date, in immediately available funds to the
Agent at its office specified herein.
(d) The Agent will thereupon advance to Borrower the amount so
requested unless the Banks shall determine that any condition precedent
applicable to the Advance set forth in Section 4.01 or 4.02 shall not be
fulfilled as of the date of such Advance and the Agent has so notified Borrower.
All Advances will be made to Borrower by a credit to Borrower's account with the
Agent.
(e) All notices (including Requests for Advances), made by
Borrower to the Agent and received by the Agent after 11:30 a.m., Indianapolis
time, (or such other time as is specified in any section hereof) on a Banking
Day shall be deemed received on the next succeeding Banking Day.
(f) Each Prime Rate Advance shall be in an aggregate amount of
One Million and 00/100 Dollars ($1,000,000) and each Eurodollar Rate Advance
shall be in an aggregate amount of Five Million and 00/100 Dollars ($5,000,000)
and, with respect to both types of Advances, Advances in excess of such amounts
shall be in integral multiples of One Million and 00/100 Dollars
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($1,000,000); provided, however, that in the event that the amount available to
be borrowed is less than One Million and 00/100 Dollars ($1,000,000) in the case
of Prime Rate Advances or Five Million and 00/100 Dollars ($5,000,000) in the
case of Eurodollar Rate Advances, then the Advance shall be permitted in such
lesser amount.
(g) The failure of any Bank to make its pro rata portion of
any Advance available to the Agent shall not relieve any other Bank of its
obligations to make available its pro rata portion of such Advance on the date
such Advance is requested to be made, but no Bank shall be responsible for
failure of any other Bank to make such pro rata portion available to the Agent
on the date of any such Advance.
2.03 Evidence of Credit Extensions.
(a) The Revolving Credit Loans shall be evidenced by a Note
executed by Borrower payable to the order of each Bank in the amount of each
Bank's respective Commitment as set forth on the signature pages hereof dated
the Closing Date, and providing for the payment of principal and interest in
accordance with this Agreement. Each Bank shall record Advances, principal
payments thereof and whether the Advance is a Prime Rate Advance or a Eurodollar
Rate Advance on such Bank's records, and such Bank's record thereof shall
constitute prima facie evidence of the information so recorded. Any statement of
a Bank to Borrower setting forth Borrower's account with such Bank regarding its
share of Advances and payments shall be considered true and correct and binding
on Borrower unless such Bank is notified in writing by Borrower of any
discrepancy or exception within fifteen (15) days from the mailing by such Bank
to Borrower of any such monthly statement. Notwithstanding the foregoing, the
failure to make, or an error in making, a notation with respect to any Advance
shall not limit or otherwise affect the obligation of Borrower hereunder or
under the Notes.
2.04 Interest.
(a) Notwithstanding anything herein to the contrary, the
outstanding principal amount of the Revolving Credit Loans, other than during
the continuance of an Event of Default, shall bear interest at the following
rates per annum:
(i) During such periods that any Advance is a Prime Rate
Advance, the Prime Rate plus the Margin.
(ii) During such periods that any Advance is a
Eurodollar Rate Advance, the Eurodollar Rate applicable to such Advance
for each related Eurodollar Interest Period.
(b) Borrower shall pay interest on the principal amount of the
Revolving Credit Loans on each Interest Payment Date and at maturity (whether at
stated maturity, by acceleration or otherwise).
(c) Notwithstanding the foregoing paragraph (a), Borrower
shall pay interest on demand by the Agent at the Overdue Rate on the outstanding
principal amount of any Advance and any other amount payable by the Borrower
hereunder (other than interest) at any time on or after an Event of Default, if
required in writing by the Required Banks.
2.05 Periodic Mandatory Reductions of Borrowing Base.
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The Borrowing Base shall automatically be reduced as follows:
(a) In the event of any Disposition of any Aviation Property,
the Borrowing Base shall be reduced by an amount equal to one hundred percent
(100%) of the appraised value, as of the most recent Adjustment Date, of such
disposed Aviation Property, and the Borrower shall prepay the Revolving Credit
Loans, or cash collateralize the Letter of Credit Advances if all of the
Revolving Credit Loans are or will be paid in full, by an amount equal to the
proceeds of such Disposition.
(b) Upon any loss or damage to any Aviation Property which
cannot or is not repaired in accordance with the terms of Section 2.09(e), the
Borrowing Base shall be reduced by an amount equal to such loss or damage, but
not in excess of the amount required under Section 2.05(a) upon Disposition of
such Aviation Property, and the Borrower shall prepay the Revolving Credit
Loans, or cash collateralize the Letter of Credit Advances if all of the
Revolving Credit Loans are or will be paid in full, by an amount equal to the
greater of the insurance proceeds of such loss or damage or the value of such
Aviation Property.
2.06 Fees.
(a) Borrower shall pay to the Agent and First Chicago Capital
Markets, Inc. (the "Arranger") for the benefit of the Agent and the Arranger
fees in amounts and at such times and for such periods as agreed to between the
Agent, the Arranger and Borrower.
(b) The Borrower shall pay to the Agent for the benefit of
each Bank, a non-use fee equal to the Margin of the difference between each
Bank's daily average Commitment during each fiscal quarter of the Borrower and
such Bank's share of the daily average outstanding Advances during such fiscal
quarter of the Borrower. Such fee shall be in addition to all other charges and
shall be paid on the fifteenth (15th) Banking Day following the end of each
fiscal quarter of Borrower. For purposes of calculating the non-use fee,
outstanding Letters of Credit shall not be deemed to be included in any Bank's
share of outstanding Advances.
(c) On or before the date of issuance of any Letter of Credit,
Borrower agrees (i) to pay to the Agent for the benefit of the Banks a fee
computed at the Margin of the maximum amount available to be drawn from time to
time under such Letter of Credit for the period from and including the date of
issuance of such Letter of Credit to and including the stated expiry date of
such Letter of Credit and (ii) to pay the Agent for its own account a fee
computed at the rate of one-eighth percent (1/8%) per annum of the maximum
amount available to be drawn from time to time under such Letter of Credit for
the period from and including the date of issuance of such Letter of Credit to
and including the stated expiry date of such Letter of Credit; provided,
however, that with respect to any Letter of Credit the face value of which
exceeds $250,000, such fee shall be payable initially, on or before the date of
issuance of such Letter of Credit for the period commencing with such date of
issuance through and including the last Banking Day of the first calendar
quarter occurring after the issuance thereof and thereafter, such fee shall be
payable on the last Banking day of each March, June, September and December
during the term of such Letter of Credit. Such fees are nonrefundable and
Borrower shall not be entitled to any rebate of any portion thereof if such
Letter of Credit does not remain outstanding through its stated expiry date or
for any other reason. The Borrower further agrees to pay to the Agent for its
own account, on demand, such other customary administrative fees, charges and
expenses of the Agent in respect of the issuance, negotiation, acceptance,
amendment, transfer and payment of such Letter of Credit or otherwise payable
pursuant to the application and related documentation under which such Letter of
Credit is issued.
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2.07 Computations of Interest and Fees.
All computations of interest and fees under this Agreement
shall be made on the basis of a year of three hundred sixty (360) days and
calculated for the actual days elapsed. Interest shall accrue on any principal
balance outstanding from and including the date of an Advance to but excluding
the date on which such principal balance is repaid.
2.08 Method of Payment.
(a) Each payment of principal, interest and other sums due
under this Agreement shall be made to the Banks without set-off or counterclaim
in immediately available funds on a Banking Day not later than 11:30 a.m.,
Indianapolis time. All sum received after such time shall be deemed received on
the next Banking Day. Any payment due on a day that is not a Banking Day shall
be made on the next Banking Day.
(b) Borrower agrees that the Agent may debit any account of
Borrower maintained at the Agent for payments due under this Agreement and the
Agent may credit the any such account with the amount of any Advance.
2.09 Principal Payments and Prepayments.
(a) Unless earlier payment is required under this Agreement
the Borrower shall pay to the Banks on the Termination Date the entire
outstanding amount of the Revolving Credit Loans.
(b) Borrower may prepay all or any portion of the Revolving
Credit Loans provided that Borrower provides the Banks with one Banking Day
prior notice thereof and, further provided, that (i) Borrower may not prepay any
portion of any Revolving Credit Loan as to which an election for a continuation
of or a conversion to a Eurodollar Rate Advance is pending pursuant to Section
2.13, and (ii) unless earlier payment is required under this Agreement, any
Eurodollar Rate Advance may only be prepaid on the last day of the then current
Eurodollar Interest Period with respect to such Eurodollar Rate Advance.
(c) Any prepayment shall be in the amount of One Million and
00/100 Dollars ($1,000,000), any integral multiples thereof or the outstanding
balance if less than One Million and 00/100 Dollars.
(d) Borrower shall immediately prepay, without notice or
demand, any portion of the outstanding principal balance of the Revolving Credit
Loans, or cash collateralize Letter of Credit Advances if all of the Revolving
Credit Loans are or will be paid in full, by an amount which equals the amount
by which: (i) the sum of the aggregate outstanding principal balance of the
Revolving Credit Loans and the Letter of Credit Advances exceeds (ii) the lesser
of (A) the aggregate amount of the Commitments or (B) the Borrowing Base.
(e) If no Event of Default or Default has occurred and is
continuing and if the loss or damage to any Aviation Property is not total or
constructively total and can be repaired within two months from the date of loss
or damage with the proceeds of any casualty insurance policy applicable to such
Aviation Property, then any insurance proceeds recovered by the Borrower on
account of any loss or
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damage to any Aviation Property may be applied by the Borrower solely to the
payment of the cost of any repairs to the Aviation Property, as further
described in the Security Agreement. If the foregoing conditions to repair any
loss or damage to any Aviation Property cannot be satisfied or if any Event of
Default or Default has occurred and is continuing, then upon the payment by any
insurer of any casualty insurance policy applicable to the Aviation Property of
proceeds under any such policy with respect to any Aviation Property, Borrower
shall immediately prepay the Revolving Credit Loans by the amount of any such
proceeds up to an amount equal to one hundred percent (100%) of the appraised
value, as of the most recent Adjustment Date, of the Aviation Property to which
the proceeds relate, for any such proceeds paid with respect to each L-1011
Aircraft and other Aviation Property, and if such proceeds exceed the Revolving
Credit Loans, the Borrower shall provide cash collateral for any outstanding
Letter of Credit in the amount of such excess.
2.10 Reborrowing of Prepaid Principal.
(a) Subject to the terms and conditions hereof, Borrower may
reborrow any portion of the prepaid principal as an Advance provided the sum of
all amounts so reborrowed plus the outstanding principal balance of the
Revolving Credit Loans and of the Letter of Credit Advances does not exceed the
lesser of the Commitments or the Borrowing Base.
2.11 Letters of Credit.
(a) Borrower may, from time to time hereafter request the
Agent to issue Letter(s) of Credit in an aggregate principal amount not to
exceed Twenty Five Million and 00/100 Dollars ($25,000,000.00). The Borrower
shall give the Agent notice of its request for a Letter of Credit Advance in
writing not later than 11:30 a.m. Indianapolis time three (3) Banking Days prior
to the date any Letter of Credit Advance is requested to be made and provide
such information as may be necessary for the issuance thereof by the Agent. The
Agent, not later than the Banking Day next succeeding the day such notice is
given, shall provide notice to each Bank of such requested Letter of Credit
Advance and the amount of risk participation therein by such Bank. Subject to
the terms and conditions of this Agreement, the Agent shall, on the date any
Letter of Credit Advance is requested to be made, issue the related Letter of
Credit on behalf of the Banks for the account of the Borrower. Notwithstanding
anything herein to the contrary, the Agent may decline to issue any requested
Letter of Credit on the basis that the beneficiary, the purpose of issuance or
the terms of the conditions of drawing are unacceptable to it in its reasonable
discretion. Upon such issuance by the Agent, each Bank shall automatically
acquire a pro rata risk participation interest in such Letter of Credit Advance
based on its respective Commitment. If the Agent shall honor a draft or other
demand for payment presented or made under any Letter of Credit, the Agent shall
provide notice thereof to each Bank on the date such draft or demand is honored
unless Borrower shall have satisfied its reimbursement obligation under Section
2.12 by payment to the Agent on such date. Each Bank, on such date, shall make
its pro rata share of the amount paid by the Agent available in immediately
available funds at the principal office of the Agent for the account of the
Agent. If and to the extent such Bank shall not have made such pro rata portion
available to the Agent, such Bank and Borrower severally agree to pay to the
Agent forthwith on demand such amount together with interest thereon, for each
day from the date such amount was paid by the Agent until such amount is so made
available to the Agent at a per annum rate equal to the interest rate applicable
during such period to the related Advance disbursed under Section 2.12 in
respect of the reimbursement obligation of Borrower. If such Bank shall pay such
amount to the Agent together with such interest, such amount so paid shall
constitute a Prime Rate Advance by such Bank in respect of the reimbursement
obligation of the Borrower under Section 2.12 for purposes of this Agreement.
The failure of any Bank to make its pro rata portion of any such amount paid by
the Agent available to the
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Agent shall not relieve any other Bank of its obligation to make available its
pro rata portion of such amount, but no Bank shall be responsible for failure of
any other Bank to make such pro rata portion available to the Agent.
2.12 Letter of Credit Reimbursement Payments.
(a) Borrower agrees to pay to the Agent, on the day on which
the Agent shall honor a draft or other demand for payment presented or made
under any Letter of Credit, an amount equal to the amount paid by the Agent in
respect of such draft or other demand under such Letter of Credit and all
expenses paid or incurred by the Agent relative thereto. Unless Borrower shall
have made such payment to the Agent on such day, upon each such payment by the
Agent, the Agent shall be deemed to have disbursed to Borrower, and Borrower
shall be deemed to have elected to satisfy its reimbursement obligation by a
Prime Rate Advance for the account of the Agent in an amount equal to the amount
so paid by the Agent in respect of such draft or other demand under such Letter
of Credit. Such Advance shall be disbursed notwithstanding any failure to
satisfy any conditions for disbursement of any Advance set forth in Article IV
hereof and, to the extent of the Advance so disbursed, the reimbursement
obligation of Borrower under this Section 2.12 shall be deemed satisfied.
(b) The reimbursement obligation of Borrower under this
Section 2.12 shall be absolute, unconditional and irrevocable and shall remain
in full force and effect until all obligations of Borrower to the Banks and the
Agent hereunder shall have been satisfied, and such obligations of Borrower
shall not be affected, modified or impaired upon the happening of any event,
including without limitation, any of the following, whether or not with notice
to, or the consent of, Borrower:
(i) Any lack of validity or enforceability of any Letter
of Credit or any documentation relating to any Letter of Credit or
to any transaction related in any way to such Letter of Credit (the
"Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or
any substitution, exchange or release of or failure to perfect any
interest in collateral or security, with respect to any of the
Letter of Credit Documents:
(iii) The existence of any claim, setoff, defense or
other right which Borrower may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any
persons or entities for whom any such beneficiary or any such
transferee may be acting), the Agent or any Bank or any other person
or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any
unrelated transactions;
(iv) Any draft or other statement or document presented
under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect by reason of any statement therein
being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under any
Letter of Credit against presentation of any documents which do not
comply with the terms of the Letter of Credit, including failure of
any documents to bear any reference or adequate reference to such
Letter of Credit;
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(vi) Any failure, omission, delay or lack on the part of
the Agent or any party to any of the Letter of Credit Documents to
enforce, assert or exercise any right, power or remedy conferred
upon the Agent, any Bank or any such party under this Agreement or
any of the Letter of Credit Documents, or any other acts or
omissions on the part of the Agent or any such party;
(vii) Any other event or circumstance that would, in the
absence of this clause, result in the release or discharge by
operation of law or otherwise of Borrower from the performance or
observance of any obligation, covenant or agreement contained in
this Section 2.12.
(c) No setoff, counterclaim, reduction or diminution of any
obligation or any defense of any kind or nature which Borrower has or may have
against the beneficiary of any Letter of Credit shall be available hereunder to
Borrower against the Agent or any Bank.
2.13 Subsequent Elections as to Advances. The Borrower may elect (a)
to continue a Eurodollar Rate Advance as a Eurodollar Rate Advance or (b) may
elect to convert a Eurodollar Rate Advance, or a portion thereof, to a Prime
Rate Advance or (c) elect to convert a Prime Rate Advance, or a portion thereof,
to a Eurodollar Rate Advance, in each case by giving notice thereof to the Agent
not later than 11:30 a.m. Indianapolis time three Eurodollar Business Days prior
to the date any such continuation of or conversion to a Eurodollar Rate Advance
is to be effective and not later than 11:30 a.m. Indianapolis time on the day
prior to the day such continuation of or conversion to a Prime Rate Advance is
to be effective, provided that an outstanding Eurodollar Rate Advance may only
be converted on the last day of the then current Eurodollar Interest Period with
respect to such Advance, and provided, further, if a continuation of an Advance
as, or a conversion of an Advance to, a Eurodollar Rate Advance is requested,
such notice shall also specify the Eurodollar Interest Period to be applicable
thereto upon such continuation or conversion. The Agent, on the same day such
notice is given, shall provide notice of such election to the Banks. If the
Borrower shall not timely deliver such a notice with respect to any outstanding
Eurodollar Rate Advance, the Borrower shall be deemed to have elected to convert
such Eurodollar Rate Advance to a Prime Rate Advance on the last day of the then
current Eurodollar Interest Period with respect to such Advance.
2.14 Limitations of Requests and Elections. (a) Notwithstanding any
other provision of this Agreement to the contrary, if, upon receiving a request
for a Eurodollar Rate Advance pursuant to Section 2.02 or a request for a
continuation of a Eurodollar Rate Advance as a Eurodollar Rate Advance, or a
request for a conversion of a Prime Rate Advance to a Eurodollar Rate Advance
pursuant to Section 2.13, (i) deposits in Dollars for periods comparable to the
Eurodollar Interest Period elected by the Borrower are not available to any Bank
in the relevant interbank or secondary market, or (ii) will not adequately and
fairly reflect the cost to any Bank of making, funding or maintaining the
Eurodollar Rate Advance or (iii) by reason of national or international
financial, political or economic conditions or by reason of any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect, or the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by any Bank with any guideline, request or directive of such
authority (whether or not having the force of law), including without limitation
exchange controls, it is impracticable, unlawful or impossible for any Bank (A)
to make or fund the relevant Eurodollar Rate Loan or (B) to continue such
Eurodollar Rate Advance as a Eurodollar Rate Advance, or (C) to convert an
Advance to such a Eurodollar Rate Advance, then the Borrower shall not be
entitled, so long as such circumstances continue, to request a Eurodollar Rate
Advance to Section 2.02 or a continuation of or conversion to a Eurodollar Rate
Advance pursuant to Section 2.13. In the
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event that such circumstances no longer exist, the Banks shall again consider
requests for Eurodollar Rate Advances pursuant to Section 2.02, and requests for
continuations of and conversions to Eurodollar Rate Advances pursuant to Section
2.13.
(b) Not more than seven Eurodollar Rate Advances may be
outstanding at any one time.
2.15 Additional Costs. (a) In the event that any applicable law,
treaty or other international agreements, rule or regulation (whether domestic
or foreign) now or hereafter in effect and whether or not presently applicable
to any Bank or the Agent, or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof, or compliance by any Bank or the Agent with any guideline, request or
directive of any such authority (whether or not having the force of law), shall
(i) affect the basis of taxation of payments to any Bank or the Agent of any
amounts payable by the Borrower under this Agreement (other than taxes imposed
on the overall net income of the Bank or the Agent, by the jurisdiction, or by
any political subdivision or taxing authority of any such jurisdiction, in which
any Bank or the Agent, as the case may be, has its principal office), or (ii)
shall impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any Bank or the Agent, or (iii) shall impose any other condition
with respect to this Agreement, or any of the Commitments, the Notes or the
Advances, and the result of any of the foregoing is to increase the cost to any
Bank or the Agent, as the case may be, of making, funding or maintaining any
Eurodollar Rate Advance or to reduce the amount of any sum receivable by any
Bank or the Agent, as the case may be, thereon, then the Borrower shall pay to
such Bank or the Agent, as the case may be, from time to time, upon request by
such Bank (with a copy of such request to be provided to the Agent) or the
Agent, additional amounts sufficient to compensate such Bank or the Agent, as
the case may be, for such increased cost or reduced sum receivable to the
extent, in the case of any Eurodollar Rate Advance, such Bank or the Agent is
not compensated therefor in the computation of the interest rate applicable to
such Eurodollar Rate Advance. A statement as to the amount of such increased
cost or reduced sum receivable, prepared in good faith and in reasonable detail
by such Bank or the Agent, as the case may be, and submitted by such Bank or the
Agent, as the case may be, to the Borrower, shall be conclusive and binding for
all purposes absent manifest error in computation.
(b) In the event that any applicable law, treaty or other
international agreement, rule or regulation (whether domestic or foreign) now or
hereafter in effect and whether or not presently applicable to any Bank or the
Agent, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by any Bank or the Agent with any guideline, request or directive of
any such authority (whether or not having the force of law), including any
risk-based capital guidelines, affects or would affect the amount of capital
required or expected to be maintained by such Bank or the Agent (or any
corporation controlling such Bank or the Agent) and such Bank or the Agent, as
the case may be, determines that the amount of such capital is increased by or
based upon the existence of such Bank's or Agent's Loans or obligations
hereunder and such increase has the effect of reducing the rate of return on
such Bank's or Agent's (or such controlling corporation's) capital as a
consequence of such obligations hereunder to a level below that which such Bank
or Agent (or such controlling corporation) could have achieved but for such
circumstances (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Bank or Agent to be material, then the
Borrower shall pay to such Bank or Agent, as the case may be, from time to time,
upon request by such Bank (with a copy of such request to be provided to Agent)
or Agent, additional amounts sufficient to compensate such Bank or Agent (or
such controlling corporation) for any increase in the amount of capital and
reduced rate of return which such Bank or Agent reasonably determines to be
allocable to the existence of such Bank's or Agent's obligations
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hereunder. A statement as to the amount of such compensation, prepared in good
faith and in reasonable detail by such Bank or Agent, as the case may be, and
submitted by such Bank or Agent to the Borrower, shall be conclusive and binding
for all purposes absent manifest error in computation.
2.16 Illegality and Impossibility. In the event that any applicable
law, treaty or other international agreement, rule or regulation (whether
domestic or foreign) now or hereafter in effect and whether or not presently
applicable to any Bank, or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof, or compliance by any Bank with any guideline, request or directive of
such authority (whether or not having the force of law), including without
limitation exchange controls, shall make it unlawful or impossible for any Bank
to maintain any Eurodollar Rate Advance under this Agreement, the Borrower shall
upon receipt of notice thereof from such Bank, repay in full the then
outstanding principal amount of each Eurodollar Rate Advance so affected,
together with all accrued interest thereon to the date of payment and all
amounts owing to such Bank under Section 2.17, (a) on the last day of the then
current Eurodollar Interest Period applicable to such Eurodollar Rate Advance if
such Bank may lawfully continue to maintain such Eurodollar Rate Advance to such
day, or (b) immediately if such Bank may not continue to maintain such
Eurodollar Rate Advance to such day.
2.17 Indemnification. If the Borrower makes any payment of principal
with respect to any Eurodollar Rate Advance on any other date than the last day
of an Eurodollar Interest Period applicable thereto (whether pursuant to
Sections 2.05(b), Section 2.16, Article VIII or otherwise), or if the Borrower
fails to borrow any Eurodollar Rate Advance after notice has been given to the
Banks in accordance with Section 2.02, or if the Borrower fails to make any
payment of principal or interest in respect of a Eurodollar Rate Advance when
due, the Borrower shall reimburse each Bank on demand for any resulting loss or
expense incurred by each such Bank, including without limitation any loss
incurred in obtaining, liquidating or employing deposits from third parties,
whether or not such Bank shall have funded or committed to fund such Eurodollar
Rate Advance. A statement as to the amount of such loss or expense, prepared in
good faith and in reasonable detail by such Bank and submitted by such Bank to
the Borrower, shall be conclusive and binding for all purposes absent manifest
error in computation. Calculation of all amounts payable to such Bank under this
Section 2.17 shall be made as though such Bank shall have actually funded or
committed to fund the relevant Eurodollar Rate Advance through the purchase of
an underlying deposit in an amount equal to the amount of such Eurodollar Rate
Advance in the relevant market and having a maturity comparable to the related
Eurodollar Interest Period and, through the transfer of such deposit to a
domestic office of such Bank in the United States; provided, however, that such
Bank may fund any Eurodollar Rate Advance in any manner it sees fit and the
foregoing assumption shall be utilized only for the purpose of calculation of
amounts payable under this Section 2.17.
2.18 Extension of Termination Date. The Termination Date and the
obligation, pursuant to Section 2.09(a) to make mandatory repayment of the
outstanding principal amount of the Loans on the Termination Date shall be
subject to an annual extension, as set forth in this Section 2.18.
(a) Request for Extension of Termination Date. Notwithstanding
anything contained in this Agreement to the contrary, not later than December 1,
2000 and each December 1 thereafter, the Borrower may, by delivery of a duly
completed Extension Request to the Agent in the form of Exhibit B hereto,
irrevocably request that each Bank extend, for a single one year period, the
Termination Date relating to such Bank's Commitment.
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(b) Consent to Extension of Termination Date. (i) The Agent
shall, promptly, but not later than 5 days after receipt of any such Extension
Request, pursuant to subsection (a) above, notify each Bank by providing them a
copy of the Extension Request.
(ii) Each Bank shall, within 30 days of receipt of the
Extension Request, notify the Agent whether it consents to the request of
the Borrower set forth in such Extension Request, such consent to be in
the sole discretion of such Bank. Each Bank hereby acknowledges and agrees
that its consent to the Borrower' request to extend the Termination Date
shall also be deemed to be a consent by such Bank to an extension of its
obligations to participate, pursuant to Section 2.01, in the Letter of
Credit Advances. If any Bank does not so notify the Agent of its decision
within such 30 day period, such Bank shall be deemed not to have consented
to such requests of the Borrower.
(iii) The Agent shall promptly notify the Borrower
whether the Banks have consented to such request. If the Agent does not so
notify the Borrower by April 1, 1998, and each April 1 thereafter, the
Agent shall be deemed to have notified the Borrower that the Banks have
not consented to the Borrower' request.
(iv) Each Bank that elects not to extend the Termination
Date or fails to so notify the Agent of such consent (a "Non-Consenting
Bank") hereby agrees that if any other Bank or financial institution
acceptable to the Borrower and the Agent offers to purchase such
Non-Consenting Bank's Commitment for a purchase price equal to the sum of
all amounts then owing with respect to the Loans and all other amounts
accrued for the account of such Non-Consenting Bank, such Non-Consenting
Bank will promptly assign, sell and transfer all of its right, title,
interest and obligations with respect to the foregoing to such other Bank
or financial institution pursuant to and on the terms specified in the
form of Assignment and Acceptance attached hereto as Exhibit C.
(v) The pro rata share of the remaining Banks which have
consented to an extension of their Commitment hereunder shall be adjusted
accordingly by the Agent, based on such Banks' pro rata share of the
remaining Commitments as it may be adjusted pursuant to clause 2.18
(b)(iv) above or otherwise.
(vi) In the event that the Advances of any
Non-Consenting Bank are not purchased pursuant to clause (iv) above, then
all of the Banks shall be deemed not to have consented to the Borrower
request and on the Termination Date the outstanding Advances shall be due
and payable.
2.19 Substitution of Bank. If (a) the obligation of any Bank to make
Eurodollar Rate Advances has been suspended pursuant to Section 2.16 when all
Banks have not suspended such obligation or (b) any Bank has demanded
compensation under Section 2.15 when all Banks have not demanded such
compensation, the Borrowers shall have the right to seek a satisfactory
substitute bank (which may be one or more of the other Banks) to purchase the
Note(s) and assume the Commitment(s), if any, of such Bank, with the consent of
the Agent, provided that all amounts owing to such Bank have been paid in full
and such substitution shall be made pursuant to an Assignment and Acceptance in
the form attached hereto as Exhibit C.
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ARTICLE III.
SECURITY INTEREST
3.01 Security for Borrowing. (a) As security for the Obligations,
Borrower shall execute and deliver to the Banks and the Agent the Security
Agreement and Chattel Mortgage dated the Closing Date and in form and substance
acceptable to the Agent, as amended or modified from time to time and together
with any other security agreement or other agreement executed in replacement
therefor, granting a first priority, enforceable and perfected lien and security
interest in the Aviation Property and all other assets described in such
Security Agreement and Chattel Mortgage. The Borrower may also execute and
deliver to the Banks and Agent such other Security Agreements and other
agreements and documents, each in form and substance acceptable to the Agent,
granting liens and security interests on other assets of the Borrower at any
time.
(b) In addition, the Borrower agrees to execute and deliver
such amendments, modifications and/or additional Security Agreements and other
documents and agreements as the Agent may request in order to reaffirm and/or
perfect the security interests intended to be granted by Borrower pursuant to
such Security Agreements and other documents and agreements, or otherwise to
grant a lien and security interest in additional collateral granted pursuant to
this Agreement.
3.02 Release upon Prepayment. Upon prepayment of the Revolving
Credit Loans in accordance with Section 2.05 from any sale or other transfer of
any Aviation Property, the security interest in such Aviation Property shall be
released and the Borrowing Base shall be reduced, in addition to other required
reductions hereunder, by the amount of such proceeds.
3.03 Guaranty of Amtran and Affiliates. Amtran and all of its
Subsidiaries will unconditionally guarantee all of the Obligations, and execute
the Guaranty. Any future Subsidiaries of Amtran or the Borrower shall also
unconditionally guarantee all the Obligations, and Amtran and the Borrower shall
cause any such Subsidiary formed or acquired after the date of this Agreement to
execute a Guaranty and deliver such other documents and opinions requested by
the Agent in connection therewith.
3.04 Cash Collateral. The Borrower may (and shall if required under
Article VIII and also shall on the Termination Date) provide the Agent with cash
collateral (the "Cash Collateral") in a deposit or an investment in United
States government securities with the Agent which is acceptable to the Agent and
which is in the name of the Borrower but under the sole and exclusive dominion
and control of the Agent and with respect to which the Borrower has no authority
to withdraw from, to draw upon, or otherwise exercise any authority of any kind,
to cover the contingent reimbursement and other obligations of the Borrower
pursuant to any Letter of Credit. The Borrower hereby grants a security interest
in the Cash Collateral to the Agent, for the benefit of itself and the Banks, to
secure the same obligations as secured by the Security Agreement. If there is
any draw, or other liability of the Agent or any Bank under any Letter of
Credit, the Agent shall apply the Cash Collateral in reimbursement of any such
draw or other liability. The Borrower agrees to execute all agreements,
documents and instruments requested by the Agent to further evidence the
security interest granted in the Cash Collateral pursuant to this Section 3.04.
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ARTICLE IV.
CONDITIONS PRECEDENT
4.01 Conditions Precedent to Closing. In addition to the
requirements set forth in Section 4.02, the obligation of the Banks to make the
initial Revolving Credit Loans and of the Agent to issue the first Letter of
Credit is subject to the condition precedent that the following shall have been
delivered to the Agent in form and substance satisfactory to the Agent and its
counsel:
(a) Borrower's Incorporation Papers. A copy of the certificate
of incorporation and by-laws, including all amendments thereto, of Borrower,
certified by the Secretary or an Assistant Secretary as being in full force and
effect on the Closing Date.
(b) Borrower's Corporate Resolutions. Copies of resolutions
passed by the Board of Directors of Borrower, certified by the Secretary or an
Assistant Secretary of Borrower as being in full force and effect on the Closing
Date, authorizing the borrowings provided for herein and the execution, delivery
and performance of this Agreement, the Notes, and any other Loan Document,
instrument or agreement required of Borrower hereunder.
(c) Incumbency Certificates. Certificates, signed by the
Secretary or an Assistant Secretary of Borrower, dated the Closing Date, as to
the incumbency, and containing the specimen signatures, of the Persons
authorized to execute and deliver this Agreement, the Notes, and any other
instrument or agreement required hereunder.
(d) Loan Documents. This Agreement, the Security Agreement and
the Notes, payable to the order of the Banks in the aggregate amount of the
Commitments each dated the Closing Date, the Security Agreement and the
Guaranty, each executed in connection with the Prior Credit Agreement, and any
modifications to Security Agreement and the Financing Statements and duly
executed by Borrower as required by the Agent.
(e) Certificates of Good Standing/Existence. Existence and/or
good standing certificates for Borrower in the state of its incorporation, duly
certified by the Secretary of State or other appropriate official of each state
as of a maximum of five (5) days before the Closing Date.
(f) Other Documents. Such other documents or evidence as the
Agent may reasonably request to consummate the transactions contemplated hereby
and by the other Loan Documents, the taking of all necessary actions in any
proceedings in connection herewith or therewith and compliance with the
conditions set forth in this Agreement or any other Loan Document.
(g) Opinion of Counsel. An opinion of counsel for Borrower
(which may be in-house counsel), in form and substance satisfactory to the
Agent.
(h) Opinion of Special Counsel. An opinion of special counsel
on the enforceability, perfection and priority of the security interests of the
Banks in the Aviation Property and a review by such special counsel of the Loan
Documents.
(i) Guarantors' Incorporation Papers. A copy of the
certificate of incorporation and by-laws, including all amendments thereto, of
each Guarantor (or certifying as to the certificate of incorporation and by-laws
previously delivered, certified by a Secretary or an Assistant Secretary as
being in full force and effect on the Closing Date.
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(j) Guarantors' Corporate Resolutions. Copies of resolutions
passed by the Board of Directors of each Guarantor, certified by a Secretary or
an Assistant Secretary of each Guarantor as being in full force and effect on
the Closing Date, authorizing the execution, delivery and performance of the
Guaranty and any other Loan Document, instrument or agreement required of any
Guarantor hereunder.
(k) Incumbency Certificates. Certificates, signed by a
Secretary or an Assistant Secretary of each Guarantor, dated the Closing Date,
as to the incumbency, and containing the specimen signatures, of the Persons
authorized to execute and deliver the Guaranty and any other instrument or
agreement required hereunder.
(l) Certificates of Good Standing/Existence. Existence and/or
good standing certificates for each Guarantor in the state of its incorporation,
duly certified by the Secretary of State or other appropriate official of each
such state.
(m) Senior Unsecured Notes. Evidence satisfactory to the Agent
that the Borrower has received proceeds from the issuance of the Senior
Unsecured Notes in an amount equal to or greater than $____________, in
accordance with the Senior Unsecured Debt Documents, all Senior Unsecured Debt
Documents shall have been delivered to the Agent and shall be in form and
substance satisfactory to the Agent and all transactions contemplated pursuant
to the Senior Unsecured Debt Documents shall have been completed.
(n) Payment of Indebtedness. The Agent shall have received
such payoff letters and assignments from lenders that were parties to the Prior
Credit Agreement but which are not parties to this Agreement, and evidence
satisfactory to the Agent that all indebtedness, obligations and liabilities
owing pursuant to the Prior Credit Agreement or described on Schedule 4.01(n)
are being paid in full on the Closing Date.
(m) Other Documents. Such other documents and agreements as
the Agent shall reasonably request.
4.02 Conditions Precedent to Each Borrowing. The obligation of the
Banks to make any Advance hereunder and the obligation of the Agent to issue any
Letter of Credit hereunder are subject to the following conditions precedent:
(a) The representations and warranties contained in Article V
hereof and in the Security Agreement and the Guaranty shall be true and correct
on and as of the date of such Advance or Letter of Credit Advance, as the case
may be, is made (both before and after such Advance or Letter of Credit Advance
is made) as if such representations and warranties were made on and as of such
date.
(b) No Default or Event of Default shall exist or shall have
occurred and be continuing on the date such Advance or Letter of Credit Advance
is made (whether before or after such Advance or Letter of Credit Advance is
made).
(c) In the case of any Letter of Credit Advance, Borrower
shall deliver to the Agent an application for the related Letter of Credit and
other related documentation requested by and acceptable to the Agent
appropriately completed and duly executed on behalf of Borrower.
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(d) All fees, expenses and other amounts due and payable to or
for the benefit of the Banks and the Agent under this Agreement or any other
Loan Document shall have been paid.
The Borrower shall be deemed to have made a representation and warranty to the
Agent and the Banks at the time of the making of, and the continuation and
conversion of, each Advance and Letter of Credit Advance to the effects set
forth in clauses (a) and (b) of this Section 4.02, and the Borrower shall
deliver such notices and other certificates, documents and opinions in
connection with any request for an Advance or Letter of Credit Advance as
required by the Agent.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Banks on the date hereof and
shall be deemed to have made such representations and warranties to the Banks on
the date of any Advance or Letter of Credit Advance hereunder that:
5.01 Corporate Existence. Each of Amtran and Borrower is a
corporation duly organized and existing under the laws of the state of its
incorporation, and is duly qualified as a foreign corporation and is properly
licensed and in good standing in each jurisdiction where the failure to qualify
or be licensed would have a material adverse effect on its business, properties
or conditions (financial or otherwise).
5.02 Affiliates' Existence. Schedule 5.02 attached hereto contains a
list of all of Amtran's Affiliates as of the Closing Date, showing, as to each,
its jurisdiction of incorporation and principal place of business. Borrower will
notify the Agent of each Person which becomes an Affiliate after the Closing
Date within 45 days of the date such Person becomes an Affiliate. Each such
Affiliate, other than Borrower, together with Amtran, are all of the Affiliates
of Borrower. All of the outstanding shares of stock of each of the Affiliates
have been validly issued, are fully paid and non-assessable and except for
directors' qualifying shares are owned by Amtran or another Affiliate of Amtran
free and clear of all Liens. Each Affiliate is duly organized and existing under
the laws of the jurisdiction of its incorporation, and is properly licensed and
in good standing in each jurisdiction in which the failure to quality or be
licensed would have a material adverse effect on the business, properties or
financial condition of Amtran or of such Affiliate. Amber Holdings, Inc. does
not own, or have any rights with respect to, any assets.
5.03 Corporate Powers. The execution, delivery and performance of
this Agreement, the Notes and the Security Agreement and any instrument or
agreement required to be delivered by Borrower hereunder are within Borrower's
corporate power have been duly authorized by all requisite corporate action, and
are not in conflict with the terms of any charter, by-law or other organization
papers of Borrower, or any instrument or agreement to which Borrower is a party
or by which Borrower is bound or affected.
5.04 Power of Officers. The officers of Borrower executing this
Agreement, the Notes, the Security Agreement, and any certificate, instrument or
agreement required to be delivered by Borrower hereunder or thereunder have been
duly elected or appointed and were fully authorized to execute the same at the
time such agreement, certificate or instrument was executed.
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5.05 Government and Other Approvals. No approval, consent, exemption
or other action by, or notice to or filing with, any governmental authority is
necessary in connection with the execution, delivery or performance of the Loan
Documents.
5.06 Compliance with Laws: Environmental Matters. There is no law,
rule or regulation, nor is there any judgement, decree or order of any court of
governmental authority binding on Borrower which would be contravened by the
execution, delivery or performance of the Loan Documents. Borrower is in
compliance with all laws and regulations, including all requirements of
applicable federal, state and local aviation, environmental, health and safety
statutes and regulations and is not the subject of any federal, state or local
investigation evaluating whether any remedial action is needed to respond to a
release on any Hazardous Material and to the best of Borrower's knowledge,
neither the Borrower nor any other Person, has ever caused or permitted any
Hazardous Material to be disposed of on or under any property of Borrower and no
such property has been used as a dump or disposal site for any Hazardous
Material.
5.07 Enforceability of Agreement. This Agreement is the legal, valid
and binding agreement of Borrower, and the Notes when executed and delivered
will be, the legal, valid and binding agreements of Borrower, enforceable
against Borrower in accordance with their respective terms, and the Security
Agreement and any other exhibit, instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
enforceable in accordance with its terms.
5.08 Title to and Condition of Property. The Borrower has good and
marketable title to its properties and assets free and clear of Liens except for
Permitted Liens. The execution, delivery and performance of this Agreement, the
Notes or any other instrument or agreement required to be delivered by Borrower
hereunder will not result in the creation of any Lien except as provided for
herein. All of the facilities and properties of Borrower are in good operating
condition and repair except for facilities and properties (i) which are obsolete
or otherwise not required for the conduct of its business, or (ii) which are
being repaired in the ordinary course business.
5.09 Litigation. There are no suits, proceedings, claims or disputes
pending or, to the actual knowledge of Borrower, threatened against or affecting
Amtran or any of its Affiliates or their properties which is material in nature,
including but not limited to litigation claiming damages in excess of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00), the adverse
determination of which individually or in the aggregate might materially
adversely affect the business, properties or condition (financial or otherwise)
of Borrower or impair Borrower's ability to perform its obligations hereunder,
under any other Loan Document or under any instrument or agreement required
hereby, except as otherwise disclosed on Schedule 5.09 attached hereto.
5.10 Events of Default, Etc. No Default or Event of Default has
occurred and is continuing or would result from the execution or performance of
any Loan Document or the incurring of the Obligations by Borrower. Borrower is
not in default under (i) any charter instrument or by-law, or under any loan
agreement, indenture or other agreement or instrument with respect to any
Indebtedness of the Borrower or any Guarantor, including without limitation the
Senior Unsecured Debt Documents, or (ii) any other material agreement or
instrument to which it is a party or by which it or its properties are bound,
and the making of any Revolving Credit Loan or Letter of Credit Advance will not
cause any such default. No "Event of Default" as defined in the Senior Unsecured
Debt Documents or other default under the Senior Unsecured Debt Documents or any
other event or circumstance which, with notice or lapse of time or both, could
become such an "Event of Default" under the Senior Unsecured Debt Documents or
other event which could entitle the holders of the Senior Unsecured Notes to
cause the
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Senior Unsecured Notes to be accelerated or prepaid or defeased has occurred and
is continuing or will result from the making of any Advance or Letter of Credit
Advance or the granting of any lien or security interest by the Borrower or any
of the Guarantors pursuant to any Security Agreement. Without limiting the
foregoing, each Advance and Letter of Credit Advance is made in full compliance
with all of the terms and provisions of the Senior Unsecured Debt Documents,
including without limitation the requirement that the book value of the assets
of Amtran not subject to any Lien (other than liens described in clauses (i)
through (iv), (xiii) and (xvi) of the definition of "Permitted Liens" contained
in the Senior Unsecured Indenture) shall not be less than $125,000,000. All
representations and warranties contained in the Senior Unsecured Debt Documents
are true and correct.
5.11 Investment Company Act of 1940. Borrower is not, and will by
such acts as may be necessary continue not to be, an investment company within
the meaning of the Investment Borrower Act of 1940.
5.12 Regulation U. The proceeds of the Advances and the Letter of
Credit Advances will not be used, directly or indirectly, to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock. After applying the proceeds of each Advance and
Letter of Credit Advance, Margin Stock will not constitute more than twenty-five
percent (25%) of the value of the assets (either of the Borrower alone or of the
Borrower and any of its Affiliates on a consolidated basis) that are subject to
any provisions of this Agreement or the Security Agreement that may cause the
Advances or any Letter of Credit Advance to be deemed secured, directly or
indirectly, by Margin Stock.
5.13 Financial Information.
(a) The consolidated balance sheets of Amtran and its
Affiliates which present the Consolidated financial condition of Amtran and its
Affiliates dated as of December 31, 1996 (complete and accurate copies of which
have been delivered by Borrower to the Agent for the benefit of the Banks) and
all other information and data furnished by Borrower to the Agent for the
benefit of the Banks are materially complete and correct, and such financial
statements have been prepared in accordance with GAAP, consistently applied, and
fairly present the consolidated financial condition and results of operations of
Amtran and its Affiliates as of such dates and the results of operations for the
respective periods then ended. Neither Amtran nor any Affiliate has any
undisclosed contingent obligations, unbooked liabilities for taxes or other
outstanding financial obligations as at December 31, 1996.
(b) Since December 31, 1996, there has not been and Borrower
does not know or have reason to know of any development or threatened
development (other than general economic conditions) of a nature which may cause
any material adverse change in the financial condition or operations of Amtran
and its Affiliates sufficient to impair Borrower's ability to repay the
Revolving Credit Loans and otherwise perform the Obligations in accordance with
the terms of this Agreement.
5.14 ERISA. No fact or circumstance, including but not limited to
any Reportable Event, exists in connection with any Plan of Amtran or any of its
Affiliates which would constitute grounds for the termination of any such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer any such Plan and which would result in the
termination of a Plan and the incurrence of material liability by Amtran or its
Affiliates to the Plan, the PBGC, participants, beneficiaries or a trustee under
ERISA. For the purposes of this representation and
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warranty Amtran or such Affiliate, if not the Plan administrator, shall be
deemed to have knowledge of all facts attributable to the Plan administrator
designated pursuant to ERISA.
5.15 Condition of Aviation Property. None of the Aviation Property
has been lost, stolen, seized, confiscated, damaged or destroyed or has suffered
any other material and unrepaired casualty or harm. All of the Aviation Property
is in good operating condition and repair, ordinary wear and tear excepted, and
has received all maintenance required to have been completed to date by
applicable governmental regulations.
5.16 Certification. Borrower is, and at all times will be a "citizen
of the United States" as defined in Section 40102(a)(15) of 49 U.S.C., an air
carrier as to which the provisions of Section 1110 of the United States
Bankruptcy Code apply, and an air carrier certificated under Sections 41102(a)
and 44705 of 49 U.S.C, and the Borrower has all other certifications required by
applicable law or regulation for the Aviation Property.
5.17 Liens on Aviation Property. There are no Liens on any of the
Aviation Property other than those in favor of the Agent for the benefit of
itself and the Banks securing the Obligations. The Security Agreement grants to
the Agent, for the benefit of itself and the Banks, a first priority,
enforceable and perfected lien and security interest in the Aviation Property
and other collateral described therein, which liens and security interests
secure the Obligations.
5.18 Valid Issuance of Senior Unsecured Notes. Borrower has the
corporate power and authority to issue the Senior Unsecured Notes. The Senior
Unsecured Notes are legally valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms. The
Senior Unsecured Notes, when issued and sold in accordance with the terms of the
Indenture, will either have been registered or qualify under applicable federal
and state securities laws or be exempt therefrom.
ARTICLE VI.
AFFIRMATIVE COVENANTS
The Borrower and Amtran covenants and agrees that so long as
the Commitments shall remain available and until all Obligations have been paid
in full it will:
6.01 Use of Proceeds. Use the proceeds of the Revolving Credit Loans
for Borrower's ongoing working capital and general corporate purposes.
6.02 Notices. Promptly give written notice to the Agent of:
(a) all litigation which is material in nature, including but
not limited to all litigation claiming damages affecting Borrower or any of its
Affiliates where the amount claimed in any one instance or in the aggregate for
all such litigation is Five Hundred Thousand Dollars ($500,000) or more in
excess of insurance coverage or where the insurance carrier has denied or failed
to accept its responsibility as to an amount claimed of Five Hundred Thousand
Dollars ($500,000) or more;
(b) any Reportable Event under Section 4043(b)(5), (6), or (9)
of ERISA with respect to any Plan, any decision to terminate or withdraw from a
Plan, any finding made with respect to a Plan under Section 4401(c) or (3) of
ERISA, the commencement of any proceeding with
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respect to a Plan under section 4042 ERISA, or any material increase in the
actuarial present value of unfunded vested benefits under all plans over the
preceding year;
(c) any strikes, work-stoppages, slow-downs or other labor
disputes or grievances involving Borrower or an Affiliate which could have
material adverse effect on the operations or financial condition of Borrower and
its Affiliates, taken as a whole;
(d) the acquisition of any Affiliate by Borrower together with
financial statements of such Affiliate before giving effect to the acquisition;
(e) any Default or Event of Default, specifying the nature and
the period of existence thereof and what action Borrower has or proposes to take
with respect thereto; and
(f) any other event which, in Borrower's reasonable judgment,
might have a material adverse effect on the business, properties, operations,
prospects of condition (financial or otherwise) of Borrower.
6.03 Financial Statements, Reports, Etc. Deliver to the Agent:
(a) As soon as available but not later than forty-five (45)
days after the close of each fiscal quarter of Amtran the consolidated and
consolidating balance sheets of Amtran and its Affiliates as of the close of
such quarter, and Amtran and its Affiliates' consolidated and consolidating
statements, statements of income and cash flow of such fiscal quarter and that
portion of the fiscal year of Amtran ending with such quarter, all prepared in
accordance with GAAP, consistently applied, certified by the Vice
President-Controller or Chief Financial Officer of Borrower as being complete
and correct and fairly presenting the consolidated and consolidating financial
condition of Amtran and its Affiliates and results of operations as of the end
of such quarter and for that portion of the fiscal year of Amtran ending with
such quarter, accompanied by a statement from the vice president and treasurer
of Borrower stating that as of the end of such quarter no Default or Event of
Default existed or, if such did exist, a statement describing such Default or
Event of Default and the action Borrower is taking or proposes to take with
respect thereto;
(b) as soon as available but not later than one hundred twenty
(120) days after the close of each fiscal year of Amtran, Amtran and its
Affiliates' consolidated and consolidating balance sheets as of the close of
such year, and consolidated and consolidating statements, statements of income
and retained earnings and cash flow for such year, prepared in accordance with
GAAP, consistently applied, together with the notes thereon and the report of
the Independent Public Accountant thereof, audited and reported on by an
Independent Public Accountant. Such Independent Public Accountant's report shall
state that the consolidated statements present fairly the financial position of
Amtran and its Affiliates in accordance with GAAP, and shall be free from
exceptions, reservations or qualifications as a result of which such Independent
Public Accountant is unable to conclude that the financial statements fairly
present or adequately disclose the financial condition of Amtran and its
Affiliates and shall not be limited because of restricted or limited access by
such Independent Public Accountant to any material portion of Amtran's or any of
its Affiliates' records and shall be accompanied by a statement from such
Independent Public Accountant that during the examination no Default or Event of
Default came to their attention. Such report shall also be accompanied by a
certificate from the vice president and treasurer of Borrower stating that as of
the end of such year no Default or Event of Default existed or, if such did
exist, a statement describing such Default or Event of Default and the action
Borrower has taken or proposes to take with respect thereto;
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(c) at the time Borrower furnishes each set of financial
statements required by paragraph (a) above, a certificate of the senior
financial officer of Borrower (i) to the effect that no Default has occurred and
is continuing (or, if any Default has occurred and is continuing describing the
same in reasonable detail), (ii) setting forth the computations necessary to
determine whether Borrower is in compliance with Section 6.09, 6.10 and 6.11
hereof and (iii) setting forth the value of the Aviation Property as set forth
on the most recent Appraisal Report of Aviation Property by Avmark;
(d) promptly upon receipt thereof, any management letters
provided to Borrower by the Independent Public Accountant containing any
reference to any material inadequacy, defect, problem, qualification or other
lack of satisfactory accounting controls utilized by Borrower or any of its
Affiliates;
(e) Promptly after sending or filing thereof, copies of all
reports, proxy statements and financial statements which Amtran and its
Affiliates sends to any securities exchange or to the Securities and Exchange
Commission or any successor agency thereof; and
(f) as soon as available but not later than twenty-five (25)
days after the end of each month, the quarterly cash forecast, as most recently
updated and in form and substance satisfactory to the Agent, of Amtran and its
Affiliates;
(g) as soon as available but not later than forty-five (45)
days after the close of each fiscal quarter of Amtran, a quarterly line of
business report, profit and loss report, including a comparison of plan vs.
actual results for Amtran and its Affiliates in form and substance satisfactory
to the Agent; and
(h) such other statements or reports as the Agent may
reasonably request in form and detail satisfactory to the Agent.
6.04 Existence, Etc. Maintain and preserve, and cause Amtran and its
other Affiliates to maintain and preserve, its existence and all rights
privileges and franchises now enjoyed and necessary for the operation of its
business and keep all its properties in good working order and condition, normal
wear and tear for property of that age excepted, except properties Borrower or
an Affiliate reasonably determine to be surplus, obsolete or otherwise not
necessary or useful in the conduct of its business; provided, that, Affiliates
of Amtran (other than the Borrower) shall not be required to comply with this
Section 6.04 so long as there is no default under Section 7.04 hereof.
6.05 Payment of Obligations. Pay all taxes, assessments,
governmental charges and other obligations when due, except such as may be
contested in good faith or as to which a bona fide dispute may exist, and for
which adequate reserve have been established in an amount determined in
accordance with GAAP.
6.06 Compliance with Laws. At all times comply, and cause Amtran and
its other Affiliates to at all times comply, in all material respects with all
laws, rules, regulations, orders and directions of any governmental authority
having jurisdiction over its business.
6.07 Insurance. Maintain and pay, and cause Amtran and its other
Affiliates to maintain and pay, all premiums with regard to insurance (including
without limitation, liability and
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casualty insurance) with responsible insurance companies against such risks, on
such properties and in at least such amounts as is customarily maintained by
similar businesses in the exercise of reasonable business judgment; at the
request of the Agent deliver to the Agent a list, in reasonable detail, of the
insurance policies then in effect, stating the names of the insurance companies,
the amounts and rates of insurance, the dates of the expiration thereof and the
properties and risks covered thereby.
6.08 Adequate Books. Maintain, and cause Amtran and its other
Affiliates to maintain, adequate books, accounts and records in order to provide
financial statements in accordance with GAAP and maintain a fiscal year on a
calendar year basis, and, if requested by any Bank, permit employees or
representatives of such Bank at any reasonable time and upon reasonable notice
to inspect and audit its properties, to examine or audit such books, accounts
and respective affairs, finances and accounts with Borrower's respective
Independent Public Accountants (and by these provisions Borrower authorizes such
accountants to discuss with any Bank, the finances and affairs of Borrower).
6.09 Tangible Net Worth. Maintain Tangible Net Worth, determined in
accordance with GAAP, of not less than the sum of (a) $50,000,000 plus (b) fifty
percent (50%) of the Net Profits, such fifty percent (50%) of Net Profits to be
added effective as of the end of each fiscal quarter of Amtran in an amount
equal to such fifty percent (50%) of Net Profit for such fiscal quarter,
commencing with the fiscal quarter of Amtran ending March 31, 1997; provided,
however, that if Net Profit is negative for any fiscal quarter, such negative
Net profit may be subtracted only from the amount of such fifty percent (50%) of
net Profit that has been added, if any, pursuant to clause (b) above for a
fiscal quarter occurring in the same fiscal year as such fiscal quarter for
which Net Profit was negative, and shall not be subtracted from any other amount
required to be maintained by this Section 6.09: provided, further, that the
amount of such negative Net Profit subtracted shall be in an amount equal to
fifty percent (50%) of such negative Net Profit.
6.10 Cash Flow Coverage Ratio. Maintain a Cash Flow Coverage Ratio
as of the last day of each fiscal quarter of Amtran, as calculated for the
fiscal quarter then ended plus the three immediately preceding fiscal quarters,
of not less than 1.65 to 1.0 at any time after the date hereof; provided,
however, notwithstanding the actual Adjusted Net Profit for the fiscal quarters
ending September 30, 1996 and December 31, 1996, the Cash Flow Coverage Ratio
for such two quarters shall be calculated as if the Adjusted Net Profit for such
two quarters was $-0-.
6.11 Total Adjusted Liabilities/Tangible Net Worth Ratio. Maintain a
ratio of the Total Adjusted Liabilities to Tangible Net Worth of not more than
(a) 6.0 to 1.0 as of the last day of each fiscal quarter ending on or before
December 31, 1997, (b) 5.25 to 1.0 as of the last day of each fiscal quarter
ending after December 31, 1997 but on or before December 31, 1998 and (c) 4.5 to
1.0 as of the last day of each fiscal quarter thereafter.
6.12 ERISA. Make prompt payment of contributions required to meet
the minimum funding standards set forth in ERISA except (a) to the extent waived
or deferred by the PBGC and (b) unfunded contributions required to be paid by
Affiliates of Borrower acquired after the date hereof, which unfunded
contributions existed at the time of the acquisition of such Affiliates and do
not in the aggregate, together with unfunded contributions of all other
Affiliates of Borrower, exceed $3,000,000 at any time, so long as no criminal or
material civil penalty is incurred in connection therewith.
6.13 Hazardous Materials. (a) Comply with all laws, regulations and
orders with respect to the discharge and removal of any Hazardous Material, (b)
not release or dispose of any Hazardous Material on or under any of the
properties of Borrower or its Affiliates, (c) indemnify and hold the Banks and
their officers, employees and consultants harmless from and against all losses,
costs,
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damages and expenses (including reasonable attorneys' fees and expenses) any
such Person may sustain in connection with the use, disposal or release of any
Hazardous Material by Borrower or any of its Affiliates or in connection with
the existence of any Hazardous Material on or under any of the properties of
Borrower or any of its Affiliates.
6.14 Additional Covenants. If, at any time, Amtran or the Borrower
shall enter into or be a party to any instrument or agreement with respect to
any Indebtedness, including all such instruments or agreements in existence as
of the date hereof and all such instruments or agreements entered into after the
date hereof, relating to or amending any terms or conditions applicable to any
of such Indebtedness which includes covenants, terms, conditions or defaults not
substantially provided for in this Agreement or more favorable to the lender or
lenders thereunder than those provided for in this Agreement, then the Borrower
shall promptly so advise the Agent and the Banks. Thereupon, if the Agent shall
request, the Borrower, Amtran, the Agent and the Banks shall enter into an
amendment to this Agreement or an additional agreement (as the Agent may
request), providing for substantially the same covenants, terms, conditions and
defaults as those provided for in such instrument or agreement to the extent
required and as may be selected by the Agent. In addition to the foregoing, any
covenants, terms, conditions or defaults in the Senior Unsecured Debt Documents
not substantially provided for in this Agreement or more favorable to the
holders of the Indebtedness issued in connection therewith are hereby
incorporated by reference into this Agreement to the same extent as if set forth
fully herein, and no subsequent amendment, waiver, termination or modification
thereof shall effect any such covenants, terms, conditions or defaults as
incorporated herein.
ARTICLE VII.
NEGATIVE COVENANTS
The Borrower and Amtran covenant and agree that, so long as the
Commitments shall remain available and until the full and final payment of all
Obligations, it will not and will not permit any Affiliate to, except with the
prior written consent of the Required Banks:
7.01 Indebtedness. Except for Indebtedness under this Agreement,
create, incur, assume or in any manner become liable in respect of, or suffer to
exist, any Indebtedness which would result in a violation by the Borrower and
its Affiliates of any of Sections 6.09, 6.10, 6.11 and 7.07.
7.02 Liens. (a) Create, assume or suffer to exist any Lien on any of
its or its Affiliates' properties whether now owned or hereafter acquired,
except (i) Permitted Liens, (ii) Liens other than Permitted Liens securing an
amount not exceeding an amount equal to 15% of the Tangible Net Worth in the
aggregate; provided, however, that (A) no Liens shall be permitted on Aviation
Property (other than that in favor of the Agent for the benefit of itself and
the Banks securing the Obligations) and (B) such Liens permitted under this
clause (ii) shall not be permitted if after giving effect to any such Lien the
book value of the assets of Amtran not subject to any Lien (other than liens
described in clauses (i) through (iv), (xiii) and (xvi) of the definition of
"Permitted Liens" contained in the Senior Unsecured Indenture) would be less
than $150,000,000, (iii) Liens on the assets described on Schedule 7.02(a)
attached hereto, but no increase in the amount secured by such Liens shall be
permitted, and (iv) Liens solely in favor of the Agent for the benefit of itself
and the Banks, (b) enter into any agreement with any Person (other than that of
the Banks pursuant to this Agreement) which restricts the right of Borrower or
any of its Affiliates to create, assume or suffer Liens on any of its assets
other than the existing agreements described on Schedule 7.02(b) hereof, without
an amendment or modification thereof, or (c) assign, sell or transfer any
Permitted Lien to any other Person.
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7.03 Change in Business. Engage in any business activities or
operation substantially different from and unrelated to present business
activities and operations conducted by Borrower on the Closing Date.
7.04 Mergers, Sales of Assets, Etc. Liquidate, dissolve, or enter
into any consolidation, merger, partnership, joint venture or any other
combination which results in the sale, lease, assignment or other disposition of
any assets or sell, lease, assign, transfer or otherwise dispose of any assets,
whether now owned or hereafter acquired, in a single transaction or in a series
of transactions or enter into any sale and leaseback transactions, other than
(a) any of the foregoing which individually does not result in
the sale, lease, assignment, transfer or other disposition of any assets with a
fair market value in excess of $1,000,000, provided that all of the foregoing
shall not in the aggregate, on an annual basis, result in the sale, lease,
assignment, transfer of the disposition of any assets with a fair market value
in excess of $2,000,000;
(b) the sale of equipment and inventory in the ordinary course
of business;
(c) the sale or other disposition of property no longer used
or useful in the conduct of its business;
(d) any merger in which Borrower is the legal surviving
corporation if there is no Default or Event of Default after the consummation
thereof;
(e) the merger or consolidation of any Affiliate (other than
Borrower or Amtran) into any other Affiliate (other than Borrower or Amtran) or
the transfer of the business or assets of any Affiliate (other than Borrower or
Amtran) to Borrower or to any other Affiliate.
(f) The sale and leaseback transactions described on Schedule
7.04 hereto.
Notwithstanding the foregoing, without the prior written consent of the Required
Banks, the Borrower may not sell, lease, (other than leases which are permitted
by, and subject to, the Security Agreement), assign, transfer or otherwise
dispose of any Aviation Property.
7.05 Advances to Officers, Employees and Others.
Make any loans or advances and/or extensions of credit to (i) any of
its officers and/or directors and shareholders in excess of One Million and
00/100 ($1,000,000.00) in the aggregate so long as any Obligations are
outstanding or the Commitments are outstanding or (ii) to its employees in
excess of Five Hundred Thousand and 00/100 Dollars ($500,000.00), provided that
in all of the foregoing cases Tangible Net Worth is reduced by the amount of
such extensions of credit.
7.06 Investments in Affiliates.
Make any Investment in any Person or J. George Mikelsons or any
member of the board of directors of any Person that is a corporation if the
aggregate outstanding amount of all Investments, including the Investment to be
made, is in excess of ten percent (10%) of Tangible Net Worth.
7.07 Capital Expenditures.
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(a) Make or incur obligations for Capital Expenditures
(excluding expenditures incurred for the improvement or maintenance of aircraft
owned by the Borrower in the form of engine overhauls and upgrades, capitalized
repairs, additions and modifications, and the acquisition of parts and equipment
directly related thereto) in excess of $10,000,000 in any calendar year; or
(b) Purchase or lease additional aircraft or aircraft engines
or parts if the effect of such acquisition causes a default under any provision
of this Agreement.
7.08 Dividends. Pay or declare any Dividends in any fiscal year in
excess of twenty percent (20%) of cumulative Net Profit (with deduction for any
negative Net Profit) subsequent to the Closing Date; provided, however, that no
such Dividend may be paid or declared unless, both before and after giving
effect to such proposed Dividend (a) no Default or Event of Default has occurred
and is continuing, (b) all representations and warranties contained in Article V
hereof and in the Security Agreements and in the Guaranty shall be true and
correct on and as of the date of such Dividend as if such representations and
warranties were made on and as of such date, and (c) the Borrower is able to
borrow additional Revolving Credit Loans of at least $10,000,000.
7.09 Limitation on More Restrictive Covenants. The Borrower shall
not enter into any new debt agreement that would contain, nor enter into any
amendment, supplement or other modification to any indenture, instrument or
other agreement concerning any of its Indebtedness or any refinancing thereof,
if such indenture, instrument or other agreement at the time entered into or
after giving effect to any such amendment, supplement or other modification
thereto, would contain any covenant or event of default that is more restrictive
on the Borrower than those set forth in this Agreement.
7.10 Payments and Modification of Debt. Make any optional payment,
defeasance (whether a covenant defeasance, legal defeasance or other
defeasance), prepayment or redemption, directly or indirectly, of any of the
Indebtedness outstanding pursuant to the Senior Unsecured Debt Documents or
other Indebtedness or amend or modify, or consent or agree to any amendment or
modification of, any Senior Unsecured Debt Document, or enter into any agreement
or arrangement providing for any defeasance of any kind of any of the
Indebtedness outstanding pursuant to the Senior Unsecured Debt Documents;
provided, however, that the Borrower may redeem up to, but not in excess of, an
aggregate principal amount of the Senior Unsecured Notes of $10,000,000,
provided that both before and after giving effect to such redemption (a) no
Default or Event of Default has occurred and is continuing, (b) all
representations and warranties contained in Article V hereof and in the Security
Agreements and in the Guaranty shall be true and correct on and as of the date
of such redemption as if such representations and warranties were made on and as
of such date, (c) the Borrower is able to borrow additional Revolving Credit
Loans of at least $10,000,000 and (d) the book value of the assets of Amtran not
subject to any Lien (other than liens described in clauses (i) through (iv),
(xiii) and (xvi) of the definition of "Permitted Liens" contained in the Senior
Unsecured Indenture) shall not be less than $150,000,000
7.11 Amber Holdings, Inc. Permit Amber Holdings, Inc. to own, or
otherwise have any rights with respect to, any assets.
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ARTICLE VIII.
EVENTS OF DEFAULT
Regardless of the terms of the Notes issued hereunder, upon the
occurrence and continuation of any of the following events, the Agent may and,
upon being directed to do so by the Required Banks, shall, terminate the
Commitments, declare all outstanding principal and accrued and unpaid interest
and all other sums outstanding under or in respect of this Agreement to be
immediately due and payable, and/or demand immediate delivery of Cash
Collateral, and Borrower agrees to deliver such Cash Collateral upon demand, in
an amount equal to the maximum amount that may be available to be drawn at any
time prior to the stated expiry of all outstanding Letters of Credit, or any one
or more of the foregoing, without notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character, except as hereinafter specified, provided,
however, that the occurrence of any of the events set forth in Sections 8.04 or
8.05 shall automatically terminate the Banks' Commitments and automatically
accelerate the amounts due hereunder, including such Cash Collateral, and under
the Notes, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notice or demands for payment of
any kind or character.
8.01 Nonpayment. Borrower shall fail to pay when due any installment
of principal or of interest or any other sum due under this Agreement in
accordance with the terms hereof or of any Note issued under this Agreement and
such failure continues for five (5) days.
8.02 Representation or Warranty. Any written representation or
warranty herein or in any of the Loan Documents or any other agreement,
instrument or certificate executed pursuant hereto shall prove to have been
false or misleading in any material respect when made or when deemed to have
been made.
8.03 Other Defaults. (i) Borrower or Amtran shall fail duly or
promptly to perform or observe the covenants contained in Sections 6.09, 6.10
and 6.11 hereof or any of the other covenants, agreements or conditions
contained in any Loan Document and such default in such other covenants,
agreements or conditions shall continue unremedied for a period of thirty (30)
days after written notice thereof is delivered to Borrower from the Agent, or
(ii) any Default or Event of Default (however designated) shall have occurred
under any of the other Loan Documents and shall not have been cured within the
applicable grace or cure period, if any.
8.04 Voluntary Bankruptcy. The Borrower or Amtran or any of Amtran's
other Affiliates shall generally fail to pay or admit in writing its inability
to pay its debts as they come due, or shall file any petition or action for
relief as to itself under any bankruptcy, reorganization, insolvency or
moratorium law, or any other similar law or laws for the relief of, or relating
to, debtors, or shall apply for or consent to a receiver, trustee or custodian
for it or a substantial portion of its property, or shall make a general
assignment for the benefit of creditors.
8.05 Involuntary Bankruptcy. An involuntary petition shall be filed
under any bankruptcy or similar statute against Borrower or Amtran or any of
Amtran's other Affiliates or a custodian, receiver, trustee, assignee for the
benefit of creditors (or other similar official) shall be appointed to take
possession, custody or control of the properties of Borrower or Amtran or any of
Amtran's other Affiliates unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within sixty (60) days from the date of said
filing or appointment.
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8.06 Cross Default. Any material breach or default shall have
occurred (after giving effect to any applicable cure period or waiver) under any
other agreement or agreements relating to Indebtedness under which Borrower or
any of its Affiliates may be obligated in an aggregate amount in excess of
$5,000,000 as borrower, guarantor or lessee if such default consists of (i) the
failure by Borrower to pay an Indebtedness when due or the failure of the
Borrower or any of its Affiliates to perform or observe any other term, covenant
or agreement with respect to any such Indebtedness and following any applicable
cure period, permits the holder or any trustee thereof to cause the acceleration
of such Indebtedness (including without limitation permitting the holder or any
trustee thereof to require any mandatory prepayment or defeasance of such
Indebtedness) or the termination of any commitment to lend or permits a lessor
to terminate the applicable lease, including without limitation any "Event of
Default" under any of the Senior Unsecured Debt Documents or the occurrence of
any event or condition which would permit the holders of the Senior Unsecured
Notes to cause the prepayment or defeasance of the Senior Unsecured Notes, in
whole or in part, or (ii) the failure by Borrower to pay an Indebtedness at the
maturity thereof (whether at stated maturity or otherwise).
8.07 ERISA. Any Plan of Borrower shall be terminated within the
meaning of Title IV of ERISA except as permitted by section 4044(d) of ERISA, or
a trustee shall be appointed by the appropriate United States District Court to
administer any Plan of Borrower, or the PBGC shall institute proceedings to
terminate any Plan.
8.08 Aviation Property. Any of the Aviation Property shall be
condemned, confiscated, seized, or otherwise expropriated, or the management
thereof assumed, by any government or any officer or instrumentality thereof and
shall be retained for any period of thirty (30) consecutive calendar days,
unless within such thirty (30) day period the Agent shall receive assurances,
satisfactory in all respects to the Agent, that Borrower will be compensated
therefore in amount, time and manner satisfactory in all respects to the Agent
or, after giving effect to any event described herein and the deletion of such
affected Aviation Property from the Borrowing Base and any payments made on the
Advances in connection therewith, the aggregate Advances and Letter of Credit
Advances would not exceed the Borrowing Base.
8.09 Ownership. J. George Mikelsons or his heirs shall own
beneficially and of record, free and clear of all Liens, less than fifty-one
percent (51%) of the outstanding capital stock or other ownership interest of
each class having ordinary voting power or analogous rights for the election of
a majority of directors and any other control of management of Amtran, or Amtran
shall own, beneficially and of record, free and clear of all Liens, less than
fifty-one percent (51%) of the outstanding capital stock or other ownership
interest of each class having ordinary voting power or analogous rights for the
election of a majority of directors and any other control of management of the
Borrower or any "Change of Control" as defined in the Senior Unsecured Debt
Documents.
8.10 Judgments. One or more judgments or orders for the payment of
money in an aggregate amount of $1,000,000 shall be rendered against Amtran or
any of its Affiliates, or any other judgment or order (whether or not for the
payment of money) shall be rendered against or shall affect Amtran or any of its
Affiliates which causes or could cause a material adverse change in the
business, properties, operations or condition, financial or otherwise, of Amtran
or any of its Affiliates or which does or could have a material adverse effect
on the legality, validity or enforceability of this Agreement, the Notes, the
Guaranty or the Security Agreement, and either (i) such judgment or order shall
have remained unsatisfied and Amtran or such Affiliate shall not have taken
action necessary to stay enforcement thereof by reason of pending appeal or
otherwise, prior to the expiration of the applicable period of limitations for
taking such action or, if such action shall have been taken, a final order
denying
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such stay shall have been rendered, or (ii) enforcement proceedings shall have
been commenced by any creditor upon any such judgment or order.
ARTICLE IX.
RELATIONSHIP OF THE BANKS/AND THE AGENT
9.01 Appointment and Authorization. Each Bank hereby irrevocably
authorizes the Agent to take such action as agent on its behalf and to exercise
such rights, powers and discretions as are specifically delegated in this
Agreement, the Notes and the Security Documents as are delegated to the Agent by
the terms hereof or thereof, together with all rights, powers and discretions as
are reasonably incidental thereto. The Agent agrees to notify the Banks of each
reduction in the Commitments, specifying the amount of such reduction and the
payments, if any, required by the Borrower due to such reduction, and agrees to
forward to the Banks the financial statements received by the Agent pursuant to
Section 6.03 hereof and such other financial information received by the Agent
as reasonably requested by the Banks. The Agent may perform any of its
respective functions and duties under this Agreement by or through agents or its
directors, officers of employees. In performing its functions and duties under
this Agreement, the Agent shall not be deemed to have a fiduciary relationship
in respect of, or other responsibility to (other than responsibilities expressly
stated herein), any Bank or to have assumed any relationship of agency or trust
with or for Borrower.
9.02 Pro Rata Sharing. All payments or collections of principal and
interest on the Revolving Credit Loans shall be shared by the Banks on a pro
rata basis based upon the share of outstanding Indebtedness of the Borrower to
each Bank at the time of such payment or collection. On the day the Agent
receives any payments hereunder, the Agent shall remit to the Banks their pro
rata share of such payments in immediately available funds.
9.03 Sharing of Setoff. Any Bank which shall receive payment of or
on account of all or part of its share of the Obligations by voluntary payment
by Borrower or through the exercise of any right of setoff, counterclaim,
banker's lien, secured claim under any bankruptcy statute or otherwise in a
greater proportion than the proportionate amount of the Obligations due it under
this Agreement shall be deemed to have purchased immediately prior to such
payment participations in the portions of the Obligations held by the other
Banks so that all recoveries of the Obligations shall be shared by Banks in
accordance with their pro rata interests in the Obligations existing on the date
immediately prior to such recovery. If all or any portion of such excess payment
is thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest
(except to the extent of such Bank is required to pay interest). All sums
received by a Bank through the exercise of any right of setoff, counterclaim,
banker's lien, secured claim under any bankruptcy statute or otherwise shall be
deemed to be first applied to such Bank's portion of the indebtedness under this
Agreement until payment thereof in full and any balance remaining thereafter
shall be deemed applied to any other Indebtedness of the Borrower to such Bank.
9.04 Approvals. Except as provided in this Section 9.04, upon any
occasion requiring or permitting an approval, consent, waiver, election or other
action on the part of the Banks, action shall be taken by the Agent for and on
behalf or for the benefit of all Banks upon the direction of the Required Banks,
and any such action shall be binding on all Banks. No amendment, modification,
consent or waiver shall be effective which:
(a) increases the Commitment of any Bank,
<PAGE>
<PAGE>
(b) reduces the amount of interest, principal or fees owing
hereunder or reduces the interest rate or fees payable by Borrower,
(c) extends the fixed date on which any sum is due hereunder,
or extends the Termination Date,
(d) waives a Default arising from a failure to pay principal
of or interest on an Advance within the applicable grace period,
(e) changes the provisions of this Section 9.04,
(f) releases or substitutes all or substantially all of the
collateral, other than substitutions of collateral where the collateral to be
added is of approximately equal or greater value than the collateral being
released,
(g) modifies the definition of "Required Banks",
(h) releases any material Guarantor from the Guaranty, or
(i) waives any violation of the advance rate on Aviation
Property or changes such advance rate.
unless all Banks agree in writing thereto; provided, however, that any
amendment, modification, consent or waiver which affects the rights, duties or
obligations of the Agent shall not be effective unless consented to in writing
by the Agent.
9.05 Exculpation. The Agent shall not be liable or answerable for
anything whatsoever in connection with this Agreement or any instrument or
agreement required hereunder, including responsibility with respect to the
execution, construction or enforcement of this Agreement or any such instrument
or agreement, except for its own respective willful misconduct or gross
negligence, and the Agent shall not have any duties or obligations other than as
provided herein and therein. The Agent shall be entitled to rely on any opinion
of counsel (including counsel for Borrower) in relation to this Agreement and
any instrument or agreement required hereunder, and upon statements and
communications received from Borrower, or from any other person, believed by it
to be authentic, and shall not be liable for any action taken or omitted in good
faith on such reliance.
9.06 Indemnification.
Each Bank agrees to indemnify the Agent to the extent not reimbursed
by Borrower, ratably according to its proportionate interest in the Revolving
Credit Loans (or, if there are no outstandings hereunder, in the Commitments),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement or any
instrument or agreement required hereunder or any action taken or omitted by the
Agent in such role under this Agreement or any such instrument or agreement;
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever resulting from the
Agent's willful misconduct or gross negligence.
<PAGE>
<PAGE>
9.07 The Agent as Bank. The Agent shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not the Agent; and the Term "Banks" shall include the Agent in its individual
capacity.
9.08 Notices of Transfer. The Agent and Borrower may deem and treat
a Bank which is a party to this Agreement as the owner of such Bank's Note for
all purposes hereof unless and until a written notice of the assignment or
transfer, thereof (if any is permitted) executed by such Bank shall have been
received by the Agent and Borrower.
9.09 Credit Decision. Each Bank represents that it has made and
agrees that it shall continue to make its own independent investigation of the
financial condition and affairs of Borrower and its own appraisal of the
creditworthiness of the Borrower in connection with the making of the
continuance of its Commitments and the Advances. The Agent has no any duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information (other than obtained pursuant to this
Agreement) with respect thereto, whether coming into its possession before the
date hereof or at any time thereafter unless furnished respectively to the Agent
by Borrower for delivery to the Banks. The Agent shall provide the Banks with
copies of all notices required by the Agreement provided to Agent respectively
by or to Borrower.
9.10 Resignation of the Agent. The Agent may resign at any time by
giving written notice to the Banks and Borrower. Upon any such resignation, the
Required Banks with the prior written consent of Borrower which shall not be
unreasonably withheld, shall have the right to appoint a successor from among
the Banks. If no successor shall have accepted such appointment within
forty-five (45) days after the retiring Agent's giving of notice of resignation,
the retiring Agent may, on behalf of the Banks, appoint a successor thereto with
the prior written consent of Borrower, which shall not be unreasonably withheld,
and such successor Agent shall be a bank or trust company organized under the
laws of the United States or any state thereof. Upon the acceptance by such
successor of its appointment hereunder, such successor shall succeed to and
become vested with all the rights and obligations of the retiring Agent, and the
retiring Agent shall be discharged from its obligations under this Agreement
except with respect to any liability with respect to a breach of any obligation
hereunder prior to such resignation. The provisions of this Section 9.11 shall
inure to the benefit of the retiring Agent as to any actions taken or omitted to
be taken by it while it held such position under this Agreement.
ARTICLE X.
MISCELLANEOUS
10.01 Notices. Any communications between the parties hereto or
notices or requests provided herein to be given may be given by mailing the
same, first class postage prepaid, or by telex or electronic transmission to
each party at its address set forth on the signature pages thereto (with a copy
to each address indicated for notices), or to such other address as any party
may in writing hereafter indicate to Borrower and the Banks. Notices shall be
effective on the date sent by electronic transmission and telex and three (3)
Banking Days after the date sent by U.S. mail.
10.02 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective permitted successors and
assigns; provided, however, that Borrower shall not assign this Agreement or any
of its rights hereunder without the prior written consent of the Banks.
<PAGE>
<PAGE>
10.03 Participations and Assignments. (a) This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that the Borrower may not, without the prior
consent of the Banks, assign its rights or obligations hereunder or under any
other Loan Document and the Banks shall not be obligated to make any Loan
hereunder to any entity other than the Borrower.
(b) Any Bank may sell to any bank, financial institution or
institutions or other entity, and such bank, financial institution or
institutions or other entity may further sell, a participation interest
(undivided or divided) in, the Loans and such Bank's rights and benefits under
this Agreement, the Notes and the Guaranties, and to the extent of that
participation interest such participant or participants shall have the same
rights and benefits against the Borrower under Section 2.15 and 2.17 as it or
they would have had if such participant or participants were the Bank making the
Loans to the Borrower hereunder, provided, however, that (i) such Bank's
obligations under this Agreement shall remain unmodified and fully effective and
enforceable against such Bank, (ii) such Bank shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) such
Bank shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower, the Agent and the other Banks shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, and (v) such Bank shall not grant to its
participant any rights to consent or withhold consent to any action taken by
such Bank or the Agent under this Agreement other than action requiring the
consent of all of the Banks hereunder.
(c) Each Bank may, with the prior consent of the Agent, assign
to one or more banks or other entities all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Loans owing to it and the Note or Notes held by
it); provided, however, that (i) each such assignment shall be of a uniform, and
not a varying, percentage of all rights and obligations, (ii) except in the case
of an assignment of all of a Bank's rights and obligations under this Agreement,
(A) the amount of the Commitment of the assigning Bank being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, and in integral multiples of $1,000,000 thereafter, or such lesser
amount as the Agent may consent to and (B) after giving effect to each such
assignment, the amount of the Commitment of the assigning Bank shall in no event
be less than $5,000,000, (iii) the parties to each such assignment shall execute
and deliver to the Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance in the form of Exhibit C hereto (an "Assignment and
Acceptance"), together with any Note or Notes subject to such assignment and, a
processing and recordation fee of $3,000, and (iv) any Bank may without the
consent of the Borrower or the Agent, assign to any Affiliate of such Bank that
is a bank or financial institution all of its rights and obligations under this
Agreement. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and (y) the Bank
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all of the remaining portion
of an assigning Bank's rights and obligations under this Agreement, such Bank
shall cease to be a party hereto).
(d) The Agent shall maintain at its address designated on the
signature pages hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Loans owing to,
each Bank from time to time (the "Register"). The entries in the Register shall
be
<PAGE>
<PAGE>
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an assignee, together with any Note or Notes subject to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within ten Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the Agent
in exchange for the surrendered Note or Notes a new Note to the order of such
assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained a Commitment
hereunder, a new Note to the order of the assigning Bank in an amount equal to
the Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit C
hereto.
(f) The Banks may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.03, disclose to the assignee or participant or proposed assignee or
participant any public information relating to the Borrower and, provided that
such proposed assignee or participant executes a confidentiality letter, any
other information relating to the Borrower.
10.04 Delays and Waivers. No delay or omission by the Banks to
exercise any right under this Agreement shall impair any such right, nor shall
it be construed to be a waiver thereof. No waiver of any single breach or
default under this Agreement shall be deemed a waiver of any other breach or
default. Any waiver, modification, amendment, consent or approval relating to
this Agreement or the Notes, must be in writing to be effective and must be
signed by or on behalf of the Banks.
10.05 Costs and Expenses. (a) The Borrower agrees to pay on demand
to the Banks all costs and expenses incurred by the Banks including, without
limitation, reasonable attorneys' and consultants' fees (i) in connection with
the enforcement of this Agreement or any instrument or agreement required
hereunder or in connection with any proposed refinancing or restructuring of the
credit provided in this Agreement in the nature of a "work-out" and (ii) for all
stamp, registration and other duties and imposts to which this Agreement and any
instrument or agreement required hereunder may be subject. The Borrower agrees
to pay or to reimburse the Agent upon demand for reasonable attorneys' fees and
other expenses incurred in connection with the preparation, drafting and
negotiation of this Agreement, the Notes, and the Loan Documents, any
amendments, consents, or waivers hereto or thereto. The Borrower shall indemnify
the Banks against any and all liabilities and penalties resulting from any delay
in payment, or failure to pay, any such duties and imposts upon written notice
from the Banks that such amounts have been assessed.
(b) Borrower agrees to indemnify the Agent and each Bank,
their respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee at any time
in connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a
<PAGE>
<PAGE>
party thereto) brought or threatened relating to or arising out of the Loan
Documents, any actual or proposed use of proceeds of the Loans or the Letter of
Credit Advances, any transactions relating to any of the foregoing, any act or
omission of Borrower or any Guarantor or any environmental liability of Borrower
or any Guarantor; provided that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
10.06 Entire Agreement. This Agreement and any agreement, document
or instrument attached hereto or referred to herein integrate all the terms and
conditions mentioned herein or incidental hereto, and supersede all oral
negotiations and prior writings in respect to the subject matter hereof. In the
event of any conflict between the terms, conditions and provisions of this
Agreement and any such agreement, document or instrument, the terms, conditions
and provisions of this Agreement shall prevail.
10.07 Prior Agreement. Upon the execution of this Agreement, the
Commitments of the banks pursuant to the Prior Agreement shall terminate and be
deemed superseded by the Commitments under this Agreement, and this Agreement is
an amendment and restatement of the Prior Credit Agreement, without novation
thereof. The Borrower and Amtran acknowledge they have no setoff, defense, claim
or other dispute in connection with any of the indebtedness or other liabilities
owing pursuant to the Prior Agreement or otherwise in connection with the Prior
Agreement. Any Indebtedness outstanding under the Prior Agreement after the
Closing Date shall be deemed Indebtedness outstanding under this Agreement. All
liens and security interests granted with respect to the Aviation Property in
connection with the Prior Credit Agreement shall continue in full force and
effect and secure the Obligations and other indebtedness and liabilities
described in the Security Agreement, and all filings with the FAA and all UCC
financing statements filed shall continue in full force and effect.
10.08 Governing Law. This Agreement is a contract made under, and
shall be governed by and construed in accordance with, the laws of the State of
Michigan applicable to contracts made and to be performed entirely within such
State and without giving effect to the choice of law principles of such State.
10.09 Section Headings. Section headings are for reference only, and
shall not affect the interpretation or meanings of any provision of this
Agreement.
10.10 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
10.11 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, all of which taken together will constitute one
agreement, and any one of the parties hereto may execute this Agreement by
signing any such counterpart.
10.12 Waiver of Jury Trial. The Agent, the Banks, Amtran and the
Borrower, after consulting or having had the opportunity to consult with
counsel, each knowingly, voluntarily and intentionally waive any right any of
them may have to a trial by jury in any litigation based upon or arising out of
this Agreement or any related instrument or agreement or any of the transactions
contemplated by this Agreement or any course of conduct, dealing, statements
(whether oral or written)
<PAGE>
<PAGE>
or actions of any of them. Neither the Agent, the Banks, Amtran nor the Borrower
shall seek to consolidate, by counterclaim or otherwise, any such action in
which a jury trial has been waived with any other action in which a jury trial
cannot be or has not been waived. These provisions shall not be deemed to have
been modified in any respect or relinquished by the Agent, the Agent, the Banks,
Amtran or the Borrower except by a written instrument executed by all of them.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by their duly authorized officers as of the date and year first above written.
AMERICAN TRANS AIR, INC.
By: /s/ Kenneth K. Wolff
-----------------------------------------
Its: Executive Vice President and
Chief Financial Officer
Address: 7337 West Washington St.
Indianapolis, Indiana 46251
Attention: Executive Vice
President and Chief
Financial Officer
Telephone: (317) 247-4000
Telecopy: (317) 240-7091
AMTRAN, INC.
By: /s/ Kenneth K. Wolff
-----------------------------------------
Its: Executive Vice President and
Chief Financial Officer
Address: 7337 West Washington St.
Indianapolis, Indiana 46251
Attention: Executive Vice
President and Chief
Financial Officer
Telephone: (317) 247-4000
Telecopy: (317) 240-7091
<PAGE>
<PAGE>
NBD BANK, N.A., as a Bank and as Agent
By: /s/ Scott C. Morrison
-----------------------------------------
Its: Vice President
-------------------------------------
Address: One Indiana Square, Ste. 302
Indianapolis, Indiana 46266
Commitment: $12,500,000 Attention: Scott C. Morrison
Percentage: 25% Telephone: (317) 266-7351
Telecopy: (317) 266-6042
FORT WAYNE NATIONAL BANK
By:
-----------------------------------------
Its:
-------------------------------------
Address: 110 W. Berry St., P.O. Box 110
Fort Wayne, Indiana 46801
Commitment: $10,000,000 Attention: Camalyn Marsh
Percentage: 20% Telephone: (219) 426-0555
Telecopy: (219) 461-6240
<PAGE>
<PAGE>
NBD BANK, N.A., as a Bank and as Agent
By:
-----------------------------------------
Its:
-------------------------------------
Address: One Indiana Square, Ste. 302
Indianapolis, Indiana 46266
Commitment: $12,500,000 Attention: Scott C. Morrison
Percentage: 25% Telephone: (317) 266-7351
Telecopy: (317) 266-6042
FORT WAYNE NATIONAL BANK
By: /s/ Camalyn M. Marsh
-----------------------------------------
Camalyn M. Marsh
Its: Vice President
-------------------------------------
Address: 110 W. Berry St., P.O. Box 110
Fort Wayne, Indiana 46801
Commitment: $10,000,000 Attention: Camalyn Marsh
Percentage: 20% Telephone: (219) 426-0555
Telecopy: (219) 461-6240
<PAGE>
<PAGE>
NATIONAL BANK OF CANADA
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
-----------------------------------------
Its: AVP VP
-------------------------------------
Address: 125 W. 55th Street, 23rd Floor
New York, New York 10019
Commitment: $10,000,000 Attention: Joseph Triscoli
Percentage: 20% Telephone: (212) 632-8553
Telecopy: (212) 632-8545
FIRST OF AMERICA BANK - INDIANA
By:
-----------------------------------------
Its:
-------------------------------------
Address: 101 W. Ohio St., Ste. 1400
Indianapolis, Indiana 46204
Commitment: $10,000,000 Attention: Chuck Mason
Percentage: 20% Telephone: (317) 767-6043
Telecopy: (317) 767-6026
NATIONAL CITY BANK, INDIANA
By:
-----------------------------------------
Its:
-------------------------------------
Address: 101 W. Washington St. 200 East
Indianapolis, Indiana 46255
Commitment: $7,500,000 Attention: Jim Wark
Percentage: 15% Telephone: (317) 267-7066
Telecopy: (317) 267-8899
<PAGE>
<PAGE>
NATIONAL BANK OF CANADA
By:
-----------------------------------------
Its:
-------------------------------------
Address: 125 W. 55th Street, 23rd Floor
New York, New York 10019
Commitment: $10,000,000 Attention: Joseph Triscoli
Percentage: 20% Telephone: (212) 632-8553
Telecopy: (212) 632-8545
FIRST OF AMERICA BANK - INDIANA
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: Vice President
-------------------------------------
Address: 101 W. Ohio St., Ste. 1400
Indianapolis, Indiana 46204
Commitment: $10,000,000 Attention: Chuck Mason
Percentage: 20% Telephone: (317) 767-6043
Telecopy: (317) 767-6026
NATIONAL CITY BANK, INDIANA
By:
-----------------------------------------
Its:
-------------------------------------
Address: 101 W. Washington St. 200 East
Indianapolis, Indiana 46255
Commitment: $7,500,000 Attention: Jim Wark
Percentage: 15% Telephone: (317) 267-7066
Telecopy: (317) 267-8899
<PAGE>
<PAGE>
NATIONAL BANK OF CANADA
By:
-----------------------------------------
Its:
-------------------------------------
Address: 125 W. 55th Street, 23rd Floor
New York, New York 10019
Commitment: $10,000,000 Attention: Joseph Triscoli
Percentage: 20% Telephone: (212) 632-8553
Telecopy: (212) 632-8545
FIRST OF AMERICA BANK - INDIANA
By: /s/ [ILLEGIBLE] [ILLEGIBLE]
-----------------------------------------
Its: AVP V.P.
-------------------------------------
Address: 101 W. Ohio St., Ste. 1400
Indianapolis, Indiana 46204
Commitment: $10,000,000 Attention: Chuck Mason
Percentage: 20% Telephone: (317) 767-6043
Telecopy: (317) 767-6026
NATIONAL CITY BANK, INDIANA
By:
-----------------------------------------
Its:
-------------------------------------
Address: 101 W. Washington St. 200 East
Indianapolis, Indiana 46255
Commitment: $7,500,000 Attention: Jim Wark
Percentage: 15% Telephone: (317) 267-7066
Telecopy: (317) 267-8899
<PAGE>
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$__________ July ___, 1997
FOR VALUE RECEIVED, AMERICAN TRANS AIR, INC., an Indiana corporation
(the "Borrower"), hereby unconditionally promises to pay to the order of
____________________, a _______________ (the "Bank"), at the principal banking
office of NBD Bank, N.A., a national banking association, in lawful money of the
United States of America and in immediately available funds, the principal sum
of __________ Million Dollars ($__,000,000), or such lesser amount as is
recorded on the schedule attached hereto, or in the books and records of the
Bank, on the Termination Date; and to pay interest on the unpaid principal
balance hereof from time to time outstanding, in like money and funds, for the
period from the date hereof until the Advances evidenced hereby shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement
referred to below.
The Bank is hereby authorized by the Borrower to record on the
schedule attached to this Note, or on its books and records, the date, amount
and type of each Advance, the amount of each payment or prepayment of principal
thereon and the other information provided for on such schedule, which schedule
or such books and records, as the case may be, shall constitute prima facie
evidence of the information so recorded, provided, however, that any failure by
the Bank to record any such information shall not relieve the Borrower of its
obligation to repay the outstanding principal amount of such Advances, all
accrued interest thereon and any amount payable with respect thereto in
accordance with the terms of this Note and the Credit Agreement.
The Borrower and each endorser or guarantor hereof waives demand,
presentment, protest, diligence, notice of dishonor and any other formality in
connection with this Note. Should the indebtedness evidenced by this Note or any
part thereof be collected in any proceeding or be placed in the hands of
attorneys for collection, the Borrower agrees to pay, in addition to the
principal, interest and other sums due and payable hereon, all costs of
collecting this Note; including attorneys' fees and expenses.
This Note evidences one or more Advances made under a Credit
Agreement, dated as of the date hereof (the "Credit Agreement"), by and among
the Borrower, the banks (including the Bank) named therein and NBD Bank, N.A.,
as agent, to which reference is hereby made for a statement of the circumstances
under which this Note is subject to prepayment and under which its due date may
be accelerated and for a description of the collateral and security securing
this Note.
This Note is issued in exchange and substitution for certain
promissory notes previously issued by the Borrower and evidences the same
liabilities and obligations under such promissory notes and shall not be deemed
a novation or satisfaction thereof. Capitalized terms used but not defined in
this Note shall have the respective meanings assigned to them in the Credit
Agreement.
PROMISSORY NOTE
<PAGE>
<PAGE>
This Note is made under, and shall be governed by and construed in
accordance with, the laws of the State of Michigan applicable to contracts made
and to be performed entirely within such State and without giving effect to
choice of law principles of such State.
AMERICAN TRANS AIR, INC.
By:
--------------------------------
Its:
-------------------------------
PROMISSORY NOTE
<PAGE>
<PAGE>
Schedule to Note, dated
____________, 1997, made by American Trans Air, Inc.
in favor of __________________
Principal
Trans- Principal Amount Principal
action Amount of Interest Paid or Balance Notation
Date Loan Rate Prepaid Outstanding Made by
- ----- --------- -------- --------- ----------- --------
PROMISSORY NOTE
<PAGE>
<PAGE>
EXHIBIT B
EXTENSION REQUEST
NBD Bank, N.A., as Agent ______________, _____
One Indiana Square
Indianapolis, Indiana 46266
Attention: Scott C. Morrison
This Extension Request is delivered to you in connection with
Section 2.18 of the Credit Agreement, dated as of ___________, 1997 (together
with all amendments and other modifications, if any, from time to time hereafter
made thereto, the "Credit Agreement"), among American Trans Air, Inc., Amtran,
Inc., (collectively, the "Borrower"), the banks that are parties thereto and NBD
Bank, N.A., as agent. Unless otherwise defined, terms used herein have the
meanings provided in the Credit Agreement.
The Borrower hereby requests that the Termination Date be extended
from April 1, 199_ to ______________, ______.
IN WITNESS WHEREOF, the Borrower has caused this Extension Request
to be executed and delivered by thereof duly authorized officer this ___ day of
____________, 19__.
AMERICAN TRANS AIR, INC.
By:
-------------------------------
Its:
-----------------------------
AMTRAN, INC.
By:
-------------------------------
Its:
-----------------------------
<PAGE>
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of ___________,
1997 (the "Credit Agreement") among AMERICAN TRANS AIR, INC., (the "Borrower"),
AMTRAN, INC. ("Amtran"), the banks party thereto (the "Banks"), NBD BANK, N.A.,
as agent for the Banks (the "Agent"). Terms defined in the Credit Agreement are
used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns (without recourse) to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement as of the date hereof equal to the amounts specified on Schedule 1 of
all outstanding rights and obligations under the Credit Agreement. After giving
effect to such sale and assignment, the Assignee's Commitment and the amounts of
the Advances owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, perfection, enforceability, genuineness,
sufficiency or value of the Credit Agreement or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any Guarantor or the performance or observance by the Borrower or
any Guarantor of any of their obligations under the Credit Agreement or any
other instrument or document furnished pursuant thereto; and (iv) attaches the
Note held by the Assignor and requests that the Agent exchange such Note for a
new Note payable to the order of the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto and the Assignor in an amount
equal to the Commitment retained by the Assignor under the Credit Agreement,
respectively, as specified on Schedule 1.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 5.13 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
the Credit Agreement as are delegated to the Agent by the terms thereof,
together with such powers and discretion as are reasonably incidental thereto;
(iv) agrees that it will perform in accordance with their terms of all of the
obligations that by the terms of the Credit Agreement are required to be
performed by it as a Bank; and (v) if the Assignee is organized under the laws
of a jurisdiction outside the United States, attaches the forms prescribed by
the Internal Revenue Service of the United States certifying as to the
Assignee's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to
<PAGE>
<PAGE>
the Assignee under the Credit Agreement and the Note or such other documents as
are necessary to indicate that all such payments are subject to such taxes at a
rate reduced by an applicable tax treaty.
4. Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.
5. Upon consent hereto by the Borrower and the Agent and such
acceptance and recording by the Agent, as of the Effective Date, (i) the
Assignee shall be a party to the Credit Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after
the Effective Date, the Agent shall make all payments under the Credit Agreement
and the Note in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the Notes for periods
prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of Michigan.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by facsimile shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
ASSIGNMENT AND ACCEPTANCE
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
[ASSIGNOR]
By:
-------------------------------
Its:
-----------------------------
[ASSIGNEE]
By:
-------------------------------
Its:
-----------------------------
<PAGE>
<PAGE>
SCHEDULE 1
L-1011 Aircraft
The following aircraft:
Manufacturer U.S.
Manufacturer Model Serial No. Registry No.
- ------------ ----- ---------- ------------
Lockheed L-1011-385-1 193C-1052 N185AT
Lockheed L-1011-385-1 193C-1057 N192AT
Lockheed L-1011-385-1 193C-1071 N193AT
Lockheed L-1011-385-1 193C-1074 N186AT
Lockheed L-1011-385-1 193C-1081 N189AT
Lockheed L-1011-385-1 193C-1084 N191AT
Lockheed L-1011-50 193C-1077 N187AT
Lockheed L-1011-385-1 193C-1041 N197AT
Lockheed L-1011-385-1 193C-1086 N190AT
Lockheed L-1011-385-1 193B-1076 N196AT
Lockheed L-1011-385-1 193P 1082 N197AT
Lockheed L-1011-385-1 193C-1078 N188AT
<PAGE>
<PAGE>
SCHEDULE 2
L-1011 Engines
The following engines, each of said engines being 750 or more rated takeoff
horsepower or its equivalent:
Manufacturer
Manufacturer Model Serial No.
- ------------ ----- ----------
Rolls Royce RB211-22B-02 10353
Rolls Royce RB211-22B-02 10279
Rolls Royce RB211-22B-02 10259
Rolls Royce RB211-22B-02 10254
Rolls Royce RB211-22B-02 10238
Rolls Royce RB211-22B-02 10383
Rolls Royce RB211-22B-02 10354
Rolls Royce RB211-22B-02 10341
Rolls Royce RB211-22B-02 10362
Rolls Royce RB211-22B-02 10236
Rolls Royce RB211-22B-02 10255
Rolls Royce RB211-22B-02 10347
Rolls Royce RB211-22B-02 10251
Rolls Royce RB211-22B-02 10208
Rolls Royce RB211-22B-02 10286
Rolls Royce RB211-22B-02 10331
Rolls Royce RB211-22B-02 10260
Rolls Royce RB211-22B-02 10258
Rolls Royce RB211-22B 10219
Rolls Royce RB211-22B 10274
Rolls Royce RB211-22B 10323
Rolls Royce RB211-22B 10319
Rolls Royce RB211-22B 10357
Rolls Royce RB211-22B 10561
Rolls Royce RB211-22B-02 10311
Rolls Royce RB211-22B-02 10273
Rolls Royce RB211-22B-02 10358
Rolls Royce RB211-22B 10348
Rolls Royce RB211-22B 10349
Rolls Royce RB211-22B 10351
Rolls Royce RB211-22B 10503
Rolls Royce RB211-22B 10300
Rolls Royce RB211-22B 10466
Rolls Royce RB211-22B 10335
Rolls Royce RB211-22B 10235
Rolls Royce RB211-22B 10394
<PAGE>
<PAGE>
Schedule 4.01(n)
All indebtedness, obligations and liabilities currently outstanding under
the Prior Credit Agreement.
<PAGE>
<PAGE>
SCHEDULE 5.02
AMTRAN, INC. AFFILIATES
Date
Incorporated
------------
American Trans Air, Inc. 9/24/73
Ambassadair Travel Club, Inc. 7/29/82
ATA Vacations, Inc. (formerly Amber Tours, Inc.) 3/25/87
Amber Travel, Inc. 3/27/89
American Trans Air Training Corporation 9/8/88
American Trans Air ExecuJet, Inc. 4/21/89
Amber Air Freight Corporation 6/3/91
Amber Holdings, Inc. 7/26/95
<PAGE>
<PAGE>
SCHEDULE 5.09
NONE
<PAGE>
<PAGE>
SCHEDULE 7.02(a)
EXCLUDED LIENS INCLUDE:
1. Midway Hangar leased from Chicago Airport Authority
2. Word System leased from Nichol Financial Service
3. GDAS Aircraft scheduling system leased from General Dimensions
Corp.
4. Pre-delivery payments made pursuant to aircraft and engine
Purchase Agreements
5. Monthly credits available under 1994 Boeing Purchase Agreement
and 1994 Rolls-Royce Purchase Agreement
6. An existing lien on a Boeing 727 aircraft and related engines
to NBD Bank, N.A., provided that the indebtedness secured
thereby shall be paid in full on July 24, 1997 and such liens
subsequently discharged.
No increase in the amount secured by any of the above Liens shall be permitted.
<PAGE>
<PAGE>
Schedule 7.02(b)
1. Senior Unsecured Indenture.
<PAGE>
<PAGE>
SCHEDULE 7.04
PERMITTED SALE LEASEBACK TRANSACTIONS:
1. A sale leaseback of an existing Boeing 727 aircraft, provided
that the proceeds thereof are used to pay in full any existing
Lien on such aircraft and no Event of Default or Default
exists or would be caused thereby under the Credit Agreement.
2. Any other sale leaseback of any aircraft acquired after the
Closing Date of the Credit Agreement provided that each of the
following conditions is satisfied: (a) such sale leaseback is
completed within 12 months after the date of the acquisition
of such aircraft, (b) no Default or Event of Default exists
under the Credit Agreement or would be caused thereby and (c)
after giving effect to such sale leaseback, the book value of
the assets of Amtran not subject to any Lien (other than liens
described in clauses (i) through (iv), (xiii) and (xvi) of the
definition of "Permitted Liens" contained in the Senior
Unsecured Indenture) would not be less than $150,000,000.
<PAGE>
<PAGE>
GUARANTY AGREEMENT
PARTIES
THIS GUARANTY AGREEMENT, dated as of July 24, 1997 (this "Guaranty"), is
made by Amtran, Inc., Ambassadair Travel Club, Inc., ATA Vacations, Inc.
(formerly Amber Tours, Inc.), Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight Corporation
(collectively, the "Guarantors") in favor of each of the Lenders as defined
below.
RECITALS
A. AMERICAN TRANS AIR, INC., an Indiana corporation (the "Borrower"),
AMTRAN, INC., the banks party thereto (such banks, together with any other banks
or other Banks now or hereafter parties to the Credit Agreement as defined
below, collectively referred to as the "Banks") and NBD Bank, N.A., as agent for
the Banks (in such capacity, together with any successor agent, the "Agent")
have executed a Credit Agreement dated as of the date hereof (as amended or
modified from time to time, and together with any agreement executed in
replacement therefor or otherwise refinancing such credit agreement, the "Credit
Agreement"), and the Borrower has issued its promissory notes pursuant to the
Credit Agreement (as amended or modified from time to time and together with any
promissory note or notes issued in exchange or replacement therefor or otherwise
issued pursuant to the Credit Agreement, the "Notes", and the Credit Agreement,
the Notes and all other agreements and instruments among the Borrower, the Agent
and the Banks, or any of them, executed in connection therewith, whether now or
hereafter executed, and any supplements or modifications thereof and any
agreements or instruments issued in exchange or replacement therefor,
collectively referred to as the "Agreements").
B. Pursuant to the terms of the Agreements the Banks have agreed to make
certain extensions of credit to the Borrower.
C. Each Guarantor is an affiliate of the Borrower, the Borrower and the
Guarantors are engaged in related businesses, and the Guarantors have derived or
will derive substantial direct and indirect benefit from the making of the
extensions of credit by the Banks.
D. The obligation of the Banks to make or continue to make certain
extensions of credit under the Credit Agreement are conditioned upon, among
other things, the execution and delivery by the Guarantors of this Guaranty, and
the extensions of credit under the Credit Agreement were made in reliance upon
the issuance of this Guaranty.
AGREEMENT
In consideration of the premises and to induce the Banks to make loans,
extend credit or make other financial accommodations, and to continue to keep
such credit and other financial accommodations available to the Borrower, each
Guarantor hereby agrees with and for the benefit of the Banks as follows:
<PAGE>
<PAGE>
1. Defined Terms. As used in this Guaranty, terms defined in the first
paragraph of this Guaranty and in the recital paragraphs are used herein as
defined therein, and the following terms shall have the following meanings:
"Cumulative Guarantors" shall mean the Guarantors and all other
future guarantors of the Liabilities.
"Lenders" shall mean the Lenders and the Agent and their successors
and assigns.
"Liabilities" shall mean all indebtedness, obligations and
liabilities of the Borrower to any of the Lenders in connection with or pursuant
to the Agreements, including without limitation, all principal, interest
(including but without limitation interest which, but for the filing of a
bankruptcy petition, would have accrued on the principal amount of the
Liabilities), charges, fees and all costs and expenses, including without
limitation reasonable fees and expenses of counsel, in each case whether now
existing or hereafter arising, direct or indirect (including without limitation
any participation interest acquired by any Lender in such indebtedness,
obligations and liabilities of the Borrower to any other person), absolute or
contingent, joint and/or several, secured or unsecured, arising by operation of
law or otherwise.
All other capitalized terms used but not defined herein shall have
the meanings ascribed thereto in the Credit Agreement.
2. Guarantee. (a) Each Guarantor hereby guarantees to the Lenders,
irrevocably, absolutely and unconditionally, as primary obligor and not as
surety only, the prompt and complete payment of the Liabilities.
(b) All payments to be made under this Guaranty (except pursuant to
paragraph (c) below) shall be made to each Lender pro rata in accordance with
the unpaid amount of Liabilities held by each Lender at the time of such
payment.
(c) The Guarantors agree to make prompt payment, on demand, of any
and all reasonable costs and expenses incurred by any Lender in connection with
enforcing the obligations of any of the Guarantors hereunder including without
limitation the reasonable fees and disbursements of counsel.
3. Consents to Renewals, Modifications and other Actions and Events. This
Guaranty and all of the obligations of the Guarantors hereunder shall remain in
full force and effect without regard to and shall not be released, affected or
impaired by: (a) any amendment, assignment, transfer, modification of or
addition or supplement to the Liabilities or any Agreement; (b) any extension,
indulgence, increase in the Liabilities or other action or inaction in respect
of any of the Agreements or otherwise with respect to the Liabilities, or any
acceptance of security for, or other guaranties of, any of the Liabilities or
Agreements, or any surrender, release, exchange, impairment or alteration of any
such security or guaranties including without limitation the failing to perfect
a security interest in any such security or abstaining from taking advantage of
or realizing upon any other guaranties or upon any security interest in any such
security; (c) any default by the Borrower under, or any lack of due execution,
invalidity or unenforceability of, or any
GUARANTY AGREEMENT
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<PAGE>
<PAGE>
irregularity or other defect in, any of the Agreements; (d) any waiver by any
Lender or any other person of any required performance or otherwise of any
condition precedent or waiver of any requirement imposed by any of the
Agreements, any other guaranties or otherwise with respect to the Liabilities;
(e) any exercise or non-exercise of any right, remedy, power or privilege in
respect of this Guaranty, any other guaranty or any of the Agreements; (f) any
sale, lease, transfer or other disposition of the assets of the Borrower or any
consolidation or merger of the Borrower with or into any other person,
corporation, or entity, or any transfer or other disposition of any shares of
capital stock of the Borrower; (g) any bankruptcy, insolvency, reorganization or
similar proceedings involving or affecting the Borrower or any other guarantor
of the Liabilities; (h) the release or discharge of the Borrower from the
performance or observance of any agreement, covenant, term or condition under
any of the Liabilities or contained in any of the Agreements, of any Cumulative
Guarantor or of this Guaranty, by operation of law or otherwise; or (i) any
other cause whether similar or dissimilar to the foregoing which, in the absence
of this provision, would release, affect or impair the obligations, covenants,
agreements and duties of any Guarantor hereunder, including without limitation
any act or omission by any Lender or any other any person which increases the
scope of any Guarantor's risk; and in each case described in this paragraph
whether or not any Guarantor shall have notice or knowledge of any of the
foregoing, each of which is specifically waived by each Guarantor. Each
Guarantor warrants to the Lenders that it has adequate means to obtain from the
Borrower on a continuing basis information concerning the financial condition
and other matters with respect to the Borrower and that it is not relying on any
Lender to provide such information either now or in the future.
4. Waivers, Etc. Each Guarantor unconditionally waives: (a) notice of any
of the matters referred to in Paragraph 3 above; (b) all notices which may be
required by statute, rule of law or otherwise to preserve any rights of any
Lender, including, without limitation, notice to the Guarantors of default,
presentment to and demand of payment or performance from the Borrower and
protest for non-payment or dishonor; (c) any right to the exercise by any Lender
of any right, remedy, power or privilege in connection with any of the
Agreements; (d) any requirement of diligence or marshaling on the part of any
Lender; (e) any requirement that any Lender, in the event of any default by the
Borrower, first make demand upon or seek to enforce remedies against, the
Borrower or any other Cumulative Guarantor before demanding payment under or
seeking to enforce this Guaranty; (f) any right to notice of the disposition of
any security which any Lender may hold from the Borrower or otherwise and any
right to object to the commercial reasonableness of the disposition of any such
security; and (g) all errors and omissions in connection with any Lender's
administration of any of the Liabilities, any of the Agreements or any other
Cumulative Guarantor, or any other act or omission of any Lender which changes
the scope of such Guarantor's risk. The obligations of each Guarantor hereunder
shall be complete and binding forthwith upon the execution of this Guaranty by
it and subject to no condition whatsoever, precedent or otherwise, and notice of
acceptance hereof or action in reliance hereon shall not be required.
5. Nature of Guaranty; Payments. This Guaranty is an absolute,
unconditional, irrevocable and continuing guaranty of payment and not a guaranty
of collection, and is wholly independent of and in addition to other rights and
remedies of any Lender with respect to the Borrower, any collateral, any
Cumulative Guarantor or otherwise, and it is not contingent upon the pursuit by
any Lender of any such rights and remedies, such pursuit being hereby waived by
each Guarantor. The obligations of each Guarantor hereunder shall be continuing
and shall continue (irrespective of any statute of limitations otherwise
applicable) and cover and include all the Liabilities of the Borrower accruing
or in the process of
GUARANTY AGREEMENT
-3-
<PAGE>
<PAGE>
accruing to the Lenders before the Lenders deliver to the Guarantors a release
of this Guaranty, which is in writing, refers specifically to this Guaranty, and
is signed by a President, a Senior Vice President, or a Vice President of each
Lender. Nothing shall discharge or satisfy the liability of any Guarantor
hereunder except the full and irrevocable payment and performance of all of the
Liabilities and the expiration or termination of all the Agreements. All
payments to be made by the Guarantors hereunder shall be made without set-offs
or counterclaim, and each Guarantor hereby waives the assertion of any such
set-offs or counterclaims in any proceeding to enforce its obligations
hereunder. All payments to be made by each Guarantor hereunder shall also be
made without deduction or withholding for, or on account of, any present or
future taxes or other similar charges of whatsoever nature, provided that if any
Guarantor is nevertheless required by law to make any deduction or withholding,
such Guarantor shall pay to the Lenders such additional amounts as may be
necessary to ensure that the Lenders shall receive a net sum equal to the sum
which it would have received had no such deduction or withholding been made.
Each Guarantor agrees that, if at any time all or any part of any payment
previously applied by any Lender to any of the Liabilities must be returned by
such Lender for any reason, whether by court order, administrative order, or
settlement and whether as a "voidable preference", "fraudulent conveyance" or
otherwise, each Guarantor remains liable for the full amount returned as if such
amount had never been received by such Lender, notwithstanding any termination
of this Guaranty or any cancellation of any of the Agreements and the
Liabilities and all obligations of each Guarantor hereunder shall be reinstated
in such case.
6. Evidence of Liabilities. Each Lender's books and records showing the
Liabilities shall be admissible in any action or proceeding, shall be binding
upon each Guarantor for the purpose of establishing the Liabilities due from the
Borrower and shall constitute prima facie proof, absent manifest error, of the
Liabilities of the Borrower to such Lender, as well as the obligations of each
Guarantor to such Lender.
7. Subordination, Subrogation, Contribution, Etc. Each Guarantor agrees
that all present and future indebtedness, obligations and liabilities of the
Borrower to such Guarantor shall be fully subordinate and junior in right and
priority of payment to any indebtedness of the Borrower to the Lenders, and,
notwithstanding anything in this Guaranty or under any other guaranty or other
agreement to the contrary, each Guarantor hereby irrevocably waives all rights
of subrogation, contribution, reimbursement or indemnity whatsoever and all
rights of recourse to security for the debts and obligations of the Borrower,
whether arising under this Guaranty, under any other guaranty or agreement, by
operation of law or otherwise.
8. Assignment by Lenders. Each Lender shall have the right to
assign and transfer this Guaranty to any assignee of any portion of the
Liabilities. Each Lender's successors and assigns hereunder shall have the
right to rely upon and enforce this Guaranty.
9. Joint and Several Obligations. The obligations of the Guarantors
hereunder and all other Cumulative Guarantors shall be joint and several and
each Guarantor shall be liable for all of the Liabilities to the extent provided
herein regardless of any other Cumulative Guarantors, and each Lender shall have
the right, in its sole discretion to pursue its remedies against any Guarantor
without the need to pursue its remedies against any other Cumulative Guarantor,
whether now or hereafter in existence, or against any one or more Cumulative
Guarantors separately or against any two or more jointly, or against some
separately and some jointly.
GUARANTY AGREEMENT
-4-
<PAGE>
<PAGE>
10. Representations and Warranties. Each Guarantor hereby represents and
warrants to the Lenders that:
(a) the execution, delivery and performance by the Guarantor of this
Guaranty are within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official, and do not contravene or
constitute a default under, any provision of applicable law or regulation or of
the articles of incorporation or other charter documents or bylaws of such
Guarantor, or of any agreement, judgment, injunction, order, decree or other
instrument binding upon such Guarantor, or result in the creation or imposition
of any lien, security interest or other charge or encumbrance on any asset of
such Guarantor;
(b) this Guaranty constitutes a legal, valid and binding agreement
of each Guarantor, enforceable against the Guarantor in accordance with its
terms;
(c) as of the date hereof, each of the following is true and correct
for each of Amtran, Inc, Ambassadair Travel Club, Inc., ATA Vacations, Inc,
Amber Travel, Inc. and Amber Air Freight Corporation: (i) the fair saleable
value and the fair valuation of such Guarantor's property is greater than the
total amount of its liabilities (including contingent liabilities) and greater
than the amount that would be required to pay its probable aggregate liability
on its existing debts as they become absolute and matured, (ii) each Guarantor's
capital is not unreasonably small in relation to its current and/or contemplated
business or other undertaken transactions, and (iii) each Guarantor does not
intend to incur, or believe that it will incur, debt beyond its ability to pay
such debts as they become due; and
(d) the Borrower, the Guarantors and the other affiliates of the
Borrower are engaged as an integrated group in the business of providing air
travel and related services; that the integrated operation requires financing on
such a basis that credit supplied to the Borrower can be made available from
time to time to various subsidiaries of the Borrower, as required for the
continued successful operation of the integrated group as a whole; and that each
Guarantor has requested the Lenders to continue to lend and to make credit
available to the Borrower for the purpose of financing the integrated operations
of the Borrower and its subsidiaries, including each Guarantor, with each
Guarantor expecting to derive benefit, direct or indirectly, from the loans and
other credit extended by the Lenders to the Borrower, both in such Guarantor's
separate capacity and as a member of the integrated group, inasmuch as the
successful operation and condition of each Guarantor is dependent upon the
continued successful performance of the functions of the integrated group as a
whole. Each of the Guarantors hereby determines and agrees that the execution,
delivery and performance of this Guaranty are necessary and convenient to the
conduct, promotion or attainment of the business of such Guarantor and in
furtherance of the corporate purposes of such Guarantor.
11. Binding on Successors and Assigns. This Guaranty shall be the valid,
binding and enforceable obligation of the Guarantors and their successors and
assigns.
GUARANTY AGREEMENT
-5-
<PAGE>
<PAGE>
12. Indemnity. As a separate, additional and continuing obligation, each
Guarantor unconditionally and irrevocably undertakes and agrees with each Lender
that, should the Liabilities not be recoverable from any Guarantor as guarantor
under this Guaranty for any reason whatsoever (including, without limitation, by
reason of any provision of any of the Liabilities or the Agreements being or
becoming void, unenforceable, or otherwise invalid under any applicable law)
then, notwithstanding any knowledge thereof by any Lender at any time, each
Guarantor as original and independent obligor, upon demand by the Lenders, will
make payment to the Lenders of the Liabilities by way of a full indemnity.
13. Cumulative Rights and Remedies, Etc. The obligations of each Guarantor
under this Guaranty are continuing obligations and a new cause of action shall
arise in respect of each default hereunder. No course of dealing on the part of
any Lender, nor any delay or failure on the part of any Lender in exercising any
right, power or privilege hereunder, shall operate as a waiver of such right,
power, or privilege or otherwise prejudice the Lenders' rights and remedies
hereunder; nor shall any single or partial exercise thereof preclude any further
exercise thereof or the exercise of any other right, power or privilege. No
right or remedy conferred upon or reserved to any Lender under this Guaranty is
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to every other right or remedy given
hereunder or now or hereafter existing under any applicable law. Every right and
remedy given by this Guaranty or by applicable law to the Lenders may be
exercised from time to time and as often as may be deemed expedient by any
Lender.
14. Severability. If any one or more provisions of this Guaranty should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected, impaired, prejudiced or disturbed thereby, and any provision
hereunder found partially unenforceable shall be interpreted to be enforceable
to the fullest extent possible. If at any time all or any portion of the
obligation of any Guarantor under this Guaranty would otherwise be determined by
a court of competent jurisdiction to be invalid, unenforceable or avoidable
under Section 548 of the federal Bankruptcy Code or under any fraudulent
conveyance or transfer laws or similar applicable law of any jurisdiction, then
notwithstanding any other provisions of this Guaranty to the contrary such
obligation or portion thereof of such Guarantor under this Guaranty shall be
limited to the greatest of (i) the value of any quantified economic benefits
accruing to such Guarantor as a result of this Guaranty, (ii) an amount equal to
95% of the excess on the date the relevant Liabilities were incurred of the
present fair saleable value of the assets of such Guarantor over the amount of
all liabilities of such Guarantor, contingent or otherwise, and (iii) the
maximum amount of which this Guaranty is determined to be enforceable.
15. Merger; Amendments. This Guaranty is intended as a final expression of
the subject matter hereof and is also intended as a complete and exclusive
statement of the terms hereof. Each Guarantor's liability hereunder is
independent of and in addition to its liability under any other guaranty
previously of subsequently executed. No course of dealing, course of performance
or trade usage, and no parole evidence of any nature, shall be used to
supplement or modify any terms hereof, nor are there any conditions to the full
effectiveness of this Guaranty. None of the terms and provisions of this
Guaranty may be waived, altered, modified or amended in any way except by an
instrument in writing executed by duly authorized officers of each Lender and
the Guarantors.
GUARANTY AGREEMENT
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<PAGE>
<PAGE>
16. Consent to Jurisdiction. Notwithstanding the place where any Liability
originates or arises, or is to be repaid, any suit, action or proceeding arising
out of or relating to this Guaranty, any of the Agreements, or any borrowing
made in connection with any of the Agreements, may be instituted in any court of
the United States of America or the State of Michigan, sitting in the City of
Detroit, State of Michigan, or in any court of the United States of America or
the State of Indiana, sitting in the City of Indianapolis, State of Indiana, and
each Guarantor hereby irrevocably waives any objection which it may have or
hereafter have to the laying of the venue of any such suit, action or proceeding
and any claim that any such suit, action or proceeding has been brought in an
inconvenient forum; and each Guarantor hereby irrevocably submits his person and
property to the jurisdiction of any such court in any such suit, action or
proceeding. Each Guarantor hereby consents to the service of process in any
suit, action or proceeding of the nature referred to in this Paragraph by the
mailing of a copy thereof by registered or certified mail, postage prepaid, or
personally delivering a copy thereof to such Guarantor, at the address set forth
under its signature below, or at such other address as such Guarantor may
hereafter specify to the Lenders in writing. Nothing in this Paragraph shall
affect the right of any Lender to serve process in any other manner permitted by
law or limit the right of the Lenders to bring proceedings against any Guarantor
or any of its property in the courts of any other jurisdiction in which it is
subject to service of process. To the extent that any Guarantor now or hereafter
may be entitled, in any jurisdiction in which proceedings may at any time be
commenced with respect to this Guaranty or the transactions contemplated hereby,
to claim itself or its revenues, assets or properties any immunity (including,
without limitation, immunity from service of process, jurisdiction, suit,
judgment, counterclaim, enforcement of or execution on a judgment, attachment
prior to the judgment, attachment in aid of execution of a judgment or other
legal process), and to the extent that in any such jurisdiction there may be
attributed any such immunity (whether or not claimed), such Guarantor hereby
irrevocably undertakes not to claim and hereby irrevocably waives any such
immunity to the fullest extent permitted by law. Each Guarantor irrevocably and
generally consents in respect of any proceedings to the giving of any relief or
the issue of any process in connection with those proceedings including, without
limitation, the making, enforcement or execution against any assets whatsoever
of any order or judgment which may be made or given in those proceedings.
17. Governing Law; Headings. This Guaranty shall be governed by and
construed in accordance with the laws of the State of Michigan without giving
effect to the choice of law principles of such state. The headings of the
various paragraphs hereof are for the convenience of reference only and shall in
no way modify any of the terms or provisions hereof.
18. Notices. Any notice, demand, consent or request given or made to each
Guarantor by any Lender shall be deemed to have been duly given or made if sent
in writing (including telecommunications) to such Guarantor to the address or
telex or telecopy number set forth below the name of such Guarantor on the
signature page hereof, or at such other address or telex or telecopy number as
such Guarantor may hereafter specify to the Lenders in writing. All notices or
other communications sent by means of telecopy, telex or other wire transmission
shall be made with request for assurance of receipt in a manner typical with
respect to communications of that type. Written notices or other communications
shall be deemed delivered upon receipt if delivered by hand or by telecopy,
three business days after mailing if mailed, or one business day after deposit
with an overnight courier service if delivered by overnight courier. Notices or
other communications delivered by hand shall be deemed delivered upon receipt.
GUARANTY AGREEMENT
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19. WAIVER OF JURY TRIAL. THE LENDERS, IN ACCEPTING THIS GUARANTY, AND THE
GUARANTORS, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
GUARANTY OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS GUARANTY OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER THE LENDERS NOR THE
GUARANTORS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH
ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE
DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY ANY OF THE
LENDERS OR THE GUARANTORS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF
THEM. THIS GUARANTY IS FREELY AND VOLUNTARILY GIVEN TO THE LENDERS BY THE
GUARANTORS WITHOUT ANY DURESS OR COERCION, AND AFTER EACH GUARANTOR HAS EITHER
CONSULTED WITH COUNSEL OR BEEN GIVEN AN OPPORTUNITY TO DO SO. EACH GUARANTOR HAS
CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS GUARANTY
AND OF EACH AGREEMENT.
EXECUTED and effective as of the 24 day of July, 1997.
AMTRAN, INC.
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
AMBASSADAIR TRAVEL CLUB, INC.
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
ATA VACATIONS, INC.
(formerly Amber Tours, Inc.)
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
GUARANTY AGREEMENT
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<PAGE>
<PAGE>
AMBER TRAVEL, INC.
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
AMERICAN TRANS AIR
TRAINING CORPORATION.
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
AMERICAN TRANS AIR
EXECUJET, INC.
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
AMBER AIR FREIGHT CORPORATION,
By: /s/ Kenneth K. Wolff
---------------------------------
Its: Kenneth K. Wolff
Executive Vice President & CFO
-------------------------------
Address for each Guarantor:
7337 Washington Street
Indianapolis, Indiana 46231
Telecopy No.: (317) 240-7091
GUARANTY AGREEMENT
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Execution Copy
SECURITY AGREEMENT AND CHATTEL MORTGAGE
(Aircraft and Engines)
THIS SECURITY AGREEMENT AND CHATTEL MORTGAGE executed as of July 24, 1997
(this "Mortgage"), by AMERICAN TRANS AIR, INC., an Indiana corporation (the
"Mortgagor"), having its chief place of business at 7337 West Washington Street,
Indianapolis, Indiana 46231, in favor of NBD Bank, N.A. a national banking
association having its principal banking offices at One Indiana Square,
Indianapolis, Indiana 46266, as Agent, and as the assignee of NBD Bank (in such
capacity, the "Mortgagee") for the banks party from time to time to the Credit
Agreement described below (herein individually called a "Bank" and collectively
called the "Banks");
W I T N E S S E T H :
WHEREAS, the Mortgagor is an air carrier certificated under Sections 41102
and 44705 of Title 49 of the United States Code, and holds air carrier operating
certificates;
WHEREAS, the Mortgagor has heretofore executed and delivered an Amended
and Restated Security Agreement and Chattel Mortgage executed as of March 28,
1996 (hereinafter called the "Existing Mortgage"), and the Existing Mortgage was
duly recorded by the Federal Aviation Administration of the Oklahoma City,
Oklahoma, on May 28, 1996 as conveyance No. PP006297 pursuant to Section 44017
of Title 49 of the United States Code, as amended by the supplements described
on Schedule II hereto, and this Mortgage amends and restates the Existing
Mortgage in its entirety;
WHEREAS, the Mortgagor has executed a Credit Agreement dated as of the
date hereof (as amended or modified from time to time, the "Credit Agreement")
with the Mortgagee, as Agent, Amtran, Inc., an Indiana corporation ("Amtran"),
as a Guarantor, and the Banks, which replaces the credit agreement referenced in
the Existing Mortgage;
WHEREAS, it is a requirement under the Credit Agreement that the Mortgagor
enter into this Mortgage for the benefit of the Mortgagee and the Banks to
secure the payment and performance of the following covenants, indebtedness,
liabilities, and obligations of the Mortgagor (being herein collectively called
the "Obligation"):
All present and future indebtedness, obligations, and liabilities, and all
renewals and extensions thereof, now or hereafter owed to Mortgagee and the
Banks, or any of them, by Mortgagor, arising from, by virtue of, evidenced by,
or pursuant to the Credit Agreement, or the promissory notes issued pursuant
thereto at any time ("Notes"), and any and all other indebtedness, obligations
and liabilities arising from this Mortgage or any and all other instruments,
agreements, guaranties, and documents ever delivered to Mortgagee or any Bank
pursuant to the Credit Agreement at any time, including without limitation
reimbursement obligations of the Mortgagor in connection with any letter of
credit issued or to be issued by Mortgagee and any obligations to cash
collateralize outstanding letters of credit and all other present and future
indebtedness, obligations and liabilities under or pursuant to any other Loan
Documents (as any of the foregoing may hereafter at any time and from time to
time may be renewed, extended, amended, supplemented, or restated), and any and
all renewals, extensions, or restatements of, or amendments or supplements to,
all or any part of the foregoing, together with all interest accruing thereon
(including
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without limitation any interest accruing subsequent to any petition filed by or
against the Mortgagor or any Guarantor under the U.S. Bankruptcy Code) and all
costs, expenses, and attorneys' fees incurred in the enforcement or collection
of the indebtedness, obligations, and liabilities described in this paragraph,
whether such are direct, indirect, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several.
NOW, THEREFORE, to secure the due and punctual payment and performance of
the Obligation, the Mortgagor hereby mortgages to the Mortgagee, for the benefit
of itself, the Administrative Agent and the Banks, and grants to the Mortgagee,
for the benefit of itself, the Administrative Agent and the Banks, a security
interest in the property described below (all property so subject to the lien
and security interest of this Mortgage at any time being herein referred to as
the "Mortgaged Aviation Property"):
(a) The aircraft described in Schedule I hereto (each such aircraft, while
it shall be subject to the lien and security interest of this Mortgage, being
herein referred to as the "Mortgaged Airplane" and all of such aircraft so
subject collectively being herein referred to as the "Mortgaged Airplanes"),
together with (and the terms "Mortgaged Airplane" and "Mortgaged Airplanes"
shall include) all appliances, parts, instruments, appurtenances, accessories
and equipment (including, without limitation, communication and radar equipment)
owned by the Mortgagor now or hereafter incorporated or installed in or attached
to any of such aircraft, and all substitutions, replacements and renewals of any
and all thereof owned by the Mortgagor and all other property owned by the
Mortgagor which shall hereafter become physically incorporated or installed in
or attached to such aircraft, whether any of the foregoing is now owned by the
Mortgagor or hereafter acquired by it, exclusive of aircraft engines (except
that the Mortgaged Engines (as defined below) shall be subject to such lien and
security interest pursuant to clause (b) below);
(b) All aircraft engines described in Schedule I hereto or described in
any Supplemental Chattel Mortgage substantially in the form of Annex 1 hereto
which shall be hereafter delivered to Mortgagee pursuant to the provisions of
Section 7 (any such engine, while it shall be subject to the lien and security
interest of this Mortgage, being herein referred to as a "Mortgaged Engine" and
all such engines so subject collectively being herein referred to as the
"Mortgaged Engines") together with (and the terms "Mortgaged Engine" or
"Mortgaged Engines" shall include) all appliances, parts, instruments,
appurtenances, accessories and equipment owned by the Mortgagor now or hereafter
incorporated or installed in or attached to such engine or engines, and all
substitutions, replacements and renewals of any and all thereof owned by the
Mortgagor and all other property owned by the Mortgagor which shall hereafter
become physically incorporated or installed in or attached to such engine or
engines, whether any of the foregoing is now owned by the Mortgagor or hereafter
acquired by it, exclusive of the Mortgaged Airplanes (as defined above);
(c) All books, records and documents of Mortgagor relating to the
Mortgaged Aviation Property, its operation, maintenance or repair, including
without limitation, all log book(s) for the Mortgaged Airplanes and all
maintenance records, maintenance manuals, flight manuals, operating manuals and
minimum equipment lists for the Mortgaged Airplanes or Mortgaged Engines,
whether now owned or hereafter acquired; and
(d) All proceeds of any of and all the properties described in paragraphs
(a) and (b) and (c) above, including, without limitation, all rents, leases and
profits and all insurance proceeds (and the Mortgagor's right to receive such
insurance proceeds) with respect to any of the Mortgaged Airplane or any
Mortgaged Engine and other proceeds of any kind resulting from any Event of Loss
(as hereinafter defined)
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with respect to any Mortgaged Airplane or Mortgaged Engine or otherwise arising
with respect to any Mortgaged Airplane or Mortgaged Engine;
subject, however, to the provisions of Section 6 and 17 hereof.
Mortgagor further covenants to Mortgagee and agrees with the Mortgagee as
follows:
SECTION 1. Certain Representatives, Warranties and Covenants. The
Mortgagor hereby represents and warrants and hereby covenants as follows:
(a) From and after the Closing Date (as defined in the Credit Agreement)
the Mortgagor will have, and at all times thereafter will have, good title to
the Mortgaged Airplanes and the Mortgaged Engines free and clear of all
mortgages, deeds of trust, liens, security interests and other charges or
encumbrances except for those created or permitted by this Mortgage or by the
terms of the Credit Agreement and has, and at all times will have, full power
and authority to mortgage and grant a lien and security interest in, and assign,
the Mortgaged Aviation Property in the manner aforesaid.
(b) The Mortgagor is, and at all times will be, (i) a "Citizen of the
United States" as defined in Section 40102(a)(15) of 49 U.S.C., (ii) an air
carrier as to which the provisions of Section 1110 of the United States
Bankruptcy Code apply, and (iii) an air carrier certificated under Sections
41102(a) and 44705 of 49 U.S.C.
(c) Each of the Mortgaged Airplanes is registered with the Federal
Aviation Administration in the name of the Mortgagor and Mortgagor will take all
necessary action to cause such registration to remain in effect. An
airworthiness certificate has been duly issued under the Act for each of the
Mortgaged Airplanes and all of such airworthiness certificates are in full force
and effect.
(d) The Mortgaged Airplanes and Mortgaged Engines are in such condition as
to comply with the requirements of Section 4; and the insurance required by
Section 9 is in full force and effect.
(e) The chief place of business and chief executive office (as such terms
are used in Article 9 of the Uniform Commercial Code) of the Mortgagor is
located at 7337 West Washington Street, Indianapolis, Indiana 46231.
SECTION 2. Inspection. The Mortgagor will permit any authorized
representatives of the Mortgagee to inspect the Mortgaged Aviation Property or
any part thereof, and reasonably to examine, copy or make extracts from, any and
all books, records and documents in the possession of the Mortgagor relating to
the Mortgaged Aviation Property or any part thereof and performance of this
Mortgage, all at such reasonable times and as often as may reasonably be
requested. Mortgagee shall have no duty to make any such inspection or
examination and Mortgagee shall not incur any liability or obligation by reason
of not making any such inspection or examination.
SECTION 3. Liens, Encumbrances and Claims. The Mortgagor will not
directly or indirectly create, incur, assume or suffer to exist any lien,
security interest, charge or encumbrance on or with respect to any part or all
of the Mortgaged Aviation Property, title thereto or any interest therein,
except any of the following (herein referred to collectively as "Permitted
Encumbrances"): (a) the lien and security interest of this Mortgage, (b)
transfers of possession and other acts permitted by Section 5, and (c) Permitted
Liens as
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defined in the Credit Agreement.
SECTION 4. Maintenance and Operation. Mortgagor shall bear all risk of
loss of or damage to the Mortgaged Aviation Property. The Mortgagor, at its own
cost and expense, shall service, repair and maintain each Mortgaged Airplane and
each Mortgaged Engine and shall install replacement equipment and parts on each
Mortgaged Airplane and each Mortgaged Engine so as to keep each Mortgaged
Airplane and each Mortgaged Engine in such operating condition as may be
required to permit each such Mortgaged Airplane and Mortgaged Engine to be
utilized in commercial charter operations and scheduled airline service
world-wide and shall maintain all records, logs and other materials that may be
required to permit each Mortgaged Airplane and each Mortgaged Engine to be so
utilized. Mortgagor will comply and will cause compliance with all laws,
regulations or orders of governmental authority having jurisdiction over
Mortgagor or the Mortgaged Aviation Property, including all applicable
operational and maintenance requirements of the Federal Aviation Administration,
and will at all times maintain in effect appropriate United States FAA
Certificates of Airworthiness for each of the Mortgaged Airplanes. The Mortgagor
agrees that the Mortgaged Airplanes and Mortgaged Engines will not be
maintained, used or operated in violation of any law or any rule, regulation or
order of any government or governmental authority having jurisdiction (domestic
or foreign), or in violation of any airworthiness certificate, license or
registration relating to the Mortgaged Airplanes or Mortgaged Engines issued by
any such authority, and in the event that such laws, rules, regulations or
orders require alteration of any Mortgaged Airplane or any Mortgaged Engine, the
Mortgagor, at its own cost and expense, will conform thereto or obtain
conformance therewith and will maintain the same in proper operating condition
under such laws, rules, regulations and orders; provided, however, that the
Mortgagor may, in good faith, contest the validity or application of any such
law, rule, regulation or order in any reasonable manner that does not materially
adversely affect the interests of Mortgagee under this Mortgage. Without the
prior written consent of Mortgagee, Mortgagor shall not fly any Mortgaged
Airplane or any Mortgaged Engine or suffer any thereof to be flown or located
to, from or within (a) any area excluded from coverage by any insurance policy
required hereunder to be maintained in effect with respect to each of the
Mortgaged Airplanes or any Mortgaged Engine or (b) any area of hostilities
recognized or designated by the United States Government or an insurance carrier
then insuring aircraft in Borrower's fleet, unless fully covered by war-risk
hull insurance or unless such Mortgaged Airplane or such Mortgaged Engine is
operated or used under contract or lease with the Government of the United
States of America under which contract that Government shall assume all
liability for any damage, loss, destruction or failure to return possession of
such Mortgaged Airplane or such Mortgaged Engine at the end of the term of such
contract.
SECTION 5. Sale, Assignment, Lease, etc. Except as otherwise provided in
the Credit Agreement, the Mortgagor will not, without the prior written consent
of Mortgagee, sell, assign, lease or otherwise dispose of or relinquish
possession of any of the Mortgaged Aviation Property, except that, unless a
Default Event (as hereinafter defined) shall have occurred and be continuing,
the Mortgagor may, in the ordinary course of business: (i) transfer possession
of any Mortgaged Airplane or any Mortgaged Engine to the United States
Government pursuant to a contract or lease meeting the requirements of the
clause (b) of the proviso to the second sentence of Section 4, a copy of which
shall be furnished to the Mortgagee; (ii) transfer possession of any Mortgaged
Airplane or any Mortgaged Engine to the manufacturer thereof or any other
organization for testing, repairs, servicing, maintenance, overhaul, alterations
or modifications; (iii) enter into any lease of any Mortgaged Engine provided
that any such lease does not have a term in excess of ninety (90) days; and (iv)
enter into any "wet lease" or other similar arrangement under which the
Mortgagor maintains operational control of the Mortgaged Aviation Property and
which do not have a term in excess of six (6) months; provided, however, that,
in connection with any of the foregoing, neither any
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Mortgaged Airplane nor any Mortgaged Engine shall be or become subject to any
pooling, interchange or exchange agreement or arrangement without the prior
written approval of the Mortgagee.
SECTION 6. Release of Mortgaged Aviation Property. The property subject to
this Mortgage shall be automatically released from the lien and security
interest of this Mortgage and the Mortgagee shall release such property upon
irrevocable payment and performance in full of the Obligation and the expiration
or termination of the Commitments (as defined in the Credit Agreement). Portions
of the property subject to this Mortgage shall also be released under the terms
and conditions specified in Section 3.02 of the Credit Agreement.
SECTION 7. Subsequently Mortgaged Engines. If an Event of Loss shall occur
with respect to a Mortgaged Engine, but not to a Mortgaged Airplane, the
Mortgagor shall give Mortgagee prompt written notice thereof and shall, within
30 days after the occurrence of such Event of Loss, duly convey to Mortgagee,
for the benefit of itself, the Administrative Agent and the Banks, a lien and
security interest in another equivalent engine of the same model and
manufacturer owned or acquired by the Mortgagor (and not already subject to a
security interest securing the Obligation), free and clear of all security
interests, liens, charges and other encumbrances (except Permitted Encumbrances)
and having a value and utility reasonably equivalent to, and being in as good
operating condition as, and having performance and durability characteristics
reasonably equivalent to, the Mortgaged Engine with respect to which such Event
of Loss occurred if such Mortgaged Engine were in the condition and repair as
required by the terms hereof immediately prior to the occurrence of such Event
of Loss (any such engine so substituted hereunder being herein called a
"Replacement Engine").
In connection with any substitutions hereunder, the Mortgagor shall
deliver to Mortgagee the following:
(A) a Supplemental Chattel Mortgage substantially in the form of
Annex 1 hereto duly executed by the Mortgagor appropriately describing the
Replacement Engine or Engines to be subjected to the lien and security interest
of this Mortgage;
(B) a certificated signed by the President and by the Treasurer of
the Mortgagor (an "Officers' Certificate"), dated the date of execution of such
Supplemental Chattel Mortgage, stating:
(1) that the Mortgagor is the owner of the Replacement Engines
described in such Supplemental Chattel Mortgage, free and
clear of all security interests, liens, charges and other
encumbrances except Permitted Encumbrances and that legal and
beneficial title thereto is vested in the Mortgagor;
(2) that such Supplemental Chattel Mortgage has been duly
authorized, executed and delivered by the Mortgagor;
(C) an opinion or opinions of counsel for the Mortgagor acceptable
to Mortgagee, as to matters set forth in subparagraph (2)(x) below, and of Crowe
& Dunlevy, P.C., or other counsel acceptable to Mortgagee, as to the other
matters set forth below, each such opinion to be dated the date of execution of
such Supplemental Chattel Mortgage, stating, as the case may be:
(D) that the Replacement Engine or Engines described in such
Supplemental Chattel
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Mortgage are free and clear of all recorded security interests, liens, charges
and other encumbrances, except Permitted Encumbrances;
(i) that such Supplemental Chattel Mortgage (x) has been duly
authorized, executed and delivered by the Mortgagor and is enforceable against
the Mortgagor and (y) creates a valid first security interest in and to the
Replacement Engine or Engines described in such Supplemental Chattel Mortgage,
subject to Permitted Encumbrances, enforceable, wherever such Replacement Engine
or Engines are located within the United States, against all third parties and
securing all obligations purported to be secured thereby, and such security
interest is fully perfected; and
(1) that such Supplemental Chattel Mortgage has been duly filed for
recordation in accordance with the provisions of the Act; it being understood
that in rendering the foregoing opinions, counsel for matters set forth in
subparagraph (2)(x) above may state that they do not give any opinion as to the
laws of any jurisdictions other than the United States of America and the State
of Indiana and that their opinions are subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and Crowe & Dunlevy, P.C., or such other
counsel for other matters may state that their opinions are subject to the
limitations, assumptions and exceptions set forth in the opinion of Crowe &
Dunlevy, P.C., delivered in connection with the filing of this Mortgage; and
(2) such evidence of title of the Mortgagor to such Replacement
Engine or Engines, of the value thereof and compliance with the insurance
provisions of Section 9 with respect thereto, as Mortgagee may reasonably
request.
SECTION 8. Replacement of Parts; Alterations, Modification and
Additions. (a) The Mortgagor, at its own cost and expense, will promptly replace
all appliances, parts, instruments, appurtenances, accessories and other
equipment of whatever nature (collectively, the "Parts"), which may from time to
time be incorporated or installed in or attached to any Mortgaged Airplane or
any Mortgaged Engine and which may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatever. In addition, in the ordinary
course of maintenance, service, repair or testing, the Mortgagor may remove any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use; provided, however,
that, except as otherwise provided in paragraph (b) below, the Mortgagor shall
replace such Parts as promptly as practicable. All replacement Parts shall be
free and clear of all security interests, liens, charges and other encumbrances
(except Permitted Encumbrances) and shall be in as good operating condition as,
and shall have a value and utility reasonably equivalent to, the value and
utility of Parts replaced.
Except as provided in paragraph (b) below, all Parts owned by the
Mortgagor at any time removed from any Mortgaged Airplane or any Mortgaged
Engine shall remain subject to the lien and security interest of this Mortgage,
no matter where located, until such time as such Parts shall be replaced by
Parts which have been incorporated or installed in or attached to such Mortgaged
Airplane or such Mortgaged Engine and which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part owned
by the Mortgagor becoming incorporated or installed in or attached to such
Mortgaged Airplane or any Mortgaged Engine as above provided, without further
act, such replacement Part shall become subject to the lien and security
interest of this Mortgage.
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(b) The Mortgagor, at its own cost and expense, may from time to
time make such alterations and modifications in and additions to any Mortgaged
Airplane or any Mortgaged Engine as the Mortgagor may deem desirable in the
proper conduct of its business; provided, however, that no such alteration,
modification or addition shall diminish the value, utility, condition or
airworthiness of any Mortgaged Airplane or any Mortgaged Engine below the value,
utility, condition or airworthiness thereof immediately prior to such
alteration, modification or addition. All Parts owned by the Mortgagor
incorporated or installed in or attached to or added to any Mortgaged Airplane
or any Mortgaged Engine as the result of such alteration, modification or
addition shall, without further act, become subject to the lien and security
interest of this Mortgage.
SECTION 9. Insurance, Events of Loss, Etc. (a) The Mortgagor will at
all times carry and maintain in effect, or cause to be carried and maintained in
effect, on the Mortgaged Aviation Property, at its own cost and expense, (i)
third party and passenger liability insurance in an amount not less than the
greater of (x) $150,000,000.00 per occurrence and (y) the amount of such
insurance applicable to any other aircraft of the same model and manufacturer as
the aircraft described on Schedule I hereto which is operated by the Mortgagor
either as owner or as original primary lessee (and not as sublessee or assignee
of another primary lessee) on which the Mortgagor carries insurance; (ii)
property damage liability insurance; (iii) aircraft all-risk hull insurance for
each Mortgaged Airplane and the Mortgaged Engines and Parts belonging to,
installed in or appurtenant to each Mortgaged Airplane (which all-risk hull
insurance shall include coverage of Mortgaged Engines and Parts while
temporarily removed from the Mortgaged Airplanes and not replaced by similar
components) in an amount not less than 100% of the replacement cost thereof (or
such other amount as the Mortgagee may approve); (iv) all-risk of physical loss
or damage insurance on Mortgaged Engines and Parts while removed from the
Mortgaged Airplane; (v) war-risk insurance (when available from the United
States or an agency thereof or a commercial carrier and required by Section 4);
and (vi) baggage and cargo liability insurance; in each case in such amounts
(except where amounts are specified above) and in such form, including without
limitation the form of the loss payable clause and the designation of named
insureds, and with such insurance companies, underwriters or funds of recognized
responsibility as shall be reasonably satisfactory to Mortgagee and as shall be
declared from time to time by independent aircraft insurance brokers (who may be
the brokers regularly employed by the Mortgagor), appointed by the Mortgagor and
reasonably acceptable to Mortgagee, to be necessary or advisable (in view of the
insurance usually carried by corporations engaged in the same or a similar
business as the Mortgagor, similarly situated with the Mortgagor and owning
similar aircraft and engines) for the protection of the interests of Mortgagee.
All insurance required hereunder shall provide for payment in the United States
in U.S. Dollars. All third party and passenger liability and property damage
liability insurance shall insure against liability which Mortgagee or the
Mortgagor might incur by reason of the ownership or operation of any of the
Mortgaged Airplanes in or over any area (including the high seas) in which any
of the Mortgaged Airplanes is operated or located, shall be of the type usually
carried by corporations engaged in the same or a similar business, similarly
situated with the Mortgagor, and owning similar aircraft and engines and shall
cover risks of the kind customarily insured against by such corporations and, in
the case of property damage liability insurance, shall be in amounts that are
not less than property damage liability insurance applicable to the other
aircraft in the Mortgagor's fleet on which the Mortgagor carries such insurance.
(b) All liability policies shall name Mortgagee as an additional
insured as its interests may appear. All other policies required hereby covering
loss or damage to the Mortgaged Aviation Property shall name Mortgagee as an
additional insured as its interests may appear and as a lender loss payee and
shall provide that any payment thereunder for any loss or damage shall be paid
to Mortgagee, except as permitted under the Credit Agreement; provided, however,
if no Default Event has occurred and is
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continuing and the Mortgagor is otherwise entitled to receive a payment
thereunder, proceeds under such policies which are received by the Mortgagee may
be disbursed by the Mortgagee to the Mortgagor upon the written request of the
Mortgagor subject to and provided that each of the following conditions is
satisfied in form and substance satisfactory to the Mortgagee: (i) all such
proceeds shall be applied to repair in full any such loss or damage, (ii) the
Mortgagee shall have determined in its sole discretion that such repairs are
feasible and economically prudent, (iii) there are sufficient proceeds on
deposit with the Mortgagee to completely repair any such loss or damage, or the
Mortgagor shall deposit funds with the Mortgagee in the amount of any
deficiency, (iv) all disbursements of such proceeds shall be paid by the
Mortgagee from time to time as works progresses based upon disbursement
procedures acceptable to the Mortgagee, (v) the repairs can be completed within
sixty (60) days from the date of such loss or damage or such other time agreed
to in writing between Mortgagor and Mortgagee, (vi) the Mortgagor shall pay or
reimburse the Mortgagee for all of its reasonable costs and expenses incurred in
connection with the disbursement of such proceeds, and (vii) upon completion of
the repairs, the Mortgagee's collateral would not be impaired or value reduced
in any way from the value thereof prior to the loss or damage, as determined by
the Mortgagee. All policies shall insure the interests of Mortgagee regardless
of any breach or violation by the Mortgagor of warranties, declarations or
conditions contained in such policies or any action or inaction of the Mortgagee
or others; each such policy shall be primary without right of contribution from
any other insurance which is carried by the Mortgagor and shall expressly
provide that all provisions thereof, except the limits of liability, shall
operate in the same manner as if there were a separate policy covering each
insured; each such policy shall waive any right of subrogation of the insurers
against Mortgagee; each such policy shall waive any right of the insurers to any
set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of Mortgagee; and each such policy shall
provide that, if any premium or installment is not paid when due, or if such
insurance is canceled or terminated for any reason whatsoever, or if the scope
of coverage or the limits of liability are reduced or any other material adverse
change is made in or to the rights of Mortgagee, the insurers will promptly
notify Mortgagee in writing and any such cancellation, termination or change
shall not be effective as to the Mortgagee for 30 days (seven days in the case
of war-risk policies) after receipt of such notice, and that appropriate
certification shall be made to Mortgagee by each insurer with respect thereto.
(c) Any insurance proceeds received as the result of any property
damage loss not constituting an Event of Loss with respect to any Mortgaged
Airplane or any Mortgaged Engine shall be applied in payment for any repair or
replacement required by the terms of Section 7 or 8 if not already paid for by
the Mortgagor, and any balance remaining after any such repair or replacement
(or if already paid for by Mortgagor, all such insurance proceeds), shall be
retained by, or immediately paid over to, the Mortgagor; provided, however, that
no Default Event shall have occurred and be continuing; and provided further,
however, that Mortgagee shall have received from the Mortgagor prior to the
making of any such payment the Mortgagor a certificate signed by the President
of the Mortgagor certifying that the property so damaged has been repaired in
full, that the costs of such repair (which costs shall be specified in such
certificate) have been paid in full, and that no Default Event shall have
occurred and be continuing. If such repairs are made pursuant to contracts
requiring advance or progress payments, such insurance requiring advance or
progress payments, such insurance proceeds shall be paid over to the Mortgagor
from time to time upon appropriate certification by the Mortgagor.
(d) On or before the date of this Mortgage and thereafter at least
once during each calendar year commencing with 1998, the Mortgagor will cause
its insurance broker(s) to furnish the Mortgagee a detailed report signed by
such broker(s) showing the insurance then carried and maintained on the
Mortgaged Airplanes and Mortgaged Engines and stating the opinion of such
broker(s) that the
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insurance then carried and maintained on the Mortgaged Airplanes and Mortgaged
Engines complies with the terms thereof. The Mortgagor will cause such broker(s)
to agree to advise the Mortgagee in writing promptly of any default in the
payment of any premium and of any other act or omission on the part of the
Mortgagor of which it shall have knowledge that might invalidate or render
unenforceable, in whole or in part, any such insurance. The Mortgagor will
promptly deliver to the Mortgagee, if requested by the Mortgagee, copies of
certificates of insurance evidencing all such insurance.
(e) For purposes of this Mortgage the term "Event of Loss" shall
mean any of the following events with respect to any Mortgaged Airplane or any
Mortgaged Engine: (i) the actual total loss of such Mortgaged Airplane or such
Mortgaged Engine, (ii) the Mortgaged Airplane or such Mortgaged Engine shall
become lost, stolen (and not returned within 30 days), destroyed, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever, (iii)
any damage to such Mortgaged Airplane or such Mortgaged Engine that shall result
in an insurance settlement with respect thereto on the basis of a total loss, or
(iv) the condemnation, confiscation or seizure of, or requisition of title to or
use (other than use by the United States Government) of, such Mortgaged Airplane
or such Mortgaged Engine continuing to the earlier of the expiration of 60 days
thereafter or the receipt of insurance or other proceeds with respect thereto.
SECTION 10. Indemnification and Expenses. The Mortgagor does hereby
assume liability for, and does hereby agree to indemnify, protect, save and keep
harmless the Mortgagee, the Administrative Agent and the Banks and their
successors, assigns, representatives, officers, directors, agents and servants
(the "Indemnitees") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs, expenses and
disbursements, including legal expenses, of whatsoever kind and nature imposed
on, incurred by or asserted against any of the Indemnitees (whether or not also
indemnified against by any other person) in any way relating to or arising out
of this Mortgage, the Credit Agreement, the Note or the ownership, lease,
service, control, repair, overhaul, testing, inspection, possession, management,
use, operation, condition, sale or other disposition of any Mortgaged Aviation
Property; provided, however, that the Mortgagor shall not be required to
indemnify anyone for the willful misconduct or gross negligence of any of the
Indemnitees. The indemnities contained in this Section shall continue in full
force and effect notwithstanding the termination of this Mortgage with respect
to claims arising or liabilities incurred prior to such termination.
SECTION 11. Default Events; Remedies. (a) The following events shall
constitute "Default Events" (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) and each such Default
Event shall be deemed to exist and continue so long as, but only as long as, it
shall not have been remedied:
(i) the occurrence of any "Event of Default", as that term is
defined in the Credit Agreement; or
(ii) the Mortgagor shall fail to carry and maintain insurance
on or with respect to the Mortgaged Airplanes and/or Mortgaged Engines in
accordance with the provisions of Section 9; or
(iii) the Mortgagor shall voluntarily create, incur or assume
any lien, security interest, charge or encumbrance on or with respect to any
part of or all the Mortgaged Aviation Property in violation of Section 3; or
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(iv) the Mortgagor shall fail to maintain the registration of
any of the Mortgaged Airplanes under the Act (and the regulations thereunder);
or
(v) the Mortgagor shall sell, assign, lease or otherwise
dispose of or relinquish possession of any of the Mortgaged Aviation Property in
violation of Section 5; or
(vi) the Mortgagor shall fail to perform or observe any other
covenant or agreement to be performed or observed by it hereunder and such
failure shall continue unremedied for a period of thirty (30) days after written
notice thereof by Mortgagee; or
(vii) any material representation or warranty made by the
Mortgagor herein or any document or certificate furnished by the Mortgagor to
Mortgagee in connection herewith shall at any time prove to have been incorrect
in any material respect when made; or
(viii) this Mortgage shall at any time for any reason cease to
be in full force and effect or shall be declared to be null and void other than
solely by reason of the gross negligence or willful misconduct of the Mortgagee.
(b) If any Default Event shall occur and be continuing, then, in any
such event, Mortgagee may forthwith to the extent permitted by applicable law:
(i) apply to a court of competent jurisdiction to obtain specific performance or
observance by the Mortgagor of any covenant, agreement or undertaking on the
part of the Mortgagor hereunder that the Mortgagor shall have failed to observe
or perform or to obtain aid in the execution of any power granted herein, and/or
(ii) proceed to foreclose upon and against the lien and security interest
created by this Mortgage according to the laws of the applicable jurisdiction by
doing any one or more or all of the acts described in paragraph (c) below and/or
the following acts, as the Mortgagee in its sole and complete discretion may
then elect:
(A) exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to a mortgagee or secured party under the
provisions of applicable law;
(B) institute legal proceedings to foreclose upon and against
the lien and security interest granted by this Mortgage, to recover judgments
for the Obligation then due and owing and secured hereby, and to collect the
same out of any of or all the Mortgaged Aviation Property or the proceeds of any
sale thereof;
(C) institute legal proceedings for the sale, under the
judgment or decree of any court of competent jurisdiction, of any of or all the
Mortgaged Aviation Property;
(D) without regard to the adequacy of the security for the
Obligation by virtue of this Mortgage or any other collateral or to the solvency
of the Mortgagor, institute legal proceedings for the appointment of a receiver
or receivers with respect to any of or all the Mortgaged Aviation Property
pending foreclosure hereunder or for the sale of any of or all the Mortgaged
Aviation Property under the order of a court of competent jurisdiction or under
other legal process; or
(E) personally or by agents or attorneys, enter upon any
premises where the Mortgaged Aviation Property or any part thereof may then be
located, and take possession of all or any part
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thereof, and hold, store and keep idle, or lease, operate or otherwise use or
permit the use of, the Mortgaged Aviation Property or any part thereof, for such
time and upon such terms as the Mortgagee may in its sole and complete
discretion deem to be in its best interest, and demand, collect, and retain all
rent, earnings, and other sums due and to become due in respect of the same from
any party whomsoever, accounting only for net earnings, if any, arising from
such use and charging against all receipts from the use of the same or from the
sale thereof, by court proceedings or pursuant to paragraph (c) below, all other
costs, expenses, charges, damages and other losses resulting from such use.
At any sale pursuant to this Section 11, whether under the power of
sale or by virtue of judicial proceedings, it shall not be necessary for
Mortgagee or a public officer under order of a court to have present physical or
constructive possession of the Mortgaged Aviation Property to be sold. Upon any
sale hereunder of any of or all the Mortgaged Aviation Property or any interest
therein, the receipt of the officer making such sale under judicial proceedings
or of Mortgagee shall be sufficient discharge to the purchaser for the purchase
money, and such purchaser shall not be obligated to see to the application
thereof. Any sale hereunder of any of or all the Mortgaged Aviation Property or
any interest therein shall, to the extent permitted by applicable law, be a
perpetual bar against the Mortgagor with respect to such Mortgaged Aviation
Property or interest therein, as the case may be.
(c) If Mortgagee should elect to foreclose upon and against the lien
and security interest created in and by this Mortgage, the Mortgagor shall, upon
demand of Mortgagee, deliver to Mortgagee all or any part of the Mortgaged
Aviation Property at such time or times and place or places as Mortgagee may
specify; and Mortgagee is hereby authorized and empowered to the extent
permitted by law, with or without the aid of process of law, to enter upon any
premises where the Mortgaged Aviation Property or any part thereof may be
located and take possession of and remove the same. Mortgagee may thereafter
sell, lease and dispose of, or cause to be sold, leased or disposed of, all or
any part of the Mortgaged Aviation Property at one or more public or private
sales, leasings or other dispositions, at such places and times and on such
terms and conditions as the Mortgagee may deem fit. Mortgagee agrees to give the
Mortgagor at least ten days' written notice of the date fixed for any public
sale, or the date on or after which will occur the execution of any contract for
any private sale, or any of the Mortgaged Aviation Property.
SECTION 12. Application of Proceeds. If a Default Event shall occur
and be continuing, the proceeds of any sale, lease or other disposition of all
or any part of the Mortgaged Aviation Property under this Mortgage and all other
sums realized by Mortgagee pursuant to this Mortgage or any proceedings
hereunder shall be applied in the following order of priority:
First: To the payment of the costs and expenses of such sale, lease,
disposition or the realization, including reasonable compensation to the
Mortgagee's agents and counsel, and all expenses, liabilities and advances made
or incurred by Mortgagee in connection therewith, including without limitation,
taxes upon or with respect to the sale, lease, disposition or realization and
the payment of taxes and liens, if any, prior to the lien and security interest
of this Mortgage (except any taxes or liens to which the respective sale, lease,
disposition or realization shall have been subject) and to the payment of
expenses and the reimbursements of payments incurred or made by Mortgagee
pursuant to Section 15;
Second: To the payment of the remainder of the Obligation.
Third: Upon payment in full of the Obligation, the balance, if any,
to the
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Mortgagor or to such other person(s) as may lawfully be entitled to the
remainder or as any court of competent jurisdiction may direct.
SECTION 13. Mortgagee as Attorney. The Mortgagor hereby irrevocably
and severally appoints Mortgagee the true and lawful attorney of the Mortgagor
(with full power of substitution) in the name, place and stead of, and at the
expense of, the Mortgagor in connection with the enforcement of the rights and
remedies provided for in Sections 11 and 12: (a) to give any necessary receipts
or acquittances for amounts collected or received thereunder, (b) to make all
necessary transfer of all or any part of the Mortgaged Aviation Property in
connection with any sale, lease or other disposition made pursuant hereto and
(c) to execute and deliver for value all necessary or appropriate bills of sale,
assignments and other instruments in connection with any such sale, lease or
other disposition, the Mortgagor hereby ratifying and confirming all that its
said attorney (or any substitute) shall lawfully do hereunder and pursuant
hereto. Nevertheless, if so requested by Mortgagee or a purchaser or lessor, the
Mortgagor shall ratify and confirm any such sale, lease or other disposition by
executing and delivering to Mortgagee or such purchaser or lessor all proper
bills of sale, assignments, releases, leases and other instruments as may be
designated in any such request.
SECTION 14. Remedies Cumulative; Fees and Expenses. (a) No failure
or delay on the part of Mortgagee in exercising, and no course of dealing with
respect to, any right, power or remedy under this Mortgage, and no notice or
demand that may be given to or made upon the Mortgagor with respect to any such
right, power or remedy, shall constitute a waiver thereof or limit or impair the
rights of Mortgagee to take any other or similar action or to exercise any other
right, power or remedy granted in this Mortgage or otherwise available to
Mortgagee; nor shall any single or partial exercise of any right, power or
remedy under this Mortgage include any other or further exercise thereof or the
exercise of any other right, power or remedy granted in this Mortgage or
otherwise available to Mortgagee or prejudice its rights against the Mortgagor
in any respect. Each and every remedy of the Mortgagee shall be cumulative and
shall not be exclusive or any other remedies provided now or hereafter at law,
in equity or otherwise.
(b) The Mortgagor shall reimburse Mortgagee for all counsel
fees and other expenses paid or incurred by Mortgagee in exercising any rights,
powers or remedies granted hereby.
(c) Mortgagor agrees, to the extent now or hereafter permitted
by applicable law, that neither it nor anyone claiming through or under it will
set up, claim or seek to take advantage of any valuation, appraisement, stay,
extension or redemption law now or hereafter in force in any locality where any
property subject to the lien and security interest of this Mortgage may be
located, in order to prevent, hinder or delay the enforcement or foreclosure of
this Mortgage, or the sale of the Mortgaged Aviation Property (or any part
thereof), or the purchaser's rights to absolute possession thereof immediately
after such sale. Mortgagor, for itself and all who may at any time claim through
or under it, hereby waives, to the full extent now or hereafter permitted by
applicable law, the benefit of all such laws, and any and all right to have any
of the Mortgaged Aviation Property marshalled upon any such sale.
SECTION 15. Mortgagee's Right to Perform for the Mortgagor. If the
Mortgagor shall fail to make any payment required to be made by it hereunder or
shall fail to perform or comply with any of its agreements contained herein,
Mortgagee may (but shall not be obligated to), upon ten (10) days' prior written
notice to the Mortgagor, make such payment or perform or comply with such
agreement (including, without limitation, the agreement of the Mortgagor to
maintain insurance pursuant to Section 9), and the amount of such payment and
the amount of the reasonable expenses of Mortgagee incurred in connection
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with such payment or the performance of or compliance with such agreement, as
the case may be, together with interest thereon at the highest post-maturity per
annum rate of interest provided for in the Note, shall be payable by the
Mortgagor to Mortgagee on demand and shall constitute additional indebtedness
secured by the lien and security interest of this Mortgage.
SECTION 16. Further Assurances. The Mortgagor shall, at its own cost
and expense (except as otherwise stated below): (i) as soon as practicable after
the date hereof, cause each of the Mortgaged Airplanes and (if not prevented by
applicable law or regulations or governmental authority, and if it will not
adversely affect the proper use thereof) each Mortgaged Engine included in the
Mortgaged Aviation Property to be legibly marked (in a reasonably prominent
location) with such a plate, disk or other marking of customary size, and
bearing such a legend, as shall in the opinion of Mortgagee be appropriate or
desirable to evidence the fact that it is subject to the lien and security
interest created by this Mortgage (and until such Mortgaged Airplane or such
Mortgaged Engine shall be released from the lien and security interest of this
Mortgage, the Mortgagor shall not remove or deface, or permit to be removed or
defaced, any such plate, disk or other marking or the identifying manufacturer's
serial number, and, in the event of such removal or defacement, shall promptly
cause such plate, disk or other marking or serial number to be promptly
replaced) and (ii) cause this Mortgage, and any and all additional instruments
which shall be executed pursuant to the terms hereof, to be kept, filed and
recorded, at all times, in such places in the United States and such places
outside the United States to which any of the Mortgaged Airplanes shall be
operated as shall be required in order to perfect and preserve the rights of
Mortgagee hereunder and furnish to Mortgagee an opinion or opinions of counsel
or other evidence satisfactory to Mortgagee of each such filing or recordation,
and, without limitation of any of the foregoing, at the request of Mortgagee,
promptly correct any defect, error or omission that may at any time hereafter be
discovered in the contents of this Mortgage or in the execution, acknowledgment
or delivery hereof, and will execute, acknowledge and deliver to Mortgagee such
further documents and assurances and take such further action as Mortgagee may
from time to time reasonably request in order to more effectively carry out the
intent and purpose of this Mortgage and to establish and protect the rights and
remedies created or intended to be created in favor of the Mortgagee hereunder
without limiting anything set forth above, the Mortgagor shall promptly file and
record such financing statements, continuation statements and other instruments
or documents with respect to the lien and security interest created hereby as
Mortgagee may reasonably deem necessary or appropriate fully to perfect the lien
and security interest, or fully to protect its interests, hereunder. Where
allowed by applicable law, Mortgagor hereby authorizes Mortgagee to file
financing statements and continuation statements signed only by the Mortgagee.
SECTION 17. Termination. Unless otherwise provided herein, this
Mortgage and the lien and security interest granted by this Mortgage shall
terminate at the date when the Obligation shall have been irrevocably fully paid
and performed and the Commitments (as defined in the Credit Agreement) shall
have expired or been terminated. Upon termination of this Mortgage, as
aforesaid, the Mortgagee shall execute and deliver to the Mortgagor at the
Mortgagor's expenses, such instruments of release and termination as shall be
appropriate in the premises.
SECTION 18. Miscellaneous. Any provision of this Mortgage which
shall be prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Mortgagor hereby waives any provision of law
that renders any provision hereof prohibited or unenforceable in any respect. No
term
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or provision of this Mortgage may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the Mortgagor and
Mortgagee. All the terms, provisions, conditions and covenants herein contained
shall be binding upon and shall inure to the benefit of the Mortgagor, the
Mortgagee and their respective successors and assigns. The captions in this
Mortgage are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 19. Governing Law. This Mortgage shall be construed and
enforced in accordance with, and governed by the laws of the State of Indiana,
except to the extent that the law of some other jurisdiction may be mandatorily
applicable to the proceedings taken for the enforcement of the rights of
Mortgagee hereunder; provided, however, that any remedies herein provided that
are valid under the laws of the jurisdiction where proceedings for the
enforcement hereof shall be taken shall not be affected by any invalidity
thereof under the laws of the State of Indiana.
SECTION 20. Execution and Delivery. This Mortgage may be executed in
any number of counterparts, and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Security Agreement And Chattel Mortgage to be duly executed, as of the
day and year first above written.
AMERICAN TRANS AIR, INC.
By: /s/ Kenneth R. Wolff
------------------------------------
Executive Vice President and
Chief Financial Officer
NBD BANK, N.A., as Mortgagee
By:
-------------------------------------
Its:
-------------------------------
Dated:
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or provision of this Mortgage may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the Mortgagor and
Mortgagee. All the terms, provisions, conditions and covenants herein contained
shall be binding upon and shall inure to the benefit of the Mortgagor, the
Mortgagee and their respective successors and assigns. The captions in this
Mortgage are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 19. Governing Law. This Mortgage shall be construed and
enforced in accordance with, and governed by the laws of the State of Indiana,
except to the extent that the law of some other jurisdiction may be mandatorily
applicable to the proceedings taken for the enforcement of the rights of
Mortgagee hereunder; provided, however, that any remedies herein provided that
are valid under the laws of the jurisdiction where proceedings for the
enforcement hereof shall be taken shall not be affected by any invalidity
thereof under the laws of the State of Indiana.
SECTION 20. Execution and Delivery. This Mortgage may be executed in
any number of counterparts, and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Security Agreement And Chattel Mortgage to be duly executed, as of the
day and year first above written.
AMERICAN TRANS AIR, INC.
By:
------------------------------------
Executive Vice President and
Chief Financial Officer
NBD BANK, N.A., as Mortgagee
By: /s/ Scott C. Morrison
-------------------------------------
Its: Vice President
-------------------------------
Dated:
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ANNEX 1
to Security Agreement
and Chattel Mortgage
[FORM OF SUPPLEMENTAL CHATTEL MORTGAGE]
SUPPLEMENTAL CHATTEL MORTGAGE NO.__________
SUPPLEMENTAL CHATTEL MORTGAGE dated as of __________, 19__, between
AMERICA TRANS AIR, INC., an Indiana corporation (hereinafter called the
"Mortgagor"), having its chief place of business at 7337 West Washington Street,
Indianapolis, Indiana 46231, as mortgagor, and NBD BANK, N.A., a national
banking association having its principal banking offices at One Indiana Square,
Indianapolis, Indiana ("Mortgagee"), as Mortgagee under the Mortgage described
below;
WHEREAS the Mortgagor has heretofore executed and delivered to the
Mortgagee a Security Agreement and Chattel Mortgage dated July __, 1997
(hereinafter called the "Mortgage"), covering the property of the Mortgagor
therein described, to secure the due and punctual payment and performance of the
Obligation (as defined in the Mortgage);
WHEREAS the Mortgage was duly recorded with the Federal Aviation
Administration at Oklahoma City, Oklahoma, on _____________, 19____, as
Conveyance No. _____________ pursuant to the Federal Aviation Act of 1958, as
amended;
WHEREAS the Mortgagor is the legal and beneficial owner of each of
the "Engines" (as hereinafter defined), free and clear of all liens and
encumbrances except Permitted Encumbrances, and desires to execute and deliver
this Supplemental Chattel Mortgage for the purpose of specifically subjecting
said property to the lien of the Mortgage;
WHEREAS the Mortgagor is an air carrier certificated under Section
401 of the Federal Aviation Act of 1958, as amended, and holds air carrier
operating certificates; and
WHEREAS all things necessary to make this Supplemental Chattel
Mortgage valid, binding and legal obligation of the Mortgagor, including all
proper corporate action on the part of the Mortgagor, have been done and
performed and have happened;
NOW, THEREFORE, THIS SUPPLEMENTAL CHATTEL MORTGAGE WITNESSETH, that,
to secure the due and punctual payment and performance of the Obligation and to
secure performance of all obligations and covenants of the Mortgagor under the
Mortgage, as supplemented hereby, the Mortgagor hereby mortgages to the
Mortgagee, for the benefit of itself, the Administrative Agent and the Banks (as
defined in the Mortgage), and grants to the Mortgagee, a security interest in
the following engine(s) (the "Engines"):
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Manufacturer's
Manufacturer Model Serial Number
- ------------ ----- -------------
TO HAVE AND TO HOLD all and singular the Engines unto the Mortgagee,
for the benefit of itself, the Administrative Agent and the Banks (as defined in
the Mortgage), and its successors and assigns, for the uses and purposes and
subject to the terms, provisions, agreements and covenants set forth in the
Mortgage.
This Supplemental Chattel Mortgage is intended to be delivered in
the State of Indiana and shall be governed by the laws of that State.
This Supplemental Chattel Mortgage shall be construed as
supplemental to the Mortgage and shall form a part thereof, and the Mortgage is
hereby incorporated by reference herein and is hereby ratified, approved and
confirmed.
This Supplemental Chattel Mortgage may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute but one and the
same Supplemental Chattel Mortgage.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Chattel Mortgage to be duly executed, as of the day and year first above
written.
AMERICAN TRANS AIR, INC.,
By:
---------------------------------
Title:
("Mortgagor")
[Add Appropriate Acknowledgements]
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SCHEDULE 1 TO SECURITY AGREEMENT AND CHATTEL MORTGAGE
The Aircraft
The following aircraft:
Manufacturer U.S.
Manufacturer Model Serial No. Registry No.
- ------------ ----- ---------- ------------
Lockheed L-1011-385-1 193C-1052 N185AT
Lockheed L-1011-385-1 193C-1057 N192AT
Lockheed L-1011-385-1 193C-1071 N193AT
Lockheed L-1011-385-1 193C-1074 N186AT
Lockheed L-1011-385-1 193C-1081 N189AT
Lockheed L-1011-385-1 193C-1084 N191AT
Lockheed L-1011-50 193C-1077 N187AT
Lockheed L-1011-385-1 193C-1041 N195AT
Lockheed L-1011-385-1 193C-1086 N190AT
Lockheed L-1011-385-1 193B-1076 N196AT
Lockheed L-1011-385-1 193P 1082 N197AT
Lockheed L-1011-385-1 193C-1078 N188AT
17
<PAGE>
<PAGE>
SCHEDULE 1 (Cont'd)
The Engines
The following engines, each of said engines being 750 or more rated takeoff
horsepower or its equivalent:
Manufacturer
Manufacturer Model Serial No.
- ------------ ----- ----------
Rolls Royce RB211-22B-02 10353
Rolls Royce RB211-22B-02 10279
Rolls Royce RB211-22B-02 10259
Rolls Royce RB211-22B-02 10254
Rolls Royce RB211-22B-02 10238
Rolls Royce RB211-22B-02 10383
Rolls Royce RB211-22B-02 10354
Rolls Royce RB211-22B-02 10341
Rolls Royce RB211-22B-02 10362
Rolls Royce RB211-22B-02 10236
Rolls Royce RB211-22B-02 10255
Rolls Royce RB211-22B-02 10347
Rolls Royce RB211-22B-02 10251
Rolls Royce RB211-22B-02 10208
Rolls Royce RB211-22B-02 10286
Rolls Royce RB211-22B-02 10331
Rolls Royce RB211-22B-02 10260
Rolls Royce RB211-22B-02 10258
Rolls Royce RB211-22B 10219
Rolls Royce RB211-22B 10274
Rolls Royce RB211-22B 10323
Rolls Royce RB211-22B 10319
Rolls Royce RB211-22B 10357
Rolls Royce RB211-22B 10561
Rolls Royce RB211-22B-02 10311
Rolls Royce RB211-22B-02 10273
Rolls Royce RB211-22B-02 10358
Rolls Royce RB211-22B 10348
Rolls Royce RB211-22B 10349
Rolls Royce RB211-22B 10351
Rolls Royce RB211-22B 10503
Rolls Royce RB211-22B 10300
Rolls Royce RB211-22B 10466
Rolls Royce RB211-22B 10335
Rolls Royce RB211-22B 10235
Rolls Royce RB211-22B 10394
18
<PAGE>
<PAGE>
SCHEDULE II
Recording
Document Date Date Conveyance No.
- -------- ---- ---- --------------
1st Supplement 9/24/96 11/5/96 HH013243
2nd Supplement 11/12/96 12/30/96 Z00193
3rd Supplement 12/30/96 2/13/97 DD011948
<PAGE>
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Primary
Average shares outstanding........................................... 11,483 11,481 11,616
Net effect of dilutive stock options................................. 52 0 0
-------- ------ ------
Total................................................................ 11,535 11,481 11,616
-------- ------ ------
Net Income (loss).................................................... $(26,674) $8,524 $3,486
-------- ------ ------
Net Income (loss) per share.......................................... $ (2.31) $ 0.74 $ 0.30
-------- ------ ------
Fully Diluted
Average shares outstanding........................................... 11,483 11,481 11,616
Net effect of dilutive stock options................................. 52 0 0
-------- ------ ------
Total................................................................ 11,535 11,481 11,616
-------- ------ ------
Net Income (loss).................................................... $(26,674) $8,524 $3,486
-------- ------ ------
Net Income (loss) per share.......................................... $ (2.31) $ 0.74 $ 0.30
-------- ------ ------
</TABLE>
<PAGE>
