<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1997
REGISTRATION NUMBER 333-37375
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MIDWAY AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4512 36-3915637
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
------------------------
300 WEST MORGAN STREET
SUITE 1200
DURHAM, NORTH CAROLINA 27701
(919) 956-4800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
JONATHAN S. WALLER, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MIDWAY AIRLINES CORPORATION
300 WEST MORGAN STREET, SUITE 1200
DURHAM, NORTH CAROLINA 27701
(919) 956-4800 (PHONE)
(919) 956-4801 (FAX)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
HOWARD WOLF, ESQ. JOEL S. KLAPERMAN, ESQ.
Fulbright & Jaworski L.L.P. Shearman & Sterling
1301 McKinney, Suite 5100 599 Lexington Avenue
Houston, Texas 77010-3095 New York, New York 10022
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- --------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- --------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER 25, 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>
3,850,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 3,850,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,000,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 1,850,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES
OF COMMON STOCK BY THE SELLING STOCKHOLDERS. PRIOR TO THIS OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE
COMPANY. IT IS CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC
OFFERING PRICE WILL BE BETWEEN $14.00 AND $16.00 PER
SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
---------------------
APPLICATION HAS BEEN MADE TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON
THE NASDAQ NATIONAL MARKET SYSTEM UNDER THE SYMBOL "MDWY."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
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.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE........................... $ $ $ $
TOTAL (3)........................... $ $ $ $
</TABLE>
- ---------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $850,000.
(3) THE COMPANY AND ONE OF THE SELLING STOCKHOLDERS HAVE GRANTED TO THE
UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO
PURCHASE UP TO AN AGGREGATE OF 577,500 ADDITIONAL SHARES AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF
COVERING OVERALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
PROCEEDS TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS WILL BE ,
, AND , RESPECTIVELY. SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO THE APPROVAL OF CERTAIN LEGAL
MATTERS BY SHEARMAN & STERLING, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED
THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER
THE ROBINSON-HUMPHREY COMPANY
, 1997
<PAGE>
(ROUTE MAP TO BE PROVIDED)
[Graphic of route map showing east coast of the United States and the cities
served by the Company]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE IN THE OFFERING SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 10
The Company................................................................................................ 17
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Financial and Operating Data and Glossary......................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 24
Business................................................................................................... 33
Management................................................................................................. 44
Certain Transactions....................................................................................... 47
Principal and Selling Stockholders......................................................................... 48
Description of Capital Stock............................................................................... 49
Shares Eligible for Future Sale............................................................................ 51
Underwriters............................................................................................... 53
Legal Matters.............................................................................................. 55
Experts.................................................................................................... 55
Available Information...................................................................................... 56
Index to Audited Financial Statements...................................................................... F-1
</TABLE>
BRAND NAMES AND TRADEMARKS APPEARING IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR HOLDERS.
3
<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 COMPANY'S FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS (I)
ASSUMES THAT THE UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED AND (II)
GIVES EFFECT TO A 682.9108392-FOR-1 SPLIT OF THE COMMON STOCK AND A CONVERSION
OF THE COMPANY'S SENIOR CONVERTIBLE PREFERRED STOCK TO BE EFFECTED PRIOR TO THE
OFFERING. UNLESS OTHERWISE INDICATED, REFERENCES TO "MIDWAY" OR THE "COMPANY"
MEAN MIDWAY AIRLINES CORPORATION. THE COMPANY PURCHASED THE MIDWAY NAME FROM
MIDWAY AIRLINES, INC., A CARRIER WHICH SOUGHT BANKRUPTCY PROTECTION IN 1991. THE
COMPANY IS OTHERWISE NOT AFFILIATED OR IN ANY WAY CONNECTED WITH MIDWAY
AIRLINES, INC.
CERTAIN INFORMATION CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING INFORMATION WITH RESPECT TO THE COMPANY'S PLANS AND
STRATEGY FOR ITS BUSINESS, ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. FOR A DISCUSSION OF IMPORTANT FACTORS THAT WOULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN, SEE "RISK FACTORS."
THE COMPANY
Midway is a jet airline operator serving 13 destinations in eight eastern
states and Mexico from its hub at Raleigh-Durham International Airport ("RDU"),
where it currently carries more passengers and operates more flights than any
other airline. The Company has focused its operations to attract and retain
business travelers by (i) providing frequent non-stop service from RDU to major
business destinations, (ii) maintaining a high level of service and (iii)
offering American Airlines, Inc. ("American") AAdvantage-Registered Trademark-
frequent flyer miles. The Company currently operates the youngest all jet fleet
in the United States with 12 98-seat Fokker F-100 and one 148-seat Airbus A320
aircraft. To further serve its market niche, the Company recently reached
agreement to acquire ten new Canadair Regional Jet aircraft (the "CRJs"), with
deliveries to occur in the 14-month period beginning in November 1997. The
Company anticipates that the CRJs will expand the Company's capacity by up to
40%, and will be utilized (i) to serve existing Midway destinations with greater
frequency and (ii) to enter new routes, providing Midway's customers with more
non-stop jet destinations.
In March 1995, the Company moved its base of operations from Chicago to RDU
following American's reduction in service in the Raleigh-Durham market. A number
of factors make RDU an attractive base of operations for Midway, including
market growth (21% more local traffic in 1996 than in 1994), Midway's cost
structure and its ability to serve routes with regional jets. The Raleigh-Durham
area is rapidly expanding, with air travel having grown by an average of 8% per
year from 1991 to 1996, compared to 4% for the United States as a whole. The
area is home to three major universities, the state capital and Research
Triangle Park, a 6,850-acre business center with more than 130 high technology
and other research oriented companies. The Company believes that the area's
growing business community offers opportunities for expansion at RDU with
regional jets and yet does not generate sufficient passenger volume to attract
significant competition from low fare, low cost airlines. RDU offers modern
facilities with room for the Company to grow. The Company subleases or has
options to sublease 18 of the 26 gates at the newer of RDU's two terminals,
Terminal C. Of the remaining eight gates in Terminal C, American and Corporate
Express Airlines, Midway's code share commuter partner, use six and Midway is
currently in negotiations to sublease the remaining two. Substantially all of
the gates at RDU's other terminal are currently occupied.
The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to offer AAdvantage-Registered Trademark- miles to, and accept
AAirpass-Registered Trademark- tickets and American first class upgrades from,
its passengers. Midway also contracts with American for important services,
including reservations, ground handling, fueling and yield management. Midway
believes the relationship benefits American as well, by building customer
loyalty through the use
4
<PAGE>
of AAdvantage-Registered Trademark- miles by Midway customers, by providing
sublease revenues to help offset American's lease payments at RDU and by
providing revenue through Midway's use of various American services.
On February 11, 1997, the Company completed a recapitalization (the
"Recapitalization"), resulting in a change in ownership and management. Robert
R. Ferguson III, former chief executive officer of Continental Airlines, Inc.,
was named Chairman of the Board, President and Chief Executive Officer of the
Company. The Company believes that the Recapitalization resulted in reductions
of approximately $12 million in annual expenses, including (i) a decrease in
aircraft rent expense, (ii) a decrease in facility rentals, (iii) a decrease in
the cost of certain services and (iv) a reduction of interest on long-term debt.
In addition to the Recapitalization, the Company had previously discontinued
certain unprofitable long-haul routes. Since the Recapitalization, the Company
has experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved results are attributable to
the benefits realized from the Recapitalization, route restructuring, improved
yield management, increased passenger demand and a generally strong economic
environment. See "The Company--The Recapitalization."
OPERATING STRATEGY
The principal elements of the Company's operating strategy are:
- ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on available 1997
data, the Company's yields are 50% to 100% higher than the yields of most
other jet operators. To attract high-yielding passengers, the Company has
designed its operations to serve the needs of business travelers flying to
and from Raleigh-Durham. The Company has developed strong relationships
with major corporations located in the Raleigh-Durham area and offers
these business travelers frequent non-stop jet service, as well as an
attractive, high quality in-flight product and
AAdvantage-Registered Trademark- frequent flyer miles. The Company
believes this focus on the needs of business travelers has produced a
loyal customer base and a higher percentage of business travelers than
other carriers. See "Selected Financial and Operating Data and
Glossary--Glossary" for the definition of "yield."
- MAINTAIN HIGH QUALITY OPERATIONS. Because the Company's business customers
require consistent, dependable performance, Midway is committed to meeting
the highest operational standards. The Company's year-to-date completion
factor and on-time performance rate of 99.5% and 83.4%, respectively, are
substantially higher than those of all of the ten largest U.S. domestic
airlines (the "major carriers"). The Company has achieved these
performance measures (i) by operating the youngest all jet fleet in the
United States, with an average age of 3.3 years, (ii) by maintaining a
spare aircraft to ensure a high completion factor and (iii) through its
commitment to high quality maintenance, including the use of vendors such
as American, affiliates of Rolls-Royce plc and a subsidiary of Canadian
Airlines Corporation.
- PROVIDE QUALITY CUSTOMER SERVICE. The Company seeks to generate a high
degree of loyalty and customer preference by providing high quality
in-flight amenities and customer service. The Company emphasizes customer
service from reservation to destination and offers tangible amenities such
as greater leg room, leather seating (on all aircraft except the Company's
single A320), gourmet coffee, quality snacks and a quiet, modern all jet
fleet.
- CONTINUE TO REDUCE OPERATING COSTS. Because of its focus on business
travelers and premium service, its small aircraft and its relatively short
stage lengths, the Company operates with yields and a cost per available
seat mile that are higher than industry averages. The Company is committed
to maintaining a competitive cost structure and has identified a number of
cost reduction opportunities. In addition to the cost savings resulting
from the Recapitalization, the Company has recently (i) entered into new
maintenance contracts, (ii) reduced dependence on third-party vendors for
flight reservation call handling and (iii) reduced certain insurance
costs. The Company is also implementing an automated voice-response flight
information system and engaging a new, lower
5
<PAGE>
cost credit card processing vendor. Although the introduction of regional
jet aircraft will shorten average stage length, the Company believes it
should result in additional cost benefits, including greater economies of
scale and more efficient utilization of facilities and personnel.
GROWTH STRATEGY
The Company believes that RDU is under-served with respect to non-stop
flights. To address this need and to better serve its core business customers,
the Company has ordered ten 50-seat CRJs. These new aircraft are scheduled for
delivery beginning November 1997 and continuing until December 1998. The Company
has options to acquire up to 20 additional CRJs over a two-year period with
delivery dates beginning in 1999.
The principal elements of the Company's growth strategy are:
- INCREASE FREQUENCIES TO CURRENT MARKETS. The Company's market share and
route profitability are greatest on routes where it offers the same or
better frequency and timing of flights compared to its competitors. The
Company's core customers are business travelers who generally pay higher
fares and select an airline primarily based on convenience of schedule.
Introduction of the new CRJs should enable the Company to increase
frequency and offer more convenient scheduling to current markets, without
necessarily increasing overall capacity in these markets.
- INCREASE NUMBER OF MARKETS SERVED. The Company has identified up to 20 new
market opportunities that it believes can support service primarily on an
"origination and destination" (i.e., local passenger) basis. The Company
intends to begin service from RDU to the five to ten most attractive of
these markets with the delivery of the CRJs. In addition, the Company
believes that existing demand on a number of routes currently served with
19-seat turboprop aircraft by Midway's code share commuter partner,
Corporate Express Airlines, can support 50-seat CRJ service. The Company
believes that most customers have a strong preference for jet service, and
will often pay a premium or choose a connecting flight to avoid flying on
turboprop aircraft. The Company anticipates attracting these customers
with the introduction of the CRJs.
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Common Stock offered:
<S> <C>
By the Company............. 2,000,000 shares
By the Selling 1,850,000 shares
Stockholders...............
Total.................. 3,850,000 shares
Common Stock to be
outstanding after the
Offering(1)................ 7,859,375 shares
Use of proceeds.............. The net proceeds to the Company will be used to make down
payments or lease security deposits in connection with the
Company's purchase or leveraged lease financing of regional
jet aircraft and to purchase spare parts (including engines)
for support of these aircraft, and for general working
capital purposes (which may include the cash
collateralization of credit card holdbacks). The Company
will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders in the Offering. See "Use of
Proceeds."
Proposed Nasdaq National
Market Symbol.............. MDWY
</TABLE>
- -------------------
(1) Excludes 1,562,500 additional shares of Common Stock reserved for issuance
in connection with stock options granted or to be granted to certain
officers and employees of the Company and a warrant to purchase 390,625
shares of Common Stock issued to an investor. See "Management--Executive
Compensation," "--Employee Plans" and "Principal and Selling Stockholders."
RISK FACTORS
See "Risk Factors" beginning on page 10 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following summary financial data are derived from the financial
statements of the Company. The operating data for the five months ended December
31, 1994 and the years ended December 31, 1995 and 1996 have been derived from
audited financial statements. The balance sheet data as of September 30, 1997
and the operating data for the nine months ended September 30, 1996 and 1997 are
derived from unaudited financial statements. The unaudited financial statements
for the nine-month periods include all adjustments, consisting only of normal
recurring accruals, that, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations of the Company
for those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the operating results that may be
expected for the entire year ending December 31, 1997. The data should be read
in conjunction with "Selected Financial and Operating Data and Glossary",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ -----------------
1994 1995 1996 1996 1997
------------ -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................................ $ 15,875 $122,602 $180,034 $135,273 $138,139
Operating expenses:
Wages, salaries and related costs....................... 3,659 19,874 24,619 18,156 18,597
Aircraft fuel........................................... 3,514 16,782 27,300 20,836 16,145
Aircraft and engine rentals............................. 5,328 30,889 34,113 25,710 22,850
Commissions............................................. 1,205 9,382 13,728 10,232 10,321
Maintenance, materials and repairs...................... 1,383 13,551 17,930 13,937 12,401
Depreciation and amortization........................... 334 2,056 1,346 955 1,379
Other operating expenses................................ 9,308 55,693 66,643 52,738 43,172
Restructuring(1)........................................ 4,900 6,004 -- -- --
Impairment of long-lived assets(2)...................... -- -- 16,941 16,941 --
Recapitalization(3)..................................... -- -- -- -- 1,225
------------ -------- -------- -------- -------
Total operating expenses............................ 29,631 154,231 202,620 159,505 126,090
------------ -------- -------- -------- -------
Operating income (loss)................................... (13,756) (31,629) (22,586) (24,232) 12,049
Income (loss) before extraordinary gain................... (13,814) (32,264) (24,264) (25,326) 6,980
Extraordinary gain(4)..................................... -- -- -- -- 15,272
------------ -------- -------- -------- -------
Net income (loss)......................................... (13,814) (32,264) (24,264) (25,326) 22,252
Preferred dividends....................................... (600) (1,440) -- -- --
------------ -------- -------- -------- -------
Net income (loss) available for common stockholders....... $(14,414) $(33,704) $(24,264) $(25,326) $ 22,252
------------ -------- -------- -------- -------
------------ -------- -------- -------- -------
PER SHARE AMOUNTS(5):
Income per share before extraordinary gain................ $1.00
Net income per share...................................... 3.19
Weighted average number of common shares outstanding...... 6,985,610
OTHER FINANCIAL DATA:
EBITDA(6)................................................. $ (8,450) $(23,654) $(3,525) $(5,750) $ 14,709
EBITDAR(6)................................................ (3,122) (7,235) 30,588 19,960 37,559
Cash flows provided by (used in):
Operating activities.................................... (14,323) (805) 5,784 (2,869) 4,961
Investing activities.................................... (354) (6,876) (2,614) (2,355) (21,378)
Financing activities.................................... 12,427 3,571 4,836 3,353 21,435
<CAPTION>
(FOOTNOTES ON NEXT PAGE)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED SEPTEMBER
DECEMBER 31, 30,
---------------------------- ----------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED OPERATING STATISTICS(7):
Available seat miles (000s)........................... 1,387,921 1,758,560 1,364,670 1,042,067
Revenue passenger miles (000s)........................ 692,681 998,959 761,236 652,955
Load factor........................................... 49.9% 56.8% 55.8% 62.7%
Break-even load factor(8)............................. 60.8% 59.2% 59.4% 56.4%
Yield................................................. 17.1 CENTS 17.4 CENTS 17.1 CENTS 20.4 CENTS
Cost per available seat mile(9)....................... 10.7 CENTS 10.7 CENTS 10.5 CENTS 12.0 CENTS
Aircraft (average during period)...................... 11.0 13.7 13.9 13.0
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and short-term investments........................ $ 31,793 $ 58,843
Working capital........................................................................... 5,436 32,486
Equipment and property, net............................................................... 12,459 12,459
Total assets.............................................................................. 73,952 101,002
Long-term debt and capital lease obligations (net of current maturities).................. 12,563 12,563
Stockholders' equity...................................................................... 9,468 36,518
</TABLE>
- ------------------------
(1) The Company recorded restructuring charges (a) for the five months ended
December 31, 1994 of $4.9 million, related to the Company's decision to move
from Chicago to RDU and (b) in 1995 of $6.0 million related to the return of
four A320 aircraft and other related one-time charges.
(2) The Company recorded an impairment loss of $16.9 million from certain
long-lived assets, primarily intangible assets, that were determined by
Company management to be impaired in accordance with SFAS 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of."
(3) The Company recorded a one-time charge of $1.2 million in 1997 related to
the Recapitalization.
(4) Extraordinary gain includes one-time gains recognized in connection with the
Recapitalization. See Note 15 to Audited Financial Statements for the Six
Months ended June 30, 1997.
(5) Since the Company was recapitalized in February 1997 and all prior capital
stock was cancelled at that time, per share amounts prior to 1997 are not
meaningful and thus are not presented.
(6) EBITDA represents income before income taxes, dividends and extraordinary
item plus interest expense (net of capitalized interest), depreciation,
amortization, restructuring expense, impairment of long-lived assets and
recapitalization expense. EBITDAR represents income before income taxes,
dividends and extraordinary item plus interest expense (net of capitalized
interest), depreciation, amortization, restructuring expense, impairment of
long-lived assets, recapitalization expense and aircraft and engine rentals.
EBITDA and EBITDAR are presented because each is a widely accepted financial
indicator of a company's ability to incur and service debt. However, EBITDA
and EBITDAR should not be considered in isolation, as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(7) For definitions of the airline operating terms used in this table, see
"Selected Financial and Operating Data and Glossary-- Glossary."
(8) Had restructuring, impairment of long-lived assets and recapitalization
expenses been included for the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997, the break-even load
factor would have been 63.3%, 64.8%, 66.6% and 60.0%, respectively.
(9) "Cost per available seat mile" represents total operating expenses plus
non-operating expenses/(income), excluding restructuring, impairment of
long-lived assets and recapitalization expenses, divided by available seat
miles. Had restructuring, impairment of long-lived assets and
recapitalization expenses been included for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1996 and 1997, cost
per available seat mile would have been 11.1 cents, 11.6 cents, 11.8 cents
and 12.1 cents, respectively.
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RISK FACTORS
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is characterized by low gross profit margins and high
fixed costs. The expenses of 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 average fare or traffic mix (the ratio of typically
high-yielding business passengers to typically low-yielding leisure passengers),
could have a disproportionate effect on an airline's operating and financial
results. Accordingly, a minor shortfall from expected revenue levels could have
a material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The airline industry is highly competitive and is particularly susceptible
to price discounting because airlines incur only nominal costs to provide
service to passengers occupying otherwise unsold seats. The Company currently
competes on some routes with both major and regional carriers and with discount
carriers. Such carriers have greater financial resources than the Company, and
some of the Company's competitors have lower unit costs than the Company. In
addition, the industry has experienced and continues to experience substantial
restructuring as most established carriers have implemented varying strategies
in pursuit of profitability, including establishing lower cost airlines within
airlines, such as Shuttle by United, Delta Express and the recently introduced
US2 by US Airways, Inc. The introduction of deeply discounted fares by a major
U.S. airline or one of its low cost affiliates on routes served by the Company
could have an adverse impact upon the Company's financial condition and results
of operations.
SIGNIFICANT DEPENDENCE ON RALEIGH-DURHAM MARKET
The Company's growth has focused and will continue to focus on adding
flights to and from its Raleigh-Durham base of operations, established in March
1995. Because all of the Company's current flights have Raleigh-Durham as the
origin or destination, the Company remains highly dependent upon the
Raleigh-Durham market. The Company's growth strategy continues to emphasize the
Raleigh-Durham hub. A reduction in the Company's share of the Raleigh-Durham
market or reduced passenger traffic to or from Raleigh-Durham could have a
material adverse effect on the Company's financial condition and results of
operations. In addition, the Company's dependence on a single hub and on a route
network operating on the East Coast makes it more susceptible to adverse weather
conditions along the East Coast than some of its competitors that may be better
able to spread weather related risks over larger route systems. For example, in
September 1996, Hurricane Fran severely disrupted air travel in the Raleigh-
Durham area for one week and adversely affected the Company's operating results
for that month. See "Business."
CONCENTRATION OF ROUTES
The Company derives a substantial majority of its operating income from a
small number of its routes. Any circumstance causing a reduction in demand on
such routes or the introduction of increased competitive pressures on such
routes could have a material adverse effect on the Company's financial condition
and results of operations.
IMPLEMENTATION OF GROWTH STRATEGY
The Company's growth strategy involves increasing the frequency of flights
to markets the Company currently serves and increasing the number of markets
served. Establishing new markets involves a substantial commitment of Company
resources and, during the initial phases of implementing service in a new
market, the Company is more vulnerable to the effects of fare discounting in
that market by competitors already operating in that market or by new
competitors entering that market. The introduction of regional jet aircraft
increases the complexity of implementing the Company's strategy and requires a
Federal Aviation Administration (the "FA A") approved amendment to the Company's
operating
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<PAGE>
specifications. In addition, in order to effect its growth strategy, the Company
may also need to obtain additional slots at certain destinations. See
"Business--Growth Strategy." There can be no assurance that the Company will be
able to identify and successfully establish new markets, that the Company will
be able to successfully integrate the regional jets into its operations or that
the Company will be able to obtain additional slots on a timely basis or at
commercially reasonable prices, if at all. The Company's failure to implement
its growth strategy could have a material adverse effect on the Company's
financial condition and results of operations.
HISTORY OF OPERATING LOSSES AND ACCESS TO ADDITIONAL CAPITAL
The Company commenced commercial flight operations in 1993 and incurred
substantial losses through September 30, 1996. The June 16, 1996 report of
independent public accountants with respect to the Company's financial
statements as of and for the year ended December 31, 1995 contained a going
concern qualification. See "Report of Independent Public Accountants" and Note 1
to Audited Financial Statements for the Year Ended December 31, 1995. Although
the Company's historical results reflect profitability on a quarterly basis for
the last four quarters, there can be no assurance that the Company's operations
will continue to be profitable in the future. The Company does not currently
have lines of credit or any other arrangements to provide liquidity. In the
event that current sources are not adequate, the Company will be required to
access external financing. There can be no assurance that such additional
financing will be available to the Company or, if available, that it can be
obtained on acceptable terms. In the absence of such financing, the Company
could be forced to dispose of assets under circumstances that might not be
favorable to realizing the highest price for such assets.
FUTURE LEVERAGE
The Company is scheduled to receive ten CRJs, with delivery commencing in
November 1997 and continuing through December 1998. See
"Business--Services--Fleet." The Company's acquisition of these aircraft is
valued at approximately $207 million, including induction costs related to pilot
and mechanic training and spare part provisioning. In order to finance the
acquisition of these aircraft, the Company expects to arrange a combination of
debt and leveraged lease or standby lease financing. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." To the extent that the Company
uses debt financing, its assets will increase to reflect the acquisition of the
CRJs and its liabilities will increase to reflect any debt incurred. If the
Company uses lease financing, no balance sheet effect is expected. While these
financings thus may or may not result in an increase in liabilities depending on
the financing method ultimately chosen, the Company's fixed costs will increase
significantly. Based on the current interest rate environment, the Company
estimates that its fixed charges will increase by approximately $14 million to
$17 million per year as a result of its acquisition or lease financing of the
ten CRJs. A 0.25% change in the applicable interest rate prior to the time such
permanent financing is in place would result in a change in such annual fixed
charges of approximately $300,000. These costs will be in addition to the
approximately $33.5 million in total rent expense incurred by the Company in
1996 under all non-cancelable aircraft operating leases. This increase could
materially adversely affect the Company's results of operations. Furthermore,
the terms of these financings will not be determined prior to the closing of the
Offering.
AGREEMENTS WITH AMERICAN AIRLINES
The Company, through an agreement with American, is able to offer frequent
flyer benefits on all of its current routes and on an additional 32 routes that
it does not now serve. However, routes that the Company selects as part of its
growth strategy may include routes that are not covered by this agreement. There
can be no assurance that the Company will be able to offer
AAdvantage-Registered Trademark- frequent flyer benefits to its customers after
the April 30, 2001 expiration of the Company's current contract with American.
Furthermore, American may terminate this agreement under several circumstances,
including
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<PAGE>
(i) commencement by the Company of a new frequent flyer program or its
participation in another frequent flyer program, (ii) any person or group
becoming the owner of 20% or more of the outstanding voting securities of the
Company or any "Disqualified Investor" becoming the owner of 10% or more of the
outstanding voting securities of the Company, (iii) the Company making a
significant acquisition or (iv) the Company entering into any marketing-oriented
collaborative agreement with another airline which American reasonably believes
would likely materially adversely affect American's interests or objectives
under any of its or its affiliates' agreements with the Company. "Disqualified
Investor" is defined as (i) any other airline or airline-related services
company, (ii) any person or entity offering a frequent traveler program or (iii)
any person or entity that American believes would likely, by virtue of its
affiliation with the Company, materially adversely affect American's interests
or objectives under any of its or its affiliates' agreements with the Company.
In addition, American may terminate its sublease to the Company of the RDU
facility, and one other service agreement that Midway has with American if any
person or group acquires 30% or more of the voting securities of Midway.
Finally, if the Company pays any dividends or makes any other cash or asset
distribution to its stockholders without American's consent at any time prior to
the Company's payment in full of a certain promissory note to American, then
American may terminate the RDU facility sublease, the
AAdvantage-Registered Trademark- Participating Carrier Agreement, Midway's
license of the yield management system and one other service agreement that
Midway has with American. The Company believes that its participation in the
AAdvantage-Registered Trademark- program is a significant factor in its ability
to attract and retain passengers, and that the loss of
AAdvantage-Registered Trademark- program participation or the termination by
American of the Company's RDU sublease could have a material adverse effect on
the Company's results of operations. See "Business--Sales and Marketing--Pricing
and Yield Management" and "--American Relationship" and "Business--Facilities."
DEPENDENCE ON LEASED SLOTS
The Company leases 70% of its slots at New York's LaGuardia Airport and 75%
of its slots at Washington, D.C.'s National Airport from third party airlines
pursuant to leases that are currently scheduled to expire in April 1998.
Although the Company has leased slots for six-month intervals, consistent with
industry practice, at LaGuardia Airport continuously since November 1993, and at
National Airport continuously since March 1995, there can be no assurance that
the Company will be able to renew or replace these leases. The Company's routes
between RDU and LaGuardia Airport and National Airport are among its most
important, and, as a result, an inability to renew or replace these leases could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business--Government Regulation--Slots."
GOVERNMENT REGULATION
The Company is subject to regulation by the U.S. Department of
Transportation (the "DOT"), the FA A and certain other governmental agencies.
The DOT principally regulates economic issues affecting air service such as air
carrier certification and fitness, insurance, consumer protection and
competitive practices. The FA A primarily regulates flight operations, in
particular matters affecting air safety, such as airworthiness requirements for
aircraft and pilot and flight attendant 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 FA A. Additional laws and regulations have been
proposed from time to time that could significantly increase the cost of airline
operations by, for instance, imposing additional requirements or restrictions on
operations. There can be no assurance that the Company will continue to be able
to comply with all present and future rules and regulations or that the cost of
continued compliance will not have a material adverse effect on the Company's
results of operations.
12
<PAGE>
In September 1997, the Civil Aviation Security Division of the FA A
conducted an investigation of the Company's compliance with certain regulations
requiring the Company to verify the accuracy of background information provided
by its employees who have access to secure airport areas. The investigation will
likely result in the finding of violations of these regulations. While the
Company is unable to determine whether the FA A will pursue an assessment as a
result of the findings of this investigation, or what the amount of any such
assessment might be, an assessment could have a material adverse effect on the
Company's results of operations.
The FA A also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and
engines, fire retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise abatement and the
mandatory removal and replacement of aircraft parts that have failed or may fail
in the future. Depending upon the scope of the FA A's order, these requirements
may cause the Company to incur substantial, unanticipated expenses.
The Company is also subject to numerous other federal and state laws and
regulations relating to protection of the environment, radio communications,
labor relations, equal employment opportunity and other matters. See
"Business--Government Regulation."
DEPENDENCE ON SINGLE AIRCRAFT TYPE
The Company's existing fleet of 13 aircraft comprises 12 Fokker F-100
aircraft and one Airbus A320. This dependence on a single aircraft type for
substantially all of the Company's flights could result in a material adverse
effect on the Company in the event of a government directive prohibiting or
restricting the use of this aircraft type or in the case of adverse public
perception of this aircraft type. Although the Company's growth strategy
includes the addition of ten CRJs by the end of 1998, the Company will remain
dependent on the F-100 aircraft for a significant portion of its operations. See
"Business--Services-- Fleet."
MAINTENANCE OF DISCONTINUED AIRCRAFT
Twelve of the Company's current 13 aircraft are Fokker F-100s. Fokker
Aircraft B.V., a Dutch corporation ("Fokker"), entered into insolvency
proceedings in March 1996 and ceased operations. As a result, the Fokker F-100
is no longer being manufactured. The Company believes that the cost of
maintaining aircraft that are no longer manufactured generally exceeds the cost
of those that continue to be produced. Vendors and suppliers of key parts are
generally fewer in number and their products more expensive, and engineering is
not as readily available. An inability to obtain parts and servicing on a timely
and cost-effective basis could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Services--Fleet"
and "--Maintenance and Support."
LIMITED NUMBER OF AIRCRAFT
Midway has a fleet of 13 jet aircraft, all of which are leased. Each F-100
lessor is an affiliate or subsidiary of Daimler-Benz, A.G. and the lessor of the
Company's one Airbus A320 aircraft is KE Aircraft Leasing, a subsidiary of
Kawasaki Enterprises, Inc. The limited number of aircraft operated by the
Company involve financial risks not present for larger carriers that are able to
spread their operating costs over more equipment and routes. In addition, each
F-100 lessor has the right to terminate its lease on six months' prior notice
beginning September 15, 1998, provided that no lease can be terminated if it
would result in a fourth termination of any F-100 lease in any 12-month period,
including scheduled terminations. Finally, in the event aircraft are removed
from service for unscheduled maintenance, repairs or other reasons, any
resulting interruption in service could materially and adversely affect the
Company's service, reputation and profitability. See
"Business--Services--Fleet."
13
<PAGE>
AIRCRAFT FUEL
Because fuel costs constitute a significant portion of the Company's
operating costs (approximately 13.5% in 1996 and approximately 12.8% during the
nine months ended September 30, 1997), significant changes in fuel costs will
materially affect the Company's results of operations. The Company has not
entered into long-term fuel purchases to assure the supply of fuel or hedging
agreements to assure the price of fuel. Fuel prices continue to be susceptible
to political events and other factors that can affect the supply of fuel, and
the Company cannot predict near or long-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. A one cent
increase in the cost per gallon of fuel, based on the Company's fuel consumption
levels for the nine months ended September 30, 1997, increases operating
expenses by approximately $300,000 per year. There can be no assurance that
increases in the price of fuel can be offset by higher fares.
AIRCRAFT PURCHASE OBLIGATION
Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. Midway also has an
agreement to acquire one spare engine for these A320 aircraft. See
"Business--Services--Fleet." Midway's current strategy does not anticipate the
use of this type of aircraft. Accordingly, Midway must either restructure or
sell its rights under this purchase agreement or accept delivery of the four
A320 aircraft. There can be no assurance that Midway will be able to restructure
or sell its rights under this purchase agreement. If Midway were required to
take delivery of these aircraft or if it incurred significant financial expense
in lieu of taking delivery, the financial position and results of operations of
Midway could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company's management and operations are dependent upon the efforts of
the Company's Chairman of the Board, President and Chief Executive Officer,
Robert R. Ferguson III, and a small number of management and operating
personnel. The Company does not maintain key-man life insurance on any executive
officer. The loss of the services of key members of management could have an
adverse impact on the Company. See "Management."
SEASONALITY AND CYCLICALITY
The Company's results are sensitive to seasonal variations in traffic. The
highest levels of traffic and revenue are generally realized in the second
quarter and the lowest levels of traffic and revenue are generally realized in
the third quarter. Given the Company's high fixed costs, such seasonality
affects the Company's profitability from quarter to quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Results of Operations."
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<PAGE>
The following table sets forth certain unaudited quarterly financial data
for each of the past seven quarters ended September 30, 1997. Operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1996 1997
-------------------------------------------- ---------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
----------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues.................... $ 49,441 $ 45,933 $ 39,899 $ 44,761 $ 47,843 $ 47,237 $ 43,059
Operating income (loss)(1)............ (6,719) 1,945 (2,517) 1,646 3,871 6,540 2,863
</TABLE>
- ------------------------
(1) Excludes impairment of long-lived assets and recapitalization expenses.
In addition, the airline industry is highly sensitive to general economic
conditions. Because a substantial portion of airline travel (both business and
leisure) is discretionary, the industry tends to experience adverse financial
results during general economic downturns. Any general reduction in airline
passenger traffic may materially and adversely affect the Company, particularly
since current industry traffic patterns are based in part on substantial
stimulation of discretionary air travel.
LABOR RELATIONS
In October 1997, the National Mediation Board authorized an election to be
held on the application of the Air Line Pilots Association to represent Midway's
pilots. The ballots for such election were distributed on November 4, 1997, and
will be counted on December 8, 1997. In November 1997, the Company received
notice from the Association of Flight Attendants, AFL-CIO (the "AFA") that a
campaign has been initiated to select the AFA as the exclusive bargaining
representative for the Company's flight attendants. Although many employees in
the airline industry are represented by labor unions, no Company employees are
currently represented by any union. Union representation of any of the Company's
employees could result in employee compensation and working condition demands
that may increase the Company's operating expenses. See "Business--Employees."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, James H. Goodnight, Ph.D., and John P. Sall
will own approximately 31.9% and 15.5%, respectively, of the then outstanding
shares of Common Stock of the Company, without giving effect to the shares that
may be issued upon the exercise of outstanding warrants and stock options.
Although the Company is not aware of any arrangement or understanding,
contractual or otherwise, that obligates Dr. Goodnight and Mr. Sall to act in
concert with respect to the Company, such level of stock ownership by Dr.
Goodnight and Mr. Sall may be sufficient for such stockholders to elect all of
their designees to the Board of Directors and to control the outcome of
virtually all matters submitted for a vote of the stockholders of Midway. The
combined equity interests of Dr. Goodnight and Mr. Sall in Midway may have the
effect of making certain transactions more difficult or of delaying, deferring
or preventing a change in control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales may occur, could have an adverse
effect on prevailing market prices of the Common Stock. All of the shares of the
Company's currently outstanding Common Stock are eligible for sale pursuant to
the exemption from registration pursuant to Rule 144 under the Securities Act
("Rule 144"), subject to applicable holding periods, volume and other
limitations. In addition, certain
15
<PAGE>
holders of Common Stock and holders of options and warrants to purchase Common
Stock will have registration rights for an aggregate of up to 1,676,550 shares
of Common Stock (including 280,680 shares of Common Stock subject to the
Underwriters' overallotment option). However, the officers, directors and
certain other stockholders of the Company have agreed with the Underwriters not
to sell any of their shares for a period of 180 days from the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters. Such stockholders will beneficially
own an aggregate of approximately 4,790,625 shares of Common Stock upon the
completion of this Offering. Immediately after completion of this Offering, a
total of 3,850,000 shares of Common Stock (4,427,500 shares if the Underwriters'
overallotment option is exercised in full) will be eligible for resale in the
public market without restriction. In addition, 180 days after the date of this
Prospectus an additional 4,009,375 of the currently outstanding shares of Common
Stock will be eligible for resale in accordance with Rule 144. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; VOLATILITY OF COMMON STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market, there can be no assurance that an
active trading market for the Common Stock will develop or continue after the
Offering. The initial public offering price will be determined by negotiation
between the Company and the Representatives of the Underwriters, and may not be
indicative of the market price for the Common Stock after the Offering. See
"Underwriters." From time to time after the Offering, there may be significant
volatility in the market price for the Common Stock. Results of the Company's
operations may fluctuate significantly from quarter to quarter and will depend
on numerous factors, primarily the implementation of the Company's growth
strategy. In addition, in recent years the stock market has experienced extreme
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to their operating performance.
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
significant dilution (approximately $10.37 per share) in the net tangible book
value of their shares. See "Dilution."
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<PAGE>
THE COMPANY
Midway is a jet airline operator serving 13 destinations in eight eastern
states and Mexico from its hub at RDU, where it currently carries more
passengers and operates more flights than any other airline. The Company has
focused its operations to attract and retain business travelers by (i) providing
frequent non-stop service from RDU to major business destinations, (ii)
maintaining a high level of service and (iii) offering American's
AAdvantage-Registered Trademark- frequent flyer miles. The Company currently
operates the youngest all jet fleet in the United States with 12 98-seat Fokker
F-100 and one 148-seat Airbus A320 aircraft. To further serve its market niche,
the Company recently reached agreement to acquire ten new CRJs, with deliveries
to occur in the 14-month period beginning in November 1997. The Company
anticipates that the CRJs will expand the Company's capacity by up to 40%, and
will be utilized (i) to serve existing Midway destinations with greater
frequency and (ii) to enter new routes, providing Midway's customers with more
non-stop jet destinations.
The Company originated in 1993 when Jet Express, Inc., a small carrier based
in Virginia, was reorganized from bankruptcy. The reorganized entity purchased
the Midway name from Midway Airlines, Inc., an unrelated air carrier which
sought bankruptcy protection in 1991. The Company began commercial operations as
Midway Airlines Corporation in November 1993 with a strategy of operating as a
high volume, discount, all coach carrier from its base at Chicago's Midway
Airport. On July 22, 1994, the Zell/ Chilmark Fund L.P. ("Zell/Chilmark")
acquired a 94% interest in the Company by purchasing certain preferred stock and
common stock of the Company for approximately $25 million. Concurrently with the
acquisition, the Company's senior management and board of directors were
replaced. In March 1995, the Company relocated its entire base of operations
from Chicago to RDU following American's reduction of services from the
Raleigh-Durham market, and changed its business strategy to operate as a premium
service, full fare airline focused on business travelers flying to and from
Raleigh-Durham.
THE RECAPITALIZATION
On February 11, 1997, the Company completed the Recapitalization, resulting
in a change in ownership and management. Robert R. Ferguson III, former chief
executive officer of Continental Airlines, Inc., was named Chairman of the
Board, President and Chief Executive Officer of the Company. Through the
Recapitalization, debt was either extinguished or restructured; all of the
existing stock was canceled and new stock was issued; new terms for aircraft
leases and rent reductions for facilities were negotiated; and agreements
reflecting revised maintenance arrangements were implemented. The
Recapitalization resulted in an extraordinary gain of $15.3 million and
recapitalization charges of $1.2 million, which the Company recognized in the
first quarter of 1997.
The following transactions were recorded as a result of the
Recapitalization:
i) All existing shares of capital stock were canceled. New shares of
capital stock were issued (a) to James H. Goodnight, Ph.D., for
consideration of $10.1 million in cash, (b) to John P. Sall for
consideration of $4.9 million in cash and (c) to Zell/Chilmark for
consideration of $7.0 million in cash. Additional shares of common stock and
a warrant to purchase common stock with an aggregate value of $3.1 million
were issued to the parent company of American Airlines, Inc., debis
AirFinance B.V. and Wings Aircraft Finance, Inc., which are key vendors to
the Company.
ii) Agreements were negotiated to allow for approximately $3.4 million
in aircraft lease deposits to be offset against amounts owed to the holders
of those deposits.
iii) Current debt, accrued lease expense, accrued prior year
restructuring costs and related accrued interest totaling approximately $6.7
million were settled for amounts substantially less than the carrying value
at December 31, 1996. An additional $1.6 million was accrued for expenses
associated with the Recapitalization.
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<PAGE>
iv) Long-term debt and related interest of approximately $10.9 million
were forgiven and current maturities of approximately $14.9 million were
restructured to long-term debt.
The Company believes that the Recapitalization resulted in reductions of
approximately $12 million in annual expenses, including (i) a decrease in
aircraft rent expense, (ii) a decrease in facility rentals, (iii) a decrease in
the cost of certain services and (iv) a reduction of interest on long-term debt.
In addition to the Recapitalization, the Company had previously discontinued
certain unprofitable long-haul routes. Since the Recapitalization, the Company
has experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved results are attributable to
the benefits realized from the Recapitalization, route restructuring, improved
yield management, increased passenger demand and a generally strong economic
environment.
The Company is a Delaware corporation with its corporate headquarters
located at 300 West Morgan Street, Suite 1200, Durham, North Carolina 27701, and
its telephone number is (919) 956-4800.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $27,050,000 (approximately $31,191,000 if the
Underwriters' overallotment option is exercised in full), after deducting
underwriting discounts and commissions and offering expenses payable by the
Company. The Company will use the net proceeds of the Offering in connection
with the acquisition of regional jet aircraft and for general working capital
purposes. The Company anticipates that it will expend approximately $15 to $20
million in down payments with respect to the regional jet aircraft that it
purchases, including approximately $1 million in related equipment, and
approximately $1 million to purchase spare parts (including engines) for support
of these aircraft. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Expenditures" and "Business--
Services--Fleet" for information relating to the acquisition of the regional jet
aircraft and the anticipated financing thereof. One of the general working
capital purposes will include, to the extent an affiliate of one of the
Company's stockholders does not continue to assume such responsibility, the
posting of a letter of credit or other cash collateralization of an obligation
to the Company's credit card vendors at an estimated cost of $9 million. See
"Certain Transactions." Pending the application of the net proceeds from the
Offering, the Company will invest the net proceeds in investment-grade,
short-term, interest-bearing instruments. The Company will not receive any of
the proceeds from the sale of the Shares of Common Stock by the Selling
Stockholders.
DIVIDEND POLICY
The Company has not paid cash dividends since its formation and does not
anticipate that cash dividends will be paid in the foreseeable future since the
Company presently intends to retain any future earnings to finance the expansion
and continuing development of its business. In addition, certain of the
Company's debt instruments prohibit the payment of dividends until such debt has
been repaid. See "Description of Capital Stock--Authorized and Outstanding
Capital Stock--Certain Limitations." The declaration and payment in the future
of any cash dividends will be at the election of the Company's Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, future loan covenants, general economic conditions and
other pertinent factors.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997 after giving effect to the 682.9108392-for-1 stock split to
be effected prior to the Offering, and as adjusted to reflect (i) the conversion
to be effected prior to the Offering of all of the outstanding shares of
Preferred Stock to Common Stock; (ii) the issuance of the shares of Common Stock
offered by the Company hereby (assuming an offering price of $15.00 per share);
and (iii) the application of the estimated net proceeds to the Company from the
Offering as described in "Use of Proceeds." The following table does not reflect
financing for the ten new CRJs to be delivered in the 14-month period beginning
in November 1997. Such financing may or may not result in an increase in
liabilities depending on the financing methods ultimately chosen. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources." This table should be read in
conjunction with the Financial Statements of the Company, the notes thereto and
the other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease obligations......... $ 1,171 $ 1,171
--------- -----------
Long-term debt and capital lease obligations, less current portion...... 12,563 12,563
Stockholders' equity:
Senior Convertible Preferred Stock, par value $.01 per share;
liquidation preference of $4.02 per share; 12,000,000 shares
authorized, 3,728,693 shares issued and outstanding at September 30,
1997................................................................ 37 --
Common Stock, par value $.01 per share, 25,000,000 shares authorized;
2,130,682 shares issued and outstanding (actual), 7,859,375 shares
outstanding (as adjusted) at September 30, 1997(1).................. 21 79
Warrant to purchase 390,625 shares of Common Stock, par value $.01 per
share, exercisable at $.0015 per share.............................. -- --
Additional paid-in capital............................................ 7,687 34,716
Retained earnings (since quasi-reorganization on June 30, 1997)....... 1,723 1,723
--------- -----------
Total stockholders' equity........................................ 9,468 36,518
--------- -----------
Total capitalization............................................ $ 23,202 $ 50,252
--------- -----------
--------- -----------
</TABLE>
(1) Excludes 1,562,500 additional shares of Common Stock reserved for issuance
in connection with stock options granted or to be granted to certain
officers and employees of the Company and a warrant to purchase 390,625
shares of Common Stock issued to an investor. See "Management--Executive
Compensation," "--Employee Plans" and "Principal and Selling Stockholders."
19
<PAGE>
DILUTION
The Company's net tangible book value as of September 30, 1997 was
$9,347,000, or $1.60 per share of Common Stock. Net tangible book value per
share represents the amount of total tangible assets, less total liabilities,
divided by the number of shares of Common Stock outstanding. After giving effect
to the sale of shares of Common Stock offered by the Company hereby at an
assumed initial offering price of $15.00 per share and receipt of the estimated
net proceeds therefrom, the net tangible book value of the Company as of
September 30, 1997 would have been $36,397,000 or $4.63 per share, representing
an immediate increase in net tangible book value of $3.03 per share to existing
stockholders and an immediate dilution of $10.37 per share to new investors
purchasing shares at the assumed initial public offering price. The following
table illustrates the resulting per share dilution with respect to the shares of
Common Stock offered hereby:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $ 15.00
Net tangible book value per share as of September 30,
1997..................................................... $ 1.60
Increase per share attributable to the Offering(1)......... 3.03
---------
Net tangible book value per share after the Offering......... 4.63
---------
Dilution per share to new investors in the Offering(2)....... $ 10.37
---------
---------
</TABLE>
- ------------------------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.
(2) Dilution is determined by subtracting the net tangible book value per share
after completion of the Offering from the assumed initial public offering
price per share of the Common Stock.
The following table summarizes the differences, on a pro forma basis as of
September 30, 1997, between the existing stockholders and the new investors with
respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid (based upon an assumed
initial offering price of $15.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 5,859,375 74.6% $ 23,572,000 44.0% $ 4.02
New Investors............................. 2,000,000 25.4 30,000,000 56.0 15.00
---------- ----- ------------- -----
Total................................... 7,859,375 100.0% $ 53,572,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The tables assume no exercise of any outstanding options or warrant to
purchase Common Stock, and therefore exclude (i) 1,005,245 additional shares of
Common Stock reserved for issuance in connection with stock options granted to
certain officers and employees of the Company with an exercise price of $4.02
per share, (ii) 557,255 shares of Common Stock reserved for issuance in
connection with stock options to be granted to certain officers and employees of
the Company with an assumed exercise price at the assumed initial offering price
of $15.00 per share and (iii) a warrant to purchase 390,625 shares of Common
Stock issued to an investor with an exercise price of $.0015 per share. To the
extent such options or warrants are exercised, the potential dilution per share
to new investors will be $10.03. See "Management--Executive Compensation,"
"--Employee Plans" and "Principal and Selling Stockholders."
20
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA AND GLOSSARY
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data are derived from the financial
statements of the Company. The balance sheet data as of December 31, 1994, 1995
and 1996 and the operating data for the five months ended December 31, 1994 and
the years ended December 31, 1995 and 1996 have been derived from audited
financial statements. The balance sheet data as of September 30, 1996 and 1997
and the operating data for the nine months ended September 30, 1996 and 1997 are
derived from unaudited financial statements. The unaudited financial statements
for the nine-month periods include all adjustments, consisting only of normal
recurring accruals, that, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations of the Company
for those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the operating results that may be
expected for the entire year ending December 31, 1997. The data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ ----------------------
1994 1995 1996 1996 1997
------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Passenger....................................... $ 14,662 $118,568 $173,541 $130,444 $132,900
Other........................................... 1,213 4,034 6,493 4,829 5,239
------------ -------- -------- ---------- ----------
Total operating revenues...................... 15,875 122,602 180,034 135,273 138,139
Operating expenses:
Wages, salaries and related costs............... 3,659 19,874 24,619 18,156 18,597
Aircraft fuel................................... 3,514 16,782 27,300 20,836 16,145
Aircraft and engine rentals..................... 5,328 30,889 34,113 25,710 22,850
Commissions..................................... 1,205 9,382 13,728 10,232 10,321
Maintenance, materials and repairs.............. 1,383 13,551 17,930 13,937 12,401
Depreciation and amortization................... 334 2,056 1,346 955 1,379
Other operating expenses........................ 9,308 55,693 66,643 52,738 43,172
Restructuring(1)................................ 4,900 6,004 -- -- --
Impairment of long-lived assets(2).............. -- -- 16,941 16,941 --
Special recapitalization change(3).............. -- -- -- -- 1,225
------------ -------- -------- ---------- ----------
Total operating expenses...................... 29,631 154,231 202,620 159,505 126,090
------------ -------- -------- ---------- ----------
Operating income (loss)........................... (13,756) (31,629) (22,586) (24,232) 12,049
Interest income (expense)......................... (29) (413) (1,841) (1,221) 89
Other income (expense)............................ (29) (222) 163 127 (143)
------------ -------- -------- ---------- ----------
Income (loss) before income taxes and
extraordinary gain.............................. (13,814) (32,264) (24,264) (25,326) 11,995
Income tax expense................................ -- -- -- -- 5,015
------------ -------- -------- ---------- ----------
Income (loss) before extraordinary gain........... (13,814) (32,264) (24,264) (25,326) 6,980
Extraordinary gain(4)............................. -- -- -- -- 15,272
------------ -------- -------- ---------- ----------
Net income (loss)................................. (13,814) (32,264) (24,264) (25,326) 22,252
Preferred dividends............................... (600) (1,440) -- -- --
------------ -------- -------- ---------- ----------
Net income (loss) available for common
stockholders.................................... $(14,414) $(33,704) $(24,264) $ (25,326) $ 22,252
------------ -------- -------- ---------- ----------
------------ -------- -------- ---------- ----------
PER SHARE AMOUNTS(5):
Income per share before extraordinary gain........ $1.00
Net income per share.............................. 3.19
Weighted average number of common shares
outstanding..................................... 6,985,610
OTHER FINANCIAL DATA:
EBITDA(6)......................................... $ (8,450) $(23,654) $(3,525) $(5,750) $ 14,709
EBITDAR(6)........................................ (3,122) 7,235 30,588 19,960 37,559
Cash flows provided by (used in):
Operating activities............................ (14,323) (805) 5,784 (2,869) 4,961
Investing activities............................ (354) (6,876) (2,614) (2,355) (21,378)
Financing activities............................ 12,427 3,571 4,836 3,353 21,435
</TABLE>
(FOOTNOTES ON NEXT PAGE)
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------------------
1995 1996 1996 1997
--------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED OPERATING STATISTICS(7):
Available seat miles (000s)........................... 1,387,921 1,758,560 1,364,670 1,042,067
Revenue passenger miles (000s)........................ 692,681 998,959 761,236 652,955
Load factor........................................... 49.9% 56.8% 55.8% 62.7%
Break-even load factor(8)............................. 60.8% 59.2% 59.4% 56.4%
Revenue per available seat mile....................... 8.8 CENTS 10.2 CENTS 9.9 CENTS 13.3 CENTS
Yield................................................. 17.1 CENTS 17.4 CENTS 17.1 CENTS 20.4 CENTS
Average fare.......................................... $89 $99 $99 $109
Cost per available seat mile(9)....................... 10.7 CENTS 10.7 CENTS 10.5 CENTS 12.0 CENTS
Onboard passengers.................................... 1,338,438 1,742,957 1,324,068 1,223,838
Average seats per departure........................... 108 104 105 101
Average stage length (miles).......................... 532 571 572 531
Aircraft (average during period)...................... 11.0 13.7 13.9 13.0
Aircraft utilization (hours per day).................. 9.9 9.8 9.8 9.0
Fuel price per gallon................................. 69.0 CENTS 80.6 CENTS 80.6 CENTS 73.2 CENTS
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------- -------- -------- -------- -------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and short-term investments........ $ 6,909 $ 2,799 $ 12,805 $ 2,789 $31,793
Working capital........................................................... (2,745) (39,790) (40,871) (34,951) 5,436
Equipment and property, net............................................... 1,861 9,258 6,669 6,205 12,459
Total assets.............................................................. 35,982 58,312 40,686 35,459 73,952
Long-term debt and capital lease obligations (net of current maturities).. 2,018 7,307 11,704 18,068 12,563
Stockholders' equity (deficit)............................................ 16,586 (17,058) (39,242) (43,423) 9,468
</TABLE>
- ------------------------
(1) The Company recorded restructuring charges for the five months ended
December 31, 1994 of $4.9 million, related to the Company's decision to move
from Chicago to RDU and in 1995 of $6.0 million related to the return of
four A320 aircraft and other related one-time charges.
(2) The Company recorded an impairment loss of $16.9 million from certain
long-lived assets, primarily intangible assets, that were determined by
Company management to be impaired in accordance with SFAS 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
(3) The Company recorded a one-time charge of $1.2 million in 1997 related to
the Recapitalization.
(4) Extraordinary gain includes one-time gains recognized in connection with the
Recapitalization. See Note 15 to Audited Financial Statements for the Six
Months ended June 30, 1997.
(5) Since the Company was recapitalized in February 1997 and all prior capital
stock was cancelled at that time, per share amounts prior to 1997 are not
meaningful and thus are not presented.
(6) EBITDA represents income before income taxes, dividends and extraordinary
item plus interest expense (net of capitalized interest), depreciation,
amortization, restructuring expense, impairment of long-lived assets and
recapitalization expense. EBITDAR represents income before income taxes,
dividends and extraordinary item plus interest expense (net of capitalized
interest), depreciation, amortization, restructuring expense, impairment of
long-lived assets, recapitalization expense and aircraft and engine rentals.
EBITDA and EBITDAR are presented because each is a widely accepted financial
indicator of a company's ability to incur and service debt. However, EBITDA
and EBITDAR should not be considered in isolation, as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(7) For definitions of the airline operating terms used in this table, see
"--Glossary."
(8) Had restructuring, impairment of long-lived assets and recapitalization
expenses been included for the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997, the break-even load
factor would have been 63.3%, 64.8%, 66.6% and 60.0%, respectively.
(9) "Cost per available seat mile" represents total operating expenses plus
non-operating expenses/(income), excluding restructuring, impairment of
long-lived assets and recapitalization expenses, divided by available seat
miles. Had restructuring, impairment of long-lived assets and
recapitalization expenses been included for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1996 and 1997, cost
per available seat mile would have been 11.1 cents, 11.6 cents, 11.8 cents
and 12.1 cents, respectively.
22
<PAGE>
GLOSSARY
Certain of the terms included in this section and elsewhere in this
Prospectus have the meanings indicated below:
<TABLE>
<S> <C>
Aircraft (average during The average number of aircraft owned or leased during the
period) period.
Aircraft utilization The average number of block hours operated in scheduled
service per day per aircraft for the total fleet of
aircraft.
Available seat miles (ASMs) The number of seats available for scheduled passengers
multiplied by the number of miles those seats were flown.
Average fare The average fare paid by a revenue passenger.
Average seats per departure The average number of available seats per departing
aircraft.
Average stage length The average number of miles flown per flight.
Break-even load factor The load factor at which scheduled passenger revenues would
have been equal to operating plus non-operating
expenses/(income) (holding yield constant).
Cost per available seat mile Operating expenses plus non-operating expenses/(income)
(CASM) divided by ASMs.
Fuel price per gallon The average price per gallon of jet fuel for the fleet
(including fueling charges).
Load factor RPMs divided by ASMs.
Onboard passengers The number of revenue passengers carried.
Revenue passenger miles (RPMs) The number of miles flown by revenue passengers.
Revenue per available seat
mile (RASM) Total operating revenues divided by ASMs.
Yield The average scheduled passenger fare revenue for each mile a
scheduled revenue passenger is carried.
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company began commercial operations in November 1993, operating from its
base at Chicago's Midway Airport. Operations there were unprofitable, and
following American's announcement of its intention to reduce service from its
hub at RDU, Midway relocated its entire operations from Midway Airport to RDU in
March 1995. Midway entered into agreements with American to sublease certain of
American's gates and to participate in the AAdvantage-Registered Trademark-
program. At the time of the move, management expanded the fleet through the
addition of five Airbus A320s and four Fokker F-100s, to a total of five A320s
and 12 F-100s. A combination of factors, including inadequate capital resources,
increased fleet capacity, the lack of marketing presence and unusually bad
weather, resulted in significant losses during 1995 and 1996. Following
unsuccessful efforts to renegotiate lease terms, one of the Company's lessors
required the return of four A320s during the first four months of 1996. This
reduced the Company's fleet to its current level of 12 F-100s and one A320.
On February 11, 1997, the Company completed the Recapitalization, resulting
in a change in ownership and management. Robert R. Ferguson III was named
Chairman of the Board, President and Chief Executive Officer of the Company. The
Company believes that the Recapitalization resulted in reductions of
approximately $12 million in annual expenses, including (i) a decrease in
aircraft rent expense, (ii) a decrease in facility rentals, (iii) a decrease in
the cost of certain services and (iv) a reduction of interest on long-term debt.
In addition to the Recapitalization, the Company had previously discontinued
certain unprofitable long-haul routes. Since the Recapitalization, the Company
has experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved results are attributable to
the benefits realized from the Recapitalization, route restructuring, improved
yield management, increased passenger demand and a generally strong economic
environment. See "The Company--The Recapitalization."
The Company's business plan is designed to result in premium yields. The
Company's operating strategy is focused on providing local business travelers
with consistently superior operational performance and high quality customer
service while continuing to reduce operating costs. The Company's growth
strategy involves increasing the frequency of flights to markets the Company
currently serves and increasing the number of markets served. To implement the
strategy, the Company recently reached agreement to acquire ten new CRJs, with
deliveries to occur in the 14-month period beginning in November 1997. The
Company believes its efforts to identify favorable markets and provide premium
non-stop service enable it to generate a high degree of loyalty among its
passengers and to attract a larger percentage of business travelers on its
flights than other carriers. Midway generally offers the same range of fares
that its competitors offer, with exceptions in particular markets where Midway
discounts certain categories of fares more than its competition to stimulate the
market or charges a premium where passengers are willing to pay slightly higher
fares because of the convenience of the Company's non-stop jet flights and its
superior service. The Company's revenues are a function of the Company's yield
(revenue per passenger mile), available seat miles and load factor (percent of
available seat miles utilized).
Because of its premium service, focus on business travelers, small aircraft
and shorter stage lengths, the Company's cost per available seat mile is higher
than the industry average. The Company recognizes the importance of a
competitive cost structure and expects to lower unit costs through growth and
the restructuring of various functions. In addition to the cost savings
resulting from the Recapitalization, the Company has recently (i) entered into
new maintenance contracts, (ii) reduced dependence on third-party vendors for
flight reservation call handling and (iii) reduced certain insurance costs. The
Company is also implementing an automated voice-response flight information
system and engaging a new, lower cost credit card processing vendor.
24
<PAGE>
Based on the current interest rate environment, the Company estimates that
its fixed charges will increase by approximately $14 million to $17 million per
year as a result of its acquisition or leveraged lease financing of the ten
CRJs. A 0.25% change in the applicable interest rate prior to the time such
permanent financing is in place would result in a change in such annual fixed
charges of approximately $300,000. Although the introduction of regional jet
aircraft will shorten average stage length, the Company believes it should
result in additional cost benefits, including greater economies of scale and
more efficient utilization of facilities and personnel.
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, PERCENT SEPTEMBER 30, PERCENT
---------------------------- CHANGE --------------------------- CHANGE
1995 1996 1995-1996 1996 1997 1996-1997
---------- ---------- ------- ---------- --------- -------
Available seat miles (000s)........... 1,387,921 1,758,560 26.7% 1,364,670 1,042,067 (23.6%)
Revenue passenger miles
(000s).............................. 692,681 998,959 44.2% 761,236 652,955 (14.2%)
Load factor........................... 49.9% 56.8% 13.8% 55.8% 62.7% 12.4%
Break-even load factor(1)............. 60.8% 59.2% (2.6%) 59.4% 56.4% (5.1%)
Total revenue per available seat
mile................................ 8.8 CENTS 10.2 CENTS 15.9% 9.9 CENTS 13.3 CENTS 34.3%
Yield................................. 17.1 CENTS 17.4 CENTS 1.8% 17.1 CENTS 20.4 CENTS 19.3%
Average fare.......................... $89 $99 11.2% $99 $109 10.1%
Cost per available seat mile(1)....... 10.7 CENTS 10.7 CENTS 0.0% 10.5 CENTS 12.0 CENTS 14.3%
Onboard passengers.................... 1,338,438 1,742,957 30.2% 1,324,068 1,223,838 (7.6%)
Average seats per departure........... 108 104 (3.7%) 105 101 (3.8%)
Average stage length.................. 532 571 7.3% 572 531 (7.2%)
Aircraft (average during
period)............................. 11.0 13.7 24.5% 13.9 13.0 (6.5%)
Aircraft utilization (hours per
day)................................ 9.9 9.8 (1.0%) 9.8 9.0 (8.2%)
Fuel price per gallon................. 69.0 CENTS 80.6 CENTS 16.8% 80.6 CENTS 73.2 CENTS (9.2%)
</TABLE>
- ----------------
(1) Excludes restructuring, impairment of long-lived assets and recapitalization
expenses.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
OPERATING REVENUES. The Company's operating revenues increased 2.1% to
$138.1 million for the nine months ended September 30, 1997 from $135.3 million
for the nine months ended September 30, 1996. The increase in revenues occurred
because of a combination of a 12.4% increase in load factor to 62.7% from 55.8%
and a 10.1% increase in average fare, mitigating a 23.6% decrease in available
seat miles ("ASMs").
ASMs decreased 23.6% due to (i) having on average 0.9 fewer aircraft during
the first nine months of 1997, (ii) the reduction of average seats per departure
to 101 from 105, (iii) the decrease in average stage length to 531 miles from
572, and (iv) an 8.2% decrease in aircraft utilization to 9.0 hours per day
compared to 9.8 hours per day as a result of the Company's discontinuance of
certain unprofitable long-haul routes.
Yield increased 19.3% to 20.4 cents from 17.1 cents due to the increase in
average fare and the 7.2% decrease in average stage length. Revenue per
available seat mile increased 34.3% to 13.3 cents from 9.9 cents due to the
increases in yield and load factor.
25
<PAGE>
OPERATING EXPENSES. The Company's operating expenses decreased 20.9% to
$126.1 million for the first nine months of 1997 from $159.5 million for the
first nine months of 1996 primarily because of the decrease in ASMs discussed
above. Total operating expense per ASM increased 3.5% to 12.1 cents from 11.7
cents. Excluding the one-time charges for the recognition of the impairment of
long-lived assets in 1996 discussed below and the Recapitalization in 1997,
operating expense per ASM increased 15.4% to 12.0 cents from 10.5 cents. Certain
substantial costs of the Company, such as landing and station related costs,
aircraft rentals, aircraft insurance, depreciation expense, and general and
administrative costs do not vary with production of ASMs. During the first nine
months of 1997, the Company produced fewer ASMs due to the factors cited above.
As the result of these factors, cost per ASM increased for the first nine months
of 1997.
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS No. 121). In August 1994, Zell/Chilmark acquired
94% of the equity of Midway for $25 million. The Company subsequently adopted a
new business plan and, during 1995, added new routes and expanded its aircraft
fleet. Although losses were incurred in 1995, management believed no asset
impairment charges were considered necessary. In early 1996, the Company
obtained an additional $4 million investment from Zell/ Chilmark, which
management believed would provide the Company financial flexibility that would
permit the successful implementation of its business plan. However, by mid-1996,
management concluded that the Company's existing structure could not produce a
viable, long-term operation. In June and July 1996, the Company began to
formally seek a recapitalization or reorganization. Certain long-lived assets,
primarily intangible assets, were determined by Company management to be
impaired. The Company recorded an impairment loss of $16.9 million that
increased total cost per ASM by 1.2 cents for the first nine months of 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1997
--------------------- ---------------------
PERCENT PERCENT
OF COST OF COST
OPERATING PER OPERATING PER
EXPENSES ASM EXPENSES ASM
------ ------ ------ ------
<S> <C> <C> <C> <C>
Wages, salaries and related costs........................... 11.4% 1.3 CENTS 14.7% 1.8 CENTS
Aircraft fuel............................................... 13.1 1.5 12.8 1.6
Aircraft and engine rentals................................. 16.1 1.9 18.1 2.2
Commissions................................................. 6.4 0.8 8.2 1.0
Maintenance, materials and repairs.......................... 8.7 1.0 9.8 1.2
Depreciation and amortization............................... 0.6 0.1 1.1 0.1
Other....................................................... 33.1 3.9 34.3 4.1
------ ------ ------ ------
Operating expenses before impairment of long-lived assets
and recapitalization expense............................ 89.4 10.5 99.0 12.0
------ ------ ------ ------
Impairment of long-lived assets............................. 10.6 1.2 0.0 0.0
Recapitalization............................................ 0.0 0.0 1.0 0.1
------ ------ ------ ------
Total operating expenses.............................. 100.0% 11.7 CENTS 100.0% 12.1 CENTS
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Wages, salaries and related costs increased 2.4% to $18.6 million for the
first nine months of 1997 from $18.2 million for the first nine months of 1996.
Wages, salaries and related costs per ASM increased 33.8% to 1.8 cents from 1.3
cents. This cost per ASM increase is attributable to the reductions in average
aircraft during the period, average seats per departure, average stage length
and aircraft utilization, the Company's decision not to furlough crews after
returning the four A320s in the first four months of 1996, and scheduled wage
increases for flight crews and hourly personnel.
Aircraft fuel expense decreased 22.5% to $16.1 million for the first nine
months of 1997 compared to $20.8 million for the first nine months of 1996.
Aircraft fuel expense per ASM increased 1.3% to 1.6 cents from 1.5 cents. The
increase in cost per ASM is attributable to the additional, relatively more fuel
efficient
26
<PAGE>
A320s in the fleet during the first four months of 1996 partially offset by a
9.2% decrease in the average fuel price per gallon to 73.2 cents from 80.6
cents.
Aircraft and engine rentals expense decreased 11.1% to $22.9 million for the
first nine months of 1997 from $25.7 million for the first nine months of 1996.
This decrease is attributable to (i) the additional A320 aircraft in the fleet
during the first four months of 1996 and (ii) the negotiated reduction of rent
on the 12 F-100 aircraft as part of the Recapitalization. Aircraft and engine
rentals expense per ASM increased 16.5% to 2.2 cents from 1.9 cents. This
increase in cost per ASM is attributable to the decreases in average stage
length, average seats per departure and daily aircraft utilization.
Commissions expense increased 0.9% to $10.3 million for the first nine
months of 1997 from $10.2 million for the first nine months of 1996. Commissions
expense per ASM increased 32.0% to 1.0 cents from 0.8 cents. The cost per ASM
increase is attributable to the 33.8% increase in revenue per available seat
mile to 13.3 cents from 9.9 cents, partially offset by the decrease of travel
agency revenue as a percent of passenger revenue to 69.9% from 72.5%.
Maintenance, materials and repairs expense decreased 11.0% to $12.4 million
for the first nine months of 1997 from $13.9 million for the first nine months
of 1996. This decrease is attributable to the smaller average fleet size, offset
in part by certain contractual maintenance rate increases. Maintenance,
materials and repairs expense per ASM increased 16.7% to 1.2 cents from 1.0
cents. This increase in cost per ASM is attributable to the decreases in average
stage length, average seats per departure and daily aircraft utilization.
Depreciation and amortization expense increased 44.4% to $1.4 million for
the first nine months of 1997 from $1.0 million for the first nine months of
1996. Depreciation and amortization expense per ASM increased 85.7% to 0.13
cents from 0.07 cents, as the result of the addition of fixed assets in 1996 and
the first nine months of 1997.
Other operating expense decreased 18.1% to $43.2 million for the first nine
months of 1997 from $52.7 million for the first nine months of 1996. Other
operating expenses consist primarily of landing fees and rentals, reservations,
ground handling, advertising, general and administrative and insurance. The
decrease in expense is attributable to the decrease in departures and
passengers, as well as a reduction in insurance rates. Other operating expense
per ASM increased 7.0% to 4.1 cents from 3.9 cents. This increase in cost per
ASM resulted primarily from the decrease in average stage length.
In February 1997, the Company was recapitalized. A one-time charge of $1.2
million was recorded for expenses related to the Recapitalization that increased
cost per ASM by 0.17 cents for the first nine months of 1997. See "The
Company--The Recapitalization." A one-time extraordinary gain of $15.3 million
was recorded primarily as the result of forgiveness of debt and related
interest. See Note 15 to the Audited Financial Statements--Six months ended June
30, 1997.
Income tax expense has been recorded for the first nine months of 1997 at an
effective tax rate of 41.8% of income before extraordinary gain.
As of December 31, 1996, the Company had net operating loss carryforwards
("NOLs") of approximately $51.4 million. The NOLs may be limited or eliminated
as a result of the Recapitalization.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OPERATING REVENUES. The Company's operating revenues increased 46.8% to
$180.0 million for the year ended December 31, 1996 from $122.6 million for the
year ended December 31, 1995. The increase is attributable to a 26.7% increase
in ASMs, a 13.8% increase in load factor to 56.8% from 49.9% and an 11.2%
increase in average fare. ASMs increased 26.7% due to having on average 2.7 more
aircraft and a 7.3% increase in average stage length to 571 miles from 532 miles
during the year ended December 31, 1996 mitigated slightly by the decrease in
average seats per departure to 104 from 108. Load factor
27
<PAGE>
increased 13.8% primarily due to the 30.2% increase in onboard passengers
partially offset by the increase in ASMs.
OPERATING EXPENSES. The Company's operating expenses increased 31.4% to
$202.6 million for the year ended December 31, 1996 from $154.2 million for the
year ended December 31, 1995. Total operating expense per ASM increased 3.6% to
11.6 cents from 11.1 cents. Excluding the one-time charges for the recognition
of the impairment of long-lived assets in 1996 in accordance with SFAS No. 121
and the 1995 restructuring, discussed below, operating expense per ASM decreased
1.2% to 10.6 cents from 10.7 cents. This decrease is attributable to (i) a 7.3%
increase in stage length to 571 miles from 532 miles and (ii) a 3.8% decrease in
average seats per departure to 104 from 108 as a result of having fewer 148-seat
A320 aircraft in the fleet.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996
------------------------ ------------------------
PERCENT OF PERCENT OF
OPERATING COST PER OPERATING COST PER
EXPENSES ASM EXPENSES ASM
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Wages, salaries and related costs........................... 12.9% 1.4 CENTS 12.2% 1.4 CENTS
Aircraft fuel............................................... 10.9 1.2 13.5 1.6
Aircraft and engine rentals................................. 20.0 2.2 16.8 1.9
Commissions................................................. 6.1 0.7 6.8 0.8
Maintenance, materials and repairs.......................... 8.8 1.0 8.8 1.0
Depreciation and amortization............................... 1.3 0.2 0.7 0.1
Other....................................................... 36.1 4.0 32.9 3.8
----- ----- ----- -----
Operating expenses before impairment of long-lived assets
and recapitalization expense............................ 96.1 10.7 91.7 10.6
----- ----- ----- -----
Impairment of long-lived assets............................. 0.0 0.0 8.3 1.0
Restructuring............................................... 3.9 0.4 0.0 0.0
----- ----- ----- -----
Total operating expenses.............................. 100.0% 11.1 CENTS 100.0% 11.6 CENTS
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Wages, salaries and related costs increased 23.9% to $24.6 million for the
year ended December 31, 1996 from $19.9 million for the year ended December 31,
1995. The expense increase is attributable to increased staffing associated with
the addition of new routes, annual increases for line personnel and general
hiring to fill specific needs within the Company throughout 1996. Wages,
salaries and related costs expense per ASM remained unchanged at 1.4 cents.
Aircraft fuel expense increased 62.7% to $27.3 million for the year ended
December 31, 1996 from $16.8 million for the year ended December 31, 1995.
Aircraft fuel expense per ASM increased 28.1% to 1.6 cents from 1.2 cents
because of a 16.8% increase in the average fuel price per gallon to 80.6 cents
from 69.0 cents and the smaller number of relatively more fuel efficient A320s
in the fleet during the year ended December 31, 1995.
Aircraft and engine rentals expense increased 10.4% to $34.1 million for the
year ended December 31, 1996 from $30.9 million for the year ended December 31,
1995. The increase in expense is attributable to the increase of average
aircraft for the year ended December 31, 1996 to 13.7 from 11.0 and the lower
lease rates associated with the early months of the induction of the F-100s
during the year ended December 31, 1995. Aircraft and engine rentals expense per
ASM decreased 13.0% to 1.9 cents from 2.2 cents. The decrease in cost per ASM
resulted from the increase in average stage length to 571 miles from 532 miles.
Commissions expense increased 46.3% to $13.7 million for the year ended
December 31, 1996 from $9.4 million for the year ended December 31, 1995.
Commissions expense per ASM increased 14.7% to 0.8 cents from 0.7 cents. The
increase in cost per ASM is attributable to the increase of travel agency
revenue
28
<PAGE>
as a percent of passenger revenue to 71.4% from 70.4% and the 16.0% increase of
revenue per available seat mile to 10.2 cents from 8.8 cents.
Maintenance, materials and repairs expense increased 32.3% to $17.9 million
for the year ended December 31, 1996 from $13.6 million in the year ended
December 31, 1995. The expense increase is attributable to the 24.5% increase of
average aircraft during the period to 13.7 from 11.0 and certain contractual
maintenance rate increases. Maintenance, materials and repairs expense per ASM
remained unchanged at 1.0 cents.
Depreciation and amortization expense decreased 34.5% to $1.3 million for
the year ended December 31, 1996 from $2.1 million for the year ended December
31, 1995. Depreciation and amortization expense per ASM decreased 46.7% to 0.1
cents from 0.2 cents in the year ended December 31, 1995. The Company was
amortizing goodwill, slot costs and deferred debt costs in 1995 at a rate of
$0.7 million per year, all of which were written off during 1996 as impaired
assets under SFAS 121. Without the SFAS 121 adjustment, depreciation and
amortization expense in 1996 would have remained substantially unchanged at $2.0
million, including $0.7 million of such amortization charges.
Other operating expense increased 19.7% to $66.6 million for the year ended
December 31, 1996 from $55.7 million for the year ended December 31, 1995. Other
operating expenses consist primarily of landing fees and rentals, reservations,
ground handling, advertising, general and administrative and insurance. The
increase in expense is attributable to the increase in departures and
passengers, as well as expenses related to unusually bad weather in the winter
of 1996 and Hurricane Fran in September 1996. Other operating expense per ASM
decreased 5.5% to 3.8 cents from 4.0 cents. The decrease in cost per ASM is the
result of the increase in average stage length to 571 miles from 532 miles.
In accordance with SFAS No. 121, the Company recorded an impairment loss of
$16.9 million that increased cost per ASM by 1.0 cents during 1996.
For the year ended December 31, 1995, the Company incurred a restructuring
expense of $6.0 million related to the return of the four A320 aircraft and
other one-time costs that increased cost per ASM by 0.4 cents for the year ended
December 31, 1995.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
As is common in its industry, the Company experiences seasonal factors
during certain periods of the year that have combined in the past to reduce the
Company's traffic, profitability and cash generation as compared to the
remainder of the year. The highest levels of traffic and revenue are generally
realized in the second quarter and the lowest levels of traffic and revenue are
generally realized in the third quarter. Given the Company's high fixed costs,
such seasonality affects the Company's profitability from quarter to quarter.
Specifically, the Company experiences the lowest demand for its services in
September. In
29
<PAGE>
addition, many of the Company's areas of operations experience adverse weather
during the winter, causing a greater percentage of the Company's flights to be
canceled and/or delayed than in other quarters.
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues........................... $49,441 $45,933 $39,899 $44,761
Operating income (loss) (1).................. (6,719 ) 1,945 (2,517) 1,646
Income (loss) before extraordinary gain...... (7,226 ) (15,608) (2,492) 1,062
Net income (loss)............................ (7,226 ) (15,608) (2,492) 1,062
ASMs (000s).................................. 566,384 405,335 392,951 393,890
RPMs (000s).................................. 316,841 230,950 213,445 237,723
Load factor.................................. 55.9% 57.0% 54.3% 60.4%
Break-even load factor (1)................... 64.4% 55.3% 57.8% 58.9%
Yield........................................ 15.0 CENTS 19.3 CENTS 18.0 CENTS 18.1CENTS
RASM......................................... 8.7 CENTS 11.3 CENTS 10.2 CENTS 11.4CENTS
CASM (1)..................................... 10.0 CENTS 11.0 CENTS 10.8 CENTS 11.1CENTS
Aircraft (average during
period).................................... 16.0 13.3 13.0 13.0
<CAPTION>
1997
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30
--------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues........................... $47,843 $47,237 $43,059
Operating income (loss) (1).................. 3,871 6,540 2,863
Income (loss) before extraordinary gain...... 1,342 3,916 1,723
Net income (loss)............................ 16,614 3,916 1,723
ASMs (000s).................................. 366,944 343,933 331,190
RPMs (000s).................................. 221,157 219,355 212,443
Load factor.................................. 60.3% 63.8% 64.1%
Break-even load factor (1)................... 55.2% 54.8% 59.7%
Yield........................................ 20.8 CENTS 20.8 CENTS 19.4 CENTS
RASM......................................... 13.0 CENTS 13.7 CENTS 13.0 CENTS
CASM (1)..................................... 12.0 CENTS 11.8 CENTS 12.1 CENTS
Aircraft (average during
period).................................... 13.0 13.0 13.0
</TABLE>
- ----------------
(1) Excludes impairment of long-lived assets and recapitalization expenses.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As a result of the Recapitalization, the Company's financial position
improved significantly from December 31, 1996 to September 30, 1997. See "The
Company--The Recapitalization." As of September 30, 1997, the Company had cash,
cash equivalents, restricted cash and short term investments of $31.8 million
and working capital of $5.4 million, compared to cash, cash equivalents,
restricted cash and short term investments of $12.8 million and a working
capital deficit of $40.9 million as of December 31, 1996. During the nine months
ended September 30, 1997, cash, cash equivalents, restricted cash and short-term
investments increased $19.0 million, reflecting net cash provided by operating
activities of $5.0 million, net cash used in investing activities of $8.4
million (excluding purchases and sales of short-term investments) and net cash
provided by financing activities of $21.4 million. During 1996, cash, cash
equivalents, restricted cash and short-term investments increased $8.0 million,
reflecting net cash provided by operations of $5.8 million, net cash used by
investing activities of $2.6 million and net cash provided by financing
activities of $4.8 million.
CASH FLOWS FROM OPERATIONS. Net cash provided by operating activities
increased $7.9 million to $5.0 million for the first nine months of 1997 from
negative $2.9 million for the first nine months of 1996. This increase is due
primarily to net income in 1997 as compared to a net loss in 1996. The 1997 net
income of $22.3 million was offset by a $15.3 million non-cash extraordinary
gain, combined with a $13.2 million increase in operating assets and an $8.6
million increase in operating liabilities, which required a net use of cash of
$4.6 million. The 1996 net loss of $25.3 million was primarily offset by a non-
cash impairment charge of $16.9 million and deferral of expense payments of $6.1
million, combined with a $0.3 million decrease in operating assets and $1.8
million decrease in operating liabilities, which required a net use of cash of
$1.5 million.
Net cash provided by operating activities increased $6.6 million to $5.8
million for the year ended 1996 from negative $.8 million in 1995. This increase
was due to a smaller net loss in 1996, offset by non-cash items including a
$16.9 million impairment charge and deferral of expense payments of $8.8
million, combined with a $5.6 million decrease in operating assets and $2.6
million decrease in operating liabilities,
30
<PAGE>
which provided a net cash source of $3.0 million. The 1995 net loss of $32.3
million was offset by non-cash deferred income of $5.8 million, combined with an
$18.8 million increase in operating assets and $42.4 million increase in
operating liabilities, which provided a net cash source of $23.6 million.
CASH FLOWS FROM INVESTING. Net cash used in investing activities increased
$19.0 million to $21.4 million for the first nine months of 1997 from $2.4
million for the first nine months of 1996. In the first nine months of 1997, net
purchases and sales of investments accounted for $12.9 million compared to no
investments in the same period in 1996. Capital expenditures were $7.1 million
as compared to $1.4 million. In 1997, the Company began purchasing its own
rotable parts in conjunction with certain aircraft exiting a maintenance
contract with American. Aircraft purchase deposits were $1.4 million compared to
$.9 million.
Net cash used in investing activities decreased $4.3 million to $2.6 million
in 1996 from $6.9 million in 1995. Capital expenditures were $1.7 million in
1996, compared to $6.9 million in 1995. The balance of cash used in investing
activities in 1996 was for aircraft purchase deposits.
CASH FLOWS FROM FINANCING. Net cash provided by financing activities
increased $18.1 million to $21.5 million for the first nine months of 1997 from
$3.4 million for the first nine months of 1996. In the first nine months of
1997, $22.0 million of cash was received for stock issued in the
Recapitalization, compared to no new stock issuances in the same period in 1996.
No long-term debt was issued in the 1997 period, compared to cash received from
issuing debt in the 1996 period of $5.8 million, comprised of $4.0 million in
subordinated debt from the stockholders and $1.8 million from a vendor.
Net cash provided by financing activities increased $1.2 million in 1996 to
$4.8 million from $3.6 million in 1995. The Company received $4.0 million in
cash from the issuance of subordinated debt in 1996, as well as receiving $4.8
from vendors. In 1995, $6.0 million of debt was issued to certain stockholders.
Repayment of debt in 1996 was $4.0 million compared to $2.4 million in 1995.
The Company had cash, cash equivalents, restricted cash and short term
investments of $2.8 million as of December 31, 1995, compared to $6.9 million as
of December 31, 1994. The Company's working capital deficit as of December 31,
1995 was $39.8 million, compared to $2.7 million as of December 31, 1994. During
1995, cash, cash equivalents, restricted cash and short term investments
decreased $4.1 million, reflecting net cash used by operating activities of $0.8
million, net cash used in investing activities of $6.9 million and net cash
provided by financing activities of $3.6 million.
The Company has an agreement to purchase four newly manufactured Airbus
A320-200 aircraft currently scheduled to begin delivery in December 2005 and
ending in December 2006. The Company is not required to make progress payments
in amounts to be determined beginning in 2003. As Midway's current strategy does
not anticipate the use of this type of aircraft, Midway must either restructure
or sell its rights under this purchase agreement or accept delivery of the four
A320 aircraft. There can be no assurance that Midway will be able to restructure
or sell its rights under this purchase agreement.
CAPITAL RESOURCES
Since the February 1997 Recapitalization, the Company has been able to
generate sufficient funds from operations to meet its working capital
requirements and does not currently have any lines of credit. The Company
believes that, taking into account the proceeds of this Offering, the working
capital available to the Company is sufficient for its present requirements and
will be sufficient to meet its anticipated requirements for capital expenditures
and other cash requirements for the foreseeable future.
CAPITAL EXPENDITURES
The Company's net cash outflows for capital expenditures in 1995, 1996 and
the first nine months of 1997 were $6.9 million, $1.7 million and $7.1 million,
respectively.
31
<PAGE>
The Company recently agreed to acquire a $3.0 million spare engine for its
F-100 fleet, which will be purchase-financed over seven years. Midway plans to
fund the acquisition of $6 million of F-100 rotable parts through
internally-generated funds.
The Company expects to arrange in the fourth quarter of 1997 or the first
quarter of 1998 a combination of third party debt and leveraged lease financing
for the ten CRJs that are being delivered from November 1997 through December
1998. For each aircraft that is purchased (as opposed to leased), an initial
cash outlay of approximately $4.0 million will be required. Midway also expects
to arrange financing for two spare CRJ engines the Company has agreed to
acquire. The Company expects to spend less than $1 million on CRJ rotable and
expendable parts during 1998.
Midway has arranged standby lease financing for all ten aircraft on
reasonably acceptable terms. The terms of such financing would include a 16 year
term, semi-annual payments, a manufacturer-guaranteed residual value at the end
of the term and a cash security deposit payment by the Company. The Company
intends to use this financing in the event that it cannot arrange more
attractive financing from third party sources.
The Company's fixed costs will increase significantly with the induction of
the CRJs. Based on the current interest rate environment, the Company estimates
that its fixed charges will increase by approximately $14 million to $17 million
per year as a result of its acquisition or leveraged lease financing of the ten
CRJs. However, depending upon the financing method ultimately chosen, the
Company's balance sheet liabilities may or may not increase. See "Risk
Factors--Future Leverage."
OTHER FINANCING
The Company has significant lease obligations for aircraft that are
classified as operating leases and therefore not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from
approximately one year to sixteen years. The Company's total rent expense in
1996 under all non-cancelable aircraft operating leases was approximately $33.5
million.
The Company's sublease of gate and operations facilities at RDU extends
through 2013 with annual lease and maintenance expense of approximately $2.0
million.
32
<PAGE>
BUSINESS
Midway is a jet airline operator serving 13 destinations in eight eastern
states and Mexico from its hub at RDU, where it currently carries more
passengers and operates more flights than any other airline. The Company has
focused its operations to attract and retain business travelers by (i) providing
frequent non-stop service from RDU to major business destinations, (ii)
maintaining a high level of service and (iii) offering American's
AAdvantage-Registered Trademark- frequent flyer miles. The Company currently
operates the youngest all jet fleet in the United States with 12 98-seat Fokker
F-100 and one 148-seat Airbus A320 aircraft. To further serve its market niche,
the Company recently reached agreement to acquire ten new CRJs, with deliveries
to occur in the 14-month period beginning in November 1997. The Company
anticipates that the CRJs will expand the Company's capacity by up to 40%, and
will be utilized (i) to serve existing Midway destinations with greater
frequency and (ii) to enter new routes, providing Midway's customers with more
non-stop jet destinations.
In March 1995, the Company moved its base of operations from Chicago to RDU
following American's reduction in service in the Raleigh-Durham market. A number
of factors make RDU an attractive base of operations for Midway, including
market growth (21% more local traffic in 1996 than in 1994), Midway's cost
structure and its ability to serve routes with regional jets. The Raleigh-Durham
area is rapidly expanding, with air travel having grown by an average of 8% per
year from 1991 to 1996, compared to 4% for the United States as a whole. The
area is home to three major universities, the state capital and Research
Triangle Park, a 6,850-acre business center with more than 130 high technology
and other research oriented companies. The Company believes that the area's
growing business community offers opportunities for expansion at RDU with
regional jets and yet does not generate sufficient passenger volume to attract
significant competition from low fare, low cost airlines. RDU offers modern
facilities with room for the Company to grow. The Company subleases or has
options to sublease 18 of the 26 gates at the newer of RDU's two terminals,
Terminal C. Of the remaining eight gates in Terminal C, American and Corporate
Express Airlines, Midway's code share commuter partner, use six and Midway is
currently in negotiations to sublease the remaining two. Substantially all of
the gates at RDU's other terminal are currently occupied.
The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to offer AAdvantage-Registered Trademark- miles to, and accept
AAirpass-Registered Trademark- tickets and American first class upgrades from,
its passengers. Midway also contracts with American for important services,
including reservations, ground handling, fueling and yield management. Midway
believes the relationship benefits American as well, by building customer
loyalty through the use of AAdvantage-Registered Trademark- miles by Midway
customers, by providing sublease revenues to help offset American's lease
payments to RDU and by providing revenue through Midway's use of various
American services.
On February 11, 1997, the Company completed the Recapitalization, resulting
in a change in ownership and management. Robert R. Ferguson III, former chief
executive officer of Continental Airlines, Inc., was named Chairman of the
Board, President and Chief Executive Officer of the Company. The Company
believes that the Recapitalization resulted in an approximate $12 million
reduction in annual expenses, including (i) a decrease in aircraft rent expense,
(ii) a decrease in facility rentals, (iii) a decrease in the cost of certain
services and (iv) a reduction of interest on long-term debt. In addition to the
Recapitalization, the Company had previously discontinued certain unprofitable
long-haul routes. Since the Recapitalization, the Company has experienced a
significant improvement in operating performance and financial condition. The
Company believes that its improved results are attributable to the benefits
realized from the Recapitalization, route restructuring, improved yield
management, increased passenger demand and a generally strong economic
environment. See "The Company--The Recapitalization."
OPERATING STRATEGY
The principal elements of the Company's operating strategy are:
33
<PAGE>
- ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on available 1997
data, the Company's yields are 50% to 100% higher than the yields of most
other jet operators. To attract high-yielding passengers, the Company has
designed its operations to serve the needs of business travelers flying to
and from Raleigh-Durham. The Company has developed strong relationships
with major corporations located in the Raleigh-Durham area, and offers
these business travelers frequent non-stop jet service, as well as an
attractive, high quality in-flight product and
AAdvantage-Registered Trademark- frequent flyer miles. The Company
believes this focus on the needs of business travelers has produced a
loyal customer base and a higher percentage of business travelers than
other carriers. See "Selected Financial and Operating Data and
Glossary--Glossary" for the definition of "yield."
- MAINTAIN HIGH QUALITY OPERATIONS. Because the Company's business customers
require consistent, dependable performance, Midway is committed to meeting
the highest operational standards. The Company's year-to-date completion
factor (percent of scheduled flights actually operated) and on-time
performance rate (flights arriving within 15 minutes of schedule) of 99.5%
and 83.4%, respectively, are substantially higher than those of all of the
major carriers. The Company has achieved these performance measures (i) by
operating the youngest all jet fleet in the United States, with an average
age of 3.3 years, (ii) by maintaining a spare aircraft to ensure a high
completion factor and (iii) through its commitment to high quality
maintenance, including the use of vendors such as American, affiliates of
Rolls-Royce plc ("Rolls-Royce") and a subsidiary of Canadian Airlines
Corporation.
- PROVIDE QUALITY CUSTOMER SERVICE. The Company seeks to generate a high
degree of loyalty and customer preference by providing high quality
in-flight amenities and customer service. The Company emphasizes customer
service from reservation to destination and offers tangible amenities such
as greater leg room, leather seating (on all aircraft except the Company's
single A320), gourmet coffee, quality snacks and a quiet, modern all jet
fleet.
- CONTINUE TO REDUCE OPERATING COSTS. Because of its focus on business
travelers and premium service, its small aircraft and its relatively short
stage lengths, the Company operates with yields and a cost per available
seat mile that are higher than industry averages. The Company is committed
to maintaining a competitive cost structure and has identified a number of
cost reduction opportunities. In addition to the cost savings resulting
from the Recapitalization, the Company has recently (i) entered into new
maintenance contracts, (ii) reduced dependence on third-party vendors for
flight reservation call handling and (iii) reduced certain insurance
costs. The Company is also implementing an automated voice-response flight
information system and engaging a new, lower cost credit card processing
vendor. Although the introduction of regional jet aircraft will shorten
average stage length, the Company believes it should result in additional
cost benefits, including greater economies of scale and more efficient
utilization of facilities and personnel.
GROWTH STRATEGY
The Company believes that RDU is under-served with respect to non-stop
flights. To address this need and to better serve its core business customers,
the Company has ordered ten 50-seat CRJs. These new aircraft are scheduled for
delivery beginning November 1997 and continuing until December 1998. The Company
has options to acquire up to 20 additional CRJs over a two-year period with
delivery dates beginning in 1999.
The principal elements of the Company's growth strategy are:
- INCREASE FREQUENCIES TO CURRENT MARKETS. The Company's market share and
route profitability are greatest on routes where it offers the same or
better frequency and timing of flights compared to its competitors. The
Company's core customers are business travelers who generally pay higher
fares and select an airline primarily based on convenience of schedule.
Introduction of the new CRJs
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should enable the Company to increase frequency and offer more convenient
scheduling to current markets, without necessarily increasing overall
capacity in these markets.
- INCREASE NUMBER OF MARKETS SERVED. The Company has identified up to 20 new
market opportunities that it believes can support service primarily on an
"origination and destination" (i.e., local passenger) basis. The Company
intends to begin service from RDU to the five to ten most attractive of
these markets with the delivery of the CRJs. In addition, the Company
believes that existing demand on a number of routes currently served with
19-seat turboprop aircraft by Midway's code share commuter partner,
Corporate Express Airlines, can support 50-seat CRJ service. The Company
believes that most customers have a strong preference for jet service, and
will often pay a premium or choose a connecting flight to avoid flying on
turboprop aircraft. The Company anticipates attracting these customers
with the introduction of the CRJs.
RALEIGH-DURHAM MARKET
The Company believes that it is well positioned to benefit from the rapidly
expanding Raleigh-Durham area. Raleigh-Durham's metropolitan population is
approximately 1.1 million. The area is home to three major universities, the
state capital and Research Triangle Park, a 6,850-acre business center with more
than 130 high technology and other research oriented companies, employing over
37,000 people. In 1996, the median household effective buying income in the
Raleigh-Durham metropolitan area was 8.4% higher than the national average. In
the first six months of 1997, the unemployment rate was 2.3%, compared with 5.2%
nationwide, the fourth lowest among standard metropolitan statistical areas in
the nation.
The Company currently carries more passengers and operates more flights at
RDU than any other airline. Air travel at RDU has grown by an average of 8% per
year from 1991 to 1996, compared to 4% for the United States as a whole.
Although ten other jet airline carriers currently serve RDU, these carriers
(other than US Airways, Inc. to New York's LaGuardia Airport and Washington,
D.C.'s National Airport) provide non-stop flights only between RDU and their
respective hubs. The Company believes that the area's growing business community
offers opportunities for expansion at RDU with regional jets. RDU offers modern
facilities with room for the Company to grow. The Company subleases or has
options to sublease 18 of the 26 gates at the newer of RDU's two terminals,
Terminal C, and is currently in negotiations to sublease two additional gates.
Substantially all of the gates at RDU's other terminal are currently occupied.
SERVICES
ROUTES AND SCHEDULE
The Company currently provides non-stop service from RDU to the following 13
cities: Atlanta, Georgia; Boston, Massachusetts; Cancun, Mexico; Ft. Lauderdale,
Florida; Hartford, Connecticut/Springfield, Massachusetts; Newark, New Jersey;
New York, New York; Orlando, Florida; Philadelphia, Pennsylvania;
Stewart/Newburgh, New York; Tampa, Florida; Washington, D.C.; and West Palm
Beach, Florida. The Company believes that business travelers select an airline
primarily based on convenience of schedule, with a strong preference for
frequent, non-stop service. Midway believes that three flights per day is the
minimum service pattern necessary to successfully serve its core business
customers, and therefore currently offers between three and five flights per day
in all but two of its markets. The introduction of the CRJs will allow the
Company to increase frequency in several markets without necessarily increasing
overall capacity in these markets.
HIGH QUALITY CUSTOMER SERVICE
The Company has consistently promoted, and been recognized by its customers
for, quality customer service that distinguishes Midway from other airlines.
Midway believes it has attained its superior level of
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customer service through the efforts of its professional and personable
employees and the provision of amenities such as greater leg room, leather
seating (on all aircraft except the Company's single A320), gourmet coffee,
quality snacks and a quiet, modern all jet fleet. Although the Company is not
required to report on-time statistics and baggage delivery performance, it
consistently ranks high relative to the nation's ten largest airlines which do
report these statistics to the DOT. For example, for the 12 months ended June
30, 1997, using DOT statistics and statistics compiled from its own reports,
Midway's on-time performance and baggage delivery performance exceeded that of
all major carriers.
CORPORATE EXPRESS CODE SHARE AGREEMENT
Midway has entered into a Memorandum of Understanding (the "MOU") with
Corporate Flight Management, Inc., d/b/a Corporate Express Airlines ("Corporate
Express"), which contemplates the creation of a code share agreement between
Midway and Corporate Express. The MOU sets forth the principal terms and
conditions that will be contained in such an agreement, including a 10-year
duration, the markets to be served, Midway's control of all pricing, scheduling
and yield management of all code share flights and the distribution of profits
and losses generated by the services provided under the contemplated agreement.
The terms of the MOU provide an incentive for Corporate Express to enter into
new markets, including markets that might not be profitable for it under a
traditional code share agreement. Through its relationship with Corporate
Express, the Company seeks to provide service to communities where there is the
opportunity to complement Midway's service by giving passengers on short-haul,
low density routes to RDU the ability to conveniently connect to Midway flights
without switching carrier systems. Under the MOU, Corporate Express currently
provides service to Baltimore, Maryland; Norfolk, Virginia; Charleston and
Myrtle Beach, South Carolina; Nashville, Tennessee; Savannah, Georgia;
Wilmington, North Carolina; Columbus, Ohio; and Jacksonville, Florida. Service
to Columbus, Ohio, and Jacksonville, Florida, however, will be discontinued
beginning January 5, 1998. The Company does not believe that the MOU or the
contemplated code share agreement will have a material effect on the Company's
results of operation.
FLEET
Midway operates a fleet of 12 Fokker F-100 and one Airbus A320 aircraft,
with an average age of 3.3 years. The F-100 aircraft are configured with eight
first class seats and 90 coach seats, while the A320 is configured with ten
first class seats and 138 coach seats. All of the aircraft meet Stage 3 noise
requirements imposed by federal law. With the delivery of the ten new CRJs, the
average age of Midway's fleet is expected to decrease to 2.8 years at December
1998. The Company believes that its young all jet fleet gives it a significant
advantage in attracting and retaining business travelers, and improves its
reliability statistics. Midway is seeking to terminate the lease of the A320
prior to its scheduled June 1999 expiration, and has begun negotiations in that
regard.
The Company recently executed an aircraft purchase agreement with
Bombardier, Inc. for the acquisition of ten newly manufactured CRJ-200ER
Canadair Regional Jet aircraft. These new aircraft are scheduled for delivery
beginning November 1997 and continuing through December 1998. The purchase
agreement also provides Midway with options to acquire up to 20 additional
CRJ-200ER aircraft over a two year period with delivery dates beginning in 1999.
Pursuant to an agreement with GE Aircraft Engines, a division of General
Electric International, Inc., the Company has agreed to purchase two CF34-381
spare engines to support the operation of the ten CRJ-200ER aircraft. This
agreement also provides for the purchase of an additional spare engine for each
five CRJ-200ER aircraft that Midway acquires.
Following the delivery of the CRJs, the mix of Midway's fleet between
98-seat F-100s and 50-seat CRJs should allow the Company to meet expected
passenger volumes while maintaining a competitive cost structure, and should
enhance the Company's ability to more efficiently match its aircraft to its
route network requirements. The relative uniformity of the fleet should also
minimize training and maintenance costs. The terms of the Company's F-100 leases
also provide the Company with significant fleet flexibility.
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The Company's 12 F-100 leases expire in groups of four during the following date
ranges: October 1998-May 1999, October 2003-January 2004, and January 2013. Each
F-100 lessor has the right to terminate its lease on six months' prior notice
beginning September 15, 1998, provided that no lease can be terminated if it
would result in a fourth termination of any F-100 lease in any 12-month period,
including scheduled terminations. This staggered schedule of lease expirations
combined with the Company's options to acquire up to 20 additional CRJs will
give the Company the ability to continue to evaluate and change the size and
composition of its fleet over time as necessary to take advantage of changing
market conditions. See "Risk Factors--Limited Number of Aircraft."
Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. The Airbus purchase
agreement also gives Midway an option to purchase up to four additional Airbus
A320 or A319 aircraft with delivery dates in 2007. To support the operation of
the four A320 aircraft, the Company also agreed to purchase one IAE V2527-A5
spare engine scheduled for delivery in November 2005 from International Aero
Engines AG ("IAE"). The IAE engine purchase agreement gives Midway an option to
purchase one additional spare engine for delivery in November 2006. The purchase
of the A320s and the associated spare engine do not fit with the Company's
current strategy. The Company is looking at several alternatives with respect to
the A320s, including restructuring its agreement with Airbus or selling its
position. See "Risk Factors--Aircraft Purchase Obligation."
MAINTENANCE AND SUPPORT
The Company is dedicated to providing the highest level of maintenance
quality and reliability. The Company's emphasis on high quality maintenance is
evidenced by its experienced maintenance management (an average of more than 20
years' experience), extensive and recurrent mechanic training and selection of
high quality maintenance providers. The Company performs all low level checks
(below "C" Check) and non-routine maintenance at RDU or at its maintenance
facility in Orlando, Florida. Major inspections and overhauls of the airframes
and engines are conducted by contract vendors whose work and procedures are
closely monitored by Midway maintenance management personnel. The contract
vendors currently engaged by the Company to perform major inspections of the
airframe and to perform engine overhauls include American, Rolls-Royce and a
subsidiary of Canadian Airlines Corporation.
The Company operates 12 aircraft manufactured by Fokker. Fokker entered into
insolvency proceedings in March 1996. As a result, the Fokker F-100 aircraft is
no longer manufactured. The Company has entered into an agreement with Fokker
Services, Inc., a subsidiary of Stork N.V., a major Dutch manufacturing company,
to obtain spare parts and engineering support for the operation of its F-100
aircraft. The Company currently contracts with a subsidiary of Canadian Airlines
Corporation to perform C-checks on its F-100 aircraft. The Company has also
entered into agreements with Rolls-Royce to perform engine maintenance on all of
its F-100 aircraft engines through May 1999 for aircraft with lease termination
dates between October 1998 and May 1999 and through September 2002 for the
remainder of its F-100 fleet. Although there can be no assurance, the Company
believes that spare parts, engineering support and maintenance service for the
F-100 aircraft will continue to be available throughout the terms of the leases
covering the aircraft. See "Risk Factors--Maintenance of Discontinued Aircraft."
SALES AND MARKETING
PRICING AND YIELD MANAGEMENT
The Company's strategy is designed to result in premium yields. The Company
believes its efforts to identify favorable markets and provide premium non-stop
service enables it to generate a high degree of loyalty among its passengers and
to attract a large percentage of business travelers on its flights. Pursuant to
an agreement with American, the Company began implementing a version of
American's yield management system in 1996, and it became fully operational in
February 1997. The system is one of the
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most advanced yield management systems worldwide, and has enabled Midway to
significantly enhance its ability to maximize revenues. Midway's license to use
the system and to obtain system related services from American personnel
currently extends through August 2001, and may be extended thereafter at market
terms or may be perpetually licensed by Midway for a fixed price. See "Risk
Factors--Agreements with American Airlines."
DISTRIBUTION
Midway sells approximately 75% of its tickets through travel agents, a level
which the Company believes is comparable to the percentage of travel agency
sales made by many other airlines. Travel agents generally receive a commission
from airlines based on the price of the tickets they sell. In 1995, many
airlines began limiting the amount of commissions they would pay to agents for
certain higher priced tickets and since September 1997, several major carriers
have lowered the base commission rate from 10% to 8%. To date, due to the
importance of the business passenger to Midway and the high utilization of
travel agents by business travelers, the Company has determined not to limit or
lower travel agent commissions.
Midway also pays additional commissions, referred to as "overrides", to
selected travel agencies in connection with special revenue programs. The
Company believes these override programs result in incremental revenue to the
Company. Midway also offers these travel agencies significant opportunities to
participate in the development of specific corporate strategies and procedures,
through their attendance at quarterly forums with the Company's most senior
executives, including its President and Chief Executive Officer. Special
services developed through these or other programs include Midway's full time
staffing of the "Carolina Desk" within its sales department to answer questions
or otherwise attend to the needs of these important customers. The Company
believes that the combination of higher available commissions, the development
of relationships between these travel agents and senior management and the
devotion of resources to meet the needs of these agencies has resulted in strong
support of Midway by travel agencies.
CORPORATE RELATIONSHIPS
The Company believes that it receives a substantial share of travel from the
local Raleigh-Durham business community on the routes that it serves. The
Company believes that this success is in part a result of its significant
efforts to meet the demands of its core business customers, its established
relationships with many local, national and international corporations in the
Raleigh-Durham area and the support it receives as the "hometown" airline.
Discounts are offered to a limited number of corporations in exchange for a
premium share of their travel. Employees of some of these corporations may also
be offered discounts for leisure weekend travel on flights that would otherwise
operate with empty seats. This program, called "Midway Weekend Madness", has
helped build loyalty in the Raleigh-Durham market and is an important incentive
for corporations to do more business with Midway. Midway sales agents visit
customers on a regular basis to solicit their input and to answer questions.
Each sales manager is supported by a help desk staffed full time by employees
trained to meet these customers' needs. The Company's President and Chief
Executive Officer calls upon these important customers to ensure that Midway
understands and responds to their travel requirements.
AMERICAN RELATIONSHIP
The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to offer AAdvantage-Registered Trademark- miles to, and accept
AAirpass-Registered Trademark- tickets and American first class upgrades from,
its passengers. Midway also contracts with American for important services,
including reservations, ground handling, fueling and yield management. Midway
believes the relationship benefits American as well, by building customer
loyalty through the use of AAdvantage-Registered Trademark- miles by Midway
customers, by providing sublease revenues to help offset American's lease
payments to RDU and by providing revenue through Midway's use of various
American services. See
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"Risk Factors--Agreements with American Airlines," "--Pricing and Yield
Management," "--Frequent Flyer Program" and "--Facilities."
FREQUENT FLYER PROGRAM
Midway has been a partner in American's AAdvantage-Registered Trademark-
frequent flyer program since March 1995. Upon its arrival at RDU, Midway's
participation in this program quickly facilitated its access to a large and
loyal group of AAdvantage-Registered Trademark- members in the Raleigh-Durham
area and along the East Coast. For payment of a per-mile fee, the Company is
able to offer its passengers the ability to obtain award mileage on every
current flight, and AAdvantage-Registered Trademark- award certificates can be
redeemed for travel on Midway. Midway's contract with American, which extends
through April 30, 2001, gives the Company the ability to offer
AAdvantage-Registered Trademark- miles on several additional routes, though the
Company may add new routes in the near future without having the ability to
offer AAdvantage-Registered Trademark- miles. The ability to offer
AAdvantage-Registered Trademark- miles on additional routes and the extension of
the term of the agreement are the subjects of ongoing discussions between the
Company and American. The Company believes its participation the
AAdvantage-Registered Trademark- program gives it access to a flexible and
extremely powerful marketing tool. However, due to the potential limitations of
the agreement (including the number of additional markets and the term of the
agreement), the Company may in the future choose to develop its own frequent
flyer program.
American may terminate this agreement under several circumstances, including
(i) commencement by the Company of a new frequent flyer program or its
participation in another frequent flyer program, (ii) any person or group
becoming the owner of 20% or more of the outstanding voting securities of the
Company or any "Disqualified Investor" becoming the owner of 10% or more of the
outstanding voting securities of the Company, (iii) the Company making a
significant acquisition or (iv) the Company entering into any marketing-oriented
collaborative agreement with another airline which American reasonably believes
would likely materially adversely affect American's interests or objectives
under any of its or its affiliates' agreements with the Company. "Disqualified
Investor" is defined as (i) any other airline or airline-related services
company, (ii) any person or entity offering a frequent traveler program or (iii)
any person or entity that American believes would likely, by virtue of its
affiliation with the Company, materially adversely affect American's interests
or objectives under any of its or its affiliates' agreements with the Company.
In addition, American may terminate its sublease to the Company of the RDU
facility, Midway's license of the yield management system and one other service
agreement that Midway has with American if any person or group acquires 30% or
more of the voting securities of Midway. Finally, if the Company pays any
dividends or makes any other cash or asset distribution to its stockholders
without American's consent at any time prior to the Company's payment in full of
a certain promissory note to American, then American may terminate the RDU
facility sublease, the AAdvantage-Registered Trademark- Participating Carrier
Agreement, Midway's license of the yield management system and one other service
agreement that Midway has with American. See "Risk Factors--Agreements with
American Airlines."
MARKETING
The Company markets its services through listings in computer reservations
systems and the Official Airline Guide; through advertising and promotions in
newspapers, magazines, billboards, radio and television; and through direct
contact with travel agencies, corporate travel departments, wholesalers and
consolidators. The Company maintains a nationwide toll-free telephone number for
use by passengers to make reservations and purchase tickets and has sales
representatives assigned to all regions where Midway operates. The service mark
"Feel Like Flying Again" was adopted in 1995 when the Company began RDU
operations to communicate a level of service that is reminiscent of flying when
airlines generally provided higher quality service than is perceived today.
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EMPLOYEES
As of September 30, 1997, the Company had 723 full-time equivalent employees
in the following departments:
<TABLE>
<S> <C>
Passenger Services.................................................... 195
Flight Operations..................................................... 170
In-flight............................................................. 129
Sales, Marketing and Reservations..................................... 105
Maintenance and Quality Assurance..................................... 60
Administrative........................................................ 46
Accounting and Finance................................................ 18
---
Total........................................................... 723
</TABLE>
LABOR RELATIONS
The Railway Labor Act ("RLA") governs the labor relations of employers and
employees engaged in the airline industry. Comprehensive provisions are set
forth in the RLA establishing the right of airline employees to organize and
bargain collectively along craft or class lines and imposing a duty upon air
carriers and their employees to exert every reasonable effort to make and
maintain collective bargaining agreements. The RLA contains detailed procedures
which must be exhausted before a lawful work stoppage can occur.
None of the Company's employees are represented by a labor union. In the
spring of 1996, a vote was held by the Company's dispatchers on the application
of the Transport Workers Union of America. The election resulted in the
dismissal of the application. In the fall of 1996, a vote was held among the
Company's fleet services (ramp) employees on the application of the
International Association of Machinists. The election resulted in the dismissal
of the application. In October 1997, the National Mediation Board authorized an
election to be held on the application of the Air Line Pilots Association to
represent Midway's pilots. The ballots for such election were distributed on
November 4, 1997, and will be counted on December 8, 1997. In November 1997, the
Company received notice from the Association of Flight Attendants, AFL-CIO (the
"AFA") that a campaign has been initiated to select the AFA as the exclusive
bargaining representative for the Company's flight attendants. The Company is
unable to predict whether an election will be held on any application the AFA
might make to represent the Company's flight attendants. See "Risk
Factors--Labor Relations."
The Company believes its management and employees have a good relationship.
Management, including the Company's President and Chief Executive Officer, meet
with pilots, flight attendants, customer service agents and other employees on a
routine basis to discuss Company objectives as well as more specific labor
related issues such as scheduling, compensation and work rules. Management
believes it has addressed pilot and other employee concerns in a timely and
responsive manner.
GOVERNMENT REGULATION
GENERAL
The Company is subject to the jurisdiction of and regulation by the DOT, the
FAA and certain other governmental agencies. The DOT principally regulates
economic issues affecting air service such as air carrier certification and
fitness, insurance, authorization of proposed scheduled and charter operations,
consumer protection and competitive practices. In 1993, 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 DOT has
authority to investigate and institute proceedings to enforce its economic
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regulations and may in certain circumstances assess civil penalties, revoke
operating authority and seek criminal sanctions.
The FAA primarily regulates flight operations, in particular matters
affecting air safety, such as airworthiness requirements for aircraft and pilot
and flight attendant certification. 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 FAA has the authority to modify, suspend
temporarily or revoke permanently the authority of the Company or its licensed
personnel, after notice and a hearing, for failure to comply with regulations
promulgated by the FAA and to assess civil penalties for such failures. In
September 1997, the Civil Aviation Security Division of the FAA conducted an
investigation of the Company's compliance with certain regulations requiring the
Company to verify the accuracy of background information provided by its
employees who have access to secure airport areas. This investigation will
likely result in the finding of violations of these regulations. The Company
revised its background check procedures during the course of the FAA's
investigation and then obtained and verified the necessary background
information of those employees who had been identified by the FAA as having
insufficient background check documentation. While the Company is unable to
determine whether the FAA will pursue an assessment as a result of the findings
of this investigation, the Company believes that such an assessment would not
have a material effect on the Company. See "Risk Factors--Government
Regulation."
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 also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and
engines, fire retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise abatement and the
mandatory removal and replacement of aircraft parts that have failed or may fail
in the future.
The Company is regulated by the Environmental Protection Agency and state
and local agencies with respect to the protection of the environment and to the
discharge of materials into the environment. At its aircraft line maintenance
facilities, the Company uses materials that are regulated as hazardous under
federal and state 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. 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 Company is also subject to other federal and state laws and regulations
relating to protection of the environment, radio communications, labor
relations, equal employment opportunity and other matters.
SAFETY
The Company has never had an accident, and is dedicated to ensuring its
customers' safety. The FAA monitors the Company's compliance with maintenance,
flight operations and safety regulations, maintains representatives on-site and
performs frequent spot inspections, and the Company believes it has a strong and
open relationship with its regional FAA office. 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
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Company's DOT or FAA authorizations or certificates could have a material
adverse effect upon the Company.
SLOTS
The FAA's regulations currently limit the availability of, and permit the
buying, selling, trading and leasing of, certain airline slots at Chicago's
O'Hare, New York's LaGuardia and Kennedy International and Washington, D.C.'s
National airports. A slot is an authorization to take off or land at the
designated airport within a specified time window. Midway utilizes ten slots at
New York's LaGuardia Airport, three of which are owned and seven of which are
leased from a third party airline. Midway utilizes eight slots at Washington,
D.C.'s National Airport, two of which are owned and six of which are leased from
a different third party airline. Although the Company's slot leases are
currently scheduled to expire in April 1998, the Company believes it will be
able to renew those leases on terms that will be acceptable to the Company.
The FAA's slot regulations require the use of each slot at least 80% of the
time, measured on a bi-monthly basis. Failure to meet this utilization threshold
without a waiver from the FAA, which is granted only under exceptional
circumstances, subjects the slot to recall by the FAA. In addition, the slot
regulations provide that slots may be withdrawn by the FAA at any time without
compensation to the carrier holding or operating the slot to meet the DOT's
operational needs, such as providing slots for international or essential air
transportation.
FOREIGN OWNERSHIP
Pursuant to law and the regulation of the DOT, the Company must be
effectively controlled by United States citizens. In this regard, the Company's
President and at least two-thirds of the Company's Board of Directors must be
United States citizens and not more than 25% of the Company's voting stock may
be owned by foreign nationals (although subject to DOT approval the percent of
foreign economic ownership may be as high as 49%).
FUEL
The cost of fuel is a significant operating expense, constituting 13.5% of
operating costs in 1996 and 12.8% during the nine months ended September 30,
1997. Jet fuel costs may be subject to wide fluctuations as a result of sudden
disruptions in supply. Because of the effect of such events on price and
availability of oil, the cost and future availability of jet fuel cannot be
predicted with any degree of certainty. A one cent change in the cost per gallon
of fuel, based on the Company's fuel consumption levels for the nine months
ended September 30, 1997, increases or decreases operating expenses by
approximately $300,000 per year.
The Company's fuel requirements are met by approximately 11 different
suppliers. The Company contracts with these suppliers as fuel is needed, and the
terms vary as to price and quantity. The Company has not entered into any
agreement that fixes the price of fuel over any period of time.
FACILITIES
Of the 26 gates at the newer of RDU's two terminals, Terminal C, the Company
currently subleases 12 gates through February 2013 and has options expiring
August 1999 to sublease through February 2013 six additional gates. In addition,
the Company is currently in negotiations to sublease two additional gates. The
Company also subleases certain hangar facilities in Orlando, Florida where light
maintenance and aircraft cleaning are performed. This sublease expires at the
end of April 1998. The Company believes it will either extend this lease or find
suitable hangar facilities either at RDU or elsewhere. The Company's corporate
headquarters and reservations facility are located in Durham, where it subleases
approximately 30,000 square feet of space. The Durham facility sublease expires
on July 31, 1998. The Company has two, one-year extension options available on
this space. The Company believes it can find suitable replacement headquarters
and reservation center space if needed.
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In one of the cities Midway serves, the Company leases a gate at the airport
directly from the airport. For the remaining cities, Midway obtains the use of
gates as part of its third party ground handling contracts.
COMPETITION
The Company competes with other air carriers on many of its routes. Many of
the Company's competitors have elaborate route structures that transport
passengers to hub airports for transfer to many destinations, including those
served by Midway. Although ten other jet airline carriers currently serve RDU,
these carriers (other than US Airways, Inc. to New York's LaGuardia Airport and
Washington, D.C.'s National Airport) provide non-stop flights only between RDU
and their respective hubs. In some markets, Midway also competes against ground
transportation providers. See "Risk Factors--Industry Conditions and
Competition."
INSURANCE
In the opinion of management, the Company maintains insurance policies of
types customary in the industry and in amounts management believes are adequate
to meet DOT requirements and to protect the Company and its property against
material loss. The policies principally provide coverage for public liability,
passenger liability, baggage and cargo liability, property damage, including
coverage for loss or damage to its flight equipment, and worker's compensation
insurance. There can be no assurance, however, that the amount of insurance
carried by the Company will be sufficient to protect it from material loss.
LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business.
Management believes that none of this litigation is likely to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table contains the name, age and position with the Company of
each executive officer and director as of September 30, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Robert R. Ferguson III............... 48 Chairman of the Board, President and Chief Executive Officer
Joanne Smith......................... 39 Senior Vice President--Sales & Marketing
Jonathan S. Waller................... 37 Senior Vice President, General Counsel and Secretary
Steven Westberg...................... 42 Senior Vice President and Chief Financial Officer
Martin F. Brueckner.................. 53 Vice President--Customer Service
Thomas Duffy, Jr..................... 41 Vice President--Maintenance
David Vance.......................... 63 Vice President--Operations
W. Greyson Quarles................... 56 Director
Gregory J. Robitaille................ 34 Director
Howard Wolf.......................... 62 Director
</TABLE>
INDIVIDUAL BACKGROUND INFORMATION
ROBERT R. FERGUSON III has served as Chairman of the Board, President and
Chief Executive Officer of the Company since February 1997. From October 1994 to
February 1997, Mr. Ferguson served as President of Belmont Aviation, L.L.C., an
aviation consulting firm. Prior to that, he held various executive positions at
Continental Airlines, Inc., last serving as Chief Executive Officer, President
and Director from August 1991 to October 1994. Mr. Ferguson also serves on the
Board of Directors of Capital Cargo International Airlines, Inc., an air freight
corporation ("Capital Cargo").
JOANNE SMITH has served as Senior Vice President--Sales and Marketing of the
Company since September 1994. Prior to that time, she served as Vice President
of Marketing and Field Services for Wings West Airlines from June 1987 to
September 1994.
JONATHAN S. WALLER has served as Senior Vice President, General Counsel and
Secretary of the Company since July 1995. From April 1989 to July 1995, Mr.
Waller was an attorney in private practice with the Chicago, Illinois law firm
of Rosenberg & Liebentritt, becoming a partner of the firm in January 1994.
STEVEN WESTBERG has served as Senior Vice President and Chief Financial
Officer of the Company since December 1995. Mr. Westberg held various positions
at Continental Airlines, Inc. from 1991 to February 1995, last serving as Vice
President of Corporate Planning. From February 1995, to December 1995, Mr.
Westberg served as Vice President of Belmont Aviation, L.L.C., an aviation
consulting firm. Mr. Westberg also serves on the Board of Directors of Capital
Cargo.
MARTIN F. BRUECKNER has served as Vice President--Customer Service of the
Company since August 1996. From April 1993 to August 1996, Mr. Brueckner served
as Area President for International Total Services, a company that provides
out-sourcing services to airlines.
THOMAS DUFFY, JR. has served as Vice President--Maintenance of the Company
since August 1995. Prior to that time, Mr. Duffy was Director of Maintenance
from August 1993. From May 1992 until August 1993, Mr. Duffy served as Manager
of Maintenance Sales with Triad International Maintenance Co.
DAVID VANCE has served as Vice President--Operations of the Company since
October 1994. Prior to that time, Mr. Vance served as Director of Operations
from August 1993 to October 1994. Mr. Vance was a captain with Reno Air from
April 1992 to August 1993.
44
<PAGE>
W. GREYSON QUARLES has served as Chief Financial Officer of SAS Institute,
Inc., a computer software corporation, since 1982 and has been a director of the
Company since February 1997.
GREGORY J. ROBITAILLE has been employed by Equity Group Investments, Inc.,
which is an affiliate of Zell/Chilmark since October 1995. From September 1991
to September 1995, he served as a Vice President of the Corporate Finance
Department of Rauscher Pierce Refsnes, Inc., an investment banking firm. Mr.
Robitaille has served as a Director of the Company since February 1997.
HOWARD WOLF has been a Senior Partner of the law firm of Fulbright &
Jaworski L.L.P. for more than the last five years and has served as a director
of the Company since February 1997. Mr. Wolf also serves on the Board of
Directors for Offshore Logistics, Inc., a company that operates helicopters
world-wide; Tuskar Resources plc, an oil and gas company; and International Tool
& Supply plc, an oil and gas service and supply company. Mr. Wolf serves as an
Advisory Director of Frost National Bank and as Chairman of the Board of
Trustees of The Institute for Rehabilitation and Research, a not-for-profit
hospital.
Prior to the Offering, the Company's Board of Directors will establish an
Audit Committee and a Compensation Committee.
The duties of the Audit Committee will be to recommend to the Board of
Directors the selection of independent public accountants to audit annually the
books and records of the Company, discuss with the independent auditors and
internal auditors the scope and results of audits, and approve and review any
nonaudit services performed by the Company's independent auditing firm.
The duties of the Compensation Committee will be to provide a general review
of the Company's compensation and benefit plans to ensure that they meet the
Company's objectives. In addition, the Compensation Committee will approve the
Chief Executive Officer's compensation and review the Chief Executive Officer's
recommendations on (i) the compensation of all other officers of the Company,
(ii) the grant of awards under the Company's then existing compensation and
benefit plans and (iii) the adoption of major Company compensation policies and
practices. The Compensation Committee will report its recommendations to the
Board of Directors for approval and authorization.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The Company has agreements with four of the named executive officers
(Messrs. Ferguson, Waller and Westberg and Ms. Smith) that provide that each
such officer is entitled to benefits if such officer's employment is ended by
the Company other than for reason of death or disability or for cause (as
defined in the agreements). In general, the benefits provided are: (a) a cash
termination payment equal to one year's annual compensation at the rate then in
effect or continuing salary payments of up to one year following the date of
termination; (b) payments allowing for the officer to obtain medical benefits
comparable to those received by the officer in the preceding fiscal year for up
to one year following termination; (c) outplacement services; (d) airline travel
privileges on Midway for the executive and his/her spouse for their lifetime and
their dependent children; and (e) household relocation assistance. Ms. Smith's
agreement terminates on December 31, 1997. Messrs. Ferguson, Waller and
Westberg's agreements have no certain termination date. Mr. Ferguson's agreement
does not provide him with the benefits described in clauses (b), (c), (d) and
(e) above.
EXECUTIVE COMPENSATION
Set forth in the following table is certain compensation information
concerning the current and former Chief Executive Officers and each of the
Company's most highly compensated executive officers as to whom the total annual
salary, bonus and other compensation for the fiscal year ended December 31, 1996
exceeded $100,000, or for the six months ended June 30, 1997 exceeded $50,000.
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMMON STOCK
COMPENSATION UNDERLYING
------------------ OPTIONS ALL OTHER
SALARY BONUS (# OF COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) SHARES) ($)
- ------------------------------------------------------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert R. Ferguson III(1)......................................... 1996 -- -- -- --
Chairman of the Board, President and Chief Executive Officer 1997(2) $ 69,365 -- 781,250 --
John N. Selvaggio(3).............................................. 1996 246,642 -- -- --
President and Chief Executive Officer 1997(2) 28,192 $480,000(4) -- $282,923(5)
Steven Westberg................................................... 1996 170,103 -- -- --
Senior Vice President and Chief Financial Officer 1997(2) 79,288 247,500(4) 111,997 --
Jonathan S. Waller................................................ 1996 165,384 -- -- --
Senior Vice President, General Counsel and Secretary 1997(2) 76,288 247,500(4) 27,999 --
Joanne Smith...................................................... 1996 154,834 -- -- --
Senior Vice President, Sales and Marketing 1997(2) 78,388 247,500(4) 27,999 --
Brian J. Olds(6).................................................. 1996 -- -- -- 284,137(7)
Executive Vice President and Chief Operating Officer 1997(2) -- -- -- --
</TABLE>
- ------------------------
(1) Mr. Ferguson became an executive officer of the Company in February 1997,
and is paid a base annual salary of $200,000.
(2) 1997 amounts reflect six months ended June 30, 1997.
(3) Mr. Selvaggio's employment with the Company ended in February 1997.
(4) Amount reflects bonus paid by Zell/Chilmark on behalf of the Company as a
result of negotiations in connection with the Recapitalization.
(5) Amount reflects severance payment to Mr. Selvaggio.
(6) Mr. Olds resigned from employment with the Company in February 1996.
(7) Amount reflects severance paid in connection with resignation of employment.
BOARD COMPENSATION
Non-employee directors of the Company are paid a fee of $1,500 for each
board meeting attended in person.
EMPLOYEE PLANS
Although the terms of the Stock Option Plan have not yet been determined,
the Company anticipates that not more than 557,255 shares of Common Stock will
be reserved for issuance to employees of the Company under the Stock Option
Plan. The Company expects that options to purchase substantially all of these
shares will be granted concurrently with the Offering to employees at an
exercise price per share equal to the offering price to the public. Such options
will vest in equal amounts over five years and will have a ten year term.
46
<PAGE>
In addition to the Stock Option Plan, the Company has granted options to
purchase an aggregate of 223,994 shares of Common Stock to certain members of
senior management at an exercise price per share equal to the valuation of the
Common Stock at the time of the Recapitalization. Such options vest in equal
amounts over five years and have a ten-year term.
The Company intends to adopt a Profit Sharing Plan (the "Profit Sharing
Plan") which will become effective for 1998 and will apply to all of its
employees who have completed six months of service with the Company and who are
not represented by a collective bargaining organization, unless inclusion in the
Profit Sharing Plan for such employees is achieved through the collective
bargaining process. Profit Sharing Plan payments, if any, will be based upon the
relative wages of the eligible employees during the relevant annual period. Half
of each payment will be made to each eligible employee in cash and half will be
made to an investment account maintained by a third party on behalf of the
eligible employee. The Company expects that the payments to the investment
accounts and associated earnings will vest in equal amounts over five years.
CERTAIN TRANSACTIONS
In March 1995, the Company entered into a services agreement with Teletech
Teleservices, Inc., a Colorado corporation ("Teletech"), for the performance of
reservation call handling services by Teletech on behalf of Midway. At that
time, Teletech was an affiliate of Zell/Chilmark. Midway Airlines terminated
this agreement, effective May 15, 1997. The Company currently sublicenses a
reservation software program from Teletech. The Company believes the terms of
this software sublicense are no less favorable to Midway than could be obtained
from an unaffiliated party. The software sublicense terminates in August 1998.
In May 1995, the Company obtained an aggregate of $6,000,000 in subordinated
debt financing from a group of 18 shareholders. Of this amount, $5,217,000 was
provided by Zell/Chilmark at a rate of 12% per annum and with an April 1, 2002
maturity date. Warrants were issued to each of the debt holders at a rate which
gave each debt holder the right to purchase 750 shares of the Company's
previously existing Class C Common Stock at $.01 per share for each $1,000 of
financing provided. In January, February and August 1996, Zell/Chilmark provided
additional subordinated debt financing totalling $4,000,000 on substantially the
same terms as in May 1995. The Company believes all of the subordinated debt
financing that it received from these parties in 1995 and 1996 was received on
terms no less favorable to Midway than could have been obtained from an
unaffiliated party. All of this subordinated debt was redeemed or canceled in
February 1997 in connection with the Recapitalization and is no longer
outstanding, and the warrants were canceled.
In January 1997, the Company entered into an Agreement and Plan of Merger
with GoodAero, Inc., James H. Goodnight, Ph.D., John P. Sall and Zell/Chilmark.
The Agreement and Plan of Merger sets forth the terms and conditions under which
GoodAero, Inc. would be merged into the Company, which occurred on February 11,
1997. See "The Company--The Recapitalization."
Simultaneously with the closing of the Recapitalization and pursuant to the
Agreement and Plan of Merger, GoodAero, Inc. caused Wachovia Bank of North
Carolina to issue a $7,000,000 letter of credit for the benefit of the Company's
current credit card processing vendor as security for the Company's performance
of its obligations under its credit card processing agreement. This letter of
credit expires in February 1998. The current provider is not obligated to renew
the letter of credit. If it is not renewed, the Company may have to provide a
replacement letter of credit or cash collateralize or otherwise fund the credit
card holdback.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 31, 1997, and as adjusted to reflect
the sale of Common Stock in the Offering, by (i) each director of the Company,
(ii) each person known or believed by the Company to own beneficially 5% or more
of the Common Stock and (iii) all directors and executive officers as a group.
See note (1) below. Unless otherwise indicated, each person has sole voting and
dispositive power with respect to such shares. Except for Mr. Ferguson, none of
the named executive officers is a beneficial owner of any shares of Common Stock
as of October 31, 1997.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(1)
PRIOR TO OFFERING NUMBER OF AFTER THE OFFERING
NAME AND ADDRESS -------------------- SHARES BEING ------------------
OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
James H. Goodnight, Ph.D.(2)..................................... 2,509,697(3) 42.8% -- 2,509,697 31.9%
Zell/Chilmark Fund L.P.(4)....................................... 1,740,056 29.7 1,459,376 280,680 3.6
John P. Sall(5).................................................. 1,218,995(3) 20.8 -- 1,218,995 15.5
Robert R. Ferguson III(6)........................................ 390,625(7) 6.3 -- 390,625 4.7
AMR Corporation(8)............................................... 390,625(9) 6.3 -- 390,625 4.7
debis AirFinance B.V.(10)........................................ 260,189 4.4 260,189 -- --
Wings Aircraft Finance, Inc.(11)................................. 130,435 2.2 130,435 -- --
All Executive Officers and Directors as a group
(10 persons)................................................... 390,625(7) 6.3 -- 390,625 4.7
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person, and the percentage of ownership
by that person, shares of Common Stock issuable pursuant to options and
warrants held by that person that are currently exercisable or exercisable
within 60 days of November 30, 1997 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(2) This stockholder's address is SAS Campus Drive, Cary, North Carolina 25712.
(3) Reflects the number of shares of Common Stock issuable upon conversion of
the Senior Convertible Preferred Stock.
(4) This stockholder's address is T wo North Riverside Plaza, Nineteenth Floor,
Chicago, Illinois 60606. Zell/ Chilmark Fund L.P. is controlled by a general
partner, who is ultimately controlled by Samuel Zell, subject to removal of
such general partner by vote of the limited partners upon the occurrence of
certain events.
(5) This stockholder's address is SAS Campus Drive, Cary, North Carolina 25712.
(6) Mr. Ferguson is the Chairman of the Board, President and Chief Executive
Officer of the Company and his address is 300 West Morgan Street, Suite
1200, Durham, North Carolina 27701.
(7) Includes 390,625 shares of Common Stock issuable pursuant to currently
exercisable options.
(8) AMR Corporation is the parent company of American and its address is 4333
Amon Carter Boulevard, Fort Worth, Texas 76155.
(9) Includes 390,625 shares of Common Stock issuable upon exercise of a warrant.
(10) This stockholder is ultimately controlled by Daimler-Benz, A.G., and its
address is Evert van de Beekstraat 22, NL-1118 CL Luchthaven Schiphol,
Amsterdam Airport Schiphol, The Netherlands.
(11) This stockholder is ultimately controlled by Daimler-Benz, A.G., and its
address is 1199 N. Fairfax Street, Suite 500, Alexandria, Virginia 22314.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
As of the date hereof, the authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"),
and 12,000,000 shares of Preferred Stock of the Company, par value $.01 per
share ("Preferred Stock"). As of October 31, 1997, the outstanding shares of
Preferred Stock were owned of record by two stockholders, the outstanding shares
of Common Stock were owned of record by five stockholders and options and a
warrant to purchase an aggregate of 1,359,870 shares of Common Stock were
outstanding. The following summary is qualified in its entirety by reference to
the Company's Certificate of Incorporation (the "Charter") and Bylaws (the
"Bylaws"), copies of which are included as exhibits to the Registration
Statement of which this Prospectus is a part. All outstanding shares of Common
Stock are fully paid and non-assessable.
COMMON STOCK. The holders of Common Stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
funds legally available therefor. Holders of the Common Stock are entitled to
one vote per share for the election of directors and other corporate matters.
Such holders are not entitled to vote cumulatively for the election of directors
and are not able to act by written consent. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share ratably in all assets of the Company available for
distribution to the holders of Common Stock. The Common Stock carries no
preemptive rights. All outstanding shares of Common Stock are, and the shares of
Common Stock to be sold by the Company in the Offering when issued will be, duly
authorized, validly issued, fully paid and non-assessable. See "Dividend
Policy."
PREFERRED STOCK. The Board of Directors is authorized to issue from time to
time, without stockholder authorization, in one or more designated series,
shares of preferred stock with such dividend, redemption, conversion and
exchange provisions as are provided in the particular series. The issuance of
Preferred Stock could have the effect of delaying or preventing a change in
control of the Company. The Board of Directors has no present plans to issue any
Preferred Stock.
CERTAIN LIMITATIONS. Each lessor of the Company's F-100 aircraft has the
right to terminate its lease if, prior to the Company's satisfaction of its
obligations under certain promissory notes issued to debis AirFrance B.V. or
DASA Aircraft Finance XVI B.V., the Company makes any redemption of, or any
dividend or distribution with respect to, any shares of the Company owned by any
holder of equity in the Company representing the right to vote 20% or more of
the voting stock of the Company on any matter presented for vote to the
stockholders of the Company. The lessor of the Company's one Airbus A320
aircraft has the right to terminate its lease if any single person or group of
persons acquire control of the Company without the prior written consent of such
lessor, such consent not to be unreasonably withheld. See "Risk Factors--Limited
Number of Aircraft."
American may terminate its AAdvantage-Registered Trademark- Participating
Carrier Agreement with the Company if, among other occurrences, any person or
group becomes the owner of 20% or more of the outstanding voting securities of
the Company or certain disqualified investors become the owner of 10% or more of
the outstanding voting securities of the Company. American may also terminate
its sublease to the Company of the RDU facility and two other service agreements
that Midway has with American if any person or group acquires 30% or more of the
voting securities of Midway. In addition, if the Company pays any dividends or
makes any other cash or asset distribution to its stockholders without
American's consent at any time prior to the Company's payment in full of a
certain promissory note to American, then American may terminate the RDU
facility sublease, the AAdvantage-Registered Trademark- Participating Carrier
Agreement and two other service agreements that Midway has with American. See
"Risk Factors--Agreements with American Airlines."
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECT
CLASSIFIED BOARD OF DIRECTORS. The Amended and Restated Certificate of
Incorporation provides that the Board of Directors shall be divided into three
classes, the members of which will serve staggered three-year terms. The Company
believes that a classified board of directors could help to assure the
continuity
49
<PAGE>
and stability of the Board's and the Company's business strategies and policies
as determined by the Board of Directors. The classified board provision could
have the effect of making the removal of incumbent directors more time-consuming
and, therefore, discouraging a third party from making a tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. Thus, the
classified board provision could increase the likelihood that incumbent
directors would retain their positions. In addition, the Amended and Restated
Certificate of Incorporation provides that directors may be removed from office
only "for cause" (as defined therein). Subject to rights of any holders of
preferred stock, newly created directors and vacancies on the Board of Directors
will be filled solely by the remaining directors then in office.
ADVANCE NOTICE PROVISIONS FOR CERTAIN STOCKHOLDER ACTIONS. The Bylaws
establish an advance notice procedure with regard to the nomination, other than
by or at the direction of the Board, of candidates for election as directors
(the "Nomination Procedure") and with regard to certain matters to be brought
before an annual meeting of stockholders of the Company (the "Business
Procedure").
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Bylaws. If the Chairman or other officer
presiding at a meeting determines that other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at the meeting.
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board to the Secretary
of the Company. The requirements as to the form and timing of that notice are
specified in the Bylaws. If the election inspectors determine that a person was
not nominated in accordance with the Nomination Procedure, such person will not
be eligible for election as a director.
Although the Bylaws do not give the Board any power to approve or disapprove
stockholder nominations for the election of directors or of any other business
desired by stockholders to be conducted at an annual or any other meeting, the
Bylaws (i) may have the effect of precluding a nomination for the election of
directors or precluding the conduct of business at a particular annual meeting
if the proper procedures are not followed, or (ii) may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company, even if the
conduct of such solicitation or such attempt might be beneficial to the Company
and its stockholders.
DELAWARE SECTION 203. Section 203 ("Section 203") of the General
Corporation Law of the State of Delaware (the "Delaware Act") restricts certain
transactions between a corporation organized under Delaware law (or its
majority-owned subsidiaries) and any person holding 15% or more of the
corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203 generally
prohibits a publicly held Delaware corporation from engaging in the following
transactions with an Interested Stockholder for a period of three years from the
date the stockholder becomes an Interested Stockholder (unless certain
conditions, described below, are met): (a) all mergers or consolidations, (b)
sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (c) issuances or transfers by the corporation of any
stock of the corporation which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or series
of the corporation, (d) any other transaction which has the effect of increasing
the proportionate share of the stock of any class or series of the corporation
which is owned by the Interested Stockholder, and (e) receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of loans,
advances, guarantees, pledges or other financial benefits provided by the
corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested Stockholder
is approved by the board of directors of the corporation prior to the date such
stockholder becomes an Interested Stockholder. Additionally, an Interested
Stockholder may avoid the statutory restriction if, upon the consummation of the
transaction whereby such stockholder becomes an Interested Stockholder, the
stockholder owns at least 85% of the
50
<PAGE>
outstanding voting stock of the corporation without regard to those shares owned
by the corporation's officers and directors or certain employee stock plans.
Business combinations are also permitted within the three-year period if
approved by the board of directors and authorized at an annual or special
meeting of stockholders, by the holders of at least 66 2/3% of the outstanding
voting stock not owned by the Interested Stockholder. In addition, any
transaction is exempt from the statutory ban if it is proposed at a time when
the corporation has proposed, and a majority of certain continuing directors of
the corporation have approved, a transaction with a party which is not an
Interested Stockholder of the corporation (or who becomes such with board
approval) if the proposed transaction involves (a) certain mergers or
consolidations involving the corporation, (b) a sale or other transfer of over
50% of the aggregate assets of the corporation or (c) a tender or exchange offer
for 50% or more of the outstanding voting stock of the corporation.
Prior to the effective date of Section 203, a corporation by action of its
board of directors, had the option of electing to exclude itself from the
coverage of Section 203. Since the effective date of such section, a corporation
may, at its option, exclude itself from the coverage of Section 203 by amending
its Certificate of Incorporation or Bylaws by action of its stockholders to
exempt itself from coverage, provided that such charter or bylaw amendment shall
not become effective until 12 months after the date it is adopted. The Company
has not adopted such a charter or bylaw amendment.
The foregoing provisions of Section 203 could delay or frustrate the removal
of incumbent directors or the assumption of control by the holder of a large
block of Common Stock even if such removal or assumption would be beneficial, in
the short term, to stockholders of the Company. The provisions could also
discourage or make more difficult a merger, tender offer or proxy contest even
if such event would be favorable to the interests of stockholders.
LIMITATION ON DIRECTORS AND OFFICERS LIABILITY
The Delaware Act authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by such legislation,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Although the Delaware Act does not change directors' duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Charter limits the liability of the Company's
directors to the Company or its stockholders to the fullest extent permitted by
the Delaware Act. Specifically, directors of the Company will not be personally
liable for monetary damages for breach by directors of their fiduciary duty as
directors, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware Act, or (iv) for any transaction
from which the director derived an improper personal benefit.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
TRANSFER AGENT
The Transfer Agent for the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Prior to completion of the Offering, there has been no public market for the
Common Stock. Sales of substantial amounts of Common Stock in the public market,
or the perception that such sales may occur, could have an adverse effect on the
price of the Common Stock.
51
<PAGE>
Upon completion of the Offering, there will be 7,859,375 shares of Common
Stock outstanding. All of the 3,850,000 shares purchased in this offering (and
any shares sold upon exercise of the Underwriters' overallotment option) will be
freely tradeable without restrictions or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the
Company. All of the remaining 4,009,375 shares of Common Stock outstanding are
"restricted securities" as that term is defined in Rule 144 and are also subject
to certain restrictions on disposition pursuant to contractual lock-up
agreements between the holders of such shares and the Underwriters.
In general, under Rule 144 as in effect as of October 31, 1997, a person (or
persons whose shares are required to be aggregated) who has beneficially owned
shares of Common Stock for at least one year, including a person who may be
deemed an "affiliate," is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of one percent of the total
number of shares of the class of stock sold or the average weekly reported
trading volume of the class of stock being sold during the four calendar weeks
preceding such sale. A person who is not deemed an "affiliate" of the Company at
any time during the three months preceding a sale and who has beneficially owned
shares for at least two years is entitled to sell such shares under Rule 144
without regard to the volume limitations described above. As defined in Rule
144, an "affiliate" of an issuer is a person that directly or indirectly through
the use of one or more intermediaries controls, is controlled by, or is under
common control with, such issuer. The foregoing summary of Rule 144 is not
intended to be a complete description thereof.
The holders of 280,680 shares of Common Stock, which are subject to the
Underwriters' overallotment option, and the holders of options and a warrant to
purchase an aggregate of 1,395,870 shares of Common Stock have certain rights to
require the Company to register sales of such shares, or shares acquired
pursuant to such options or warrant, under the Securities Act, subject to
certain restrictions. If, subsequent to the consummation of this offering, the
Company proposes to register any of its securities under the Securities Act,
such holders are entitled to notice of such registration and to include their
shares in such registration with their expenses borne by the Company, subject to
the right of an underwriter participating in the offering to limit the number of
shares included in such registration. In addition, the holders of 280,680 shares
of Common Stock, which are subject to the Underwriters' overallotment option,
and the holder of a warrant to purchase 390,625 shares of Common Stock have the
right to demand, on two occasions, that the Company file a registration
statement covering sales of their respective shares, and the Company is
obligated to pay the expenses of such registrations.
The effect, if any, that future market sales of shares or the availability
of shares for sale will have on the prevailing market prices for the Common
Stock cannot be predicted. Nevertheless, sales of a substantial number of shares
in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices for the Common Stock.
In addition, the Company, the Selling Stockholders and the directors,
executive officers and all other stockholders of the Company have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other agreement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, other
than (x) the sale to the Underwriters of the shares of Common Stock offered
hereby, (y) the issuance by the Company of shares of Common Stock upon the
exercise of any options granted or shares of Common Stock issued pursuant to
existing benefit plans of the Company or (z) transactions of any person other
than the Company relating to shares of Common Stock or other securities acquired
in open market transactions after the completion of the Offering.
52
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Company and the
Selling Stockholders have agreed to sell 2,000,000 and 1,850,000 shares,
respectively, of the Company's Common Stock, and the Underwriters named below,
for whom Morgan Stanley & Co. Incorporated and The Robinson-Humphrey Company,
LLC are serving as Representatives, have severally agreed to purchase the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Morgan Stanley & Co. Incorporated....................................................
The Robinson-Humphrey Company, LLC...................................................
-----------------
Total.......................................................................... 3,850,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' overallotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may re-allow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "MDWY."
At the request of the Company, the Underwriters have reserved up to 115,500
shares of Common Stock for sale at the initial public offering price to the
Company's employees, officers and directors and to other individuals having
relationships with the Company. The number of shares available for sale to the
general public will be reduced to the extent such individuals purchase such
reserved shares. Any reserved shares which are not so purchased will be offered
by the Underwriters to the general public on the same basis as the other shares
offered hereby. Reserved shares purchased by such individuals will, except as
restricted by applicable securities laws, be available for resale following this
offering.
Pursuant to the Underwriting Agreement, the Company and one of the Selling
Stockholders have granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 296,820 additional shares
and 280,680 additional shares, respectively, of Common Stock at
53
<PAGE>
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option to purchase
solely for the purpose of covering overallotments, if any, made in connection
with the offering of the shares of Common Stock offered hereby. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the Underwriters hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
The Company, the Selling Stockholders and the directors, executive officers
and all other stockholders of the Company have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer, lend or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other agreement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, other than (x)
the sale to the Underwriters of the shares of Common Stock offered hereby, (y)
the issuance by the Company of shares of Common Stock upon the exercise of any
options granted or shares of Common Stock issued pursuant to existing benefit
plans of the Company or (z) transactions of any person other than the Company
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Offering.
Pursuant to the Underwriting Agreement, each Underwriter has represented
that it has not offered or sold, and has agreed not to offer or sell, any
Shares, directly or indirectly, in any province or territory of Canada in
contravention of the securities laws thereof and has represented that any offer
or sale of Shares in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in which
such offer or sale is made. Each Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, directly or indirectly, any of
such Shares in any province or territory of Canada or to, or for the benefit of,
any resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption to file a prospectus in the province or
territory of Canada in which such offer or sale is made, and that such dealer
will deliver to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
Each of the Underwriters has represented and, during the period of six
months after the date hereof, agreed that (a) it has not offered or sold and
will not offer or sell any shares of Common Stock in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their business or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock if that person
is of a kind described in Article 11(3) of the Financial
54
<PAGE>
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, or is a
person to whom such document may otherwise lawfully be issued or passed on.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
PRICING OF OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, sales, earnings and certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, other ratios, market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company. The estimated initial public offering price range set
forth on the cover page of this Preliminary Prospectus is subject to change as a
result of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain legal matters
will be passed upon for the Company by Jonathan S. Waller, Senior Vice President
and General Counsel of the Company and Fulbright & Jaworski L.L.P., Houston,
Texas. Howard Wolf, a member of the board of directors of the Company, is a
partner in the firm of Fulbright & Jaworski L.L.P. Certain legal matters will be
passed upon for the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1996 and June 30,
1997, and for the year ended December 31, 1996 and the six months ended June 30,
1997, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The financial statements of the Company at
December 31, 1994 and 1995, and for the five-month period ended December 31,
1994, and for the year ended December 31, 1995, included in this Prospectus and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon authority of said firm as
experts in giving said report. Reference is made to said report dated June 16,
1996, which includes an explanatory paragraph relating to the Company's ability
to continue as a going concern discussed in Note 1 to the Financial Statements.
Prior to the Recapitalization, Arthur Andersen LLP served as the Company's
independent auditing firm. At the time of the Recapitalization, the Company's
new management dismissed Arthur Andersen LLP and appointed Ernst & Young LLP to
serve as the Company's independent auditor. Arthur Andersen
55
<PAGE>
LLP's reports on the financial statements of the Company for the periods ended
December 31, 1994 and 1995 did not contain an adverse opinion or a disclaimer of
opinion, nor were said reports qualified or modified as to uncertainty, audit
scope or accounting principles, except that their report dated June 16, 1996 on
the financial statements as of and for the year ended December 31, 1995 includes
an explanatory paragraph relating to the Company's ability to continue as a
going concern discussed in Note 1 to the Financial Statements. During 1995, 1996
and the portion of 1997 prior to the Recapitalization, the Company had no
disagreements with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
if not resolved to their satisfaction would have been referred to in their audit
report.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement (which term shall include any amendments thereto) on
Form S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including exhibits and schedules thereto, copies of which may be examined
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661. Copies of such materials may be obtained from
the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its public reference facilities in
New York, New York and Chicago, Illinois at prescribed rates, or on the Internet
at http:// www.sec.gov. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference. Copies of materials filed with the
Commission may also be inspected at the offices of National Association of
Securities Dealers, Inc., 1801 K Street, N.W., 8th Floor, Washington, D.C.
20006.
56
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Stockholders' Equity (Deficit)......................................... F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 AND FIVE MONTHS ENDED DECEMBER 31, 1994
<S> <C>
Report of Independent Public Accountants............................................. F-20
Balance Sheets....................................................................... F-21
Statements of Operations............................................................. F-22
Statements of Stockholders' Equity (Deficit)......................................... F-23
Statements of Cash Flows............................................................. F-24
Notes to Financial Statements........................................................ F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Midway Airlines Corporation
We have audited the accompanying balance sheets of Midway Airlines
Corporation as of June 30, 1997 and December 31, 1996 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the six months
and year then ended, respectively. 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 financial position of Midway Airlines Corporation
as of June 30, 1997 and December 31, 1996, and the results of its operations and
its cash flows for the six months and year then ended, respectively, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in fiscal year 1996 the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF".
ERNST & YOUNG LLP
Raleigh, North Carolina
July 22, 1997
F-2
<PAGE>
MIDWAY AIRLINES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------- SEPTEMBER 30,
1997
--------------
(UNAUDITED)
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 10,805 $ 10,528 $ 15,823
Restricted cash...................................................................... 2,000 3,582 3,037
Short-term investments............................................................... -- 22,091 12,933
Accounts receivable:
Credit cards....................................................................... 1,920 1,555 2,716
Travel agencies.................................................................... 3,535 9,822 10,287
Other.............................................................................. 780 857 2,671
Inventories.......................................................................... 395 429 732
Prepaids and other................................................................... 6,230 7,061 8,665
------------- ----------- -------
Total current assets................................................................... 25,665 55,925 56,864
Equipment and property:
Flight............................................................................... 4,223 6,505 10,803
Other................................................................................ 5,150 5,523 5,666
Less accumulated depreciation........................................................ (2,704) (3,453) (4,010)
------------- ----------- -------
Total equipment and property, net...................................................... 6,669 8,575 12,459
Other noncurrent assets:
Equipment purchase deposits.......................................................... 1,846 -- 1,350
Aircraft lease deposits and other.................................................... 6,506 3,195 3,279
------------- ----------- -------
Total other noncurrent assets.......................................................... 8,352 3,195 4,629
------------- ----------- -------
Total assets........................................................................... $ 40,686 $ 67,695 $ 73,952
------------- ----------- -------
------------- ----------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................................... $ 6,501 $ 7,614 $ 9,778
Accrued expenses..................................................................... 6,267 3,331 3,506
Accrued excise taxes................................................................. 6,624 3,139 3,237
Accrued income taxes................................................................. -- 3,458 3,507
Advance ticket sales................................................................. 19,151 24,425 26,615
Other current liabilities............................................................ 9,005 3,548 3,614
Current maturities of long-term debt and capital lease obligations................... 18,988 848 1,171
------------- ----------- -------
Total current liabilities.............................................................. 66,536 46,363 51,428
Noncurrent liabilities:
Long-term debt and capital lease obligations......................................... 11,704 13,061 12,563
Other................................................................................ 1,688 526 493
------------- ----------- -------
Total noncurrent liabilities........................................................... 13,392 13,587 13,056
------------- ----------- -------
Total liabilities...................................................................... 79,928 59,950 64,484
Stockholders' equity (deficit):
Preferred stock...................................................................... 11 37 37
Common stock......................................................................... 100 21 21
Additional paid-in-capital........................................................... 30,989 7,687 7,687
Accumulated earnings ($49.8 million of accumulated deficit eliminated in the quasi-
reorganization as of June 30, 1997)................................................ (70,342) -- 1,723
------------- ----------- -------
Total stockholders' equity (deficit)................................................... (39,242) 7,745 9,468
------------- ----------- -------
Total liabilities and stockholders' equity (deficit)................................... $ 40,686 $ 67,695 $ 73,952
------------- ----------- -------
------------- ----------- -------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MIDWAY AIRLINES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 31, ----------------------- ------------------------
1996 1996 1997 1996 1997
------------ ----------- ---------- ---------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Passenger.................................... $ 173,541 $92,098 $91,689 $ 130,444 $132,900
Cargo........................................ 2,214 973 1,000 1,485 1,493
Contract and other........................... 4,279 2,303 2,391 3,344 3,746
------------ ----------- ---------- ---------- ------------
Total revenues................................. 180,034 95,374 95,080 135,273 138,139
Operating expenses:
Wages, salaries and related costs............ 24,619 12,167 12,389 18,156 18,597
Aircraft fuel................................ 27,300 14,494 11,238 20,836 16,145
Aircraft and engine rentals.................. 34,113 17,749 15,515 25,710 22,850
Commissions.................................. 13,728 7,329 7,121 10,232 10,321
Maintenance, materials and repairs........... 17,930 10,042 8,569 13,937 12,401
Other rentals and landing fees............... 12,711 6,573 5,013 9,633 7,406
Depreciation and amortization................ 1,346 618 767 955 1,379
Other........................................ 53,932 31,176 24,057 43,105 35,766
Impairment of long-lived assets.............. 16,941 16,941 -- 16,941 --
Special recapitalization charges............. -- -- 1,225 -- 1,225
------------ ----------- ---------- ---------- ------------
Total operating expenses....................... 202,620 117,089 85,894 159,505 126,090
------------ ----------- ---------- ---------- ------------
Operating (loss) income........................ (22,586 ) (21,715 ) 9,186 (24,232) 12,049
Other (expense) income:
Interest income.............................. 630 362 802 474 1,314
Interest expense............................. (2,471 ) (977 ) (777) (1,695) (1,225)
Miscellaneous................................ 163 (504 ) (87) 127 (143)
------------ ----------- ---------- ---------- ------------
Total other (expense) income................... (1,678 ) (1,119 ) (62) (1,094) (54)
------------ ----------- ---------- ---------- ------------
Income (loss) before income taxes and
extraordinary gain........................... (24,264 ) (22,834 ) 9,124 (25,326) 11,995
Income tax expense........................... -- -- 3,866 -- 5,015
------------ ----------- ---------- ---------- ------------
Income (loss) before extraordinary gain...... (24,264 ) (22,834 ) 5,258 (25,236) 6,980
Extraordinary gain........................... -- -- 15,272 -- 15,272
------------ ----------- ---------- ---------- ------------
Net (loss) income............................ $ (24,264 ) $ (22,834 ) $20,530 $ (25,326) $ 22,252
------------ ----------- ---------- ---------- ------------
------------ ----------- ---------- ---------- ------------
Per share:
Income before extraordinary gain............... $ .75 $1.00
---------- ------------
Extraordinary gain............................. 2.19 2.19
---------- ------------
Net income..................................... $2.94 $3.19
---------- ------------
---------- ------------
Shares used in computing net income per
share.......................................... 6,985,610 6,985,610
---------- ------------
---------- ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
MIDWAY AIRLINES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMULATED
------------------ ------------------- PAID-IN (DEFICIT)
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ----------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... 1,080,000 $11 10,000,000 $100 $ 30,949 $(48,118) $(17,058)
Issuance of common stock warrants.......... -- -- -- -- 40 -- 40
Reversal of preferred stock dividends...... -- -- -- -- -- 2,040 2,040
Net loss................................... -- -- -- -- -- (24,264) (24,264)
---------- ------ ----------- ------ --------- ----------- --------
Balance at December 31, 1996............... 1,080,000 11 10,000,000 100 30,989 (70,342) (39,242)
Cancellation of prior stock in connection
with recapitalization.................... (1,080,000) (11) (10,000,000) (100) 111 -- --
Issuance of preferred stock................ 3,728,693 37 -- -- 14,963 -- 15,000
Issuance of common stock................... -- -- 2,130,682 21 8,551 -- 8,572
Issuance of common stock warrants in
connection with debt restructuring....... -- -- -- -- 1,571 -- 1,571
Contributed capital........................ -- -- -- -- 1,314 -- 1,314
Net income................................. -- -- -- -- -- 20,530 20,530
Reclassification of accumulated deficit
pursuant to quasi-reorganization......... -- -- -- -- (49,812) 49,812 --
---------- ------ ----------- ------ --------- ----------- --------
Balance at June 30, 1997................... 3,728,693 37 2,130,682 21 7,687 -- 7,745
Net income (Unaudited)..................... -- -- -- -- -- 1,723 1,723
---------- ------ ----------- ------ --------- ----------- --------
Balance at September 30, 1997
(Unaudited).............................. 3,728,693 $37 2,130,682 $21 $ 7,687 $1,723 $9,468
---------- ------ ----------- ------ --------- ----------- --------
---------- ------ ----------- ------ --------- ----------- --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
MIDWAY AIRLINES CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 31, ---------------------- --------------------
1996 1996 1997 1996 1997
------------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ (24,264) $ (22,834) $20,530 $ (25,326) $22,252
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of long-lived assets.................... 16,941 16,941 -- 16,941 --
Depreciation and amortization...................... 1,346 618 767 955 1,379
Deferral of expense payments....................... 8,762 6,060 -- 6,060 --
Special recapitalization charges................... -- -- 1,225 -- 1,225
Extraordinary gain................................. -- -- (15,272) -- (15,272)
Changes in operating assets and liabilities:
Restricted cash.................................. -- 94 (1,582) 139 (1,037)
Accounts receivable.............................. 9,172 (655 ) (5,940) 2,717 (9,380)
Inventories...................................... (99 ) 48 (34) (162) (337)
Prepaids and other............................... (2,331 ) (58 ) (531) (1,476) (2,137)
Aircraft lease deposits and other................ (1,126 ) (498 ) (209) (919) (294)
Accounts payable................................. (4,455 ) (2,342 ) (601) (3,187) 3,277
Accrued expenses................................. 3,366 208 135 1,561 309
Accrued excise taxes............................. 2,437 (2,446 ) (3,485) (2,662) (3,387)
Accrued income taxes............................. -- -- 3,458 -- 3,507
Advance ticket sales............................. 1,131 3,329 5,274 5,542 7,464
Other current liabilities........................ (6,795 ) (6,572 ) (2,567) (7,124) (2,514)
Other long-term liabilities...................... 1,699 3,915 (61) 4,072 (94)
------------- ----------- --------- --------- ---------
Net cash provided by (used in) operating activities.... 5,784 (4,192 ) 1,107 (2,869) 4,961
INVESTING ACTIVITIES
Purchase of short-term investments..................... -- -- (63,325) -- (73,758)
Sales of short-term investments........................ -- -- 41,234 -- 60,826
Purchase of property and equipment..................... (1,692 ) (1,100 ) (942) (1,433) (7,096)
Aircraft purchase deposits............................. (922 ) (922 ) -- (922) (1,350)
------------- ----------- --------- --------- ---------
Net cash used in investing activities.................. (2,614 ) (2,022 ) (23,033) (2,355) (21,378)
FINANCING ACTIVITIES
Issuance of common stock............................... -- -- 7,000 -- 7,000
Issuance of preferred stock............................ -- -- 15,000 -- 15,000
Proceeds from issuance of long-term debt............... 8,795 5,755 -- 5,755 --
Repayment of long-term debt............................ (3,959 ) (1,106 ) (962) (2,402) (1,570)
Capitalized interest on long-term debt................. -- -- 681 -- 1,114
Principal payments on capital lease.................... -- -- (70) -- (109)
------------- ----------- --------- --------- ---------
Net cash provided by financing activities.............. 4,836 4,649 21,649 3,353 21,435
Increase (decrease) in cash and cash equivalents....... 8,006 (1,565 ) (277) (1,871) 5,018
Cash and cash equivalents, beginning of period......... 2,799 2,799 10,805 2,799 10,805
------------- ----------- --------- --------- ---------
Cash and cash equivalents, end of period............... $ 10,805 $ 1,234 $ 10,528 $ 928 $ 15,823
------------- ----------- --------- --------- ---------
------------- ----------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................ $ 210 $ 82 $ 96 $ 163 $ 117
SCHEDULE OF NON-CASH ACTIVITIES
Issuance of debt in settlement of expenses........... 14,934 13,440 -- 13,446 --
Receivable offset against related liabilities........ -- -- (59) -- (59)
Issuance of long-term debt for assets................ 904 143 300 518 300
</TABLE>
See accompanying notes.
F-6
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Midway Airlines Corporation ("Midway" or the "Company"), a Delaware
corporation, is an air carrier providing primarily passenger service and to a
lesser extent, cargo and mail services. The Company began operations in November
1993 and flies primarily to East Coast locations from its hub at the Raleigh-
Durham International Airport ("Raleigh-Durham"), with additional service daily
to Cancun, Mexico, currently utilizing twelve Fokker F-100 and one Airbus A320
aircraft.
On July 22, 1994, Zell/Chilmark Fund LP ("Zell/Chilmark") acquired preferred
stock and approximately 90% of the Common Stock of the Company for approximately
$25 million (the "acquisition"). The acquisition was accounted for using the
purchase method of accounting. The excess of the purchase price over the fair
value of the net assets acquired was approximately $11.7 million at December 31,
1995.
On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured; all of the
existing stock was canceled and new stock was issued; new terms for aircraft
leases and rent reductions for facilities were negotiated; and agreements
reflecting revised maintenance arrangements were implemented (NOTE 15).
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
QUASI-REORGANIZATION
As a result of the February 11, 1997 recapitalization, debt restructurings
and installation of a new chief executive officer, the Company's Board of
Directors approved a corporate readjustment of the Company's accounts in the
form of a quasi-reorganization which was effected on June 30, 1997.
A quasi-reorganization is an accounting procedure which results in
eliminating the accumulated deficit in retained earnings. This accounting
procedure is limited to a reclassification of accumulated deficit as a reduction
of paid-in capital. The Company believes the quasi-reorganization was
appropriate because on completion of the recapitalization, the debt
restructurings, and the installation of a new chief executive officer, the
Company had substantially reduced its outstanding indebtedness, had formulated
revised operating plans and as a result thereof was able to devote its resources
to its continuing operations. Because assets were stated at approximate fair
values, the quasi-reorganization had no effect on recorded assets.
STOCK SPLIT
On November 11, 1997, the Company's Board of Directors approved a
682.9108392-for-1 stock split of the Company's common stock. All common share,
convertible preferred share, option and warrant data after the February 11, 1997
recapitalization have been restated to reflect the split.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during that
reporting period. Actual results could differ from those estimates.
JUNE 30, 1996 AND SEPTEMBER 30, 1996 AND 1997 INTERIM FINANCIAL INFORMATION
(UNAUDITED)
The statements of operations and cash flows for the six-month period ended
June 30, 1996 and for the nine-month periods ended September 30, 1996 and 1997
are unaudited and reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
F-7
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
presentation of results of operations and cash flows. All information related to
the six-month period ended June 30, 1996 and nine-month periods ended September
30, 1996 and 1997 is unaudited.
IMPAIRMENT OF LONG-LIVED ASSETS
During 1996, as a result of ongoing operating losses, the Company evaluated
the carrying value of its long-lived assets in accordance with SFAS No. 121.
SFAS No. 121 requires the evaluation of recoverability based on the relationship
of undiscounted cash flows to the carrying value of the long-lived assets. As a
result of this analysis, the Company determined that certain long-lived assets
were impaired. During 1996, the Company recorded an impairment loss of $11.1
million to write down the goodwill from the 1994 Zell/ Chilmark acquisition
(NOTE 1) and $5.8 million related to rotable aircraft parts and certain purchase
deposits. The impairment loss was determined by comparing the carrying value of
the Company's long-lived assets to the Company's estimates of fair values of the
assets.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents include investments with an original maturity of
three months or less. These investments are stated at cost, which approximates
market value. As of December 31, 1996, June 30, 1997 and September 30, 1997,
approximately $2 million, $3.6 million and $3 million, respectively, of cash and
cash equivalents are restricted as to withdrawal; serve as collateral to support
letters of credit; and are classified as restricted cash on the balance sheets.
SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid commercial paper, corporate
bonds, bankers' acceptances, certificates of deposits and eurodollar deposits,
all issued by banks. All mature within one year or less, or can be redeemed
without penalty within one year or less. These investments are carried at cost,
which approximates market value.
CONCENTRATIONS
Midway's accounts receivable are primarily receivables from major credit
card companies, travel agencies, and other air carriers related to ticket sales
for passenger transportation. The Company does not believe it is subject to any
significant concentration of credit risk. The Company establishes an allowance
for doubtful accounts based upon factors surrounding credit risk. At December
31, 1996, June 30, 1997 and September 30, 1997, the allowance for doubtful
accounts was approximately $58,000, $58,000 and $74,000, respectively.
Amounts charged by a related party vendor accounted for approximately 15%,
18%, 15%, and 15% of operating expenses for the year ended December 31, 1996,
for the six months ended June 30, 1997, and for the nine months ended September
30, 1996 and 1997, respectively. This vendor provided services related primarily
to maintenance, provision of passenger services and subleasing of airport
facilities rentals. The Company does not believe, however, there is a
significant risk associated with this vendor for the services provided, as
alternative sources are generally available at commercially reasonable prices.
Facilities are subleased from this vendor pursuant to lease agreements covering
various time periods (see Note 5).
INVENTORIES
Consumable spare parts, materials and supplies relating to flight equipment
are carried at the lower of cost or market and are expensed as used.
F-8
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
EQUIPMENT AND PROPERTY
Equipment and property consist primarily of rotable spare parts for
aircraft, leasehold improvements, and miscellaneous equipment used in aircraft
operations. Equipment and property are depreciated to estimated residual values
using the straight-line method over estimated useful lives ranging from 5 to 25
years for flight equipment and 3 to 5 years for other equipment. Depreciation
expense charged to operations was approximately $1.1 million, $700,000, $803,000
and $1.3 million, for the year ended December 31, 1996, for the six months ended
June 30, 1997, and for the nine months ended September 30, 1996 and 1997,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximate fair values at June 30, 1997. At December 31, 1996,
the debt, other liabilities and warrants were reflected at historical value. At
the end of 1996, the Company was involved in negotiations regarding
restructuring its debt with vendors and investors. Therefore it was impractical
to estimate fair values of its debt instruments at that time. In connection with
the February 11, 1997 recapitalization (Note 15), debt, other liabilities and
warrants with December 31, 1996 carrying values of $16.5 million were settled
for approximately $1.5 million.
AIRCRAFT AND ENGINE MAINTENANCE AND REPAIRS
Routine maintenance and repair costs for aircraft are charged to expense
when incurred, except for major airframe and engine maintenance. Depending on
the particular maintenance contract, these latter costs are either (i) expensed
on the basis of the number of hours flown or cycles incurred at contractual
rates or (ii) capitalized when incurred and amortized on a straight-line basis
over the period of time between overhauls. All other maintenance is charged to
operating expense as incurred.
MEDICAL SELF-INSURANCE
The Company provides certain health and medical benefits to eligible
employees, their spouses and dependents pursuant to a benefit plan funded by the
Company. Each participating employee contributes to the Company's costs
associated with such benefit plan. The Company's obligation to fund this benefit
plan and pay for these benefits itself is capped through its purchase of an
insurance policy from a third party insurer. The amount established as a reserve
is intended to recognize the Company's estimated obligations with respect to its
payment of claims and claims incurred but not yet reported under the benefit
plan. Management believes that the recorded liability for medical self-insurance
at December 31, 1996, June 30, 1997 and September 30, 1997 is adequate to cover
the losses and claims incurred, but these reserves are necessarily based on
estimates and the amount ultimately paid may be more or less than such
estimates. These estimates are based upon historical information along with
certain assumptions about future events, including increases in projected
medical costs.
REVENUE RECOGNITION AND ADVANCE TICKET SALES
Passenger revenues are recognized when transportation services are provided,
rather than when a ticket is sold. The amount of ticket sales not yet recognized
as revenue is reflected as a liability in the accompanying balance sheets as
"advance ticket sales". Commissions are recognized as expense when
transportation is provided and the related revenue is recognized. The amount of
commissions paid but not yet recognized as expense is included in "Prepaids and
other" in the accompanying balance sheets.
F-9
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
FREQUENT FLYER PROGRAM
Effective March 1995, the Company began participation in the American
Airlines AAdvantage-Registered Trademark- frequent flyer program. Under this
program, members can earn mileage credits and redeem awards at participating
AAdvantage companies. Midway is billed monthly for AAdvantage miles earned by
its passengers participating in the program who fly on Midway. The Company does
not accrue any liability for award travel it may be required to provide because
the incremental cost of redemptions have not been, and are not expected to be,
material.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. The Company recognized
advertising expense of $5.7 million, $2.3 million, $4.2 million and $3.4 million
for the year ended December 31, 1996, for the six months ended June 30, 1997,
and for the nine months ended September 30, 1996 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities.
STOCK-BASED COMPENSATION
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under the provisions of APB 25, no compensation expense is
recognized for stock or stock options issued at fair value.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), which provides an alternative to APB 25 in
accounting for stock-based compensation issued to employees. SFAS 123 provides
for a fair value based method of accounting for employee stock options and
similar equity instruments. However, for companies that continue to account for
stock-based compensation arrangements using APB 25, SFAS 123 requires disclosure
of the proforma effect on net income (loss) and earnings (loss) per share as if
the fair value based method provided by SFAS 123 had been applied. The Company
accounts for stock-based compensation arrangements using APB 25 and has adopted
the proforma disclosure requirements of SFAS 123 (Note 8).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share,"
("SFAS 128") which requires public companies to report basic and diluted
earnings (loss) per share using the calculation methodologies set forth in the
statement. SFAS 128 is effective for years ended after December 15, 1997; thus
this pronouncement will be adopted by the Company for its fiscal year ended
December 31, 1997. Application of this pronouncement, and continuing the
application of SEC requirements as discussed in Note 9 is not expected to
materially change the per share amount for the periods presented.
In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"). SFAS 130 addresses reporting amounts of
other comprehensive income and SFAS 131 addresses reporting segment information.
The Company does not believe that the adoption of these new standards will have
a material impact on the its financial statements.
F-10
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------- ----------- -------------
<S> <C> <C> <C>
Maintenance..................................................... $ 289 $ 560 $ 659
Restructuring................................................... 3,855 -- --
Landing fees.................................................... 321 296 510
Other........................................................... 4,540 2,692 2,445
------ ----------- ------
$ 9,005 $ 3,548 $ 3,614
------ ----------- ------
------ ----------- ------
</TABLE>
4. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------ --------- -------------
<S> <C> <C> <C>
8% secured notes payable, principal payments commencing
February, 1998, due January, 2004 (net of debt discount of
$1,483 and $1,427 as of June 30 and September 30, 1997,
respectively) (a)............................................ $ -- $ 8,286 $ 8,539
8% unsecured notes payable, principal payments commencing
February, 1998, due January, 2004 (net of debt discount of
$1,483 and $1,427 as of June 30 and September 30, 1997,
respectively) (b)............................................ -- 4,602 4,781
Miscellaneous notes payable due by December 2001 with interest
rates varying from 5 to 15%.................................. 1,120 583 6
7.5% secured note payable, principal payments commencing
November, 1995, due October, 2003 (c)........................ 1,173 -- --
12% unsecured subordinated notes payable, due April 2002 (net
of debt discount of $100) (d)................................ 9,900 -- --
Unsecured note payable, noninterest bearing, due upon
conversion or redemption of junior preferred stock, as
defined (e).................................................. 245 -- --
10% secured note payable, due December 31, 1996 (f)............ 9,000 -- --
Other notes payable at various interest rates, due December 31,
1996 (g)..................................................... 8,746 -- --
------------ --------- -------------
30,184 13,471 13,326
Less--amounts due within one year.............................. 18,860 719 1,035
------------ --------- -------------
$ 11,324 $ 12,752 $ 12,291
------------ --------- -------------
------------ --------- -------------
</TABLE>
- ------------------------
a) As a part of the recapitalization on February 11, 1997, the note payable of
$9 million, plus accrued interest of $450,000 was converted into a note
payable, collateralized by first and second security interests in most of
the Company's assets. The note accrues interest until February, 1998, when
principal plus interest payments begin.
b) As a part of the recapitalization on February 11, 1997, the notes payable
were restructured into long-term notes payable, accruing interest until
February, 1998 when principal plus interest payments
F-11
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
begin. Certain lease deposits were applied against the prior balances due to
reduce the principal amount from that shown at December 31, 1996.
AS A RESULT OF THE FEBRUARY 11, 1997 RECAPITALIZATION (NOTE 15), THE
FOLLOWING ITEMS WERE EITHER EXTINGUISHED OR RESTRUCTURED:
c) Pursuant to Midway's agreement to lease certain aircraft, the aircraft
manufacturer agreed to provide financing for certain support equipment. The
note payable was settled in connection with the recapitalization.
d) In May 1995, in return for $6 million cash, the Company issued subordinated
notes with a face value of $6 million due in April 2002. In January and
February 1996, in return for $4 million cash, the Company issued additional
subordinated notes with a face value of $4 million due in March, 2003. The
subordinated debt was forgiven in connection with the recapitalization.
e) The Company issued a noninterest-bearing note payable to a vendor with a
face amount of $500,000, which had been discounted using a rate of 11%. The
note payable was settled in connection with the recapitalization.
f) Throughout 1996, a vendor advanced working capital to the Company and
accepted delayed payments on certain trade payables. Those obligations were
converted into short-term debt which was due on December 31, 1996. The
outstanding debt was restructured in connection with the recapitalization.
g) Throughout 1996, certain aircraft lessors allowed the Company to delay
payment on certain aircraft leases. These obligations were converted into
short-term debt which was due on December 31, 1996. As part of the
recapitalization, aircraft lease deposits of $3.4 million were offset
against the outstanding debt and the remaining debt was restructured.
The aggregate principal maturities, less interest to be accreted through
February, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED:
- -----------------------------------------------------------------------------------
<S> <C>
June 30, 1998...................................................................... $ 719
1999............................................................................... 2,012
2000............................................................................... 2,134
2001............................................................................... 2,353
2002............................................................................... 2,545
Thereafter......................................................................... 4,463
---------
14,226
Less: interest to be accreted through February 28, 1998............................ 755
---------
Principal balance outstanding at June 30, 1997..................................... $ 13,471
---------
---------
</TABLE>
Interest charged to expense was $2.5 million, $777,000, $1.7 million and
$1.2 million for the year ended December 31, 1996, for the six months ended June
30, 1997 and for the nine months ended September 30, 1996 and 1997,
respectively. Included in interest expense during the respective periods,
interest of $19,000, $681,000, $15,000 and $1.1 million was accreted as
principal of long-term debt.
5. LEASES
As of June 30 and September 30, 1997, the Company operated twelve Fokker
F-100 aircraft and one Airbus Industries ("Airbus") A320 aircraft under
operating leases with original terms ranging from 4 to 18 years. The Company
returned four Airbus A320 aircraft in early 1996 to the lessor.
F-12
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
The Company leases or subleases gates at various airports including
subleases for 12 gates at Raleigh-Durham Airport which expire at various times
throughout 2013. The Company also leases 70% of its slots at New York's
LaGuardia Airport and 75% of its slots at Washington, D.C.'s National Airport
from third party airlines. The slot leases are currently scheduled to expire in
April 1998. Although the Company has leased slots for six-month intervals,
consistent with industry practice, at LaGuardia Airport continuously since
November 1993, and at National Airport continuously since March 1995, there can
be no assurance that the Company will be able to renew or replace these leases.
The Company's routes between RDU and LaGuardia Airport and National Airport are
among its most important, and, as a result, an inability to renew or replace
these leases could have a material adverse effect on the Company's financial
condition and results of operations.
The Company leases certain furniture, machinery and equipment under
capitalized lease agreements that expire through 2001.
Amortization expense of $109,000, $71,000, $87,000 and $110,000 is included
in depreciation and amortization expense in the statements of operations for the
year ended December 31, 1996, for the six-months ended June 30, 1997, and for
the nine-months ended September 30, 1996 and 1997, respectively.
Property and equipment includes the following amounts for capital leases (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
--------------- ----------- ---------------
<S> <C> <C> <C>
Office equipment................................................ $ 669 $ 669 669
Less accumulated amortization................................... (161) (232) (271)
----- ----- -----
$ 508 $ 437 $ 398
----- ----- -----
----- ----- -----
</TABLE>
At June 30, 1997, the future minimum lease payments required under capital
leases and operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
---------------------
CAPITAL AIRCRAFT OTHER TOTAL
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED:
- ---------------------------------------------------------------------
June 30, 1998........................................................ $ 174 $ 28,560 $ 2,172 $ 30,906
1999................................................................. 165 23,975 1,250 25,390
2000................................................................. 165 16,800 1,241 18,206
2001................................................................. 22 16,800 1,265 18,087
2002................................................................. -- 16,800 1,291 18,091
Thereafter........................................................... -- 104,650 16,832 121,482
----- ---------- --------- ----------
Total minimum lease payments......................................... 526 $ 207,585 $ 24,051 $ 232,162
---------- --------- ----------
---------- --------- ----------
Amounts representing interest........................................ (89)
-----
$ 437
-----
-----
</TABLE>
F-13
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
Rent expense is recorded on a straight-line basis over the term of the
lease. Lease and rent expense charged to operations was approximately $41.4
million, $16.7 million, $29.9 million, and $24.9 million for the year ended
December 31, 1996, for the six months ended June 30, 1997, and for the nine
months ended September 30, 1996 and 1997, respectively.
Under the terms of the aircraft leases, the Company also made a deposit on
each aircraft, generally equal to approximately three months' rent. Security
deposits related to leased aircraft totaled approximately $6.3 million, $3.1
million and $4.5 million at December 31, 1996, June 30, 1997 and September 30,
1997, respectively. At February 11, 1997, as a result of the restructuring of
debt, certain of the aircraft lease deposits were applied against principal due
to aircraft lessors. The aircraft leases also require the Company to make
deposits for maintenance based on block hours and cycles. The Company incurred
expenses of $3.3 million, $1.6 million, $2.6 million and $2.5 million related to
these payments for the year ended December 31, 1996, for the six months ended
June 30, 1997, and for the nine months ended September 30, 1996 and 1997,
respectively.
The Company currently leases 12 Fokker F-100 aircraft. Pursuant to the terms
of the leases, the lessor has the right to terminate its lease on six months
prior notice beginning September 15, 1998 provided that no lease can be
terminated if it would result in a fourth lease termination in any 12 month
period, including scheduled terminations.
6. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------- ----------- ---------------
<S> <C> <C> <C>
Deferred aircraft rent.......................................... $ 1,441 $ 352 $ 330
Miscellaneous................................................... 247 174 163
------ ----- -----
$ 1,688 $ 526 $ 493
------ ----- -----
------ ----- -----
</TABLE>
7. STOCKHOLDERS' EQUITY (DEFICIT)
Effective with the recapitalization on February 11, 1997, the following
equity structure was established:
Up to 12 million shares of $.01 par value senior convertible preferred stock
with a $4.02 stated liquidation value per share were authorized, of which
3,728,693 shares are issued and outstanding (aggregate liquidation
preference of $15,000,000). Senior convertible preferred stockholders
("preferred stockholders") are entitled to dividends if any dividends are
declared or paid on the common stock. Preferred stockholders are entitled to
70% of all votes in the aggregate. Senior convertible preferred stock may be
converted at any time at the election of the stockholder, on a basis of one
share of senior convertible preferred stock for one share of common stock.
Up to 25 million shares of $.01 par value common stock were authorized, of
which 2,130,682 shares are issued and outstanding. Common stockholders are
entitled to one vote per share of stock held. Common stockholders' rights
are subordinate to those of preferred stockholders.
F-14
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Warrants were issued for the purchase of 390,625 shares of $.01 par value
common stock for $.0015 per share. The warrants were valued at $4.02 per
share, or $1.57 million, and expire on February 11, 2002. The warrants may
be exercised in the whole or in part at any time prior to expiration.
In connection with the February 11, 1997 recapitalization, all of the
following series of stockholders' equity instruments were canceled and
replaced with the new equity structure (NOTE 15):
In connection with the 1994 acquisition by Zell/Chilmark, the previous
shareholders were granted junior preferred stock and approximately 10% of
the Company's outstanding common stock in return for their prior ownership
interests. Zell/Chilmark received 480,000 shares of $.01 par value prior
preferred stock, with $50 per share stated liquidation value and 1 million
shares authorized, and approximately 90% of the Company's outstanding common
stock for an investment of $25 million. At December 31, 1996, there were 1
million shares of prior preferred stock, $.01 par value, authorized and
480,000 shares issued and outstanding. The Company's common stock consisted
of Class A, Class B, and Class C series, $.01 par value, common stock with 9
million, 2 million, and 25 million shares authorized, respectively. At
December 31, 1996, there were 8,872,200, 0, and 1,127,800 shares of Class A,
Class B, and Class C issued and outstanding, respectively.
Prior preferred stockholders were entitled to cumulative dividends, which
accrued at $3 per share per year. At December 31, 1995, the Company had
accrued $2,040,000 of cumulative dividends. At December 31, 1996, the
Company reduced this accrual to $0 because the dividends were forgiven in
connection with the February 11, 1997 recapitalization.
Junior preferred stockholders were entitled to cumulative dividends, only
after the redemption of significantly all of the prior preferred stock, at a
rate of $.60 per share per year. At December 31, 1996, 600,000 shares of
junior preferred stock were authorized, issued and outstanding with $.01 par
value and $10 stated liquidation value. The junior preferred stock was
canceled in connection with the recapitalization.
Common stockholders rights were subordinate to those of preferred
stockholders. The Class A, Class B and Class C common stock was canceled in
connection with the recapitalization.
In conjunction with the subordinated debt offerings (NOTE 4), the Company
issued warrants to purchase 7.5 million shares of the Company's Class C
common stock at an initial exercise price of $.01 per share. These warrants
were canceled in connection with the recapitalization.
The following table presents each class of the Company's issued and
outstanding capital stock for the period prior to the February 1997
Recapitalization:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------------
SHARES AMOUNT
---------- ---------
<S> <C> <C>
Prior preferred stock, $.01 par value, $50 stated liquidation value, 1,000,000 shares
authorized.............................................................................. 480,000 $ 4,800
Junior preferred stock, $.01 par value, $10 stated liquidation value, 600,000 shares
authorized.............................................................................. 600,000 6,000
Class A common stock, $.01 par value, 9,000,000 shares authorized......................... 8,872,200 88,722
Class C common stock, $.01 par value, 25,000,000 shares authorized........................ 1,127,800 11,278
</TABLE>
F-15
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table presents each class of the Company's issued and
outstanding capital stock for the period subsequent to the February 1997
Recapitalization, including the pro forma effect of the conversion of the
preferred stock upon the Company's planned initial public offering (dollars in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Senior convertible preferred stock, $.01 par
value, $4.02 stated liquidation value,
12,000,000 shares authorized................ 3,728,693 $37 3,728,693 $37 -- $--
Common stock, $.01 par value, 25,000,000
shares authorized........................... 2,130,682 21 2,130,682 21 5,859,375 59
</TABLE>
8. STOCK OPTIONS
In connection with the February, 1997 recapitalization, the Company granted
incentive stock options to acquire shares of common stock to key employees of
the Company at prices not less than the fair value at the date of grant. In
connection with the option grants, the Company reserved up to 557,255 shares of
common stock for a future stock option plan. The options granted have seven to
ten year terms with some options vesting fifty percent immediately and
twenty-five percent per year over the two years subsequent to the grant date and
others vesting twenty percent per year over five years.
The following table summarizes common stock options granted at $4.02 per
share in connection with the Company's 1997 option plan:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
SHARES EXERCISE
AVAILABLE OPTIONS PRICE PER
FOR GRANT OUTSTANDING EXERCISABLE SHARE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares reserved for grant.................................... 1,562,500 -- -- $ --
Granted.................................................... (1,005,245) 1,005,245 -- 4.02
Became exercisable......................................... -- -- 390,625 4.02
Exercised.................................................. -- -- -- --
----------- ----------- ----------- -----
Balance at June 30, 1997..................................... 557,255 1,005,245 390,625 4.02
Granted...................................................... -- -- -- --
Became exercisable........................................... -- -- -- --
Exercised.................................................... -- -- -- --
----------- ----------- ----------- -----
Balance at September 30, 1997................................ 557,255 1,005,245 390,625 $ 4.02
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
Proforma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options using the fair value method provided by that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rate of 6%; dividend yield of 0%;
volatility factor of the expected market price of the Company's common stock of
50%; and an average expected life of the options of six years. The weighted
average contractual lives of the options is seven years.
F-16
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The Company's pro forma information follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED JUNE 30, ENDED SEPTEMBER 30,
1997 1997
-------------- -------------------
<S> <C> <C>
Net income:
As reported............................................ $ 20,530 $ 22,252
Pro forma.............................................. 19,021 20,332
Net income per common share and common share equivalent:
As reported............................................ $2.94 $3.19
Pro forma.............................................. 2.72 2.91
</TABLE>
The effects on net income for 1997 are not likely to be representative of
the effects on reported net income for future years since the June 30 and
September 30, 1997 information reflects expense only for the five and eight
month periods from February through June and February through September,
respectively.
9. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock presented in accordance with Accounting
Principles Board Opinion No. 15, "Earnings Per Share" ("APB 15") is computed
using the weighted average number of shares of common stock and the dilutive
effect of common stock equivalents outstanding.
In accordance with Securities and Exchange Commission requirements, all
issuances of the Company's convertible preferred stock, common stock options,
warrants and other potentially dilutive securities, at prices below the expected
initial public offering price during the twelve month period preceding the
planned offering, have been included in the calculations as common stock
equivalents as if they had been issued at the Company's inception (using the
treasury stock method and the estimated initial public offering price). Since
the Company was recapitalized in February 1997 and all prior capital stock was
cancelled at that time, per share amounts prior to 1997 are not meaningful and
thus are not presented.
10. INCOME TAXES
Differences between tax expense computed by applying the statutory federal
income tax rate to (loss) income before income taxes and reported tax expense
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------------- -------------------- --------------------
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computed tax expense............. $ (7,899) (34.0) $ 3,198 34.0 $ 4,079 34.0
State taxes, net of federal
benefit........................ -- -- 668 7.1 936 7.1
Valuation allowance for deferred
tax assets..................... 7,899 34.0 -- -- -- --
--------- --------- --------- --- --------- ---
Reported tax expense............. $ -- -- $ 3,866 41.1 $ 5,015 41.1
--------- --------- --------- --- --------- ---
--------- --------- --------- --- --------- ---
</TABLE>
F-17
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The components of the Company's deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets--noncurrent
Restructuring reserve................................ $ 5,701 $ -- $ --
Other miscellaneous.................................. 903 2,145 2,145
Valuation allowance.................................. (6,604) (2,145) (2,145)
------ ----------- ------
Net deferred tax asset............................... $ -- $ -- $ --
------ ----------- ------
------ ----------- ------
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
("NOL's") of approximately $51.4 million. The NOL's may be limited or eliminated
as a result of the February 11, 1997 recapitalization.
11. COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in certain pending litigation. The
outcome of these matters cannot be predicted, but it is management's belief that
whatever the outcome, the results will not, either individually or in the
aggregate have a material adverse effect on the Company's financial position,
results of operations or cash flows.
As a part of the recapitalization on February 11, 1997, management elected
to effectuate the early termination of an unfavorable contract. A liability of
$500,000 has been recorded to cover costs associated with exiting the contract.
In March 1995, Midway reached an agreement with Airbus for the acquisition
of four firm Airbus A320 and four option A319 or A320 aircraft with deliveries
beginning in 1998.
Pursuant to the recapitalization, the delivery dates of these aircraft have
been moved to 2005 and later. The Company is required to make deposits on the
four firm aircraft in amounts to be determined beginning in 2003. The Company is
looking at several alternatives with respect to the A320s, including
restructuring its agreement with Airbus or selling its position.
12. SAVINGS PLAN
Effective August 1995, the Company established a savings plan (the "Plan")
pursuant to Section 401(k) of the Internal Revenue Code. All employees are
eligible for enrollment in the Plan after six months of employment. The Company,
at its discretion, may match up to 50% of employee contributions up to a maximum
of $1,000 in any given calendar year. The Company made no contributions to the
Plan for the year ended December 31, 1996, for the six months ended June 30,
1997, or the nine months ended September 30, 1997.
13. RESTRUCTURING CHARGES
In December 1994, the Company reached a decision to relocate its main base
of operations from Chicago to Raleigh-Durham. The Company began operations at
Raleigh-Durham in March 1995. In conjunction with the decision to move, the
Company recorded a restructuring charge of $4.9 million for estimated exit costs
related to its Chicago Midway Airport headquarters. The remaining liability of
$3.9
F-18
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. RESTRUCTURING CHARGES (CONTINUED)
million at December 31, 1996 is included in other current liabilities in the
accompanying balance sheet. This liability was settled for $1.2 million in the
February 11, 1997 recapitalization, which resulted in an extraordinary gain of
$2.7 million.
14. TRANSACTIONS WITH RELATED PARTIES
In August of 1996, Zell/Chilmark executed a guaranty and pledge agreement in
favor of a credit card intermediary (the "Intermediary"). The execution of this
guaranty and pledge agreement, and Zell/ Chilmark's deposit of $7 million with
the Intermediary, allowed the Intermediary to release $7 million of cash to
Midway out of the credit card holdback account maintained by the Intermediary in
connection with its processing of Midway's credit card sales. Midway executed a
Subordinated Demand Note to Zell/ Chilmark in the event the Intermediary
exercised its rights under the guaranty and pledge agreement with respect to
Zell/Chilmark's $7.0 million cash collateral. Zell/Chilmark's guaranty and
pledge agreement was terminated, and Midway's note to Zell/Chilmark was canceled
in connection with the recapitalization on February 11, 1997 (Note 15). The
Zell/Chilmark guaranty was replaced by a letter of credit from the Company's new
majority shareholder.
Until the contract was canceled effective May 15, 1997, the Company
purchased certain reservation services from a related party. The expenses
incurred were approximately $2.1 million, $800,000, $1.6 million and $800,000
for the year ended December 31, 1996, for the six months ended June 30, 1997,
and for the nine months ended September 30, 1996 and 1997, respectively.
15. RECAPITALIZATION
On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured; all of the
existing stock was canceled and new stock was issued; new terms for aircraft
leases and rent reductions for facilities were negotiated; and agreements
reflecting revised maintenance arrangements were implemented. The
recapitalization resulted in an extraordinary gain of $15.3 million and
recapitalization charges of $1.2 million, which the Company recognized in the
first quarter of 1997.
The following transactions were recorded as a result of the
recapitalization:
(a) All existing shares of capital stock were canceled. New shares of
capital stock were issued (a) to James H. Goodnight, Ph.D, for consideration
of $10.1 million in cash, (b) to John P. Sall for consideration of $4.9
million in cash and (c) to Zell/Chilmark for consideration of $7.0 million
in cash. Additional shares of common stock and a warrant to purchase common
stock with an aggregate value of $3.1 million were issued to certain key
vendors. Additionally, current assets were reduced to settle various
liabilities for amounts substantially less than the carrying value at
February 11, 1997.
(b) Agreements were negotiated to allow for approximately $3.4 million
in aircraft lease deposits to be offset against amounts owed to the holders
of those deposits. Equipment purchase deposits of $1.8 million were offset
against related current liabilities.
(c) Current debt, accrued lease expense, accrued prior restructuring
costs (NOTE 13) and related accrued interest totaling approximately $6.7
million were settled for amounts substantially less than the carrying value
at December 31, 1996. Additionally $1.2 million was accrued for expenses
associated with the recapitalization.
F-19
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. RECAPITALIZATION (CONTINUED)
(d) Long-term debt and related interest expense of approximately $10.9
million were forgiven and current maturities of approximately $14.9 million
were restructured to long-term debt.
16. SUBSEQUENT EVENTS (UNAUDITED)
AIRCRAFT PURCHASE AGREEMENT
In September 1997, the Company executed an aircraft purchase agreement with
Bombardier, Inc. for the purchase of ten newly manufactured CRJ-200ER Canadair
Regional jet aircraft. These aircraft are scheduled for delivery beginning
November 1997, and continuing until December 1998. The purchase agreement also
gives Midway the option to purchase up to 20 additional CRJ-200ER aircraft with
delivery dates throughout 1999 and 2000. In order to finance these aircraft, the
Company expects to arrange a combination of debt and leveraged lease financing.
COMPLIANCE WITH FAA REGULATIONS
In September 1997, the Civil Aviation Security Division of the FAA conducted
an investigation of the Company's compliance with certain regulations requiring
the Company to verify the accuracy of background information provided by its
employees who have access to secure airport areas. The Company revised its
background check procedures during the course of the FAA's investigation and
then obtained and verified the necessary background information of those
employees who had been identified by the FAA as having insufficient background
check documentation. This investigation will likely result in the finding of
violations of these regulations. While the Company is unable to determine
whether the FAA will pursue an assessment as a result of the findings of this
investigation, or what the amount of any such assessment might be, an assessment
could have a material adverse effect on the Company's results of operations.
CODE SHARE AGREEMENT WITH COMMUTER AIRLINE
In July 1997, the Company entered into a Memorandum of Understanding (MOU)
with a commuter airline partner which contemplates the creation of a definitive
contractual code share agreement between the Company and the commuter airline.
The MOU sets forth the principal terms expected to be incorporated into the
definitive agreement including the distribution of profits and/or losses in the
markets served and including an equity ownership position to be taken by the
Company in the commuter airline. Since the signing of the MOU in July, the
Company and the commuter airline have been operating under the terms of the MOU
for the routes currently being flown by the commuter partner.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Midway Airlines Corporation:
We have audited the accompanying balance sheets of Midway Airlines
Corporation (a Delaware corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from August 1, 1994 to December 31, 1994 and for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based upon 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 financial position of Midway Airlines Corporation
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from August 1, 1994 to December 31, 1994 and for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements as of December 31, 1995 and for the
year then ended have been prepared assuming the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company has
suffered recurring losses from operations and has a net working capital and
total stockholders' equity deficit. In addition, the Company has significant
obligations which mature primarily in September and October 1996. These factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Arthur Andersen LLP
Raleigh, North Carolina
June 16, 1996
F-21
<PAGE>
MIDWAY AIRLINES CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
ASSETS 1994 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 6,909 $ 2,799
Accounts receivable, net.............................................. 4,689 14,878
Other receivables..................................................... 1,148 529
Prepayments and other................................................. 1,484 3,897
--------- ---------
Total current assets............................................ 14,230 22,103
--------- ---------
EQUIPMENT AND PROPERTY:
Flight................................................................ 1,830 7,140
Other................................................................. 95 3,518
Less--Accumulated depreciation........................................ 64 1,400
--------- ---------
1,861 9,258
--------- ---------
AIRCRAFT DEPOSITS....................................................... 1,721 7,749
--------- ---------
INTANGIBLE AND OTHER ASSETS, net........................................ 18,170 19,202
--------- ---------
$ 35,982 $ 58,312
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt.................................. $ 949 $ 1,062
Accounts payable...................................................... 778 10,956
Accrued liabilities (Note 4).......................................... 10,025 31,855
Advance ticket sales.................................................. 5,223 18,020
--------- ---------
Total current liabilities....................................... 16,975 61,893
--------- ---------
LONG-TERM DEBT.......................................................... 2,018 7,307
--------- ---------
OTHER NONCURRENT LIABILITIES (Note 7)................................... 403 387
--------- ---------
DEFERRED INCOME (Note 8)................................................ 0 5,783
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 1, 6, 9, 11 and 15)
STOCKHOLDERS' EQUITY (DEFICIT):
Prior preferred stock, $.01 par value, $50 stated liquidation value,
1,000,000 shares authorized, 480,000 shares issued and
outstanding......................................................... 5 5
Junior preferred stock, $.01 par value, $10 stated liquidation value,
600,000 shares authorized, issued and outstanding................... 6 6
Class A common stock, $.01 par value, 9,000,000 shares authorized,
8,872,200 shares issued and outstanding............................. 89 89
Class C common stock, $.01 par value, 25,000,000 shares authorized,
1,127,800 shares issued and outstanding............................. 11 11
Additional paid-in capital............................................ 30,889 30,949
Accumulated deficit................................................... (14,414) (48,118)
--------- ---------
Total stockholders' equity (deficit)............................ 16,586 (17,058)
--------- ---------
$ 35,982 $ 58,312
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-22
<PAGE>
MIDWAY AIRLINES CORPORATION
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Passenger.......................................................................... $ 14,662 $ 118,568
Cargo.............................................................................. 33 1,168
Contract and other................................................................. 1,180 2,866
------------ ------------
Total revenues................................................................... 15,875 122,602
------------ ------------
OPERATING EXPENSES:
Wages, salaries and related costs.................................................. 3,659 19,874
Aircraft fuel...................................................................... 3,514 16,782
Aircraft and engine rentals........................................................ 5,328 30,889
Commissions........................................................................ 1,205 9,382
Maintenance, materials and repairs................................................. 1,383 13,551
Other rentals and landing fees..................................................... 1,760 11,924
Depreciation and amortization...................................................... 334 2,056
Other.............................................................................. 7,548 43,769
Restructuring...................................................................... 4,900 6,004
------------ ------------
Total operating expenses......................................................... 29,631 154,231
------------ ------------
OPERATING LOSS....................................................................... (13,756) (31,629)
Interest income...................................................................... 101 348
INTEREST EXPENSE..................................................................... (130) (761)
OTHER................................................................................ (29) (222)
------------ ------------
NET LOSS............................................................................. (13,814) (32,264)
PREFERRED STOCK DIVIDENDS............................................................ (600) (1,440)
------------ ------------
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS........................................... $ (14,414) $ (33,704)
------------ ------------
------------ ------------
Net loss per share................................................................... $ (1.44) $ (3.37)
------------ ------------
------------ ------------
Shares used in computing net loss per share.......................................... 10 million 10 million
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-23
<PAGE>
MIDWAY AIRLINES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRIOR PREFERRED JUNIOR PREFERRED CLASS A COMMON CLASS C COMMON
STOCK STOCK STOCK STOCK
------------------------ ------------------------ ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------- --------- ------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
August 1, 1994.......... 480,000 $ 5 600,000 $ 6 8,872,200 $ 89 1,127,800 $ 11
Net loss available for
common stockholders... -- -- -- -- -- -- -- --
-- --
--------- --------- --------- --- --------- ---
BALANCE,
December 31, 1994....... 480,000 $ 5 600,000 $ 6 8,872,200 $ 89 1,127,800 $ 11
Common stock warrants... -- -- -- -- -- -- -- --
Net loss available for
common stockholders... -- -- -- -- -- -- -- --
-- --
--------- --------- --------- --- --------- ---
BALANCE,
December 31, 1995....... 480,000 $ 5 600,000 $ 6 8,872,200 $ 89 1,127,800 $ 11
-- --
-- --
--------- --------- --------- --- --------- ---
--------- --------- --------- --- --------- ---
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
----------- ------------ ---------
<S> <C> <C> <C>
BALANCE,
August 1, 1994.......... $ 30,889 $ -- $ 31,000
Net loss available for
common stockholders... -- (14,414) (14,414)
----------- ------------ ---------
BALANCE,
December 31, 1994....... $ 30,889 $ (14,414) $ 16,586
Common stock warrants... 60 -- 60
Net loss available for
common stockholders... -- (33,704) (33,704)
----------- ------------ ---------
BALANCE,
December 31, 1995....... $ 30,949 $ (48,118) $ (17,058)
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-24
<PAGE>
MIDWAY AIRLINES CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $ (13,814) $ (32,264)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization.......................................... 334 2,056
Restructuring charge................................................... 4,900 --
Deferred income........................................................ -- 6,000
Amortization of deferred income........................................ -- (217)
Deferred rent expense.................................................. 349 --
Accretion of debt discount............................................. -- 42
Change in other operating assets and liabilities:
Increase in receivables.............................................. (974) (9,569)
Increase in prepayments and other.................................... (543) (2,413)
Increase in aircraft deposits........................................ (1,321) (5,105)
Increase in other assets............................................. (700) (1,752)
Increase (decrease) in accounts payable.............................. (1,362) 10,178
Increase (decrease) in accrued liabilities........................... (1,476) 19,658
Increase in advance ticket sales..................................... 660 12,796
Other, net........................................................... (376) (215)
-------- --------
Net cash used in operating activities.............................. (14,323) (805)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES--Purchase of equipment and property... (354) (6,876)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of subscription receivable.................................... 12,500 --
Proceeds from issuance of debt........................................... -- 6,012
Repayment of debt........................................................ (73) (2,441)
-------- --------
Net cash provided by financing activities.......................... 12,427 3,571
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS...................................... (2,250) (4,110)
CASH AND CASH EQUIVALENTS, beginning of period............................. 9,159 6,909
-------- --------
CASH AND CASH EQUIVALENTS, end of period................................... $ 6,909 $ 2,799
-------- --------
-------- --------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-25
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Midway Airlines Corporation (Midway or the Company), a Delaware corporation,
is an air carrier providing passenger, cargo and mail services. The Company
began jet operations in November 1993. The Company services primarily East Coast
locations from its hub at Raleigh-Durham International Airport (Raleigh-Durham),
with additional service to Cancun, Mexico, and Las Vegas, Nevada, utilizing
Fokker F-100 and Airbus A320 aircraft.
On July 22, 1994 Zell/Chilmark Fund LP (Zell/Chilmark) acquired prior
preferred stock and approximately 90% of the common stock of the Company for
approximately $25 million (the Acquisition). The Acquisition was accounted for
using the purchase method of accounting. This method requires that all of the
assets acquired and liabilities assumed be adjusted from their historical cost
basis to their fair market value as of the effective date of the acquisition,
August 1, 1994. The historical cost basis of the assets acquired and liabilities
assumed approximated their fair value at August 1, 1994. In connection with the
acquisition, Fokker Aircraft, B.V. (Fokker) agreed to restructure the Company's
outstanding debt balances in return for a cash payment of approximately $800,000
and the issuance of new debt (see Note 5). The excess of the purchase price over
the fair values of the net assets acquired was approximately $11,740,000.
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and satisfaction of
liabilities and commitments in the normal course of business. As reflected in
the accompanying financial statements, the Company incurred a net loss before
preferred stock dividends for the year ended December 31, 1995 and for the five
months ended December 31, 1994, of $32,264,000 and $13,814,000, respectively,
and as of December 31, 1995 and 1994, had an accumulated deficit of $48,118,000
and $14,414,000, respectively. In addition, the Company has deferred certain
vendor payables from 1995 and incurred additional short-term financing in 1996,
totaling approximately $8 million. The Company's cash and cash equivalents at
December 31, 1995, and its projected 1996 operating cash flows will not be
sufficient to allow the Company to satisfy these obligations which mature
primarily in September and October 1996.
Management recognizes that the Company must obtain additional funds to
enable it to meet its obligations. Management's plans include the sale of
additional equity securities under appropriate market conditions or other
business transactions or vendor concessions which would generate sufficient
funds to enable the Company to repay its obligations.
The Company has retained investment banking counsel to advise it on the
possible sale of equity securities. Management expects that this effort will
result in obtaining additional capital. However, no assurance can be given that
the Company will be successful in these efforts.
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS:
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during that
reporting period. Actual results could differ from those estimates.
F-26
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets and
intangible assets to be held and used and for long-lived assets and intangible
assets to be disposed of. The Company will adopt the provisions of this
statement in fiscal 1996. Management has not yet determined the impact of SFAS
No. 121.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. At December 31, 1995 and 1994,
approximately $2 million and $700,000, respectively, of cash and cash
equivalents is restricted as to withdrawal for operating purposes to support
letters of credit and claims remaining from the Jet Express, Inc. bankruptcy
(Note 7) and is included in intangibles and other assets in the accompanying
balance sheets.
ACCOUNTS RECEIVABLE AND CREDIT RISK
Midway's accounts receivable are primarily receivables from major credit
card companies and other airline carriers generated primarily from ticket sales
for passenger transportation. The Company does not believe it is subject to any
significant concentration of credit risk. The Company establishes an allowance
for doubtful accounts based upon factors surrounding credit risk. At December
31, 1995 and 1994, the allowance for doubtful accounts was approximately
$75,000.
One vendor accounted for approximately 12% and 10% of operating expenses for
the year ended December 31, 1995 and five months ended December 31, 1994,
respectively, primarily related to maintenance, passenger services and airport
facilities rentals. However, the Company does not believe there is a significant
risk associated with this vendor or these services, as alternative sources are
available.
INVENTORIES
Consumable spare parts, materials and supplies relating to flight equipment
are carried at the lower of cost or market and are expensed as used. Inventories
are included in prepayments and other in the accompanying balance sheets.
EQUIPMENT AND PROPERTY
Equipment and property consist primarily of rotable spare parts for
aircraft, leasehold improvements and miscellaneous equipment used in aircraft
operations. Equipment and property are depreciated to estimated residual values
using the straight-line method over estimated useful lives ranging from 5 to 25
years for flight equipment and 3 to 5 years for other equipment. Depreciation
expense charged to operations was approximately $1.3 million and $64,000 for the
year ended December 31, 1995 and five months ended December 31, 1994,
respectively.
F-27
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
AIRCRAFT AND ENGINE MAINTENANCE AND REPAIRS
The cost of routine maintenance of aircraft and engines is charged to
operating expense on a per hour or per landing basis as incurred.
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of cost in excess of net
assets acquired related to the Zell/ Chilmark acquisition (Note 1), landing slot
rights and restricted cash. The cost in excess of net assets acquired and the
landing slot rights are amortized over 25 years. Amortization expense recognized
for the year ended December 31, 1995 and the five months ended December 31,
1994, was approximately $709,000 and $270,000, respectively. The Company
periodically reviews the values assigned to its intangible assets to determine
whether current events and circumstances warrant adjustment to the carrying
values or amortization periods.
Intangible and other assets consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cost in excess of net assets acquired, net.............................. $ 11,570 $ 11,101
Landing slot rights, net................................................ 5,900 5,660
Restricted cash......................................................... 700 2,000
Other................................................................... 0 441
--------- ---------
$ 18,170 $ 19,202
--------- ---------
--------- ---------
</TABLE>
INSURANCE
The Company is self-insured for losses arising from medical claims arising
from certain of its group medical plans. Such losses, however, are limited to a
maximum amount through insurance coverage in excess of the self-insured
retention. Reserves are established to recognize the estimated liability for
reported claims and claims incurred but not yet reported. Management believes
that the reserve for losses at December 31, 1995 and 1994, is adequate to cover
the ultimate cost of losses and claims to date, but the reserve is necessarily
based on estimates and the amount ultimately paid may be more or less than such
estimates. These estimates are based upon historical information along with
certain assumptions about future events, including increases in projected
medical costs.
REVENUE RECOGNITION AND ADVANCE TICKET SALES
Passenger revenues are recognized when transportation services are provided,
rather than when a ticket is sold. The amount of passenger sales not yet
recognized as revenue is reflected in the accompanying balance sheets as advance
ticket sales. Commissions are recognized as expense when transportation is
provided and the related revenue is recognized. The amount of commissions paid
but not yet recognized as expense is reflected in prepayments and other in the
accompanying balance sheets.
FREQUENT FLYER PROGRAM
Effective March 1995, the Company began participation in the American
Airlines (American) AAdvantage frequent flyer program. Under this program,
members can earn mileage credits and redeem
F-28
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
awards at participating AAdvantage companies. Midway is billed monthly for
AAdvantage miles earned by its passengers participating in the program that fly
on Midway and bills American for award travel flown on Midway.
In connection with the decision to participate in the AAdvantage program,
the Company decided to discontinue awarding mileage credits under its
company-sponsored program. All travel under the company-sponsored program must
be completed by September 1996. The Company's liability related to its program,
which is included in accrued liabilities in the accompanying balance sheets, was
not significant at December 31, 1995 and 1994.
RESTRUCTURING CHARGES
Restructuring charges are established based upon management's estimate of
the incremental costs required to exit activities which will provide no future
economic benefit to the Company. These estimates are based upon current
information available to management and the amount ultimately paid may be more
or less than such estimates. See Note 13.
CASH FLOW INFORMATION
Cash paid for interest for the year ended December 31, 1995, was
approximately $550,000 and $129,000 for the five months ended December 31, 1994.
In 1995, the Company acquired equipment and property of approximately $1,858,000
in exchange for notes payable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents--The carrying amount reported approximates
fair value.
Debt--The fair value of the Company's fixed rate debt was estimated
using discounted cash flow analyses based on current rates for similar types
of borrowing arrangements. The fair value of the Company's variable rate
debt approximates its carrying value.
Warrants--The fair value of the warrants was estimated by the value
assigned to similar warrants issued in January 1996 (Note 15).
The carrying amounts and fair values of the Company's financial instruments
at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
Cash and cash equivalents............................ $ 6,909 $ 6,909 $ 2,799 $ 2,799
Debt................................................. 2,967 2,967 8,369 8,263
Warrants............................................. 0 0 60 60
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
F-29
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Earnings (loss) per share of common stock are computed based on the weighted
average number of shares of common stock outstanding of 10,000,000 for the year
ended December 31, 1995 and for the five months ended December 31, 1994. Common
stock equivalents were antidilutive for each period.
3. OTHER RECEIVABLES:
At December 31, 1995, other receivables consist primarily of amounts due for
cargo and mail services, expenses incurred by the Company to be reimbursed by
Midway Connection and other miscellaneous receivables.
In July 1995, the Company entered into a code-sharing agreement with an
unrelated commuter airline operating under the name Midway Connection. Under the
provisions of this agreement, Midway provides certain services, including
reservation, scheduling and revenue accounting services to Midway Connection.
Passenger fares are settled in accordance with the operating agreement.
At December 31, 1994, the Company had recorded a receivable of approximately
$702,000 due from an airport authority related to a service agreement for
scheduled air transportation provided in 1994 and federal excise taxes refunded
in 1995 of approximately $391,000. These amounts were collected in 1995.
Revenues of $820,000 related to the airport authority service agreement have
been included in contract and other revenues in the accompanying statement of
operations for the five months ended December 31, 1994.
At August 1, 1994, the Company had recorded a subscription receivable from
Zell/Chilmark of $12,500,000 related to the purchase of prior preferred stock
and Class A common stock. This amount was collected in October and November
1994.
4. ACCRUED LIABILITIES:
Accrued liabilities at December 31, consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Compensation and benefits............................................... $ 1,000 $ 1,734
Taxes................................................................... 793 6,494
Airport and passenger services.......................................... 333 3,397
Maintenance............................................................. 268 3,748
Prior preferred dividends............................................... 600 2,040
Aircraft and facilities rentals......................................... 435 1,621
Restructuring (Note 13)................................................. 4,900 7,412
Other................................................................... 1,696 5,409
--------- ---------
$ 10,025 $ 31,855
--------- ---------
--------- ---------
</TABLE>
F-30
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT:
The Company's long-term debt as of December 31, consists of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
7.5% secured note payable, principal payments commencing $ 1,284 $ 1,264
November 1995, due October 2003(a).................................................
12% unsecured subordinated notes payable to stockholders, 0 5,940
due April 2002(b)..................................................................
Secured note payable to aircraft parts vendor, noninterest bearing, payable in 0 510
monthly installments of approximately $47,000, due December 1996...................
10% secured note payable to aircraft parts vendor, due February 1996................. 0 417
Unsecured note payable, noninterest bearing, due upon conversion or redemption of 184 226
junior preferred stock, as defined, or 2003(c).....................................
Variable rate secured notes payable to bank repaid in 1995(d)........................ 1,499 0
Other................................................................................ 0 12
--------- ---------
2,967 8,369
Less--Amounts due within one year.................................................... 949 1,062
--------- ---------
Amount due after one year............................................................ $ 2,018 $ 7,307
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Pursuant to Midway's agreement to acquire Fokker aircraft, Fokker agreed to
provide financing for certain new support equipment for the aircraft. Such
equipment serves as collateral for this financing. Principal and interest
payments began in November 1995 and are scheduled to continue in equal
monthly installments of approximately $17,800 through October 2003.
(b) In May 1995, the Company issued subordinated debt to certain of its
stockholders with a face value of $6 million due in April 2002. The debt may
be prepaid at any time without penalty. Each holder of $1,000 of
subordinated debt received warrants for the purchase of 750 shares of Class
C common stock at a defined exercise price (Note 9). In connection with the
issuance of these warrants, the Company recorded a debt discount of $60,000
and a corresponding increase to additional paid-in capital.
(c) The Company issued a noninterest-bearing note payable to Fokker with a face
amount of $500,000, which has been discounted using a rate of 11%. Interest
accrued related to this discounting was approximately $42,000 and $8,000 for
the year ended December 31, 1995 and the five months ended December 31,
1994, respectively. This note is redeemable upon the conversion of the
junior preferred stock to Class C common stock, the redemption of the junior
preferred stock or 2003, whichever is earliest. Interest is payable
semiannually at 6% per year on the face amount of the note payable
commencing on the date on which the Company accrues dividends with respect
to the junior preferred stock. As of December 31, 1995 and 1994, no
dividends were paid or accrued related to the junior preferred stock.
(d) In June 1995, the notes payable to bank were repaid from proceeds of a
long-term license agreement (Note 8).
F-31
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT: (CONTINUED)
The aggregate principal maturities of debt at December 31, 1995, are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1996............................................ $ 1,062
1997............................................ 133
1998............................................ 143
1999............................................ 154
2000............................................ 166
Thereafter...................................... 6,711
---------
$ 8,369
---------
---------
</TABLE>
6. LEASES:
As of December 31, 1995, the Company operated 12 Fokker F-100 aircraft and 5
Airbus A320 aircraft under operating leases with original terms ranging from 4
to 18 years. As of December 31, 1995, management determined that it would return
4 of the Airbus A320 aircraft in early 1996 and evaluate the future utilization
of A320 aircraft in its operations (Note 13).
At December 31, 1995, the future minimum lease payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 1995, are (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1996.......................................... $ 30,900
1997.......................................... 35,100
1998.......................................... 33,800
1999.......................................... 24,100
2000.......................................... 20,500
Thereafter.................................... 164,200
---------
$ 308,600
---------
---------
</TABLE>
The amounts above include aircraft, airport, office and other rentals, but
exclude amounts due for the Company's previous headquarters facilities at Midway
Airport which have been included in the restructuring liability (Note 13), lease
payments related to the Airbus A320 aircraft to be returned (Note 13) and
landing fees. Rent expense is recorded on a straight-line basis over the term of
the lease. Lease and rent expense charged to operations for the year ended
December 31, 1995 and five months ended December 31, 1994, was approximately
$38,488,000 and $6,402,000, respectively.
The Company is also required to make a lease deposit on each aircraft,
generally equal to approximately three months' rent. Deposits related to leased
aircraft totaled approximately $5,058,000 and $1,721,000 at December 31, 1995
and 1994, respectively.
In December 1995, the Company entered into negotiations with the lessors of
its Fokker F-100 aircraft and received deferrals on certain aircraft lease
payments over a four-month period. These deferrals will be repaid over the
shorter of 48 months or the remaining lease term beginning in April and May
1996.
F-32
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. OTHER NONCURRENT LIABILITIES:
Other noncurrent liabilities consist of bankruptcy obligations of Jet
Express, Inc. (Jet Express) which operated as a commuter airline under Chapter
11 of the Federal Bankruptcy Code.
Upon emergence from bankruptcy in November 1993, Jet Express merged with
Midway Air Transportation Company to form Midway. As a result, Midway assumed
certain liabilities and acquired certain operating assets of Jet Express. The
bankruptcy obligations are being repaid over five years as defined by the
reorganization plan. In July 1995, the bankruptcy court issued a final decree
and closed the case.
8. DEFERRED INCOME:
Deferred income consists of income from a long-term license of certain
intangible assets. The licensing agreement, for which the Company received a
one-time payment of $6 million in 1995, is for a fifteen-year period. Revenue is
recognized ratably over the term of the license on a straight-line basis. For
the year ended December 31, 1995, the Company recognized approximately $217,000
of income. A portion of the proceeds were used to repay notes payable to a bank
(Note 5).
9. STOCKHOLDERS' EQUITY:
In connection with the acquisition by Zell/Chilmark, the previous ownership
was granted junior preferred stock and approximately 10% of the Company's
outstanding common stock in return for their previous ownership interests.
Zell/Chilmark received prior preferred stock and approximately 90% of the
Company's outstanding common stock for approximately $25 million.
Prior preferred stockholders are entitled to cumulative dividends, which
accrue at $3 per share per year. At December 31, 1995 and 1994, the Company had
accrued $2,040,000 and $600,000, respectively, of cumulative dividends. No
dividends may be paid on any class of stock if any dividends are in arrears on
the prior preferred stock. These shares of stock do not have any voting rights
and are redeemable at any time by the Company. The liquidation rights of the
prior preferred stockholders are senior to any other stockholder. The
liquidation value of the prior preferred stock is approximately $24 million plus
any unpaid cumulative dividends.
Junior preferred stockholders are entitled to cumulative dividends, only
after the redemption of significantly all of the prior preferred stock, at a
rate of $.60 per share per year. No dividends may be paid on shares of common
stock if any dividends are in arrears, as defined. At December 31, 1995 and
1994, no dividends were required to be accrued. These shares of stock do not
have any voting rights. The junior preferred shares may only be redeemed if the
prior preferred shares have been redeemed. The junior preferred stock is
mandatorily redeemable three years after the first date upon which dividends
begin to accumulate. The liquidation rights of the junior preferred stockholders
are second to the prior preferred stockholders. The liquidation value of the
junior preferred stock is approximately $6 million plus accrued and unpaid
dividends. The Company has the option to convert the junior preferred shares to
Class C common shares based upon certain factors, as defined.
Class A common stockholders are entitled to 10 votes per share of stock
held. Each share of Class A common stock may be converted, at the option of the
holder, to a share of Class C common stock. Holders of the Class C common stock
are entitled to one vote per share of stock held. Common stockholders rights are
subordinate to those of preferred stockholders.
F-33
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
One million shares of $.01 par value preference stock other than the prior
preferred and junior preferred have been authorized. No shares have been issued.
The Company may establish voting rights, participation rights and other rights,
as defined, to these shares. Additionally, 2,000,000 shares of $.01 par value
Class B common stock have been authorized. No shares have been issued.
In conjunction with the subordinated debt offering (Note 5), the Company
issued warrants to purchase 4.5 million shares of the Company's Class C common
stock at an initial exercise price of $.01 per share. These warrants expire
April 2002. As of December 31, 1995, no warrants had been exercised.
10. INCOME TAXES:
Income taxes are calculated in accordance with SFAS No. 109, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. Deferred income taxes arise from temporary
differences between the income tax basis and financial reporting basis of assets
and liabilities.
The components of the Company's deferred tax assets at December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Deferred tax assets--
Current:
Operating loss carryforwards........................................ $ 6,871 $ 12,020
Restructuring reserve............................................... 1,698 3,192
Liabilities not currently deductible for tax purposes............... 296 1,542
Noncurrent:
Deferred income..................................................... 0 1,966
Other............................................................... 0 243
Valuation allowance................................................... (8,865) (18,963)
--------- ----------
Net deferred tax asset................................................ $ 0 $ 0
--------- ----------
--------- ----------
</TABLE>
The valuation allowance of $18,963,000 and $8,865,000 at December 31, 1995
and 1994, respectively, was provided because, in the Company's assessment, it is
uncertain whether the net deferred tax assets will be realized due to the
limited operating history of the Company.
As of December 31, 1995, the Company had approximately $35.4 million of
available net operating loss carryforwards (NOLs) to offset future taxable
income of the Company. The NOLs expire by 2011 if not used. Under Section 382 of
the Internal Revenue Code, as amended, the Company's ability to utilize certain
loss carryforwards in any one year, which were generated prior to a change in
ownership, is limited. To the extent that the Company is unable to utilize any
of the net operating loss, that year's annual limitation may be carried forward
to increase the subsequent year's limitation. As discussed in Note 1, the
Company had an ownership change during 1994. The available NOLs have been
adjusted to reflect restrictions resulting from the change in ownership.
11. COMMITMENTS:
At December 31, 1994, Midway had commitments for the delivery of two Fokker
F100s during 1995. These aircraft were delivered in April and June 1995.
F-34
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS: (CONTINUED)
In February 1995, Midway reached an agreement with Airbus Industries
(Airbus), for the acquisition of four firm and four option Airbus A320 aircraft
with deliveries beginning in late 1998. The total cost of the firm aircraft
order is approximately $200 million. Financing will be through either a lease,
bank financing or internally generated funds. The final financing decision will
be made closer to the delivery date of the aircraft, based upon the Company's
financial position. The option aircraft may be converted to firm orders no later
than 24 months prior to delivery and may be converted to Airbus 319 aircraft at
the time of conversion to firm orders.
As of December 31, 1995, the Company had made deposits of $2,691,000 and is
required to make additional deposits on the firm aircraft as follows (in
thousands):
<TABLE>
<S> <C>
Year ending December 31--
1996........................................... $ 737
1997........................................... 19,196
1998........................................... 17,265
1999........................................... 1,117
---------
$ 38,315
---------
---------
</TABLE>
In March 1996, the Company converted a past due deposit from December 1995
of approximately $848,000 to a short-term note payable due October 1996.
The Company is involved in legal proceedings arising in the normal course of
business. It is the opinion of management that these matters will have no
significant impact on the financial position or results of operations of the
Company.
12. RETIREMENT PLAN:
Effective August 1995, the Company established a retirement plan (the Plan)
organized under Section 401(k) of the Internal Revenue Code. All employees are
eligible for enrollment in the Plan after six months of employment. The Company,
at its discretion, may match up to 50% of employee contributions up to a maximum
of $1,000. The Company made no contributions to the Plan for the year ended
December 31, 1995.
13. RESTRUCTURING CHARGES:
In December 1995, the Company recorded a restructuring charge of $5.6
million, primarily related to the Company's decision to exit certain leisure
markets, resulting in the termination of four of its Airbus A320 aircraft
operating leases. In connection with this decision, management is evaluating
whether to continue its Airbus A320 program. This $5.6 million charge is
comprised of $2 million related to lease commitment fees, $1.7 million related
to additional major overhaul costs due to the early return of aircraft and $1.9
million related to the write-off of certain related fixed asset and capitalized
preoperating costs. The remaining liability of $3,537,000 is included in accrued
liabilities in the accompanying balance sheet at December 31, 1995 (Note 4).
In December 1994, the Company reached a decision to relocate its main base
of operations from Chicago's Midway Airport to Raleigh-Durham. The Company began
operations at Raleigh-Durham in March 1995. In conjunction with the decision,
the Company recorded a restructuring charge of $4.9 million
F-35
<PAGE>
MIDWAY AIRLINES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. RESTRUCTURING CHARGES: (CONTINUED)
for estimated exit costs related to its Chicago Midway Airport headquarters. As
of December 31, 1995, the Company has charged approximately $1,025,000 against
the restructuring accrual. The remaining liability of $3,875,000 is included in
accrued liabilities in the accompanying balance sheet at December 31, 1995 (Note
4).
14. TRANSACTIONS WITH RELATED PARTIES:
The Company purchases certain reservation services at market rates from a
related party. Expense charged for the year ended December 31, 1995, was
approximately $1.2 million and is included in other operating expenses in the
accompanying statement of operations. Subsequent to year-end, the Company was
granted extended terms on certain amounts due at December 31, 1995.
15. SUBSEQUENT EVENTS:
In January and February 1996, the majority stockholder made a $4 million
loan to the Company in the form of subordinated debt due March 2003, with
interest payable semi-annually at 12%. Interest payments are subordinate to the
deferrals on the Fokker aircraft lease payments (Note 6). Warrants to purchase 3
million shares of the Company's Class C common stock were issued in connection
with this subordinated debt issuance. These warrants have similar features as
described in Note 9.
In March 1996, Fokker Aircraft B.V. (Fokker) entered into the Netherlands
equivalent of bankruptcy proceedings. Midway has received a proposal from Fokker
Services Inc., an entity that ultimately may or may not be related to Fokker, to
provide parts and engineering for a fee for Fokker aircraft operated by Midway.
The Company's operating leases are not with any of the bankrupt entities as
lessor. Management does not believe that Fokker's bankruptcy proceedings will
adversely affect its operations or that any impairment has occurred related to
its aircraft deposits related to its Fokker operating leases (Note 6).
In April 1996, the Company converted approximately $3 million of outstanding
payables due for certain maintenance and other services as of December 31, 1995,
to a short-term note payable due September 1996 and received an additional line
of credit for up to $3 million, maturing in September 1996. These notes are
collateralized by substantially all of the Company's assets. Interest accrues at
10% on the note payable and the line of credit.
In April 1996, the Company entered into short-term sublease agreements with
another air carrier to provide certain flight personnel and flight management
for two aircraft. The Company will receive payment based upon block hours flown.
F-36
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering, all of which shall
be borne by the Company, are:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 21,467
NASD Filing Fee................................................... 6,500
Nasdaq National Market Listing Fee................................ 1,000
Legal Fees and Expenses........................................... 200,000
Accounting Fees and Expenses...................................... 350,000
Blue Sky Fees and Expenses (including legal fees)................. 25,000
Printing Expenses................................................. 200,000
Transfer Agent and Registrar Fees................................. 15,000
Miscellaneous..................................................... 31,033
---------
TOTAL......................................................... $ 850,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the GCL, the Company generally has the power to
indemnify its current and former directors, officers, employees and agents
against expenses and liabilities incurred by them in connection with any suit to
which they are, or threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, they had not reasonable cause
to believe their conduct was lawful. With respect to suits by or in the right of
the Company, however, indemnification is generally limited to attorneys' fees
and other expenses and is not available if such person is adjudged to be liable
to the Company unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized thereby is
not exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The Company also has the
power to purchase and maintain insurance for such persons.
The above discussion of Section 145 of the GCL is not intended to be
exhaustive and is qualified in its entirety by such statute.
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers and any controlling persons by the Underwriters
against certain liabilities for information furnished by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 30, 1994, the Company has sold unregistered securities in
the amounts, at the time and for the aggregate amounts of consideration listed
below. With respect to sales of preferred stock, all shares and amounts and per
share prices described below have been adjusted to reflect the conversion of
such shares into Common Stock immediately prior to the closing of the Offering
and a 682.9108392-to-1 stock split effected prior to the Offering. The
securities were sold to purchasers directly by the Company, and such sales did
not involve any underwriter. The Company considers these securities to have been
II-1
<PAGE>
offered and sold in transactions not involving a public offering and therefore,
to be exempted from registration under Section 4(2) of the Securities Act of
1933, as amended.
<TABLE>
<CAPTION>
AGGREGATE
AMOUNT OF
SECURITIES AGGREGATE
PURCHASER TYPE DATE ISSUED CONSIDERATION
- -------------------------------- ---------------------------- ------------------ ---------- -------------
<S> <C> <C> <C> <C>
Zell/Chilmark Fund L.P.......... Common Stock Warrant May 1995 3,912,750 $ 5,217,000(1)
Debt Group(2)................... Common Stock Warrants May 1995 587,250 $ 783,000(3)
Zell/Chilmark Fund L.P.......... Common Stock Warrant February 1996 1,500,000 $ 2,000,000(4)
Zell/Chilmark Fund L.P.......... Common Stock Warrant September 1996 750,000 $ 1,000,000(5)
Zell/Chilmark Fund L.P.......... Common Stock Warrant October 1996 750,000 $ 1,000,000(6)
AMR Corporation................. Common Stock Warrant February 1997 390,625 (7)
James H. Goodnight, Ph.D........ Senior Convertible Preferred
Stock February 1997 2,509,697 $ 10,096,143
John P. Sall.................... Senior Convertible Preferred
Stock February 1997 1,218,995 $ 4,903,841
Zell/Chilmark Fund L.P.......... Common Stock February 1997 1,740,056 $ 7,000,000
debis AirFinance B.V............ Common Stock February 1997 260,189 (7)
Wings Aircraft Finance, Inc..... Common Stock February 1997 130,435 (7)
</TABLE>
- ------------------------
(1) Consideration represents subordinated debt financing provided by
Zell/Chilmark to the Company. For each $1,000 of financing provided, the
Company issued to Zell/Chilmark a warrant to purchase 750 shares of Class C
Common Stock of the Company. This warrant was canceled on February 11, 1997.
(2) The Debt Group includes 17 different individuals or trusts and one
partnership.
(3) Consideration represents subordinated debt financing provided by the Debt
Group to the Company in the aggregate amount of $783,000. For each $1,000 of
financing provided, the Company issued to the members of the Debt Group a
warrant to purchase of 750 shares of Class C Common Stock of the Company.
These warrants were canceled on February 11, 1997.
(4) Consideration represents subordinated debt financing provided by
Zell/Chilmark to the Company. For each $1,000 of financing provided, the
Company issued to Zell/Chilmark a warrant to purchase 750 shares of Class C
Common Stock of the Company. This warrant was canceled on February 11, 1997.
(5) See note 4 above.
(6) See note 4 above.
(7) Consideration received included the conversion of certain short term
liabilities into long term debt and the reduction of certain recurring
expenses of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1** --Amended and Restated Certificate of Incorporation.
3.2** --Amended and Restated By-laws.
4.1** --Form of Common Stock Certificate.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
4.2** --See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and Amended and
Restated By-laws of Midway defining the rights of the holders of Common Stock.
5.1** --Opinion of Fulbright & Jaworski L.L.P.
10.1** --Stock Option Plan.
10.2** --Profit Sharing Plan.
10.3*+ --Aircraft Operating Lease Agreement No. AOLAF-111 dated as of November 11, 1993 between First Security
Bank of Utah, N.A. ("FSBU") and Midway as amended.
10.4*+ --Aircraft Operating Lease Agreement No. AOLAF-112 dated as of November 11, 1993 between FSBU and
Midway as amended.
10.5*+ --Aircraft Operating Lease Agreement No. AOLAF-113 dated as of November 11, 1993 between FSBU and
Midway as amended.
10.6*+ --Aircraft Operating Lease Agreement No. AOLAF-114 dated as of November 11, 1993 between FSBU and
Midway as amended.
10.7*+ --Aircraft Operating Lease Agreement No. AOLAF-115-A dated as of July 10, 1995 between Wings Aircraft
Finance, Inc. ("Wings") and Midway, as amended.
10.8*+ --Aircraft Operating Lease Agreement No. AOLAF-116-A dated as of July 10, 1995 between Wings and
Midway, as amended.
10.9*+ --Aircraft Operating Lease Agreement No. AOLAF-117-A dated as of July 10, 1995 between Wings and
Midway, as amended.
10.10*+ --Aircraft Operating Lease Agreement No. AOLAF-118-A dated as of July 10, 1995 between Wings and
Midway, as amended.
10.11*+ --Aircraft Operating Lease Agreement No. AOLAF-135 dated as of July 20, 1995 between FSBU and Midway,
as amended.
10.12*+ -- Aircraft Operating Lease Agreement No. AOLAF-524 dated as of August 1, 1995 between FSBU and Midway,
as amended.
10.13*+ --Aircraft Operating Lease Agreement No. AOLAF-525 dated as of October 15, 1995 between FSBU and
Midway, as amended.
10.14*+ --Aircraft Operating Lease Agreement No. AOLAF-136 dated as of December 15, 1995 between FSBU and
Midway, as amended.
10.15*+ --Aircraft Lease Agreement dated as of May 24, 1995 between Wilmington Trust Company and Midway.
10.16*+ --Airbus A-320-200 Purchase Agreement dated as of March 17, 1995 between AVSA. S.A.R.L. ("AVSA") and
Midway with Amendment Nos. 1 through 6 thereto.
Letter Agreement No. 2 Re: Purchase Incentives and Miscellaneous Matters, as amended
Letter Agreement No. 3 Re: Option Aircraft, as amended
Letter Agreement Re: Financial Matters with Amendment No. 4 thereto.
10.17*+ --Agreement of Sublease dated as of January 18, 1995 between American Airlines, Inc. ("AA") and Midway,
as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.18*+ --AAdvantage-Registered Trademark- Participating Carrier Agreement dated as of January 18, 1995 between
AA and Midway, as amended.
10.19*+ --Secured Promissory Note dated February 7, 1997 from Midway to AA.
10.20*+ --February 10, 1997 Letter Agreement between American Airlines, Inc. and Midway with Exhibits A and C
through I thereto.
10.21*+ --Agreement Relating to Repair and Overhaul of Rolls Royce Engines dated as of May 10, 1996 between
Rolls Royce Aero Engine Services Limited and Midway.
10.22*+ --Purchase Agreement between Bombardier Inc. and Midway dated September 17, 1997 with Letter Agreements
001 through 011.
10.23*+ --Services and Licenses Agreement between Midway and Airline Management Services, Inc. dated as of
December 7, 1995 with Annex A thereto.
10.24*+ --Letter Agreement dated as of July 1, 1996 between Fokker Services, Inc. and Midway.
10.25*+ --Aircraft Maintenance Services Agreement dated August 27, 1997 between Time Air Inc. doing business as
Canadian Regional Airlines and Midway.
10.26*+ --Warrant to Purchase Shares of Common Stock of Midway Airlines Corporation dated February 11, 1997
issued by Midway in favor of AMR Corporation.
10.27 --Stockholders Agreement dated as of February 11, 1997.
10.28*+ --General Terms of Sale between IAE International Aero Engines AG and Midway dated May 17, 1995 with
Side Letter Number 1 and Side Letter Number 2 thereto.
10.29*+ --Promissory Note dated February 11, 1997 made by Midway to debis AirFinance B.V.
10.30*+ --Promissory Note dated February 11, 1997 made by Midway to Daimler Benz Aerospace A.G.
10.31 --Severance Agreement and Other Matters made as of February 11, 1997 between Robert R. Ferguson III and
Midway.
10.32 --Employment Agreement dated as of July 15, 1996 between Steven Westberg and Midway, as amended.
10.33 --Employment Agreement dated as of July 15, 1996 between Jonathan S. Waller and Midway, as amended.
10.34 --Employment Agreement dated as of July 15, 1996 between Joanne Smith and Midway, as amended.
10.35 [Intentionally Omitted.]
10.36 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Robert R. Ferguson III.
10.37 --Agreement and Plan of Merger dated as of January 17, 1997 by and among Midway, GoodAero, Inc., James
H. Goodnight, Ph.D, John P. Sall and the Zell/Chilmark Fund L.P., as amended.
10.38*+ --Letter Agreement dated September 12, 1997 between GE Aircraft Engines and Midway.
10.39*+ --Sublease dated June 30, 1995 between Peoples Security Life Insurance Company and Midway.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.40*+ --Sublease Agreement dated May 1, 1995 between Page Avjet Corporation and Midway.
10.41*+ --AAirpass Agreement dated as of March 2, 1995 between American Airlines Inc. and Midway.
10.42*+ --Engine Lease Agreement dated September 11, 1997 between RRPF Engine Leasing Limited and Midway.
10.43 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Steven Westberg.
10.44 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Jonathan S. Waller.
10.45 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Joanne Smith.
10.46** --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Thomas Duffy, Jr.
10.47 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of David Vance.
10.48*+ --Agreement, executed September and November 1997, between Rolls-Royce Canada Limitee and Midway.
11.1 --Statement of Computation of per share earnings.
16.1+ --Letter from Arthur Andersen LLP regarding change in independent public accountants.
23.1 --Consent of Ernst & Young LLP.
23.2 --Consent of Arthur Andersen LLP.
23.3+ --Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24.1+ --Powers of Attorney from certain members of the Board of Directors of the Company.
</TABLE>
- ------------------------
* Portions have been omitted pursuant to a request for confidential treatment.
** To be filed by amendment.
+ Previously filed.
As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Registration Statement certain instruments defining the rights of
holders of long-term debt of the Company, if any, because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
(b) Financial Statement Schedules:
[Not applicable]
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Midway Airlines
Corporation has duly caused this Amendment No. 3 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Durham, State of North Carolina, on November 25, 1997.
<TABLE>
<S> <C> <C>
MIDWAY AIRLINES CORPORATION
By: /s/ JONATHAN S. WALLER
-----------------------------------------
Jonathan S. Waller
SENIOR VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
*
- ------------------------------
Robert R. Ferguson III Chairman November 25, 1997
of the
Board,
President
and
Chief
Executive
Officer
(Principal
Executive
Officer)
*
- ------------------------------
Steven Westberg Senior November 25, 1997
Vice
President
and
Chief
Financial
Officer
(Principal
Financial
and
Accounting
Officer)
*
- ------------------------------
W. Greyson Quarles, Jr. Director November 25, 1997
*
- ------------------------------
Howard Wolf Director November 25, 1997
*
- ------------------------------
Gregory J. Robitaille Director November 25, 1997
*/s/ JONATHAN S. WALLER
- ------------------------------
Jonathan S. Waller
ATTORNEY-IN-FACT
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1** --Amended and Restated Certificate of Incorporation.
3.2** --Amended and Restated By-laws.
4.1** --Form of Common Stock Certificate.
4.2** --See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and Amended and
Restated By-laws of Midway defining the rights of the holders of Common Stock.
5.1** --Opinion of Fulbright & Jaworski L.L.P.
10.1** --Stock Option Plan.
10.2** --Profit Sharing Plan.
10.3*+ --Aircraft Operating Lease Agreement No. AOLAF-111 dated as of November 11, 1993 between First Security
Bank of Utah, N.A. ("FSBU") and Midway as amended.
10.4*+ --Aircraft Operating Lease Agreement No. AOLAF-112 dated as of November 11, 1993 between FSBU and
Midway as amended.
10.5*+ --Aircraft Operating Lease Agreement No. AOLAF-113 dated as of November 11, 1993 between FSBU and
Midway as amended.
10.6*+ --Aircraft Operating Lease Agreement No. AOLAF-114 dated as of November 11, 1993 between FSBU and
Midway as amended.
10.7*+ --Aircraft Operating Lease Agreement No. AOLAF-115-A dated as of July 10, 1995 between Wings Aircraft
Finance, Inc. ("Wings") and Midway, as amended.
10.8*+ --Aircraft Operating Lease Agreement No. AOLAF-116-A dated as of July 10, 1995 between Wings and
Midway, as amended.
10.9*+ --Aircraft Operating Lease Agreement No. AOLAF-117-A dated as of July 10, 1995 between Wings and
Midway, as amended.
10.10*+ --Aircraft Operating Lease Agreement No. AOLAF-118-A dated as of July 10, 1995 between Wings and
Midway, as amended.
10.11*+ --Aircraft Operating Lease Agreement No. AOLAF-135 dated as of July 20, 1995 between FSBU and Midway,
as amended.
10.12*+ -- Aircraft Operating Lease Agreement No. AOLAF-524 dated as of August 1, 1995 between FSBU and Midway,
as amended.
10.13*+ --Aircraft Operating Lease Agreement No. AOLAF-525 dated as of October 15, 1995 between FSBU and
Midway, as amended.
10.14*+ --Aircraft Operating Lease Agreement No. AOLAF-136 dated as of December 15, 1995 between FSBU and
Midway, as amended.
10.15*+ --Aircraft Lease Agreement dated as of May 24, 1995 between Wilmington Trust Company and Midway.
10.16*+ --Airbus A-320-200 Purchase Agreement dated as of March 17, 1995 between AVSA. S.A.R.L. ("AVSA") and
Midway with Amendment Nos. 1 through 6 thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
Letter Agreement No. 2 Re: Purchase Incentives and Miscellaneous Matters, as amended
Letter Agreement No. 3 Re: Option Aircraft, as amended
Letter Agreement Re: Financial Matters with Amendment No. 4 thereto.
10.17*+ --Agreement of Sublease dated as of January 18, 1995 between American Airlines, Inc. ("AA") and Midway,
as amended.
10.18*+ --AAdvantage-Registered Trademark- Participating Carrier Agreement dated as of January 18, 1995 between
AA and Midway, as amended.
10.19*+ --Secured Promissory Note dated February 7, 1997 from Midway to AA.
10.20*+ --February 10, 1997 Letter Agreement between American Airlines, Inc. and Midway with Exhibits A and C
through I thereto.
10.21*+ --Agreement Relating to Repair and Overhaul of Rolls Royce Engines dated as of May 10, 1996 between
Rolls Royce Aero Engine Services Limited and Midway.
10.22*+ --Purchase Agreement between Bombardier Inc. and Midway dated September 17, 1997 with Letter Agreements
001 through 011.
10.23*+ --Services and Licenses Agreement between Midway and Airline Management Services, Inc. dated as of
December 7, 1995 with Annex A thereto.
10.24*+ --Letter Agreement dated as of July 1, 1996 between Fokker Services, Inc. and Midway.
10.25*+ --Aircraft Maintenance Services Agreement dated August 27, 1997 between Time Air Inc. doing business as
Canadian Regional Airlines and Midway.
10.26*+ --Warrant to Purchase Shares of Common Stock of Midway Airlines Corporation dated February 11, 1997
issued by Midway in favor of AMR Corporation.
10.27 --Stockholders Agreement dated as of February 11, 1997.
10.28*+ --General Terms of Sale between IAE International Aero Engines AG and Midway dated May 17, 1995 with
Side Letter Number 1 and Side Letter Number 2 thereto.
10.29*+ --Promissory Note dated February 11, 1997 made by Midway to debis AirFinance B.V.
10.30*+ --Promissory Note dated February 11, 1997 made by Midway to Daimler Benz Aerospace A.G.
10.31 --Severance Agreement and Other Matters made as of February 11, 1997 between Robert R. Ferguson III and
Midway.
10.32 --Employment Agreement dated as of July 15, 1996 between Steven Westberg and Midway, as amended.
10.33 --Employment Agreement dated as of July 15, 1996 between Jonathan S. Waller and Midway, as amended.
10.34 --Employment Agreement dated as of July 15, 1996 between Joanne Smith and Midway, as amended.
10.35 [Intentionally Omitted.]
10.36 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Robert R. Ferguson III.
10.37 --Agreement and Plan of Merger dated as of January 17, 1997 by and among Midway, GoodAero, Inc., James
H. Goodnight, Ph.D, John P. Sall and the Zell/Chilmark Fund L.P., as amended.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.38*+ --Letter Agreement dated September 12, 1997 between GE Aircraft Engines and Midway.
10.39*+ --Sublease dated June 30, 1995 between Peoples Security Life Insurance Company and Midway.
10.40*+ --Sublease Agreement dated May 1, 1995 between Page Avjet Corporation and Midway.
10.41*+ --AAirpass Agreement dated as of March 2, 1995 between American Airlines Inc. and Midway.
10.42*+ --Engine Lease Agreement dated September 11, 1997 between RRPF Engine Leasing Limited and Midway.
10.43 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Steven Westberg.
10.44 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Jonathan S. Waller.
10.45 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Joanne Smith.
10.46** --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of Thomas Duffy, Jr.
10.47 --Option to Purchase Shares of Common Stock of Midway Airlines Corporation dated as of February 11,
1997 issued by Midway in favor of David Vance.
10.48*+ --Agreement, executed September and November 1997, between Rolls-Royce Canada Limitee and Midway.
11.1 --Statement of Computation of per share earnings.
16.1+ --Letter from Arthur Andersen LLP regarding change in independent public accountants.
23.1 --Consent of Ernst & Young LLP.
23.2 --Consent of Arthur Andersen LLP.
23.3** --Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24.1+ --Powers of Attorney from certain members of the Board of Directors of the Company.
</TABLE>
- ------------------------
* Portions have been omitted pursuant to a request for confidential treatment.
+ Previously filed.
** To be filed by amendment.
As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Registration Statement certain instruments defining the rights of
holders of long-term debt of the Company, if any, because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
(b) Financial Statement Schedules:
[Not applicable]
<PAGE>
EXHIBIT 1.1
S&S Draft
11/24/97
3,850,000 Shares
MIDWAY AIRLINES CORPORATION
Common Stock (par value $.01 per share)
UNDERWRITING AGREEMENT
___________, 1997
<PAGE>
____________, 1997
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company, LLC
as Representatives of the several Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule II
hereto (the "Underwriters"), and certain shareholders of the Company (the
"Selling Stockholders"), named in Schedule I hereto severally propose to sell to
the several Underwriters, an aggregate of 3,850,000 shares of the Common Stock
(par value $.01 per share) of the Company (the "Firm Shares"), of which
2,000,000 shares are to be issued and sold by the Company and 1,850,000 shares
are to be sold by the Selling Stockholders, each Selling Stockholder selling the
amount of Firm Shares set forth opposite such Selling Stockholder's name in
Schedule I hereto.
The Company and one of the Selling Stockholders also propose to issue
and sell to the several Underwriters not more than an additional 577,500 shares
of its Common Stock, par value $.01 per share (the "Additional Shares"), of
which 296,820 shares are to be issued and sold by the Company and 280,680 shares
are to be sold by one of the Selling Stockholders as set forth in Schedule I
hereto (the "Additional Selling Stockholder"), if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares". The shares of Common
Stock, par value $.01 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock". The Company and the Selling Stockholders are hereinafter
sometimes collectively referred to as the "Sellers".
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information
<PAGE>
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "Securities Act"), is hereinafter referred to as the "Registration
Statement"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus". If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
As part of the offering contemplated by this Agreement, the Robinson
Humphrey Company, LLC ("Robinson Humphrey") has agreed to reserve out of the
Shares set forth opposite its name on Schedule II to this Agreement, up to
115,500 shares, for sale to the Company's employees, officers and directors and
other parties associated with the Company (collectively, the "Participants"), as
set forth in the Prospectus under the heading "Underwriters" (the "Directed
Share Program"). The Shares to be sold by Robinson Humphrey pursuant to the
Directed Share Program (the "Directed Shares") will be sold by Robinson Humphrey
pursuant to this Agreement at the public offering price. Any Directed Shares
not orally confirmed for purchase by any Participants by the end of the first
business day after the date on which this Agreement is executed will be offered
to the public by Robinson Humphrey as set forth in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
3
<PAGE>
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company.
(d) This Agreement has been duly authorized, executed and delivered
by the Company.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(f) The Company has no subsidiaries.
(g) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholders) outstanding prior to the issuance of the Shares
to be sold by the Company have been duly authorized and are validly issued,
fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument binding upon
the Company that is material to the Company or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
the Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement).
3
<PAGE>
(k) There are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described in
the Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described or
filed as required.
(l) The Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and has made all
declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the
Prospectus, except to the extent that the failure to obtain such consents,
authorizations, approvals, orders, certificates and permits or make such
declarations and filings would not have a material adverse effect on the
Company. The Company has not received any notice of proceedings relating
to the revocation or modification of any such consent, authorization,
approval, order, certificate or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result
in a material adverse change in the condition, financial or otherwise, or
in the earnings, business or operations of the Company, except as described
in or contemplated by the Prospectus.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(o) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) has received all permits, licenses or other approvals required
of it under applicable Environmental Laws to conduct its respective
businesses and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the aggregate, have
a material adverse effect on the Company.
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(p) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) for which the Company is now liable which would, singly or in the
aggregate, have a material adverse effect on the Company.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company has
not incurred any material liability or obligation, direct or contingent,
nor entered into any material transaction not in the ordinary course of
business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of
any kind on its capital stock; and (3) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company except in each case as described in or contemplated by the
Prospectus.
(r) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned
by it which is material to the business of the Company, in each case free
and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company; and any real property and buildings
held under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company, in each case except as described in or
contemplated by the Prospectus.
(s) The Company owns or possesses, or can acquire on reasonable
terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names currently employed
by it in connection with the business now operated by it, and the Company
has not received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company.
(t) No material labor dispute with the employees of the Company
exists, except as described in or contemplated by the Prospectus, or, to
the knowledge of the Company, is imminent; and the Company is not aware of
any existing, threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors that could
result in any material adverse change in the
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condition, financial or otherwise, or in the earnings, business or
operations of the Company.
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations
of the Company, except as described in or contemplated by the Prospectus.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or
specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(w) There are no holders of securities (debt or equity) of the
Company, or holders of rights, options, or warrants to obtain securities of
the Company, who have the right during the 180-day period after the date of
this Agreement to require the Company to register securities held by them
under the Securities Act, other than holders who have waived such right for
the 180-day period after the date of the initial public offering of the
Shares and have waived their rights with respect to the inclusion of their
securities in the Registration Statement.
(x) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(y) The Company has no customer sales to which account for ten
percent or more of the Company's revenues.
(z) The Company is a "citizen of the United States" (as defined in
Section 40102(a)(15) of Title 49 of the United States Code, as amended) and
is an air carrier operating under a certificate of public convenience and
necessity issued by the
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Secretary of Transportation pursuant to Section 41102 of Title 49, United
States Code. There is in force with respect to the Company an air carrier
operating certificate issued by the Federal Aviation Administration
pursuant to 14 C.F.R. Part 119.
Furthermore, the Company represents and warrants to Robinson Humphrey
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders severally and not jointly represents and warrants to
and agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
_______________, as Custodian, relating to the deposit of the Shares to be
sold by such Selling Stockholder (the "Custody Agreement") and the Power of
Attorney appointing certain individuals as such Selling Stockholder's
attorneys-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney") will not contravene any provision of applicable law,
or the certificate of incorporation or by-laws of such Selling Stockholder
(if such Selling Stockholder is a corporation), or any agreement or other
instrument binding upon such Selling Stockholder or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
such Selling Stockholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for
the performance by such Selling Stockholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of such Selling
Stockholder, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.
(c) Such Selling Shareholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and all authorization and approval required by law,
to enter into this Agreement, the
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<PAGE>
Custody Agreement and the Power of Attorney and to sell, transfer and
deliver the Shares to be sold by such Selling Stockholder.
(d) The Shares to be sold by such Selling Stockholder pursuant to
this Agreement have been duly authorized and are validly issued, fully paid
and non-assessable.
(e) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Stockholder and are
valid and binding agreements of such Selling Stockholder.
(f) Delivery of the shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(g) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph 2(g) shall only apply to statements
or omissions in the Registration Statement or the Prospectus which relate
to any Selling Stockholder furnished to the Company in writing by such
Selling Stockholder expressly for use therein.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $_______ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and the
Additional Selling Stockholder agree to sell to the Underwriters the Additional
Shares, and the Underwriters shall have a one-time right to purchase, severally
and not jointly, up to 577,500 Additional Shares of which
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<PAGE>
296,820 shares are to be issued and sold by the Company and 280,680 shares are
to be sold by the Additional Selling Stockholder at the Purchase Price. If the
option is exercised as to only a portion of the Additional Shares, each of the
Company and the Additional Selling Stockholder will sell its pro rata portion of
the Additional Shares to be purchased by the Underwriters. If you, on behalf of
the Underwriters, elect to exercise such option, you shall so notify the Company
in writing not later than 30 days after the date of this Agreement, which notice
shall specify the number of Additional Shares to be purchased by the
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 5 hereof solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule II
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing or (C) transactions by any person
other than the Company relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of the offering of the
Shares. In addition, each Selling Stockholder, agrees that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
the Prospectus, make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered
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<PAGE>
to the public initially at $_______ a share (the "Public Offering Price") and to
certain dealers selected by you at a price that represents a concession not in
excess of $_______ a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not in excess
of $_______ a share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on __________, 1997, or at such other time on the same or such other date,
not later than __________, 1997, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than _______________, 1997, as shall be designated
in writing by you. The time and date of such payment are hereinafter referred
to as the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective no later than [__________] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
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(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company,
from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) that, in
your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 6(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) No stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
pending before or, to the knowledge of the Company or the Underwriters,
threatened by the Commission.
(d) The Underwriters shall have received on the Closing Date an
opinion of Fulbright & Jaworski L.L.P., outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company;
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<PAGE>
(ii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iii) the shares of Common Stock (including the Shares to be
sold by the Selling Stockholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(iv) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company that is material to the Company or to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(vii) the statements (A) in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale"
and (B) in the Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein;
(viii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company is a party or to which any of the properties of the Company is
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus
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<PAGE>
or to be filed as exhibits to the Registration Statement that are not
described or filed as required;
(ix) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended;
(x) the Company (A) is in compliance with any and all applicable
Environmental Laws, (B) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to
conduct its business and (C) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company; and
(xi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(e) The Underwriters shall have received on the Closing Date an
opinion of _______________, counsel for the Selling Stockholders, dated the
Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
(ii) the execution and delivery by each Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this
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Agreement and the Custody Agreement and Powers of Attorney of such
Selling Stockholder will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such Selling
Stockholder (if such Selling Stockholder is a corporation), or, to the
best of such counsel's knowledge, any agreement or other instrument
binding upon such Selling Stockholder or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such Selling
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by such Selling Stockholder of its obligations under
this Agreement or the Custody Agreement or Power of Attorney of such
Selling Stockholder, except such as may be required by the securities
or Blue Sky laws of the various states in connection with offer and
sale of the Shares;
(iii) each of the Selling Stockholders has valid title to the
Shares to be sold by such Selling Stockholder and the legal right and
power, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and Power of Attorney of
such Selling Stockholder and to sell, transfer and deliver the Shares
to be sold by such Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and delivered
by such Selling Stockholder and are valid and binding agreements of
such Selling Stockholder;
(v) delivery of the Shares to be sold by each Selling
Stockholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances; and
(vi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus comply as to form in all material respects
with the Securities Act and the applicable rules and regulations of
the Commission thereunder with reference to information relating to
any Selling Stockholder furnished to the Company in writing by such
Selling Stockholder expressly for use therein, (B) has no reason to
believe that the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading with reference to information
relating to any Selling Stockholder furnished to the Company in
writing by such Selling Stockholder expressly for use therein and (C)
has no reason to believe that the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under
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which they were made, not misleading with reference to information
relating to any Selling Stockholder furnished to the Company in
writing by such Selling Stockholder expressly for use therein.
(f) The Underwriters shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(d)(vi),
6(d)(vii), 6(d)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 6(d)(xiii) above.
With respect to Section 6(d)(xiii) above, Fulbright & Jaworski L.L.P.
and Shearman & Sterling and with respect to Section 6(e)(vi) above,
_______________ may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified. With respect to Section 6(e) above,
_____________ may rely upon an opinion or opinions of counsel for any
Selling Stockholders and, with respect to factual matters and to the extent
such counsel deems appropriate, upon the representations of each Selling
Stockholder contained herein and in the Custody Agreement and Power of
Attorney of such Selling Stockholder and in other documents and
instruments; PROVIDED that (A) each such counsel for the Selling
Stockholders is satisfactory to your counsel, (B) a copy of each opinion so
relied upon is delivered to you and is in form and substance satisfactory
to your counsel, (C) copies of such Custody Agreements and Powers of
Attorney and of any such other documents and instruments shall be delivered
to you and shall be in form and substance satisfactory to your counsel and
(D) _______________ shall state in their opinion that they are justified in
relying on each such other opinion.
The opinions of Fulbright & Jaworski L.L.P. and _______________
described in Sections 6(d) and 6(e) above (and any opinions of counsel for
any Selling Stockholder referred to in the immediately preceding paragraph)
shall be rendered to the Underwriters at the request of the Company or one
or more of the Selling Stockholders, as the case may be, and shall so state
therein.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration statement
and the Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
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(h) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Arthur Andersen LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration statement
and the Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(i) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
(j) You shall have received on the Closing Date certificates dated
the Closing Date and signed by the Selling Stockholders or by
attorneys-in-fact of the Selling Stockholders, to the effect that the
representations and warranties of each such Selling Stockholder contained
in this Agreement are true and correct as of the Closing Date and that each
such Selling Stockholder has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
(k) The Company shall have complied with the provisions of Section
7(a) hereof with respect to the furnishing of Prospectuses on the business
day next succeeding the date of this Agreement, in such quantities as you
shall have reasonably requested.
(l) The Shares shall have been approved for quotation on the Nasdaq
National Market System by the National Association of Securities Dealers,
Inc. (the "NASD").
(m) You shall have received such other documents and certificates as
are reasonably requested by you or your counsel.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
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7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, three signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending December 31, 1998 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
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(f) To use the net proceeds received by the Company from the sale of
the Shares hereunder in the manner specified in the Prospectus under the
caption "Use of Proceeds."
(g) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Robinson Humphrey will notify the Company as to
which Participants will need to be so restricted. The Company will direct
the transfer agent to place stop transfer restrictions upon such securities
for such period of time.
Furthermore, the Company covenants with Robinson Humphrey that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
8. COVENANTS OF THE SELLING STOCKHOLDERS. In further consideration
of the agreements of the Underwriters herein contained, each of the Selling
Stockholders severally and not jointly covenants as follows:
(a) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, to pay or cause to be paid (i)
all taxes, if any, on the transfer and sale of the Shares being sold by
such Selling Stockholder and (ii) all expenses incident to the delivery of
the Shares and the fees and expenses of counsel and accountants for such
Selling Stockholder; PROVIDED that the provisions of this Section 8(a) and
of Section 7(h) shall not in any way affect any agreement between the
Company and the Selling Stockholders with respect to the payment of
expenses.
(b) Such Selling Stockholder has carefully reviewed the Registration
Statement and will carefully review, promptly upon receipt, each amendment
thereto provided to such Selling Stockholder. At any time during the
period from the date hereof through the Closing Date or the Option Closing
Date, in the case of an Option Selling Stockholder, if there is any change
in the information in the Registration Statement as set forth under the
caption "Principal and Selling Stockholders" (including the notes thereto)
that specifically relate to such Selling Stockholder, such Selling
Stockholder will immediately notify the Company of such change.
(c) Such Selling Stockholder shall cooperate fully with the Company
in supplying such information relating to such Selling Stockholder and the
Shares as the Company may reasonably request for use in preparation of the
Registration Statement and all other documents reasonably necessary or
desirable in connection with the
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offering of Shares. In addition, such Selling Stockholder shall furnish to
the Company (or, at the Company's request, to the Underwriters or other
parties) such further certificates and documents confirming the
representations and warranties contained herein, or with respect to related
matters, as the Company may reasonably request.
9. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of the
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Stockholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to listing the Shares on the
Nasdaq National Market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, (ix) all fees
and disbursements of counsel incurred by the Underwriters in connection with the
Directed Share Program and stamp duties, similar taxes or duties or other taxes,
if any, incurred by the Underwriters in connection with the Directed Share
Program, and (x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 10 entitled "Indemnity and Contribution", and the last
paragraph of Section 12 below, the Underwriters will pay all of their costs and
expenses,
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including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
10. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Selling Stockholder shall have furnished any amendments or supplements thereto),
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only under the caption "Principal and Selling Stockholders" with
reference to information relating to such Selling Stockholder under the caption
"Principal and Selling Stockholders".
(c) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Underwriters and each person, if any, who
controls the Underwriters within the meaning of Section 15 of the 1933 Act from
and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) which may
be
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based upon the Securities Act, or any other statute or at common law, on the
ground or alleged ground that the statements contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Selling Stockholder shall have furnished any
amendments or supplements thereto) under the caption "Principal and Selling
Stockholders" that specifically relate to such Selling Stockholder includes or
allegedly includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, written information regarding any Underwriter
furnished to the Company by any Underwriter specifically for use in the
preparation thereof. Such Selling Stockholder will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if such Selling Stockholder
elects to assume the defense, such defense shall be conducted by counsel chosen
by such Selling Stockholder. In the event that any Selling Stockholder elects
to assume the defense of any such suit and retain such counsel, any underwriter
indemnified parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) such
Selling Stockholder shall have specifically authorized the retaining of such
counsel or (ii) the parties to such suit include any such underwriter
indemnified parties, and such Selling Stockholder and such underwriter
indemnified parties have been advised by counsel to the Underwriters that one or
more legal defenses may be available to it or them which may not be available to
such Selling Stockholder, in which case such Selling Stockholder shall not be
entitled to assume the defense of such suit notwithstanding its obligation to
bear the fees and expenses of such counsel. This indemnity agreement is not
exclusive and will be in addition to any liability which such Selling
Stockholder might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each underwriter
indemnified party. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible. Notwithstanding any other provision of this Section 10,
the aggregate liability of any Selling Stockholder pursuant to the provisions of
this Section 10(c) shall be limited to an amount equal to the net proceeds
received by such Selling Stockholder from the sale of such Selling Stockholder's
Stock hereunder.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments
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or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
(e) The Company agrees to indemnify and hold harmless Robinson
Humphrey and each person, if any, who controls Robinson Humphrey within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act ("Robinson Humphrey Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in the prospectus wrapper prepared by or
with the consent of the Company for distribution in foreign jurisdictions in
connection with the Directed Share Program attached to the Prospectus or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein, when considered in conjunction with the Prospectus or any
applicable preliminary prospectus, not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of the shares which, immediately
following the effectiveness of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (iii) for any losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Robinson Humphrey Entities.
(f) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 10(a), 10(b), 10(c) or 10(d), such person (the
"indemnified party"), shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party"), in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same
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jurisdiction, be liable for (i) the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Underwriters and all persons, if
any, who control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Stockholders and all persons, if any, who control
any Selling Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholders and such control persons of any Selling Stockholders,
such firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Stockholders under the Powers of Attorney.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought pursuant
to Section 10(e) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the indemnifying
party shall be liable for the reasonable fees and expenses of not more than one
separate firm (in addition) to any local counsel) for Robinson Humphrey for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control Robinson Humphrey
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act.
(g) To the extent the indemnification provided for in Section 10(a),
10(b), 10(c) or 10(d) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such
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paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the Shares or (ii) if the allocation provided by
clause 10(f)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
10(f)(i) above but also the relative fault of the indemnifying party or parties
on the one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the Selling Stockholders and the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Selling Stockholders on the one hand or by the Underwriters on the other
hand and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Underwriters'
respective obligations to contribute pursuant to this Section 10 are several in
proportion to the respective number of Shares they have purchased hereunder, and
not joint.
(h) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just or equitable if contribution pursuant to this Section
10 were determined by PRO RATA allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in Section 10(f).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 10 are
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not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(i) The indemnity and contribution provisions contained in this
Section 10 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Stockholder or any person
controlling any Selling Stockholder, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
11. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 11(a)(i) through 11(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
12. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; PROVIDED that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 12 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the
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aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders. In any
such case either you or the relevant Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
13. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
15. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
26
<PAGE>
Very truly yours,
MIDWAY AIRLINES CORPORATION
By: _________________________
Name:
Title:
The Selling Stockholders named in Schedule I
hereto, acting severally
By: _________________________
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company, LLC
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By: _________________________
Name:
Title:
27
<PAGE>
SCHEDULE I
NUMBER OF FIRM SHARES OF EACH
SELLING STOCKHOLDER TO BE SOLD
NAME OF SELLING STOCKHOLDER Number of Firm Number of
SHARES BEING OFFERED Additional Shares
BEING OFFERED
Zell/Chilmark Fund L.P. 1,459,376 280,680
debis AirFinance B.V. 260,189
Wings Aircraft Finance, Inc. 130,435
________________
Total. . . . . . . .
1,850,000
________________
________________
<PAGE>
SCHEDULE II
NUMBER OF FIRM SHARES
TO BE PURCHASED
UNDERWRITER
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company, LLC
____________
Total. . . . . . . .
3,850,000
_____________
_____________
<PAGE>
EXHIBIT A
FORM OF LOCK-UP LETTER
_____________, 199__
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company, LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Midway Airlines Corporation, a Delaware
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of shares (the "Shares") of the Common Stock, par value $.01
per share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of
any Shares to the Underwriters pursuant to the Underwriting Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing
<PAGE>
on the date hereof and ending 180 days after the date of the Prospectus, make
any demand for or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
<PAGE>
EXHIBIT 10-27
STOCKHOLDERS AGREEMENT
Agreement made as of this 11th day of February, 1997 by and among Midway
Airlines Corporation, a Delaware corporation (the "Company"), Zell/Chilmark Fund
L.P., a Delaware limited partnership ("Z/C"), AMR Corporation, a Delaware
corporation ("AA"), Wings Aircraft Finance, Inc., a Delaware corporation
("WAF"), debis AirFinance B.V., a company incorporated under the laws of the
Netherlands ("AF"), James H. Goodnight ("JG") and John P. Sall ("JS") (Z/C, AA,
WAF, AF, JG and JS are collectively referred to as the "Stockholders"). WAF and
AF are sometimes collectively referred to as the Aircraft Creditors.
WHEREAS, each of Z/C, WAF, and AF has agreed to acquire and AA has the
right to acquire upon exercise of the Warrant the number of shares of Common
Stock of the Company as set forth opposite his, her, or its name on Schedule A
attached hereto;
WHEREAS, JG and JS will acquire as a result of the transactions
contemplated by the Merger Agreement the number of shares of Preferred Stock of
the Company as set forth opposite their names on Schedule B attached hereto (the
Common Stock and the Preferred Stock are collectively referred to as
"Securities").
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Stockholders hereby agree as
follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
AIRCRAFT CREDITORS shall mean Wings Aircraft Finance, Inc. and debis
AirFinance B.V.
BOARD shall have the meaning set forth in Section 2.1(a).
COMMISSION means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act and the Exchange
Act.
COMMON STOCK means the Company's Common Stock, $.01 par value per share, as
authorized on the date of this Agreement and any other securities into
<PAGE>
which or for which the Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
COMPANY shall have the meaning set forth in the preamble.
CONSUMMATION DATE shall have the meaning set forth in Section 3.3.
CONTROL shall have the meaning set forth in Section 8.13.
DESIGNATING PARTY shall have the meaning set forth in Section 2.1(b).
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
FAMILY MEMBER shall have the meaning set forth in Section 8.13.
GS GROUP means JG, JS and their Permitted Transferees.
GS GROUP AFFILIATE shall have the meaning set forth in Section 8.13.
HOLDERS shall have the meaning set forth in Section 5.2.
MARKET CAPITALIZATION shall have the meaning set forth in Section 7.
MERGER AGREEMENT means that certain Agreement and Plan of Merger dated as
of January 17, 1997, as amended as of January 31, 1997 and February 7, 1997 by
and among the Company, GoodAero, Inc., Z/C, JG and JS.
NON-OFFERING STOCKHOLDERS shall have the meaning set forth in Section
3.1(a).
NON-PROPOSING STOCKHOLDER shall have the meaning set forth in Section 3.2.
NOTICE shall have the meaning set forth in Section 3.1(a).
OFFERED SECURITIES shall have the meaning set forth in Section 3.1(a).
OFFERING STOCKHOLDER shall have the meaning set forth in Section 3.1(a).
OTHER NON-OFFERING STOCKHOLDER shall have the meaning set forth in Section
3.1(a).
OTHER STOCKHOLDERS shall have the meaning set forth in Section 3.3.
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<PAGE>
PERMITTED TRANSFEREE shall have the meaning set forth in Section 3.4.
PERSON means an individual, corporation, partnership, joint venture, trust,
or unincorporated organization, or a government or any agency or political
subdivision thereof.
PREFERRED STOCK means the Company's Senior Convertible Preferred Stock.
PROPOSING STOCKHOLDER shall have the meaning set forth in Section 3.2.
PURCHASERS shall have the meaning set forth in Section 3.3.
QUALIFIED PUBLIC OFFERING shall have the meaning set forth in Section 7.
REGISTRABLE SECURITIES means any shares of Common Stock owned as of the
date hereof by, or issued in connection with this Stockholders Agreement to, the
stockholders listed in Schedule A hereof or by their permitted successors and
assigns as defined herein; shares of Common Stock issued or issuable upon
exercise of the Warrant; and shares of Common Stock issued or issuable upon
conversion of any shares of Preferred Stock owned by JG and JS or by their
permitted successors and assigns as defined herein (all such shares as adjusted
for stock splits, stock dividends, reclassifications or other similar events)
but excluding any shares of Common Stock or Preferred Stock, any shares of
Common Stock issuable upon exercise of the Warrant and any shares of Common
Stock issuable upon conversion of any shares of Preferred Stock that have been
(a) sold by such parties other than to a permitted transferee, as set forth in
Section 5.7 hereof, (b) registered under the Securities Act pursuant to an
effective registration statement filed thereunder and disposed of in accordance
with the registration statement covering such shares of Common Stock or
Preferred Stock or (c) sold pursuant to Rule 144 or Rule 144A of the Securities
Act (or any successor exemptive rule hereinafter in effect).
REMAINING STOCK shall have the meaning set forth in Section 3.1(b).
SALE shall have the meaning set forth in Section 3.3.
SALES PERCENTAGE shall have the meaning set forth in Section 3.2(a).
SECURITIES shall have the meaning set forth in the preamble.
SECURITIES ACT means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
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<PAGE>
STOCKHOLDERS shall have the meaning set forth in the preamble.
TRANSFER shall have the meaning set forth in Section 3.4(a).
WARRANT shall mean that certain Warrant dated as of February 11, 1997
issued by the Company to AMR Corporation for the purchase of Five Hundred
Seventy Two (572) shares of the Common Stock.
Z/C GROUP means Z/C and its Permitted Transferees.
2. ELECTION OF DIRECTORS; REQUIREMENT FOR CERTAIN ACTIONS
Section 2.1. ELECTION; REMOVAL. The number of Directors comprising the
Company's Board of Directors (the "Board") shall be fixed by the Board in
accordance with the By-laws of the Company. The By-laws of the Company shall
require a minimum of 3 Board members. Subject to the provisions of
Section 2.1(d)(ii) hereof, the Z/C Group shall designate (i) 1 nominee for
election to the Board, if the number of Directors is fixed at 3 or 4; (ii) 2
nominees for election to the Board, if the number of Directors is fixed at 5, 6
or 7; and (iii) 3 nominees for election to the Board, if the number of Directors
is fixed at 8 or 9. If the Board appoints an Executive Committee, the Z/C Group
shall designate such number of nominees to such Executive Committee in the same
ratio as set forth in the preceding sentence. All other members of the Board of
Directors and Executive Committee, if any, shall be designated by the GS Group.
During the term of this Agreement, all the capital stock of the Company held by
the Z/C Group or the GS Group, whether owned now or hereafter acquired, shall be
voted in accordance with the provisions hereof on all of the following matters
on which the Stockholders vote:
(a) Immediately upon receiving notice of any stockholders' meeting at
which members of the Board are to be elected, the Z/C Group shall designate such
number of nominees and the GS Group shall designate such number of nominees for
election to the Board as provided in this Section 2.1. Each of the Z/C Group
and the GS Group hereby binds itself to vote its capital stock for, or give its
written consent to, the election of each nominee designated by the Z/C Group or
the GS Group. If either the Z/C Group or the GS Group fails to designate such
nominee(s), the Board shall designate such nominees.
(b) In the event any Director elected to the Board after being
designated as a candidate for membership pursuant to this Agreement dies,
resigns, is removed or otherwise ceases to serve as a member of the Board, the
Company shall give notice thereof to the party that designated such director
(the "Designating Party") to designate a successor and notify the Company of
such
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<PAGE>
designee's selection. If a vacancy on the Board is filled in the interim by the
remaining Directors with a Director who is not the successor designated by the
Designating Party, each of the Z/C Group and the GS Group agrees to cast its
votes for, or give its written consent to, the removal of such Director at any
time upon receipt of instructions, in writing to such effect, signed by the Z/C
Group or the GS Group, as the case may be; and
(c) Each of the Z/C Group and the GS Group agrees to vote its capital
stock for, or give its written consent to, the removal of the Designating
Party's designee on the Board at any time upon receipt of instructions in
writing to such effect, signed by the Designating Party. In the absence of such
written instructions, no Designating Party's designee shall be removed without
cause from the Board at any time.
(d) Notwithstanding the foregoing, it is the understanding and
agreement of the parties hereto that in the event (i) the number of directors
comprising the Board shall be increased above 9, then the Z/C Group shall be
entitled to designate as close to 33-1/3% of the members of the Board as
possible; all other provisions of this Section 2.1 shall be applicable to all
such designee(s); and (ii) there is a capital infusion into the Company the
effect of which is to reduce the proportionate holdings of the Common Stock of
the Z/C Group and the GS Group, then the number of directors the Z/C Group and
the GS Group are entitled to designate shall be proportionately reduced, with
such number in the case of the Z/C Group becoming zero when the holdings of the
Z/C Group are less than 10% of the then outstanding shares of Common Stock.
3. TRANSFER OF SHARES
Section 3.1. RIGHT OF FIRST OFFER. No Stockholder shall offer to
Transfer or engage in negotiations to Transfer any or all of such Stockholder's
Securities (except to Permitted Transferees) without first complying with the
provisions of this Section 3.1.
(a) In the event any Stockholder (in such capacity, an "Offering
Stockholder") desires to Transfer any or all of such Stockholder's Securities
("Offered Securities"), prior to offering to Transfer such Offered Securities,
or to engaging in negotiations related thereto, such Offering Stockholder shall
first provide written notice of the contemplated Transfer (the "Notice") at
least twenty (20) day prior to offering to Transfer such Securities or to
engaging in negotiations related thereto. The Notice shall be sent to the
Company which will immediately forward the same to the Stockholders reflected as
holders of record in the Company's books and records. The Notice shall entitle
those Stockholders holding securities equal to at least 10% of the Common Stock
then outstanding on a fully diluted basis assuming
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<PAGE>
Conversion of the Preferred Stock and exercise of the Warrant only to the extent
that such Stockholders are either original signatories to this Agreement or
their Permitted Transferees (except for the limited partners of Z/C) (the
"Non-Offering Stockholders") to those rights described below. The Notice shall
include a description of the contemplated Transfer, including the number of
shares of Offered Securities, and an offer by the Offering Stockholder to enter
into good faith negotiations to sell to the Non-Offering Stockholders each
Non-Offering Stockholder's pro rata share of the Offered Securities (which for
purposes of this Section 3.1 shall mean the ratio of (X) the number of shares of
Common Stock held, or issuable upon conversion of Preferred Stock then held, or
issuable upon exercise of the Warrant then held, by such Non-Offering
Stockholder at the time of the Notice to (Y) the total number of shares of
Common Stock held, or issuable upon conversion of all shares of Preferred Stock
then held, or issuable upon exercise of the Warrant then held, by the
Non-Offering Stockholders). The Non-Offering Stockholders shall have twenty
(20) days after the receipt of the Notice to enter into good faith negotiations
and execute an agreement to purchase their pro rata share of the Offered
Securities that are the subject of the contemplated Transfer by the Offering
Stockholder. Each Non-Offering Stockholder's right to negotiate for the
purchase of the Offered Securities hereunder shall terminate upon the expiration
of such twenty (20) day period. Each Non-Offering Stockholder shall have a
right of over-allotment such that if any other Non-Offering Stockholder fails to
agree to purchase its pro rata share of the Offered Securities prior to the
conclusion of the twenty (20) day period, the other Non-Offering Stockholders
shall have ten (10) days to enter into good faith negotiations with the Offering
Stockholder and execute an agreement to purchase the non-purchasing Non-Offering
Stockholder's portion on a pro rata basis; PROVIDED, HOWEVER, that in the event
that the Company shall issue any class of equity securities granting the
purchasers thereof (also referred to herein as the "Other Non-Offering
Stockholders") a right of first offer substantially identical to that set forth
herein, then each Non-Offering Stockholder shall have a right of over-allotment
such that if any Other Non-Offering Stockholder fails to agree to purchase its
pro rata share of the Offered Securities prior to the conclusion of the twenty
(20) day period, such Non-Offering Stockholder and the Other Non-Offering
Stockholders who have exercised their rights of first offer shall have ten (10)
days to enter into good faith negotiations and execute an agreement to purchase
the non-purchasing Other Non-Offering Stockholder's portion on a pro rata basis.
(b) In the event that the Non-Offering Stockholders and the Other
Non-Offering Stockholders (if applicable) fail to agree to purchase all of the
Offered Securities that are the subject of the contemplated Transfer by the
Offering Stockholder pursuant to the foregoing provisions of this Section 3.1,
the Offering Stockholder shall then provide additional written notice to the
Company of such contemplated Transfer, including the number of shares affected
(which shall be
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<PAGE>
the number of shares of Offered Securities originally subject to the
contemplated Transfer minus the shares of Offered Securities subject to executed
agreements for purchase by the Non-Offering Stockholders and the Other
Non-Offering Stockholders pursuant to Section 3.1(a) (hereinafter the "Remaining
Stock")), and the nature of the proposed Transfer. Such notice shall include an
offer to enter into good faith negotiations to sell such Remaining Stock to the
Company. The Company shall have ten (10) days after the receipt of such written
notice to enter into good faith negotiations and execute an agreement to
purchase the Remaining Stock. The Company's right to negotiate to purchase the
Remaining Stock hereunder shall terminate upon the expiration of such ten (10)
day period.
(c) The Offering Stockholder shall not be required to make any sale
of the Offered Securities to a Non-Offering Stockholder, Other Non-Offering
Stockholder or the Company unless all Offered Securities are sold. In the event
such agreements cover less than all of the Offered Securities, the Offering
Stockholder may at its election either (i) effect the sales for that portion of
the Offered Securities covered by the agreements or (ii) decline to effect the
sales covered by the agreements and retain the right for a period of sixty (60)
days from the date the negotiation period expires under Section 3.1(b) to enter
into negotiations to Transfer any or all of the then remaining shares of the
Offered Securities, which were the subject of the contemplated Transfer, free
from the restrictions of this Section 3.1 in a bona fide transaction with any
person. At the end of such sixty (60) day period, the Offering Stockholder
shall notify the other parties hereto in writing of any shares of Securities
which such Offering Stockholder then owns and the number of shares of the
Securities which have during such period been subject to Transfer in bona fide
transactions. All such Securities of such Offering Stockholder not subject to a
contract of sale at the end of such sixty (60) day period shall again become
subject to all the restrictions and provisions of this Agreement.
Section 3.2. CO-SALE RIGHTS. If any Stockholder at any time or times
proposes to Transfer (except to Permitted Transferees) any Securities owned of
record by him or it (except where such Securities when combined with Securities
held by such Stockholder's Permitted Transferees represent less than or equal to
5% of the Securities outstanding on a fully diluted basis on the date of this
Agreement), such Stockholder (in such capacity, a "Proposing Stockholder")
shall, as a condition precedent to any such Transfer by him or it, afford each
other Stockholder (including Permitted Transferees but excluding any
Non-Offering Stockholder that failed to agree to purchase its pro rata share of
the Offered Securities in accordance with Section 3.1(a) hereof) (in such
capacity, a "Non-Proposing Stockholder") the right to Transfer Securities owned
by such Non-Proposing Stockholder as follows:
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<PAGE>
(a) Such Proposing Stockholder shall give written notice to the
Non-Proposing Stockholders at least twenty (20) days prior to any proposed
Transfer of any of the Securities, and such notice shall specify the number of
such Securities which such Proposing Stockholder desires to Transfer, the
percentage of the total number of Securities (determined by giving effect to the
conversion of Preferred Stock or any securities convertible into Common Stock)
then held by him or it represented thereby (the "Sales Percentage"), the
identity of the proposed transferee of such Securities, and the time within
which, the price and all other material terms and conditions upon which such
Proposing Stockholder proposes to Transfer such Securities. Each Non-Proposing
Stockholder shall notify such Proposing Stockholder in writing, within ten (10)
days after receipt of such Proposing Stockholder's notice, whether such
Non-Proposing Stockholder desires to Transfer any Securities held by him or it
concurrently with the Proposing Stockholder in accordance with the terms and
provisions of this Section 3.2(a). Failure to provide such written notice after
actual receipt of notice from such Proposing Stockholder within said 10-day
period shall, for the purpose hereof, be deemed to constitute a refusal by a
particular Non-Proposing Stockholder to Transfer any of his or its Securities
concurrently with such Proposing Stockholder.
(b) Concurrently with the delivery by the Proposing Stockholder of
the notice referred to in Section 3.2(a) above, such Proposing Stockholder shall
offer the Non-Proposing Stockholders the opportunity to Transfer to the proposed
transferee of the Securities, or to such other transferee or transferees as such
Proposing Stockholder shall obtain (except pursuant to a Transfer by such
Proposing Stockholder made under Rule 144 (other than pursuant to paragraph (k)
of Rule 144) as promulgated by the Commission under the Securities Act), that
percentage of the Securities then held by each Non-Proposing Stockholder which
is equal to the Sales Percentage. It is agreed and understood that such
Proposing Stockholder shall obtain the same agreements and commitments from the
transferee or transferees of the Securities to be Transferred by the
Non-Proposing Stockholders as such Proposing Stockholder has obtained from the
transferee of the Securities proposed to be Transferred by him or it, including
the time of Transfer, the Transfer price and the other terms and conditions upon
which the Transfer of such Proposing Stockholder's Securities is to be made.
(c) In the event that such Proposing Stockholder cannot obtain
agreements or commitments from the transferee or other transferees to have
Transferred to it or them that percentage of the Securities held by the
Non-Proposing Stockholders which is equal to the Sales Percentage of the
Securities, then such Proposing Stockholder shall reduce the number of
Securities which he proposes to Transfer and allow the Non-Proposing
Stockholders to Transfer the number of Securities represented by such reduction,
so that both such Proposing Stockholder and each Non-Proposing Stockholder shall
be entitled to sell an identi-
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<PAGE>
cal percentage of the Securities of the same type then held by them,
respectively. In the event that the proposed Transfer relates to shares of
Preferred Stock and the proposed transferee or transferees refuses to purchase
shares of Common Stock from the Non-Proposing Stockholders, JG and JS shall
purchase from each Non-Proposing Stockholder that percentage of the Securities
than held by such Non-Proposing Stockholder which is equal to the Sales
Percentage at the same price per share and on the same terms (on an as converted
basis) as are applicable to the shares of Preferred Stock being sold by the GS
Group.
(d) Any Transfer of Securities by such Proposing Stockholder pursuant
to the provisions of this Section 3.2 shall be made concurrently with the
Transfer of the Securities by the Non-Proposing Stockholders.
If any Transfer or attempted Transfer of the Securities is made
contrary to the provisions of this Section 3.2, each Non-Proposing Stockholder
shall have the right, in addition to any other legal or equitable remedies which
it may have, to enforce its rights hereunder by an action for specific
performance; the parties hereto recognize the rights set forth herein as unique,
the violation of which cannot be remedied by an award of monetary damages.
Section 3.3. DRAG ALONG RIGHTS. In the event of any contemporaneous sale
of or agreement to sell (whether for cash, securities or other property) on arms
length terms by the GS Group to any person other than a GS Group Affiliate (as
defined in Section 8.13 hereof) of an aggregate of 50% or more of the Common
Stock then outstanding to a single person or a group of persons pursuant to a
single plan or related plans for the sale of such Common Stock (such person or
group being referred to as the "Purchasers"), the GS Group shall have the option
to purchase (pro rata in accordance with their respective holdings of Common
Stock or in such other proportions as may be agreed upon) all (but not less than
all) the Common Stock (including the Common Stock represented by the Warrant) of
the Stockholders then owning Common Stock or having the right to acquire Common
Stock upon exercise of the Warrant who are not parties to such sale or agreement
of sale (the "Other Stockholders"), and each of the Other Stockholders shall
have the option to require the GS Group to purchase (pro rata in accordance with
their respective holdings of Common Stock or in such other proportions as may be
agreed upon), all (but not less than all) Common Stock then owned by such Other
Stockholder, all in accordance with the following provisions of this Section
3.3. As used in this Section 3.3, the term "Sale" means a sale made or agreed
to by the GS Group in the manner described in the first sentence of this
Section 3.3, and the term "Consummation Date" means the date fixed for the
consummation of a Sale.
(a) Not less than 30 days prior to the Consummation Date, the GS
Group shall give written notice to the Other Stockholders setting forth the
names
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<PAGE>
of the Purchasers, the terms and conditions of the Sale and the Consummation
Date. If the GS Group elects to exercise its option to purchase, or cause the
purchase of, all Common Stock owned by the Other Stockholders, the notice shall
so state. If such option is not exercised, the notice shall set forth an
address for the giving of notice by the Other Stockholders of the exercise of
the option of the Other Stockholders pursuant to paragraph (b) of this
Section 3.3. In the event of the exercise of the option by the GS Group, the
Other Stockholders shall, on the Consummation Date and conditioned upon and
contemporaneously with the Sale, sell the Common Stock owned by them to the GS
Group, or to the Purchasers if so designated in the notice of the GS Group, at
the same price per share and on the same terms as are applicable to shares being
sold by the GS Group. If the GS Group exercises such option and elects to
purchase (rather than cause the purchase of) the Common Stock owned by the Other
Stockholders, then the GS Group must resell to the Purchasers the Common Stock
so purchased contemporaneously with the Sale and upon terms and conditions the
same as those of the Sale. By execution of this Agreement, each Stockholder
hereby irrevocably designates and appoints the GS Group as his attorney to
transfer his Common Stock on the books of the Company in connection with any
sale made or required to be made by him pursuant to this paragraph (a), and each
Stockholder hereby agrees to execute and deliver such instruments of conveyance
and transfer and take such other action as the GS Group or the Purchasers may
reasonably require to carry out the terms of and provisions of this paragraph
(a); PROVIDED, HOWEVER, that none of the Aircraft Creditors or AA shall be
required to enter into any agreement pursuant to which such Aircraft Creditors
or AA shall make any representations or warranties with respect to the Company
except as to ownership of the Common Stock which is being sold by such Aircraft
Creditor or AA.
(b) If the GS Group does not elect to purchase, or cause the purchase
of, the Common Stock of the Other Stockholders by the exercise of the option
granted the GS Group under the foregoing provisions of this Section 3.3, each
Other Stockholder shall have the option to require the GS Group to purchase, or
cause the purchase of, all (but not less than all) the Common Stock owned by
him, her or it upon the terms and conditions of the Sale as set forth in the
notice furnished pursuant to paragraph (a) of this Section 3.3. Such option may
be exercised by any Other Stockholder by the giving of written notice by such
Other Stockholder of the exercise of such option to the GS Group at the address
set forth in the notice referred to in paragraph (a) of this Section 3.3 not
less than ten days prior to the Consummation Date. The GS Group shall, on the
Consummation Date and conditioned upon and contemporaneously with the Sale,
purchase, or cause the purchase by the Purchasers of, the Common Stock of each
Other Stockholder giving such notice, such purchase to be at the same purchase
price per share and on the same terms as are applicable to shares being sold by
the GS Group. If any
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<PAGE>
Other Stockholder exercises his option under this paragraph (b), and if the GS
Group elected to purchase (rather than cause the purchase of) the Common Stock
owned by such Other Stockholder, then the GS Group must resell to the Purchasers
the Common Stock so purchased contemporaneously with the Sale and upon terms and
conditions the same as those of the Sale. If the GS Group shall fail to so
purchase, or cause the purchase of, the Common Stock of such Other Stockholders
as provided in this paragraph (b), then the GS Group may not consummate the
Sale.
(c) Notwithstanding anything to the contrary in this Section 3.3, in
the event shares of Common Stock represented by the Warrant are purchased
hereunder, AA shall cause the exercise of the Warrant.
Section 3.4. PROHIBITED AND PERMITTED TRANSFERS.
(a) A Stockholder shall not sell, grant an option to or for, assign,
mortgage, transfer, pledge, create a security interest in or lien upon,
encumber, give place in trust, hypothecate or otherwise in any manner
voluntarily dispose of (collectively referred to as a "Transfer"), all or any of
his Securities except as expressly provided in this Agreement.
(b) Notwithstanding anything to the contrary contained herein, the
procedures specified in this Section 3 shall not be applicable to a Transfer by
a Stockholder to a Permitted Transferee (as defined below) of such Stockholder
if such Permitted Transferee agrees in writing with the parties hereto to be
bound by and comply with all provisions of this Agreement applicable to the
individual or entity Transferring the Securities immediately prior to such
Transfer. For purposes of this Section 3.4(b), a "Permitted Transferee" shall
mean a transferee in direct privity with an original signatory of this Agreement
and (i) in the case of an individual, any Stockholder, the spouse or immediate
family member of such individual, a trust for the benefit of such individual,
spouse or immediate family member or any partnership, corporation or other
entity wholly-owned by such individual, (ii) in the case of a partnership, any
Stockholder, any of its limited or general partners, and any one partnership,
corporation or other entity controlled by or under common control with such
partnership or general partners thereof, (iii) in the case of a corporation, any
Stockholder, any one corporation, partnership or other entity controlling,
controlled by or under common control with such corporation and (iv) in the case
of Z/C to those parties identified in Schedule 3.4(b) hereto in the proportions
identified therein.
As used herein, the term "Stockholder" is deemed to include any Permitted
Transferees of the Stockholder, except as expressly provided otherwise herein.
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(c) Without regard to the obligations of the GS Group with respect to the
co-sale rights, rights of first offer and other obligations and restrictions
contained in Sections 3.1 through 3.4 of this Agreement, neither the Company nor
any member of the GS Group shall register any shares of Preferred Stock for sale
or other Transfer under the Securities Act. From and after the conversion of
all the shares of Preferred Stock held by the GS Group into shares of Common
Stock, this Section 3.4(c) shall expire and shall not apply to the shares of
Common Stock issuable upon conversion of the Preferred Stock. Any purported
Transfer in violation of this Section 3.4(c) shall be void and ineffectual, and
shall not operate to transfer any interest or title in any shares of Preferred
Stock to the purported transferee.
Section 3.5. PUT RIGHT. In the event of any Transfer of any Securities by
a Stockholder in violation of any provision of Section 3, each other Stockholder
shall each have the right to elect to cause such violating Stockholder to
purchase, and such Stockholder shall be obligated to purchase, from such other
Stockholder and at the same price per share and on the same terms and conditions
as involved in such sale by such violating party, such number of shares of
capital stock (calculated on a fully-diluted basis) equal to the number of
shares sold by such Stockholder multiplied by a fraction, the numerator of which
is the aggregate number of shares of Securities owned by such other Stockholder
and the denominator of which is the sum of all shares of Securities owned by all
other Stockholders desiring to sell shares to such violating Stockholder under
this Section 3.5.
4. LOCK-UP AGREEMENT
Each of the Stockholders hereby agrees that in connection with a Qualified
Public Offering, upon the request of the Company or the principal underwriter
managing the Qualified Public Offering, he or it will not sell, make any short
sale of, loan, grant an option for the purchase of, or otherwise dispose of any
Common Stock now owned or hereafter acquired by him without the prior written
consent of the Company or such underwriter, as the case may be, for one hundred
eighty (180) days or such other period of time not to exceed three hundred sixty
five (365) days as such underwriter may specify.
5. REGISTRATION RIGHTS
Section 5.1. REQUIRED REGISTRATION. (a) At any time after six months
after any registration statement covering a Qualified Public Offering shall have
become effective (but in no event within a six month period following the date
on which any registration statement (other than a registration statement on Form
S-8 or any successor form) covering a public offering of securities of the
Company under the Securities Act shall have become effective), each of (i) Z/C
and its Permitted
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Transferees and (ii) AA and the Aircraft Creditors may request the Company to
effect one registration under the Securities Act of all or any portion of the
shares of Registrable Securities held by such requesting holder or holders for
sale in the manner specified in such notice, provided that the shares of
Registrable Securities for which registration has been requested shall
constitute at least 33-1/3% of the total shares of Registrable Securities
originally issued or issuable to such requesting holder or holders if such
holder or holders shall request the registration of less than all shares of
Registrable Securities then held by such holder or holders (or any lesser
percentage if the reasonably anticipated aggregate price to the public of such
public offering would exceed $10,000,000). Notwithstanding anything to the
contrary contained herein, no request may be made under this Section 5.1 within
180 days after the effective date of a registration statement filed by the
Company covering a firm commitment underwritten public offering or a
registration requested by other holders pursuant to this Section 5.1 in which
the holders of Registrable Securities shall have been entitled to join pursuant
to Section 5.2 and in which there shall have been effectively registered all
shares of Registrable Securities as to which registration shall have been
requested. Additionally, if the Company shall furnish to the Holders of
Registrable Securities requesting registration of such shares hereunder a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration to be
effected at such time and that it is therefore essential to defer the filing or
effectiveness of a registration statement in connection therewith, then in such
case the Company shall have the right to defer the filing or effectiveness of
such registration statement for up to two periods of not more than 90 days each
after receipt of the request of the holders of Registrable Securities requesting
such registration; PROVIDED, HOWEVER, that the Company may not use this right
more than twice (for a total of up to 180 days) as to such requesting holders in
any 12-month period.
(b) Following receipt of any notice under this Section 5.1, the
Company shall immediately notify all holders of Registrable Securities from whom
notice has not been received and shall file a registration statement at the
Securities and Exchange Commission and shall use its best efforts to register
under the Securities Act, for public sale in accordance with the method of
disposition specified in such notice from requesting holders, the number of
shares of Registrable Securities specified in such notice (and in all notices
received by the Company from other holders within 30 days after the giving of
such notice by the Company). If such method of disposition shall be an
underwritten public offering, the holders of a majority of the shares of
Registrable Securities to be sold in such offering may designate the managing
underwriter of such offering, subject to the approval of the Company, which
approval shall not be unreasonably withheld or delayed. The Company shall be
obligated to register Registrable Securities
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pursuant to this Section 5.1 on two occasions only, PROVIDED, HOWEVER, that each
such obligation shall be deemed satisfied only when a registration statement
covering all shares of Registrable Securities specified in notices received as
aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto. For purposes of the preceding sentence,
a Registration Statement filed as described therein shall be deemed to include
all the shares of Registrable Securities requested to be registered if (a) the
number of shares requested to be registered has been reduced by the managing
underwriter in light of market conditions to no less than 75% of the number of
shares for which registration was requested, and (b) such offering contains no
Company shares pursuant to Section 5.1 (c). For purposes of clause (a) of the
preceding sentence, prior to any such reduction, the Company shall first exclude
from such registration, in the following order, all shares of Common Stock
sought to be included therein by (i) any holder thereof not having any
contractual, incidental registration rights, (ii) any holder thereof having
contractual, incidental registration rights subordinate or junior to the rights
of the Holders, and (iii) any holder thereof having separate registration rights
under this Section 5.1. In the event that holders of Registrable Securities
requesting registration of such shares by the Company under this Section 5.1
withdraw any such request for registration before any registration statement for
such shares becomes effective, such request shall count toward the Company's
obligation under this Section 5.1 to register such shares on one occasion only
as to such holders, unless and until the holders of such Registrable Securities
reimburse the Company for all expenses which the Company incurred in complying
with such withdrawn request.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 5.1, for sale in accordance with the
method of disposition specified by the requesting holders, shares of Common
Stock to be sold by the Company for its own account, except as and to the extent
that, in the opinion of the managing underwriter (if such method of disposition
shall be an underwritten public offering), such inclusion would adversely affect
the marketing of the Registrable Securities to be sold. Except for registration
statements on Forms S-4, S-8 or any successor thereto, the Company will not file
with the Commission any other registration statement with respect to its Common
Stock, whether for its own account or that of other stockholders, from the date
of receipt of a notice from requesting holders pursuant to this Section 5.1
until the completion of the period of distribution of the registration
contemplated thereby.
Section 5.2. PIGGYBACK REGISTRATIONS. If at any time or times after the
date of a Qualified Public Offering, the Company shall determine to register any
of its Common Stock or securities convertible into or exchangeable for Common
Stock
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under the Securities Act, whether in connection with a public offering of
securities by the Company, a public offering thereof by stockholders, or both
(but not in connection with a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable), the Company will
promptly give written notice thereof to the holders of Registrable Securities
then outstanding (the "Holders"), and will file a registration statement at the
Securities and Exchange Commission and use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Holders may request in a writing delivered to the Company within fifteen (15)
days after the notice given by the Company; PROVIDED, HOWEVER, that in the event
that any registration pursuant to this Section 5.2 shall be, in whole or in
part, an underwritten public offering of Common Stock, the number of shares of
Registrable Securities to be included in such an underwriting may be reduced
(pro rata among the requesting Holders based upon the number of shares of
Registrable Securities owned by such Holders) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein,
PROVIDED, that prior to any such reduction, the Company shall first exclude from
such registration, in the following order, all shares of Common Stock sought to
be included therein by (i) any holder thereof not having any such contractual,
incidental registration rights, and (ii) any holder thereof having contractual,
incidental registration rights subordinate or junior to the rights of the
Holders.
Section 5.3. REGISTRATION EXPENSES. In the event of a registration
described in Sections 5.1 and 5.2, all reasonable expenses of registration and
offering of the Holders participating in the offering including, without
limitation, printing expenses, fees and disbursements of counsel, including one
counsel for the selling Holders, and independent public accountants, fees and
expenses (including counsel fees incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc. and fees of transfer agents and registrars), shall be
borne by the Company, except that the Holders shall bear underwriting
commissions and discounts attributable to their Registrable Securities being
registered.
Section 5.4. FURTHER OBLIGATIONS OF THE COMPANY. Whenever, under the
preceding sections of this Agreement, the Company is required hereunder to
register Registrable Securities, it agrees that it shall also do the following:
(a) Use its best efforts to diligently prepare for filing with the
Commission a registration statement and such amendments and supplements to said
registration statement and the prospectus used in connection therewith as may be
necessary to keep said registration statement effective for a period of at least
120 days and to comply with the provisions of the Securities Act with respect
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to the sale of securities covered by said registration statement for the period
necessary to complete the proposed public offering;
(b) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(c) Enter into any underwriting agreement with provisions reasonably
required by the proposed underwriter for the selling Holders, if any, and
reasonably acceptable to the Company;
(d) Use its best efforts to register or qualify the Registrable
Securities covered by said registration statement under the securities or
"blue-sky" laws of such jurisdictions as any selling Holder may reasonably
request;
(e) Use its best efforts to list all Registrable Securities covered
by said registration statement on any securities exchange on which any of the
Common Stock is then listed; and
(f) Enter into such agreements, cause its independent certified
public accountants to deliver such letters, deliver such opinions or cause such
opinions to be delivered and take such other actions as the selling Holders
shall reasonably request in order to expedite or facilitate the disposition of
such Registerable Securities.
Section 5.5. INDEMNIFICATION. Incident to any registration referred to in
this Agreement, and subject to applicable law, the Company will indemnify each
underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them against all claims, losses, damages and
liabilities, including legal and other expenses reasonably incurred in
investigating or defending against the same, arising out of any untrue statement
of a material fact contained in any prospectus or other document (including any
related registration statement) or any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or arising out of any violation by the Company of the Securities
Act, any state securities or "blue-sky" laws or any rule or regulation
thereunder in connection with such registration, PROVIDED, HOWEVER, that the
Company will not be liable in any case to the extent that any such claim, loss,
damage or liability (i) may have been caused by an untrue statement or omission
which is based upon information furnished in writing to the Company by any
Holder expressly for use therein, or (ii) may have been suffered or incurred by
the Company and resulted from an action, claim or suit by a Person who purchased
Registrable Securities or other securities of the Company from a Holder in
reliance upon any untrue statement or omission which was contained or made in
any
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preliminary prospectus furnished by such Holder to such Person in connection
with such registration and which was corrected in a final prospectus which the
Holder possessed, but such Holder failed to deliver or provide a copy of such
final prospectus to such Person at or prior to the confirmation of the sale of
any such Registrable Securities in any case where such delivery is required by
the Securities Act. In the event of any registration of any of the Registrable
Securities under the Securities Act pursuant to this Agreement, each seller of
Registrable Securities, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act against
any claim, losses, damages and liabilities, including legal and other expenses
reasonably incurred in investigating or defending it against the same,
(i) arising out of any untrue statement of a material fact contained in any
prospectus or other document (including any related registration statement) or
any omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, if the statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of such selling Holder, specifically
for use in connection with the preparation of such registration statement,
prospectus, amendment or supplement, or (ii) which may have been suffered or
incurred by the Company and which resulted from an action, claim or suit by a
Person who purchased Registrable Securities or other securities of the Company
from such Holder in reliance upon any untrue statement or omission which was
contained or made in any preliminary prospectus furnished by such Holder to such
Person and which was corrected in a final prospectus which the Holder possessed,
but such Holder failed to deliver or provide a copy of such final prospectus to
such Person at or prior to the confirmation of the sale of any such Registrable
Securities in any case where such delivery is required by the Securities Act;
PROVIDED, HOWEVER, that the obligations of such selling Holders hereunder shall
be limited to an amount equal to the proceeds to each Holder of Registrable
Securities sold as contemplated herein.
Section 5.6. RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the Exchange
Act, the Company will use its best efforts to file with the Commission such
information as the Commission may require under either of said sections; and in
such event, the Company shall use its best efforts to take all action as may be
required as a condition to the availability of Rule 144 of the Securities Act
(or any successor exemptive rule hereinafter in effect). The Company shall
furnish to any Holder upon request, a written statement executed by the Company
as to the steps it has taken to comply with the current public information
requirements of Rule 144.
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Section 5.7. TRANSFER OF REGISTRATION RIGHTS. The registration rights of
the Holders under this Agreement may be transferred to (i) their Permitted
Transferees. No transferees of any other Person shall be entitled to
registration rights except as expressly set forth herein. Each such transferee
shall be deemed to be a "Holder" for purposes of this Agreement; PROVIDED,
HOWEVER, that no transfer of registration rights by a Holder pursuant to this
Section 5.7 shall create any additional rights in the transferee beyond those
rights granted to Holders pursuant to this Agreement.
Section 5.8. GRANTING OF REGISTRATION RIGHTS. The Company shall not,
without the prior written consent of the Holders of at least a majority in
interest of the Registrable Securities, grant any rights to any Persons to
register any shares of capital stock or other securities of the Company if such
rights could reasonably be expected to be superior to or be on parity with, the
rights of the holders of Registrable Securities granted pursuant to this
Agreement; PROVIDED, HOWEVER, that in no case shall the Company grant any such
superior rights as long as the Z/C Group, AA and the Aircraft Creditors, in the
aggregate, hold an amount of Registrable Securities equal to or greater than 11%
of the shares of Common Stock held of record by them or subject to warrants as
of the date hereof as set forth on Schedule A hereto.
6. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS.
Each Stockholder, severally and not jointly, represents and warrants with
respect to such Stockholder to the Company as follows:
Section 6.1. EXPERIENCE. It has such knowledge and experience in
financing and business matters that it is capable of evaluating the merits and
risks of an investment in the Securities and of making an informed decision.
Section 6.2. INVESTMENT. It is acquiring the Securities for investment
for its own account and not with the view to, or for resale in connection with,
any distribution thereof. It understands that the Securities have not been
registered under the Securities Act by reason of a specified exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of its investment intent as expressed herein.
Section 6.3. RESTRICTIONS ON TRANSFERS. It understands and agrees as
follows:
(a) The certificates evidencing the Securities and each certificate
issued in transfer of the foregoing, will bear the following legend (or
substantially similar legend):
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"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED."
(b) It will not offer, sell, transfer or otherwise dispose of any of
the Securities, unless (i) an effective registration under the Securities Act
covers the disposition of such securities or, (ii) except with respect to the
rights and obligations referenced in Section 5, it has delivered to the Company
an opinion of counsel (which may be in-house counsel), reasonably satisfactory
to the Company, that such offer, sale, transfer or other disposition will not
require registration of such securities under the Securities Act.
Upon request of a holder of Securities, the Company shall remove any
such legend from each certificate evidencing Securities, or shall issue to such
holder a new certificate or certificates for such Securities, which certificate
or certificates shall be free of such transfer legend, provided that with such
request, the Company shall have received an opinion of counsel, which opinion is
reasonably satisfactory to the Company, to the effect that such legend is no
longer necessary or required (including, without limitation, because of the
availability of the exemption afforded by Rule 144 promulgated under the
Securities Act).
Section 6.4. RULE 144. It acknowledges that unless redeemed, the
Securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
It has been advised or is aware of the provisions of Rule 144, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, and understands that such Rule may not
become available for resale of the Securities.
Section 6.5. ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with its management and has
had the opportunity to review the Company's books, records and facilities.
Section 6.6. AUTHORIZATION. This Agreement to which such Stockholder is a
party is a valid and binding obligation of such Stockholder, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
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affecting enforcement of creditors' rights generally and to general equitable
principles. The execution, delivery and performance by such Stockholder of this
Agreement to which such Stockholder is a party and compliance herewith and
therewith will not result in any violation of and will not conflict with, or
result in a breach of any of the terms of, or constitute a default under, such
Stockholder's Certificate of Incorporation or By-Laws or Agreement of Limited
Partnership, as applicable, or any judgment, decree, order, rule or regulation
to which such Stockholder is bound.
7. TERMINATION
This Agreement, and the respective rights and obligations of the parties
hereto shall terminate upon the earliest to occur of the following: (i) the
expiration of ten years from the date first written above; or (ii) the
completion of the Company's Qualified Public Offering; PROVIDED, HOWEVER, that
the rights and obligations of the parties set forth in Section 5 shall only
terminate upon the expiration of the time period referenced in (i) hereof. As
used herein, the term "Qualified Public Offering" shall mean an underwritten
public offering of shares of Common Stock pursuant to a registration statement
filed with the Commission under the Securities Act, in which net proceeds, after
deducting underwriters' discounts and commissions and offering expenses, to the
Company equal or exceed $15,000,000 and the Company has a Market Capitalization
in excess of $40,000,000. For purposes of this Section 7, "Market
Capitalization" shall mean the number of shares outstanding on a fully diluted
basis multiplied by the price per share of the initial public offering.
8. MISCELLANEOUS
Section 8.1. NOTICES. As the terms "notice" or "notices" are used herein
as between the parties, such term shall mean a written document, explaining the
reason for the notice, and the same shall be mailed by United States Postal
Service Via Certified Mail, Return Receipt Requested, addressed as follows:
to the Company:
Midway Airlines Corporation
300 West Morgan Street, 12th Floor
Durham, North Carolina 27701
Attention: Chief Executive Officer
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with a copy to:
Midway Airlines Corporation
300 West Morgan Street, 12th Floor
Durham, North Carolina 27701
Attention: General Counsel
to Z/C:
Zell/Chilmark Fund L.P.
Two North Riverside Plaza, Suite 1900
Chicago, Illinois 60606
Attention: Rod Dammeyer
with copies to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1515
Chicago, Illinois 60606
Attention: Alisa M. Singer
to AA:
American Airlines, Inc.
MD 5675 HDQ
P.O. Box 619616
DFW Airport, TX 75261-9616
Attention: Corporate Secretary
with a required copy to:
Airline Management Services, Inc.
MD 5220
P.O. Box 619616
DFW Airport, TX 75261-9616
Attention: Managing Director
to WAF:
Wings Aircraft Finance, Inc.
1199 N. Fairfax Street, Suite 500
Alexandria, Virginia 22314
Attention: Secretary
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to AF:
debis AirFinance B.V.
Evert van de Beekstraat 22
NL-1118 CL Luchthaven Schiphol
The Netherlands
Attention: John McMahon
to JG
SAS Campus Drive
Cary, North Carolina 27513
to JS:
SAS Campus Drive
Cary, North Carolina 27513
Such notice shall be deemed to have been given on the date placed in the U.S.
Mails, and sent by fax to counsel, whether actually received by the addressee or
not. The parties shall, as a matter of convenience and courtesy, send each
party receiving notice a copy of said notice by facsimile or electronic means,
or by courier, Federal Express, or similar service, but such notifications shall
not be deemed lawful "notice" as required hereby. The parties may from time to
time amend the above addresses and names by written notice given to the other
party.
Section 8.2. SPECIFIC PERFORMANCE. The rights of the parties under this
Agreement are unique and, accordingly, the parties shall have the right, in
addition to such other remedies as may be available to any of them at law or in
equity, to enforce their rights hereunder by actions for specific performance in
addition to any other legal or equitable remedies they might have to the extent
permitted by law.
Section 8.3. LEGEND. Any certificates representing shares of capital
stock subject to this Agreement shall bear a legend indicating the existence of
the restrictions imposed hereby.
Section 8.4. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior oral and written agreements and understandings between them
or any of them as to such subject matter.
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Section 8.5. WAIVERS AND FURTHER AGREEMENTS. Any of the provisions of
this Agreement may be waived by an instrument in writing with the consent of the
party or parties whose rights are being waived and in the event the rights of
the Stockholders are being waived. Any waiver of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of that provision or of any other provision hereof. Each of the parties
hereto agrees to execute all such further instruments and documents and to take
all such further action as any other party may reasonably require in order to
effectuate the terms and purposes of this Agreement.
Section 8.6. AMENDMENTS. This Agreement may be amended by and shall be
effective upon the receipt of the written consent of: (i) the GS Group, (ii)
members of the Z/C Group which are then Holders, (iii) the Company, and (iv)
with respect to Sections 1, 3, 4, 5, 6, 7, and 8, AA and the Aircraft Creditors.
Section 8.7. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the holders of at least a majority in
interest of the Securities or except as may be expressly provided otherwise
herein.
Section 8.8. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
Section 8.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.10. SECTION HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 8.11. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
Section 8.12. FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any party hereto, the other parties shall execute
and deliver
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such instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
Section 8.13. RESTRICTIONS ON GS GROUP AFFILIATE TRANSACTIONS. The
Company shall not enter into any agreement, arrangement, commitment or
transaction of any kind whatsoever with any member of the GS Group or any GS
Group Affiliate, without the prior written consent of Z/C (which consent shall
not be unreasonably withheld); provided such consent shall not be required with
respect to such transaction or related series of transactions not exceeding
$75,000 which constitute services or goods which would otherwise be provided by
or to third parties and the terms therefor are no less favorable to the Company
than terms which would be offered by an independent third party; provided,
however no such consent shall be required in the case of (i) airline service at
contract rates available on the same terms to third parties; (ii) the Company's
allocable share of insurance paid to any member of the GS Group or any GS Group
Affiliate for group insurance policies which include the Company; (iii) taxes
paid to any member of the GS Group or any GS Group Affiliate under any tax
sharing agreement in connection with a consolidated group return which includes
the Company in form and substance reasonably satisfactory to Z/C; (iv) services
performed on behalf of the Company by any member of the GS Group or any GS Group
Affiliate not to exceed $100,000 per fiscal year for any single member of the GS
Group or any GS Group Affiliate and $500,000 in the aggregate per fiscal year
for all members of the GS Group and GS Group Affiliates; (v) any cash management
services provided to the Company by any member of the GS Group or any GS Group
Affiliate; (vi) any redemption or repurchase of stock from the GS Group or any
GS Group Affiliate in an offer made to all stockholders of the Company on the
same terms and conditions per share; and (vii) subject to fiduciary duties and
applicable law, any purchase of additional shares of capital stock from the
Company. As used herein, "GS Group Affiliate" means any Person which controls
any member of the GS Group, which any member of the GS Group controls, or which
is under common control with any member of the GS Group and shall include any
Family Member of any member of the GS Group. "Control" means the power, direct
or indirect, to direct or cause the direction of the management and policies of
a Person through voting securities, contract or otherwise. "Family Member"
means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
brother, sister, stepbrother, step-sister, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, or
cousin of the individual in question and shall include adoptive relationships.
8.14 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall
maintain directors' and officers' liability insurance with terms and coverage
consistent with its present such policy.
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<PAGE>
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Stockholder as follows:
9.1 AUTHORIZATION. This Agreement is a valid and binding obligation
of the Company, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditor's rights generally and to
general equitable principles. The execution, delivery and performance by the
Company of this Agreement and compliance therewith will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, the Company's Certificate of
Incorporation or By-Laws or any judgment, decree, order, rule or regulation to
which the Company is bound.
9.2 COMMON STOCK. The issuance of that number of shares of
Securities to the Stockholders as set forth in Schedules A and B hereof has been
duly authorized and when issued in accordance with the Merger Agreement, will be
validly issued, fully paid and nonassessable shares of capital stock of the
Company.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first above
written.
ZELL/CHILMARK FUND L.P.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
AMR CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WINGS AIRCRAFT FINANCE, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DEBIS AIRFINANCE B.V.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
JAMES H. GOODNIGHT
-----------------------------------
JOHN P. SALL
-----------------------------------
<PAGE>
MIDWAY AIRLINES CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
SCHEDULE A
Number of shares of
Stockholder Common Stock
----------- -------------------
Z/C 2548
AA 572
AF 381
WAF 191
<PAGE>
SCHEDULE B
Number of shares of
Stockholder Preferred Stock
----------- -------------------
JG 3675
JS 1785
<PAGE>
EXHIBIT 10-31
SEVERANCE AGREEMENT AND OTHER MATTERS
AGREEMENT made as of February 11, 1997, by and between MIDWAY AIRLINES
CORPORATION, a Delaware corporation (the "Company") and ROBERT R. FERGUSON III,
a resident of Houston, Texas ("Executive").
The parties hereto agree as follows:
1. EMPLOYMENT. Company hereby employs Executive, and Executive
hereby accepts employment with Company, upon the terms and conditions set forth
in this Agreement.
(a) TERM. Subject to the provisions hereof, Executive's
employment will begin upon the date first written above and continue until
terminated pursuant to Section 4 hereof.
(b) POSITION AND DUTIES. Executive will serve as President and
Chief Executive Officer of the Company. Executive will report directly to, and
will perform such duties consistent with his position as are assigned to him by
the Board of Directors (the "Board") of the Company. As soon as reasonably
practicable, the Company will cause Executive to be elected as a member of, and
Chairman of, the Board during the period of his employment hereunder.
(c) FULL TIME. Executive will devote his full business time,
attention and energy to the performance of his duties under this Agreement.
Executive will be entitled to have outside investments and outside business
interests of a passive nature if and to the extent such investments and
interests do not interfere with his ability to fully discharge the duties of his
employment hereunder and do not otherwise conflict with the provisions hereof.
2. COMPENSATION.
(a) SALARY. The Company will pay salary to Executive at an
annual rate of $200,000 (the "Annual Salary"), payable in equal installments in
accordance with the Company's normal payroll practices and subject to periodic
review not less than annually.
(b) BENEFITS. During the term of his employment, Executive will
be entitled to the group health, life insurance, disability income, and other
fringe, welfare and pension benefits that are generally made available to other
executive employees of the Company. Executive will be entitled to take
reasonable amounts of vacation during each fiscal year of the Company consistent
with Executive's obligations pursuant to 1(c).
(c) OPTIONS. As of February 11, 1997, Executive shall be
granted options (the "Options") to acquire 1,144 shares of the common stock, par
value $.01 per share, of the Company (the "Common Stock"). The Options shall
expire on the date that is ten years from the anniversary of the date hereof and
shall become exercisable as follows: options for 572 shares of Common Stock
shall become exercisable on the date hereof; options for 286
<PAGE>
shares of the Common Stock shall become exercisable on February 11, 1998; and
options for 286 shares of the Common Stock shall become exercisable on February
11, 1999. The Option Agreement is attached hereto as Exhibit A.
3. EXPENSES.
(a) The Company will reimburse Executive for travel,
entertainment and other expenses reasonably incurred or paid by him in
connection with the performance of his duties under this Agreement, all upon
presentation of appropriate vouchers or receipts and otherwise in accordance
with the Company's expense reimbursement policies for senior executives.
(b) Subject to presentation of receipts or other appropriate
documentation, the Company will reimburse and make Executive "whole" including a
tax gross up at an assumed marginal tax rate of 45% for the reasonable cost of
relocating and moving himself, his family and his possessions from Houston, TX
to the Raleigh-Durham, N.C. area, including the cost of temporary living
quarters, transportation and meals for up to nine months.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH. Executive's employment hereunder shall terminate
upon his death.
(b) DISABILITY. The Company may terminate Executive's
employment if he has been unable to perform his duties hereunder for a period of
three consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.
(c) TERMINATION BY BOARD OF DIRECTORS. The Board of Directors
of the Company may terminate Executive's employment hereunder with or without
cause at any time.
(d) TERMINATION BY EXECUTIVE. Executive may terminate his
employment hereunder for Good Reason. For purposes of this Agreement, the term
"Good Reason" shall mean (1) a substantial reduction of Executive's duties,
position, authority or responsibilities hereunder, (2) material breach by the
Company of its obligations under paragraph 2 hereof if not remedied within
thirty days after written notice from Executive, (3) a significant reduction of
Executive's duties, position, authority or responsibility following a change of
control of the Company (within the meaning of Section 280G of the Internal
Revenue Code of 1986), or (4) if Executive's Annual Salary is reduced by more
than $10,000.
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<PAGE>
(e) EFFECT OF TERMINATION.
(1) DEATH. If Executive's employment terminates by reason
of his death, then the Company shall have no obligation to make any
further payments or provide any further benefits hereunder for any
period of time subsequent to the date of such termination.
(2) DISABILITY. If Executive's employment is terminated by
the Company by reason of Executive's disability, then the Company
shall have no obligation to make any further payments or provide any
further benefits hereunder for any period of time subsequent to the
date of such termination, except pursuant to Company maintained
insurance policies.
(3) TERMINATION WITHOUT GOOD REASON. If Executive's
employment is terminated by Executive without Good Reason, then the
Company shall have no obligation to make any further payments or
provide any further benefits hereunder for any period subsequent to
the date of such termination.
(4) OTHER TERMINATION. If Executive's employment is
terminated by the Company without Cause or by Executive for Good
Reason, then, subject to Executive's continuing compliance with
Section 5 hereof, Executive will be entitled to be paid, in a lump
sum, upon such termination an amount equal to one year's annual
compensation at the rate then in effect and all other compensation and
benefits to which Executive is the entitled for one year from the date
of termination and the Company will have no obligation to provide any
other payments or benefits hereunder for any period of time subsequent
to such termination. For this purpose, "Cause" means (1) willful
failure or refusal by Executive to carry out specific directions of
the Board consistent with the provisions hereof or to perform a
material part of the duties assigned to him hereunder, or willful
violation by Executive of any material provisions of this Agreement,
which failure, refusal or violation is not remedied by Executive
within 30 days after written notice from the Company, (2) commission
by Executive of a felony involving moral turpitude, or (3) gross
negligence by Executive in the performance of Executive's duties, all
as determined by the Board. Executive acknowledges and agrees that
his sole and exclusive remedy for termination pursuant to subparagraph
4 hereof shall be the amounts payable hereunder, and Executive shall
have no other recourse at law or in equity as to any termination by
the Company without Cause.
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<PAGE>
5. RESTRICTIVE COVENANTS.
(a) CONFIDENTIAL INFORMATION. Executive acknowledges that,
during the course of his employment hereunder, he will have access to
confidential information, documents and other materials relating to the Company
which are not generally known to persons outside the Company (whether conceived
or developed by Executive or others) and confidential information, documents and
other materials entrusted to the Company by third parties, including, without
limitation, financial information, trade secrets, techniques, know-how,
marketing and other business plans, data, strategies and forecasts, and the
substance of arrangements and agreements with customers, suppliers and others
(including arenas and ticket companies) (collectively, "Confidential
Information"). Any Confidential Information conceived or developed by Executive
during employment will be the exclusive property of the Company. Except as
specifically authorized by the Company, Executive will not (during or after his
employment hereunder) disclose Confidential Information to any third person,
firm or entity or use Confidential Information for his own purposes or for the
benefit of any third person, firm or entity other than (1) as may be legally
required in response to any summons, order or subpoena issued by a court or
governmental agency, or (2) such Confidential Information which is or becomes
available to the general public through no act or failure to act by Executive.
(b) NO DISPARAGEMENT. Executive will not, during the term
hereof and at any time thereafter, make disparaging public remarks about the
Company, its operations, its performance or any of its personnel. The Company
will not, at any time after the termination of Executive's employment with the
Company, make any disparaging public remarks about Executive.
(c) COMPANY DOCUMENTS. Upon the termination of his employment,
Executive will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.
(d) COVENANT NOT TO COMPETE. Executive acknowledges that his
duties hereunder and the services he will provide to the Company are of a
special, unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Executive in the performance of such duties
and services. Therefore, during employment and for a period of twelve months
after the termination of his employment for any reason, Executive will not,
directly or indirectly, enter into, organize, control, engage in, be employed
by, serve as a consultant to, be an officer or director of or have any direct or
indirect investment in any business, person, partnership, association, firm or
corporation engaged in the Research Triangle Area of North Carolina in any
airline transportation business headquartered at the Raleigh-Durham
International Airport in which the Company or any subsidiary or other affiliate
thereof is engaged during Executive's employment with the Company and at the
time of his termination of employment and with respect to which Executive has
rendered substantial service. Nothing contained in this Agreement shall be
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<PAGE>
construed to prevent Executive from owning at any time, directly or indirectly,
as much as 10% of any class of equity securities issued by a corporation or
other entity (other than the Company) which is publicly traded and registered
under the Securities and Exchange Act of 1934, as amended. Executive and the
Company agree that the provisions of the covenant not to compete are reasonable.
However, if any court should determine that any aspect of the covenant not to
compete is unreasonable either in period of time, geographical area or
otherwise, the parties agree that the covenant not to compete should be
interpreted and enforced to the maximum extent that such court deems reasonable.
Any amounts (including, without limitation, unpaid salary and bonus) which would
otherwise be payable following a breach by Executive of this Section will be
forfeited by Executive (in addition to any other remedies available to the
Company).
(e) NONSOLICITATION OF EMPLOYEES. During employment and for a
period of one year after the termination of his employment (or, if later, the
period ending on the date an employee's employment agreement with the Company or
any subsidiary or other affiliate thereof expires by its terms), Executive will
not, directly or indirectly, solicit, induce or otherwise attempt to influence
any employee of the Company or any subsidiary or other affiliate thereof to
leave employment therewith.
(f) REMEDIES. Executive acknowledges and agrees that damages in
an action at law for breach of any of the provisions of this paragraph will be
difficult to determine and will not afford a full and adequate remedy and,
therefore, agrees that the Company, in addition to seeking damages in an action
at law, may seek specific performance and such equitable or other remedies as
may be available for breach of this paragraph, including, without limitation,
the issuance of a temporary or permanent injunction, without the necessity of a
bond. Notwithstanding anything to the contrary contained herein, in the event
of a breach of this agreement by Executive, the Company shall not be entitled
and may not recover damages from the Executive in an amount greater than the sum
paid to Executive pursuant to Section 4(e)(4) hereof.
(g) SURVIVAL. The obligations set forth in this paragraph 5
shall survive the termination of Executive's employment.
6. NO IMPEDIMENT TO AGREEMENT. Except as otherwise disclosed
herein, Executive is not, as of the date hereof, and will not be, during the
period of his employment hereunder, employed under contract, oral or written, by
any other person, firm or entity, and is not and will not be bound by the
provisions of any restrictive covenant or confidentiality agreement, and is not
aware of any other circumstance or condition (legal or otherwise) which would
constitute an impediment to, or restriction upon, his ability to enter into this
Agreement and to perform the duties of his employment hereunder.
7. INDEMNIFICATION. The Company shall indemnify the Executive
against all losses, including legal fees and expenses, arising from claims
against the Executive in connection with the Executive's good faith execution of
his employment hereunder, to the
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<PAGE>
extent permitted by Delaware Corporation Law and the Company's certification of
incorporation.
8. NOTICES. Any notice under this Agreement must be in writing and
will be deemed to have been given when personally delivered or mailed by
first-class or express mail to the recipient at his or its last known address.
9. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the interpretation of this Agreement in any other
jurisdiction.
10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina without regard to its
conflicts of law provisions.
11. SUCCESSORS AND ASSIGNS. The services and duties to be performed
by Executive hereunder are personal and may not be assigned. This Agreement
shall be binding upon and inure to the benefit of the Company, its successors
and assigns, and Executive, and his heirs and representatives. The Company may,
and must, assign this Agreement to a successor in interest, and such successor
in interest must affirmatively adopt and agree to fulfill all obligations to
Executive hereunder.
12. COMPLETE AGREEMENT. This Agreement supersedes any prior
agreement, memorandum or understanding, and it constitutes the entire agreement
between the parties, concerning the subject matter hereof. No amendment hereto,
or waivers or releases of obligations or liabilities hereunder, shall be
effective unless agreed to in writing by the parties hereto.
13. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which, when so executed and delivered, shall be deemed an
original, but all of which together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
MIDWAY AIRLINES CORPORATION
By: _______________________
Name:
Title:
ROBERT R. FERGUSON III
___________________________
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<PAGE>
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement by and between MIDWAY AIRLINES CORPORATION, a
Delaware corporation (the "Company"), and STEVEN WESTBERG (the "Executive") is
dated as of the 15th day of July, 1996 (the "Agreement").
WHEREAS, the Company desires to continue the employment of the Executive in
an executive capacity because of his experience, ability and knowledge which are
extremely valuable to the Company; and
WHEREAS, the Executive desires that his employment by the Company continue
on the terms and conditions set forth herein, and the Company and the Executive
desire to enter into the Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. CERTAIN DEFINITIONS. The "Effective Date" of this Agreement shall be
July 15, 1996 (the "Effective Date").
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. From and after the Effective Date, the
Executive shall serve in the position of Senior Vice President - Finance and
Planning and Chief Financial Officer and shall perform the attendant
responsibilities thereto including the supervision of all treasury, accounting,
pension administration, insurance procurement, tax planning, budgeting and
financial planning as well as such other responsibilities as the Board of
Directors of the Company or the Chief Executive Officer may from time to time
assign.
(b) Excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote his full attention and
time during normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the term of
Executive's employment it shall not be a violation of this Agreement for the
Executive to (i) serve on charitable or non-conflicting civic boards or
committees and (ii) manage personal investments, so long as such activities do
not interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
(c) COMPENSATION.
(i) BASE SALARY. The Executive shall receive an annual base
salary of USD $165,000 paid in equal monthly installments subject to such
withholding and deductions as are required by law or agreed upon ("Base
Salary"). The Company's Compensation Committee shall review the Executive's
Base Salary hereunder from time to time, but not less frequently than each
Company fiscal year and, in its discretion, may adjust such Base Salary in such
amount as it deems appropriate for any future year of this Agreement; provided,
however, that the specified rate of Base Salary hereunder shall not be reduced
below $165,000.
(ii) ANNUAL BONUS. In addition to Base Salary, the Executive
shall, in the discretion of the Company's Board of Directors, be awarded, for
each fiscal year during the
<PAGE>
Employment Period, an annual bonus in accordance with the Company's bonus plan
for senior managers.
(iii) BENEFIT PLANS. During the Executive's employment, the
Executive shall be eligible for participation in and shall receive all benefits
under the Company's benefit plans provided to other senior executive officers by
the Company.
(iv) EXPENSES. During the Executive's employment, the Executive
shall be entitled to receive prompt reimbursement for all pre-approved expenses
incurred by the Executive with appropriate receipts to serve as verification in
accordance with the most favorable policies and procedures of the Company.
(v) AUTO ALLOWANCE. During the term of Executive's employment,
the Executive shall be entitled to payment of an automobile allowance of up to
$500.00 per month for automobile and related expenses ("Auto Allowance").
(vi) VACATION. During the Executive's employment, the Executive
shall be entitled annually to four (4) weeks of paid vacation.
(vii) STOCK. As of the date set forth therein, the Executive
shall receive a stock award (the "Stock Award") consisting of Class C Common
Stock, $.01 par value per share, of the Company.
(viii) RELOCATION ASSISTANCE. Company will reimburse or pay
Executive for the reasonable costs of the packing and moving of Executive's
household goods from Texas to North Carolina and customary closing costs and
real estate commissions payable in connection with the sale of Executive's home
in Texas. The Company will engage a relocation company to assist Executive in
his relocation and the payments or reimbursements described herein will be made
through such relocation company. Company will be responsible for any income
taxes arising from the payments or reimbursements described herein.
(viii) AIRLINE TRAVEL. During the term or Executive's
Employment, the Company will provide Executive and Executive's spouse and
dependent children with free airline travel on flights operated by the Company
and/or its successors, on the same terms established for other senior executives
of the Company (the "Airline Travel Benefit").
3. TERMINATION.
(a) DEATH. In the event the Executive dies, this Agreement shall
automatically terminate.
(b) DISABILITY. If the Board of Directors of the Company determines,
in the reasonable exercise of its discretion, that the Executive, through
physical or mental illness or disability, whether or not connected to his
employment hereunder, has become incapacitated and is unable for a period of six
(6) months during any continuous period of twelve (12) months, to discharge the
duties and responsibilities of his employment hereunder (a "Disability"), the
Board of Directors of the Company shall have the right by written notice to the
Executive to terminate his employment.
(c) CAUSE. The Company may terminate the Executive's employment for
"Cause." For the purposes of this Agreement, "Cause" means (i) an act or acts
of personal
2
<PAGE>
dishonesty taken by the Executive to the detriment of the Company; (ii)
violations by the Executive of the Executive's obligations under Section 2(a) or
Section 6 of this Agreement; provided, that from and after a "Change in Control"
such a violation shall constitute Cause only if demonstrably willful and
deliberate on the Executive's part; (iii) the conviction of the Executive of a
felony; or (iv) the violation of any statutory or common law duty of loyalty to
the Company. For purposes of this provision, "Change in Control" shall mean the
sale by the Company of all or substantially all of its assets and business to
any person or entity other than Zell/Chilmark Fund L.P., or any entity under
common control therewith, or any entity or person in direct or indirect control
of said Zell/Chilmark Fund L.P. (each of such entities and persons being herein
referred to as a "Related Person") or the sale or issuance of such voting
securities of the Company representing votes sufficient to elect a majority of
the Company's Board of Directors to any person or entity other than a Related
Person.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause
shall be communicated by a Notice of Termination to the Executive given in
accordance with this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon and (ii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date.
(e) DATE OF TERMINATION; SEVERANCE PERIOD. "Date of Termination"
means the date of receipt of the Notice of Termination or any later date
specified therein. "Severance Period" means the longer of (i) the twelve (12)
month period following the Date of Termination and (ii) the period following the
Date of Termination to and including December 31, 1997.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) DEATH. In the event the Executive dies at a time when he is
still covered by this Agreement, the Executive's estate shall receive any
benefits pursuant to plans described in Section 2(c)(iii), together with any
compensation previously deferred by the Executive (with accrued interest
thereon).
(b) CAUSE. If the Executive's employment shall be terminated for
Cause, this Agreement shall terminate without further obligations to the
Executive hereunder other than the obligation to pay to the Executive the Base
Salary through the Date of Termination plus the amount of any compensation
previously deferred by the Executive (together with accrued interest thereon).
(c) TERMINATION OTHER THAN FOR CAUSE OR DISABILITY. If, during the
Employment Period, (x) the Company shall terminate the Executive's employment
other than for Cause, Disability or death, or (y) Executive shall voluntarily
terminate his employment within forty-five (45) days after a Constructive
Termination (as defined below):
(i) the Company shall continue to pay to the Executive the
aggregate amount of his Base Salary and Auto Allowance for the period commencing
on the Date of Termination and ending on the expiration of the Severance Period
in accordance with the Company's then current payroll schedule; provided,
however, that any such payments shall be reduced by the amount of cash
compensation offered to Executive as part of an offer of employment made by
Samuel Zell or an entity directly or indirectly controlled by Samuel Zell or
controlled by or under common control with Zell/Chilmark Fund, L.P. (Samuel Zell
or any such entity hereinafter a "Zell Employer"), provided, that such offer of
employment is generally on the
3
<PAGE>
same terms (other than geographic location) and at the same or higher rate of
compensation provided for in this Agreement; provided, further, that if no such
offer of employment is made to Executive at any time during the Severance
Period, any such payment shall be reduced by the amount of cash compensation
received by Executive from another employer during, or in consideration for work
performed by Executive during, the Severance Period; provided, however, that the
preceding clause shall in no event impose upon Executive any obligation to seek
or accept an offer of employment from another employer; provided, further, that
for purposes of this Section 5(d)(i), "control" shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of a person or entity, whether through the ownership of voting securities, by
contract or otherwise;
(ii) the Company shall pay to the Executive during the period
commencing on the Date of Termination and ending on the earlier of (x) the date
on which the Executive commences employment with another employer and (y) the
end of the Severance Period an amount that would permit the Executive to receive
medical benefits comparable to benefits received by the Executive during the
last full fiscal year during the term of Executive's employment;
(iii) in the case of compensation previously deferred by the
Executive, the Company shall pay to the Executive within thirty (30) days of the
Date of Termination all amounts previously deferred (together with any accrued
interest thereon) and not yet paid by the Company, and any accrued vacation pay
not yet paid by the Company;
(iv) the Company and/or its successors shall continue to provide
the Airline Travel Benefit to the Executive and the Executive's spouse, for such
of their respective lifetimes, and the Executive's dependent children, for so
long as they remain dependent children as such term is used in the airline
(non-revenue) travel industry, except that the same shall be at an "A-3"
Priority Level or at least at the priority level from time to time made
available by the Company and/or its successors to the senior officers (and their
family members) of airlines other than the Company;
(v) the Company shall pay, or reimburse Executive for, the cost
of reasonable and appropriate outplacement services provided through the
Severance Period by an outplacement firm selected by Zell/Chilmark Fund L.P.;
and
(vi) the Company will affirm, perform and be responsible for its
obligations under that certain Agreement for Relocation Services, dated
August 17, 1995 between the Company and Armstrong Relocation Company. As such,
the Company will identify Executive's primary residence in North Carolina as a
"Home" under such Relocation Agreement, and the Company will reimburse or pay
Executive for the reasonable costs of packing and moving Executive's and
Executive's family's household goods from North Carolina, as well as customary
closing costs and real estate commissions payable in connection with the sale of
Executive's Home in North Carolina; provided, however, that in the event of a
Change in Control, this Section 5 (b)(vi) shall apply only to Executive's
primary residence owned by Executive and/or Executive's spouse, as the case may
be, prior to such Change in Control.
For purposes hereof, the term "Constructive Termination" shall mean (xx) the
assignment of Executive by the Board of Directors or a superior officer of the
Company, duties materially inconsistent with the scope of Executive's position,
duties and responsibilities as described in this Agreement to the detriment
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<PAGE>
of Executive, or (yy) the Company's failure to materially comply with any of the
provisions of Section 2(c) above.
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any stock option or other agreements with
the Company or any of its affiliated companies.
6. CONFIDENTIAL INFORMATION. The Executive shall maintain a fiduciary
duty to the Company for all confidential information, knowledge or data relating
to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies until
such confidential information, knowledge or data become a matter of public
record through disclosure by a person or persons other than the Executive or his
representatives and which does not involve communication or disclosure, directly
or indirectly, by the Executive or his representatives. The Executive shall not
communicate or disclose any such information, knowledge or data to anyone other
than the Company and those designated by it. After termination of the
Executive's employment with the Company, the Executive shall return all
confidential and proprietary information in his possession or under his control
and shall not, without the prior written consent of the Company, communicate or
disclose any such information, knowledge or data to anyone other than the
Company and those designated by it.
7. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive other
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place; provided however the foregoing shall not prevent the Company
from terminating this Agreement pursuant to Sections 3 and/or 4 of this
Agreement. As used in this Agreement, "Company" shall mean the Company as
herein defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law or
otherwise.
8. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
5
<PAGE>
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: to his address as set forth in the records of
the Company.
If to the Company: Midway Airlines Corporation
300 West Morgan Street
Suite 1200
Durham, North Carolina 27701
Attention: President
with a copy to: Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Attention: Sheli Z. Rosenberg
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's and/or the Company's failure to insist upon
strict compliance with any provision hereof shall not be deemed to be a waiver
of such provision thereof.
(f) This Agreement, together with the Stock Award, contain the entire
understanding of the Company and the Executive with respect to the subject
matter hereof and supersede any and all other agreements, either oral or
written, between the Company and the Executive with respect to the subject
matter hereof.
(g) The Executive and the Company acknowledge that the employment of
the Executive by the Company is "at will"; provided, that such employment may be
terminated by the Company only in accordance with the terms hereof.
6
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunder set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EXECUTIVE:
_______________________________
Steven Westberg
MIDWAY AIRLINES CORPORATION
_______________________________
John N. Selvaggio
President and Chief Executive
Officer
7
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
Amendment to Employment Agreement (the "Amendment") by and between
MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Company"), and
Steven Westberg (the "Executive"), dated as of January 17, 1997.
WHEREAS, the Company and Executive are party to that certain Employment
Agreement, dated as of July 15, 1996 (the "Employment Agreement") (all terms
capitalized but not otherwise defined herein shall have the meanings ascribed
to them in the Employment Agreement).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
(a) Section 2(c)(vii) of the Employment Agreement is hereby
deleted in its entirety; and
(b) all references in the Employment Agreement to the Stock Award
are hereby deleted in their entirety, and the Stock Award shall no longer
constitute a term or condition of the Employment Agreement or a benefit
afforded to Executive thereunder, and Executive hereby waives all rights
he has or may have to the Stock Award under the Employment Agreement or
any other agreement or commitment, written or oral, relating to the
Stock Award.
Except as specifically amended hereby, the Employment Agreement shall
remain in full force and effect in the form originally executed by the
parties.
Notwithstanding anything to the contrary herein, this Amendment shall
not be effective until the Effective Time as defined in that certain
Agreement and Plan of Merger, dated as of the date hereof, by and among
GoodAero, Inc. and its stockholders, the Company and Zell/Chilmark Fund, L.P.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
EXECUTIVE:
/s/ STEVEN WESTBERG
----------------------------
Steven Westberg
MIDWAY AIRLINES CORPORATION:
/S/ JONATHAN WALLER
----------------------------
By: Jonathan Waller
Its: Senior Vice President
<PAGE>
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
This Employment Agreement by and between MIDWAY AIRLINES CORPORATION, a Delaware
corporation (the "Company"), and JONATHAN S. WALLER (the "Executive") is dated
as of July 15, 1996 (the "Agreement");
WHEREAS, the Company desires to continue the employment of the Executive in an
executive capacity because of his experience, ability and knowledge which are
extremely valuable to the Company; and
WHEREAS, the Executive desires that his employment by the Company continue on
the terms and conditions set forth herein, and the Company and the Executive
desire to enter into the Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions. The "Effective Date" of this Agreement
shall be July 15, 1996 (the "Effective Date").
2. Terms of Employment.
(a) Position and Duties. From and after the Effective Date, the
Executive shall serve in the position of Senior Vice President
and General Counsel and shall perform the attendant
responsibilities thereto as well as such other responsibilities
as the Board of Directors of the Company or the Chief Executive
Officer may from time to time assign.
(b) Excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote his full
attention and time during normal business hours to the business
and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During
the term of Executive's employment it shall not be a violation of
this Agreement for the Executive to (i) serve on charitable or
non-conflicting civic boards or committees and (ii) manage
personal investments, so long as such activities do not interfere
with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
(c) Compensation
(i) Base Salary. The Executive shall receive an annual base salary
of USD $165,000 paid in equal monthly installments subject to
such withholding and deductions as are required by law or agreed
upon ("Base Salary"). The Company's Compensation Committee shall
review the Executive's Base Salary hereunder from time to time,
but not less frequently than each Company fiscal year and, in its
discretion, may adjust such Base Salary in such amount as it
deems appropriate
<PAGE>
for any future year of this Agreement; provided, however, that
the specified rate of Base Salary hereunder shall not be reduced
below $165,000.
(ii) Annual Bonus. In addition to Base Salary, the Executive shall,
in the discretion of the Company's Board of Directors, be
awarded, for each fiscal year during the Employment Period, an
annual bonus in accordance with the Company's bonus plan for
senior managers.
(iii) Benefit Plans. During the Executive's employment, the Executive shall
be eligible for participation in and shall receive all benefits under the
Company's benefit plans provided to other senior executive officers by the
Company.
(iv) Expenses. During the Executive's employment, the Executive shall be
entitled to receive prompt reimbursement for all pre-approved expenses incurred
by the Executive with appropriate receipts to serve as verification in
accordance with the most favorable policies and procedures of the Company.
(v) Auto Allowance. During the term of Executive's employment, the
Executive shall be entitled to payment of an automobile allowance of up to
$500.00 per month for automobile and related expenses ("Auto Allowance").
(vi) Vacation. During the Executive's employment, the Executive shall be
entitled annually to four (4) weeks of paid vacation.
(vii) Stock. As of the date set forth therein, the Executive shall receive a
stock award (the "Stock Award") consisting of Class C Common Stock, $.01 par
value per share, of the Company.
(viii) Airline Travel. During the term of Executive's employment, the
Company will provide Executive and Executive's spouse and dependent children
with free airline travel on flights operated by the Company and/or its
successors, on the same terms established for other senior executives of the
Company (the "Airline Travel Benefit").
3. Termination.
(a) Death. In the event the Executive dies, this Agreement shall
automatically terminate.
1 Disability. If the Board of Directors of the Company determines,
in the reasonable exercise of its discretion, that the Executive,
through physical or mental illness or disability, whether or not
connected to his employment hereunder, has become incapacitated
and is unable for a period of six (6) months during any
continuous period of twelve (12) months, to discharge the duties
and responsibilities of his employment hereunder, the Board of
Directors of the Company shall have the right by written notice
to the Executive to terminate his employment.
(c) Cause. The Company may terminate the Executive's employment for
"Cause." For the purposes of this Agreement, "Cause" means (i) an act or acts of
personal dishonesty taken by the Executive to the detriment of the Company; (ii)
violations by the Executive of the Executive's obligations under Section 2(a) or
Section 6 of this Agreement; provided, that from and after a "Change in Control"
such a violation shall constitute Cause only if demonstrably willful
and deliberate on the Executive's part; (iii) the conviction of the Executive of
a felony; or (iv) the violation of any statutory or common law duty of loyalty
to the Company. For purposes of this provision, "Change in
2
<PAGE>
Control" shall mean the sale by the Company of all or substantially all of its
assets and business to any person or entity other than Zell/Chilmark Fund L.P.,
or any entity under common control therewith, or any entity or person in direct
or indirect control of said Zell/Chilmark Fund L.P. (each of such entities and
persons being herein referred to as a "Related Person") or the sale or issuance
of such voting securities of the Company representing votes sufficient to elect
a majority of the Company's Board of Directors to any person or entity other
than a Related Person.
(d) Notice of Termination. Any termination by the Company for Cause shall be
communicated by a Notice of Termination to the Executive given in accordance
with this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon and (ii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date.
(e) Date of Termination; Severance Period. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date specified
therein. "Severance Period" means the longer of (i) the twelve (12) month
period following the Date of Termination and (ii) the period following the Date
of Termination to and including December 31, 1997.
1. Obligations of the Company upon Termination.
(a) Death. In the event the Executive dies at a time when he is
still covered by this Agreement, the Executive's estate shall
receive any benefits pursuant to plans described in Section
2(c)(iii), together with any compensation previously deferred by
the Executive (with accrued interest thereon).
(b) Cause. If the Executive's employment shall be terminated for
Cause, this Agreement shall terminate without further obligations
to the Executive hereunder other than the obligation to pay to
the Executive the Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the
Executive (together with accrued interest thereon).
(c) Termination Other than for Cause or Disability. If, during the
Employment Period, (x) the Company shall terminate the Executive's employment
other than for Cause, Disability or death, or (y) Executive shall voluntarily
terminate his employment within forty-five (45) days after a Constructive
Termination (as defined below):
(i) the Company shall continue to pay to the Executive the aggregate
amount of his Base Salary and Auto Allowance for the period
commencing on the Date of Termination and ending on the
expiration of the Severance Period in accordance with the
Company's then current payroll schedule; provided, however, that
any such payments shall be reduced by the amount of cash
compensation offered to Executive as part of an offer of
employment made by Samuel Zell or any entity directly or
indirectly controlled by Samuel Zell or controlled by or under
common control with Zell/Chilmark Fund, L.P. (Samuel Zell or any
such entity hereinafter a "Zell Employer"), provided, that such
offer of employment is generally on the same terms (9other than
geographic location) and at the same or higher rate of
compensation provided for in this Agreement; provided, further,
that if no such
3
<PAGE>
offer of employment is made to Executive at any time during the
Severance Period, any such payment shall be reduced by the amount of
cash compensation received by Executive from another employer during,
or in consideration for work performed by Executive during, the
Severance Period; provided, however, that the preceding clause shall
in no event impose upon Executive any obligation to seek or accept an
offer of employment from another employer; provided, further, that for
purposes of this Section 5(d)(i), "control" shall mean the power,
directly or indirectly, to direct or cause the direction of the
management and policies of a person or entity, whether through the
ownership of voting securities, by contract or otherwise;
(ii) the Company shall pay to the Executive during the period
commencing on the Date of Termination and ending on the earlier
of (x) the date on which the Executive commences employment with
another employer and (y) the end of the Severance Period an
amount that would permit the Executive to receive medical
benefits comparable to benefits received by the Executive during
the last full fiscal year during the term of Executive's
employment;
(iii) in the case of compensation previously deferred by the Executive, the
Company shall pay to the Executive within thirty (30) days of the Date of
Termination all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Company, and any accrued vacation pay not yet
paid by the Company;
(iv) the Company and/or its successors shall continue to provide the Airline
Travel Benefit to the Executive and the Executive's spouse, for such of their
respective lifetimes, and the Executive's dependent children, for so long as
they remain dependent children as such term is used i the airline (non-revenue)
travel industry, except that the same shall be at an "A-3' Priority Level or at
least at the priority level from time to time made available by the Company
and/or its successors to the senior officers (and their family members) of
airlines other than the Company;
(v) the Company shall pay, or reimburse Executive for, the cost of reasonable
and appropriate outplacement services provided through the Severance Period by
an outplacement firm selected by Zell/Chilmark Fund, L.P.; and
(vi) the Company will affirm, perform and be responsible for its obligations
under that certain Agreement for Relocation Services, dated August 17, 1995
between the Company and Armstrong Relocation Company. As such, the Company will
identify Executive's primary residence in North Carolina as a "Home" under such
Relocation Agreement, and the Company will reimburse or pay Executive for the
reasonable costs of packing and moving Executive's and Executive's family's
household goods from North Carolina, as well as customary closing costs and real
estate commissions payable in connection with the sale of Executive's Home in
North Carolina; provided, however, that in the event of a Change in Control,
this Section 5(b)(vi) shall apply only to Executive's primary residence owned by
Executive and/or Executive's, as the case may be, prior to such Change in
Control.
For purposes hereof, the term "Constructive Termination" shall mean (xx) the
assignment of Executive by the Board of Directors or a superior officer of the
Company, to duties materially inconsistent with the scope of Executive's
position, duties and responsibilities
4
<PAGE>
as described in this Agreement to the detriment of Executive, or (yy) the
Company's failure to materially comply with any of the provisions of Section
2(c) above.
5. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future
participation in nay benefit, bonus, incentive or other plan or
program provided by the Company and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any stock option or other
agreements with the Company or any of its affiliated companies.
6. Confidential Information. The Executive shall maintain a
fiduciary duty to the Company for all confidential information,
knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies
until such confidential information, knowledge or data become a
matter of public record through disclosure by a person or persons
other than the Executive or his representatives and which does
not involve communication or disclosure, directly or indirectly,
by the Executive or his representatives. The Executive shall not
communicate or disclose any such information, knowledge or data
to anyone other than the Company and those designated by it.
After termination of the Executive's employment with the Company,
the Executive shall return all confidential and proprietary
information in his possession or under his control and shall not,
without the prior written consent of the Company, communicate or
disclose any such information, knowledge or data to anyone other
than the Company and those designated by it.
7. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive other
than by will or the laws of descent and distribution. This Agreement shall
inure to thebenefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place; provided however the foregoing shall not prevent the Company
from terminating this Agreement pursuant to Section 3 and/or 4 of this
Agreement. As used in this Agreement, "Company" shall mean the Company as
herein defined and any successor Agreement by operation of law or otherwise.
8. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
wit the laws of the State of North Carolina, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a
5
<PAGE>
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: to his address as set forth in the records of the
Company.
If to the Company: Midway Airlines Corporation
300 West Morgan Street
Suite 1200
Durham, North Carolina 27701
Attention: President
With a copy to: Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Attention: Sheli Z. Rosenberg
or such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's and/or the Company's failure to insist upon
strict compliance with any provision hereof shall not be deemed to be a
waiver of such provision thereof.
(f) This Agreement, together with the Stock Award, contain the
entire understanding of the Company and the Executive with respect to the
subject matter hereof and supersede and all other agreements, either oral or
written, between the Company and the Executive with respect to the subject
matter hereof.
(g) The Executive and the Company acknowledge that the employment of
the Executive by the Company is "at will"'; provided, that such employment
may be terminated by the Company only in accordance with the terms hereof.
6
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunder set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EXECUTIVE
Jonathan S. Waller
MIDWAY AIRLEINES CORPORATION
John N. Salvaggio
President and Chief Executive Officer
7
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment") by and
between MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Company"),
and Jonathan S. Waller (the "Executive"), dated as of January 17, 1997.
WHEREAS, the Company and Executive are party to that certain
Employment Agreement, dated as of July 15, 1996 (the "Employment Agreement")
(all terms capitalized but not otherwise defined herein shall have the
meanings ascribed to them in the Employment Agreement).
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
(a) Section 2(c)(vii) of the Employment Agreement is hereby
deleted in its entirety; and
(b) All references in the Employment Agreement to the Stock
Award are hereby deleted in their entirety, and the Stock Award shall no
longer constitute a term or condition of the Employment Agreement or a
benefit afforded to Executive thereunder, and Executive hereby waives all
rights he has or may have to the Stock Award under the Employment Agreement
or any other agreement or commitment, written or oral, relating to the Stock
Award.
Except as specifically amended hereby, the Employment Agreement shall
remain in full force and effect in the form originally executed by the
parties.
Notwithstanding anything to the contrary herein, this Amendment
shall not be effective until the Effective Time as defined in that certain
Agreement and Plan of Merger, dated as of the date hereof, by and among
GoodAero, Inc. and its stockholders, the Company and Zell/Chilmark Fund, L.P.
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date first above written.
EXECUTIVE
/s/ Jonathan S. Waller
----------------------
Jonathan S. Waller
MIDWAY AIRLINES CORPORATION
/s/ Steven Westberg
-------------------------------
By: Steven Westberg
Its: Chief Financial Officer
8
<PAGE>
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Executive Employment Agreement by and between MIDWAY AIRLINES CORPORATION,
a Delaware corporation (the "Company"), and Joanne Dowty Smith (the "Executive")
is dated as of July 15, 1996 (the "Agreement");
WHEREAS, the Company desires to continue the employment of the Executive in an
executive capacity because of his experience, ability and knowledge which are
extremely valuable to the Company; and
WHEREAS, the Executive desires that her employment by the Company be continued
on the terms and conditions set forth herein, and the Company and the Executive
desire to enter into the Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions. The "Effective Date" of this Agreement shall be
July 15, 1996 (the "Effective Date"), it being understood by the
parties that this Agreement, together with the Stock Award (as
hereinafter defined), are intended to confirm and implement the letter
agreement between the Company and the Executive dated September 15,
1994 and certain mutual understandings thereafter agreed to by the
parties.
2. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, for the period commencing on the Effective Date and ending on
December 31, 1997, (the "Employment Period").
3. Terms of Employment.
(a) Position and Duties. During the Employment Period the Executive shall
serve in the position of Senior Vice President - Sales and marketing
and shall perform the attendant responsibilities thereto, as well as
such other responsibilities as the Board of Directors of the Company
or the Chief Executive Officer shall assign.
(b) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive
agrees to devote her full attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (i) serve on charitable or non-conflicting civic
boards or committees and (ii) manage personal investments, so long as
such activities do not interfere with the performance of the
Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
(c) Compensation
<PAGE>
(i) Base Salary. During the Employment Period the Executive shall receive
an annual base salary of USD $165,000 paid in equal monthly
installments subject to such withholding and deductions as are
required by law or agreed upon ("Base Salary"). The Company's
Compensation Committee shall review the Executive's Base Salary
hereunder from time to time, but not less frequently than each Company
fiscal year and, in its discretion, may adjust such Base Salary in
such amount as it deems appropriate for any future year of this
Agreement; provided, however, that the specified rate of Base Salary
hereunder shall not be reduced below $165,000.
(ii) Annual Bonus. In addition to Base Salary, the Executive shall, in the
discretion of the Company's Board of Directors, be awarded, for each
fiscal year during the Employment Period, an annual bonus in
accordance with the Company's bonus plan for senior managers.
(iii) Benefit Plans. During the Executive's Employment Period, the
Executive shall be eligible for participation in and shall receive all benefits
under the Company's benefit plans provided to other senior executive officers of
equal or lesser seniority by the Company.
(iv) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all pre-approved expenses incurred
by the Executive with appropriate receipts to serve as verification in
accordance with the most favorable policies and procedures of the Company.
(v) Auto Allowance. During the Employment Period, the Executive shall be
entitled to unlimited use of a 1994 Eagle Vision or a comparable lease allowance
("Auto Allowance").
(vi) Vacation. During the Employment Period, the Executive shall be
entitled annually to four (4) weeks of paid vacation.
(vii) Stock. As of the date set forth therein, the Executive shall receive
a stock award (the "Stock Award") consisting of Class C Common Stock, $.01 par
value per share, of the Company.
(viii) Airline Travel. During the term of Executive's employment, the
Company will provide Executive and Executive's spouse and dependent
children with free airline travel on flights operated by the Company
and/or its successors, on the same terms established for other senior
executives of the Company (the "Airline Travel Benefit").
4. Termination.
(a) Death. In the event the Executive dies prior to the expiration of
this Agreement, this Agreement shall automatically terminate.
(b) Disability. If the Board of Directors of the Company determines, in
the reasonable exercise of its discretion, that the Executive, through
physical or mental illness or disability, whether or not connected to
her employment hereunder, has become incapacitated and is unable for a
period of six (6) months during any continuous period of twelve (12)
months, to discharge the duties and responsibilities of her employment
hereunder, the Board of Directors of the
2
<PAGE>
Company shall have the right by written notice to the Executive to
terminate her employment.
(c) Cause. The Company may terminate the Executive's employment for
"Cause." For the purposes of this Agreement, "Cause" means (i) an act or acts
of personal dishonesty taken by the Executive to the detriment of the Company;
(ii) violations by the Executive of the Executive's obligations under Section
3(a) or Section 7 of this Agreement; provided, that from and after a "Change in
Control" such a violation shall constitute Cause only if demonstrably willful
and deliberate on the Executive's part; (iii) the conviction of the Executive of
a felony; or (iv) the violation of any statutory or common law duty of loyalty
to the Company. For purposes of this provision, "Change in Control" shall mean
the sale by the Company of all or substantially all of its assets and business
to any person or entity other than Zell/Chilmark Fund L.P., or any entity under
common control therewith, or any entity or person in direct or indirect control
of said Zell/Chilmark Fund L.P. (each of such entities and persons being herein
referred to as a "Related Person") or the sale or issuance of such voting
securities of the Company representing votes sufficient to elect a majority of
the Company's Board of Directors to any person or entity other than a Related
Person.
(d) Notice of Termination. Any termination by the Company for Cause shall
be communicated by a Notice of Termination to the Executive given in accordance
with this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon and (ii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date.
(e) Date of Termination; Severance Period. "Date of Termination" means
the date of receipt of the Notice of Termination or any later date specified
therein. "Severance Period" means the longer of the twelve (12) month period
following the Date of Termination and (ii) the period following the Date of
Termination until the expiration of the Employment Period.
5. Obligations of the Company upon Termination.
(a) Death. In the event the Executive dies at prior to the expiration of
this Agreement, the Executive's estate shall receive compensation in
the manner set forth in Section 3(c)(iii), together with any
compensation previously deferred by the Executive (with accrued
interest thereon).
(b) Disability. If the Board of Directors of the Company determines, in
the reasonable exercise of its discretion, that the Executive is
disable as described herein, the Company shall pay to the Executive
(or to her beneficiary if the Executive is no longer alive) all
proceeds of any disability insurance policies procured by the Company
for the benefit of the Executive.
(c) Cause. If the Executive's employment shall be terminated for Cause,
this Agreement shall terminate without further obligations to the
Executive hereunder other than the obligation to pay to the Executive
the Base Salary through the Date of Termination plus the amount of any
compensation previously deferred by the Executive (together with
accrued interest thereon).
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<PAGE>
(d) Termination Other than for Cause or Disability. If, during the
Employment Period, (x) the Company shall terminate the Executive's
employment other than for Cause, Disability or death, or (y) Executive
shall voluntarily terminate his employment within forty-five (45) days
after a Constructive Termination (as defined below):
(i) the Company shall continue to pay to the Executive the aggregate
amount of her Base Salary and Auto Allowance for the period commencing
on the Date of Termination and ending on the expiration of the
Severance Period in accordance with the Company's then current payroll
schedule; provided, however, that any such payments shall be reduced
by the amount of cash compensation offered to Executive as part of an
offer of employment made by Samuel Zell or any entity directly or
indirectly controlled by Samuel Zell or controlled by or under common
control with Zell/Chilmark Fund, L.P. (Samuel Zell or any such entity
hereinafter a "Zell Employer"), provided, that such offer of
employment is generally on the same terms (9other than geographic
location) and at the same or higher rate of compensation provided for
in this Agreement; provided, further, that if no such offer of
employment is made to Executive at any time during the Severance
Period, any such payment shall be reduced by the amount of cash
compensation received by Executive from another employer during, or in
consideration for work performed by Executive during, the Severance
Period; provided, however, that the preceding clause shall in no event
impose upon Executive any obligation to seek or accept an offer of
employment from another employer; provided, further, that for purposes
of this Section 5(d)(i), "control" shall mean the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise;
(ii) the Company shall pay to the Executive during the period commencing on
the Date of Termination and ending on the earlier of (x) the date on
which the Executive commences employment with another employer and (y)
the end of the Severance Period an amount that would permit the
Executive to receive medical benefits comparable to benefits received
by the Executive during the last full fiscal year during the term of
Executive's employment;
(iii) in the case of compensation previously deferred by the Executive, the
Company shall pay to the Executive within thirty (30) days of the Date of
Termination all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Company, and any accrued vacation pay not yet
paid by the Company;
(iv) the Company and/or its successors shall continue to provide the
Airline Travel Benefit to the Executive and the Executive's spouse, for such of
their respective lifetimes, and the Executive's dependent children, for so long
as they remain dependent children as such term is used i the airline
(non-revenue) travel industry, except that the same shall be at an "A-3'
Priority Level or at least at the priority level from time to time made
available by the Company and/or its successors to the senior officers (and their
family members) of airlines other than the Company;
(v) the Company shall pay, or reimburse Executive for, the cost of
reasonable and appropriate outplacement services provided through the Severance
Period by an outplacement firm selected by Zell/Chilmark Fund, L.P.; and
4
<PAGE>
(vi) the Company will affirm, perform and be responsible for its
obligations under that certain Agreement for Relocation Services, dated August
17, 1995 between the Company and Armstrong Relocation Company. As such, the
Company will identify Executive's primary residence in North Carolina as a
"Home" under such Relocation Agreement, and the Company will reimburse or pay
Executive for the reasonable costs of packing and moving Executive's and
Executive's family's household goods from North Carolina, as well as customary
closing costs and real estate commissions payable in connection with the sale of
Executive's Home in North Carolina; provided, however, that in the event of a
Change in Control, this Section 5(b)(vi) shall apply only to Executive's primary
residence owned by Executive and/or Executive's, as the case may be, prior to
such Change in Control.
For purposes hereof, the term "Constructive Termination" shall mean (xx) the
assignment of Executive by the Board of Directors or a superior officer of the
Company, to duties materially inconsistent with the scope of Executive's
position, duties and responsibilities as described in this Agreement to the
detriment of Executive, or (yy) the Company's failure to materially comply with
any of the provisions of Section 2(c) above.
6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in nay
benefit, bonus, incentive or other plan or program provided by the
Company and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any stock option or other agreements with the Company or any of
its affiliated companies.
7. Confidential Information. The Executive shall maintain a fiduciary
duty to the Company for all confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and
their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any of
its affiliated companies until such confidential information,
knowledge or data become a matter of public record through disclosure
by a person or persons other than the Executive or his representatives
and which does not involve communication or disclosure, directly or
indirectly, by the Executive or his representatives. The Executive
shall not communicate or disclose any such information, knowledge or
data to anyone other than the Company and those designated by it.
After termination of the Executive's employment with the Company, the
Executive shall return all confidential and proprietary information in
his possession or under his control and shall not, without the prior
written consent of the Company, communicate or disclose any such
information, knowledge or data to anyone other than the Company and
those designated by it.
8. Successors
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive other
than by will or the
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<PAGE>
laws of descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise, to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place; provided
however the foregoing shall not prevent the Company from terminating this
Agreement pursuant to Section 3 and/or 4 of this Agreement. As used in this
Agreement, "Company" shall mean the Company as herein defined and any successor
Agreement by operation of law or otherwise.
9. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance wit
the laws of the State of North Carolina, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: to his address as set forth in the records of the
Company.
If to the Company: Midway Airlines Corporation
300 West Morgan Street
Suite 1200
Durham, North Carolina 27701
Attention: President
With a copy to: Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Attention: Sheli Z. Rosenberg
or such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
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(e) The Executive's and/or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision thereof.
(f) This Agreement, together with the Stock Award, contain the entire
understanding of the Company and the Executive with respect to the subject
matter hereof and supersede and all other agreements, either oral or written,
between the Company and the Executive with respect to the subject matter hereof.
(g) The Executive and the Company acknowledge that the employment of the
Executive by the Company is "at will"'; provided, that such employment may be
terminated by the Company only in accordance with the terms hereof.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunder set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
EXECUTIVE
/s/Joanne Dowty Smith
- ----------------------
Joanne Dowty Smith
MIDWAY AIRLEINES CORPORATION
/s/ John Salvaggio
- -------------------------------------
John N. Salvaggio
President and Chief Executive Officer
8
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment") by and between MIDWAY
AIRLINES CORPORATION, a Delaware corporation (the "Company"), and Jonathan S.
Waller (the "Executive"), dated as of January 17, 1997.
WHEREAS, the Company and Executive are party to that certain Employment
Agreement, dated as of July 15, 1996 (the "Employment Agreement") (all terms
capitalized but not otherwise defined herein shall have the meanings ascribed to
them in the Employment Agreement).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
(a) Section 3(c)(vii) of the Employment Agreement is hereby deleted in its
entirety; and
(b) All references in the Employment Agreement to the Stock Award are
hereby deleted in their entirety, and the Stock Award shall no longer constitute
a term or condition of the Employment Agreement or a benefit afforded to
Executive thereunder, and Executive hereby waives all rights he has or may have
to the Stock Award under the Employment Agreement or any other agreement or
commitment, written or oral, relating to the Stock Award.
Except as specifically amended hereby, the Employment Agreement shall
remain in full force and effect in the form originally executed by the
parties.
Notwithstanding anything to the contrary herein, this Amendment shall not
be effective until the Effective Time as defined in that certain Agreement and
Plan of Merger, dated as of the date hereof, by and among GoodAero, Inc. and its
stockholders, the Company and Zell/Chilmark Fund, L.P.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
EXECUTIVE
/s/ Joanne Dowty-Smith
-----------------------
Joanne Dowty-Smith
MIDWAY AIRLINES CORPORATION
/s/ Jonathan Wallet
-----------------------------
By: Jonathan Wallet
Its: Senior Vice President
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EXHIBIT 10.36
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS,
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Void After 5:00 p.m., New York City Time,
on February 11, 2004
_____________________________
OPTION TO PURCHASE SHARES OF COMMON STOCK
OF MIDWAY AIRLINES CORPORATION
Midway Airlines Corporation, a Delaware corporation (the "Company"), hereby
certifies that in consideration of his role as President and Chief Executive
Officer of the Company and other good and valuable consideration, Robert R.
Ferguson III (the "Optionee") is entitled, subject to the terms set forth below,
to purchase from the Company upon surrender of this Option, at any time or times
up to 5:00 p.m., New York City time, on February 11, 2004, the expiration date
of this Option, One Thousand One Hundred Forty Four (1,144) fully paid and
non-assessable shares of the common stock, $.01 par value per share (the "Common
Stock"), at an initial purchase price of $2,747.25 per share, as the same may be
adjusted in accordance with the provisions hereof (the "Exercise Price").
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder, and the term
"Shares" includes all stock of any class, classes or series whether now or
hereafter authorized (however designated) of the Company, the holders of which
shall have the right (without limitation as to amount) either to all or to a
share of the balance of current dividends and liquidating distributions after
the payment of dividends and distributions on any shares entitled to preference.
The number and character of the Shares which may be purchased upon exercise
of this Option and the purchase price per share in effect from time to time are
subject to adjustment from time to time as hereinafter provided.
1. COMPLIANCE WITH THE SECURITIES ACT OF 1933.
The Shares issuable upon exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "Act"). The Optionee, by
acceptance hereof, agrees that
<PAGE>
this Option and all Shares purchased upon exercise hereof will be disposed of
only in accordance with the Act and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder. The Shares shall bear an
appropriate legend to such effect.
2. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER
OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS.
(a) ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Section 2, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(i) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in
shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of
its Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such
dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event specified above
shall occur.
(b) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) hereof need be made
if such adjustment would amount to a change in such Exercise Price of
less than $.05; PROVIDED, HOWEVER, that the amount by which any
adjustment is not made by reason thereof shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(c) ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to paragraph (a), each Option shall thereupon evidence
the right to purchase that number of shares of Common Stock
(calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon exercise of the Option by
the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment.
(d) REORGANIZATIONS. In case of any capital reorganization, other than in
the cases referred to in paragraph (a) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the continuing
corporation and which does not result
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<PAGE>
in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares
of other stock or other securities or property), (collectively such
actions being hereinafter referred to as "Reorganizations"), there
shall thereafter be deliverable upon exercise of any Option (in lieu
of the number of shares of Common Stock theretofore deliverable) the
number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock which would otherwise
have been deliverable upon the exercise of such Option would have been
entitled upon such Reorganization if such Option had been exercised in
full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the
application of the provisions herein set forth with respect to the
rights and interests of Option holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon
exercise of Options. Any such adjustment shall be made by and set
forth in a supplemental agreement between the Company, or any
successor thereto, and the Option holders and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior
to the consummation thereof the successor corporation, or if the
Company shall be the surviving corporation in any such Reorganization
and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall
assume by written instrument the obligation to deliver to the
registered holder of any Option Certificate such shares of stock,
securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of
sale or conveyance or other transfer of all or substantially all of
the assets of the Company as a part of a plan for liquidation of the
Company, all rights to exercise any Option shall terminate thirty
(30) days after the Company gives written notice to each registered
holder of a Option Certificate that such sale or conveyance or other
transfer has been consummated.
(e) EXERCISE PRICE NOT LESS THAN PAR VALUE. In no event shall the
Exercise Price be adjusted below the par value per share of the Common
Stock.
(f) NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(i) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other
than cash to the holders of its Common Stock; or
(ii) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other
rights or options; or
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<PAGE>
(iii) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), any
capital reorganization, any consolidation or merger (other
than a merger in which no distribution of securities or other
property is made to holders of Common Stock), or any sale,
transfer of all or substantially all of the assets of the
Company, or the liquidation, dissolution or winding up of the
Company; or
(iv) issue any shares of Common Stock in exchange for shares of
preferred stock of the Company, other than upon conversion of
such shares of preferred stock;
then, in each such case, the Company shall cause notice of such
proposed action to be mailed to the Optionee. Such notice shall
specify the date on which the books of the Company shall close, or a
record be taken, for determining holders of Common Stock entitled to
receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as
the case may be, and the date as of which it is expected that holders
of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been
fixed. Such notice shall be mailed in the case of any action covered
by Subsection (f)(i) or (f)(ii) above, at least ten (10) days prior to
the record date for determining holders of the Common Stock for
purposes of receiving such payment or offer, and in the case of any
action covered by Subsection (f)(iii) or (f)(iv) above, at least ten
(10) days prior to the earlier of the date upon which such action is
to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(g) NOTICE OF ADJUSTMENTS. Whenever any adjustment is made pursuant to
this Section 2, the Company shall cause notice of such adjustment to
be mailed to the Optionee within fifteen (15) days thereafter, such
notice to include in reasonable detail (i) the events precipitating
the adjustment, (ii) the computation of any adjustments, and (iii) the
Exercise Price, the number of shares or the securities or other
property purchasable upon exercise of the Option after giving effect
to such adjustment.
(h) OPTION CERTIFICATE AMENDMENTS. Irrespective of any adjustments
pursuant to this Section 2, Option Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of
any adjustments.
(i) FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any Option to issue fractional shares of Common Stock
which may result from adjustments in accordance with this Section 2 to
the Exercise Price or number of shares of Common Stock purchasable
under each Option. If more than one Option is exercised at one time
by the same registered holder, the number of full shares of Common
Stock which shall be deliverable shall be computed
4
<PAGE>
based on the number of shares deliverable in exchange for the
aggregate number of Options exercised. With respect to any final
fraction of a share called for upon the exercise of any Option or
Options, the Company shall pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the market
value of a share of Common Stock, as determined by the Company on the
basis of the market price per share of Common Stock on the business
day next preceding the date of such exercise. The registered holder
of each Option Certificate, by his acceptance of the Option
Certificate, shall expressly waive any right to receive any fractional
share of Common Stock upon exercise of the Options. For the purposes
hereof, the market price share of Common Stock at any date shall mean
the last reported sale price regular way or, in case no such reported
sale takes place on such date, the average of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading
or listed if that is the principal market for the Common Stock or if
not listed or admitted to trading on any national securities exchange
or if such national securities exchange is not the principal market
for the Common Stock, the closing bid price as reported by the NASDAQ
System or its successor, if any. If the price of the Common Stock is
not so reported, then such market price shall mean the last known
price paid per share by a purchaser of such stock in an arms-length
transaction. All calculations made hereunder shall be to the nearest
1/100th of a share.
(j) The Company shall at all times reserve and keep available, out of its
treasury stock or authorized and unissued stock, solely for the
purpose of effecting the exercise of this Option, such number of
shares of Common Stock and other securities of the Company as shall,
from time to time, be sufficient to effect the exercise of this
Option. All shares of Common Stock issued on exercise of this Option
shall be validly issued, fully paid and nonassessable.
(k) For purposes of this Option, the number of shares of Common Stock at
any time outstanding shall include the maximum number of shares of
Common Stock issuable at such time as a result of the conversion of
any and all shares of preferred stock which are then outstanding and
convertible into shares of Common Stock and as a result of the
exercise of any warrant or other right to subscribe to or purchase, or
any options for the purchase of shares of Common Stock.
3. EXPIRATION.
This Option shall be void after 5:00 p.m., New York City time, on February
11, 2004, and no rights herein given to the holder of this Option shall exist
thereafter.
5
<PAGE>
4. OPTION HOLDER NOT DEEMED A STOCKHOLDER.
No holder of this Option as such, shall be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose, nor
shall anything contained in this Option be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Option of the Shares which he is then entitled to receive upon
the due exercise of this Option.
5. NO LIMITATION ON CORPORATE ACTION.
Except as otherwise provided herein, no provisions of this Option and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or
merge with or into another corporation, or to transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
6. EXERCISE OF OPTION.
(a) VESTING. The Option shall become exercisable as follows: (1) that
portion representing 572 Shares shall be exercisable immediately; (2)
that portion representing 286 Shares shall become exercisable on
February 11, 1998; and (3) that portion representing 286 Shares shall
become exercisable on February 11, 1999.
(b) FULL EXERCISE. This Option may be exercised as a whole by the holder
hereof by surrendering this Option, with the form of subscription at
the end hereof duly executed by such holder, to the Company at any
time before 5:00 p.m., New York City time, on February 11, 2004, at
the principal office of its transfer agent accompanied by payment in
cash or by certified or official bank check, payable to the order of
the Company, of the product obtained by multiplying the number of
Shares called for on the face of this Option (giving effect to any
adjustments therein) by the purchase price then in effect.
(c) PARTIAL EXERCISE. This Option also may be exercised in part by
surrendering this Option in the manner specified in subsection (b) of
this Section 6, except that the number of Shares or other securities
or property receivable upon the exercise of this Option as a whole
shall be proportionately reduced. Upon any such partial exercise, the
Company, at its expense, will forthwith issue to the holder hereof a
new Option or Options (herein collectively referred to as "this
Option") of like tenor evidencing the rights of such holder to
purchase a number of shares with respect to which the Option shall not
have been exercised (as such number would be constituted on the date
hereof.)
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<PAGE>
(d) DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after any
exercise of this Option and payment of the sum payable upon such
exercise, and in any event within 10 days thereafter, the Company, at
its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates
for the number of fully paid and nonassessable Shares or other
securities or property to which such holder shall be entitled upon
such exercise, plus, in lieu of any fractional Shares to which such
holder would otherwise be entitled, cash equal to such fraction
multiplied by the Fair Market Value of a Share. Issuance and delivery
of the Shares deliverable on the due exercise of this Option may be
postponed by the Company and its transfer agent during any period, not
exceeding forty days, for which the transfer books of the Company for
the Shares are closed between (1) the record date set by the Board of
Directors for the determination of stockholders entitled to vote at or
to receive notice of any stockholders' meeting, or entitled to receive
payment of any dividends or to any allotment of rights or to exercise
rights in respect of any change, conversion or exchange of capital
stock, and (2) the date of such meeting of stockholders, the date for
the payment of such dividends, the date for such allotment of rights,
or the date when any such change or conversion or exchange of capital
stock shall go into effect, as the case may be.
7. TRANSFER OF OPTIONS.
This Option shall not be transferable by the Optionee other than by will or
under the laws of descent and distribution, and shall be exercisable, during the
Optionee's lifetime, only by the Optionee.
7
<PAGE>
8. TERMINATION OF EMPLOYMENT OF OPTIONEE.
If, before the date of expiration of the Option, (i) the Optionee and the
Company sever the employment relationship for any reason and (ii) the Optionee
ceases to be a director of the Company (except as otherwise provided for
herein), the Option shall terminate the earlier of the date of expiration of the
Option or one year following the later of (x) the severance of the employment
relationship and (y) the date he ceases to be a director; provided that if the
Company severs the employment relationship for "Cause" as such term is defined
in that certain Severance Agreement and Other Matters between the Company and
the Optionee dated as of February 11, 1997, then the Option shall terminate on
the date the employment relationship is severed. Whether authorized leave of
absence, or absence on military or government service, shall constitute
severance of the employment relationship between the Company and the Optionee,
shall be determined by the Company at the time thereof. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age or disability under the then
established rules of the Company, the Option shall terminate on the earlier of
such date of expiration or one year after the date of such retirement. In the
event of such retirement, the Optionee shall have the right prior to the
termination of such Option to exercise the Option to the extent to which he was
entitled to exercise such Option immediately prior to such retirement. Upon the
death of the Optionee, his executors, administrators, or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the earlier of the date
of expiration or one year following the date of such death, to exercise the
Option, in whole or in part. Notwithstanding the foregoing, if, before the date
of expiration of the Option, the Optionee and the Company sever the employment
relationship for any reason other than the death of the Optionee, then that
portion of the Option representing 572 Shares shall remain in full force and
effect until its original expiration date of 5:00 p.m. on February 11, 2004.
9. NO EMPLOYMENT OBLIGATION.
The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the employment of the Optionee shall not be diminished or
affected by reason of the fact that this Option has been granted to the
Optionee.
10. NOTICES.
All communications hereunder shall be in writing and, if sent to the holder
hereof shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing such holder's address as set forth below,
and if sent to the Company, shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to the Company at its address
as set forth below.
If to Optionee:
6317 Belmont
Houston, Texas 77005
8
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If to the Company:
Midway Airlines Corporation
300 W. Morgan Street, 12th Floor
Durham, North Carolina 27701
ATTENTION: Secretary
11. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time or times after the date of a
Qualified Public Offering, the Company shall determine to register any
of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), whether in connection with a public offering of
securities by the Company, a public offering thereof by stockholders,
or both (but not in connection with a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act
is applicable), the Company will promptly give written notice thereof
to the Optionee, and will file a registration statement at the
Securities and Exchange Commission and use its best efforts to effect
the registration under the Securities Act of all securities issued
upon exercise of the Option which the Optionee may request in a
writing delivered to the Company within fifteen (15) days after the
notice given by the Company; PROVIDED, HOWEVER, that in the event that
any registration pursuant to this Section 11 shall be, in whole or in
part, an underwritten public offering of Common Stock, the number of
shares to be included in such an underwriting may be reduced if and to
the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities
to be sold by the Company therein. These rights shall be subordinate
to the rights of the stockholders to that certain Stockholders
Agreement dated as of February 11, 1997 by and among the Company and
certain stockholders.
For purposes of this Section, Qualified Public Offering shall mean an
underwritten public offering of shares of Common Stock pursuant to a
registration statement filed with the Commission under the Securities
Act, in which net proceeds, after deducting underwriters' discounts
and commissions and offering expenses, to the Company equal or exceed
$15,000,000 and the Company has a Market Capitalization in excess of
$40,000,000. For purposes of this Section, "Market Capitalization"
shall mean the number of shares outstanding on a fully diluted basis
multiplied by the price per share of the initial public offering.
(b) REGISTRATION EXPENSES. In the event of a registration described
herein, all reasonable expenses of registration including, without
limitation, printing expenses, fees and disbursements of counsel, and
independent public accountants, fees and expenses (including counsel
fees incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities
Dealers, Inc. and fees of transfer agents and registrars), shall be
borne by the Company, except that the Optionee shall bear
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underwriting commissions and discounts attributable to his securities
being registered.
(c) RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, the Company will use its best efforts to file with the
Commission such information as the Commission may require under either
of said sections; and in such event, the Company shall use its best
efforts to take all action as may be required as a condition to the
availability of Rule 144 of the Securities Act (or any successor
exemptive rule hereinafter in effect).
Dated: February 11, 1997
MIDWAY AIRLINES CORPORATION
By:________________________
Name:______________________
Title:_____________________
ATTEST:
By:___________________________
Name:_________________________
Title:________________________
ACKNOWLEDGED AND AGREED:
______________________________
Robert R. Ferguson III
DUPLICATE ORIGINAL
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EXERCISE FORM
TO BE EXECUTED BY THE OPTIONEE
IF HE DESIRES TO EXERCISE THIS OPTION
_____________________________
The undersigned hereby exercises the right to purchase Shares covered
by this Option according to the conditions thereof and herewith makes payment of
the purchase of such Shares in full.
_________________________
Signature
_________________________
Address
_________________________
Number of Shares
Being Purchased
Dated: _______________
11
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EXHIBIT 10.37
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 17, 1997 (this
"Agreement"), by and among Midway Airlines Corporation, a Delaware corporation
(the "Company"), GoodAero, Inc., a Delaware corporation ("GoodAero"), and, for
purposes of Article III, Section 4.02, Section 4.08, Article VIII and Article X
only, James H. Goodnight, Ph.D and John P. Sall (collectively, the "GoodAero
Stockholders"), and Zell/Chilmark Fund L.P. ("Z/C"), a Delaware limited
partnership. Capitalized terms used and not otherwise defined in this Agreement
shall have the meanings ascribed to them in Article IX hereof.
W I T N E S S E T H:
WHEREAS, GoodAero, the Company and Z/C wish to set forth the
representations, warranties, agreements and conditions under which a merger of
the Company and GoodAero will occur;
NOW, THEREFORE, in consideration of the premises, the representations,
warranties and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
subject to the conditions set forth herein, GoodAero, the Company and Z/C hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. At the Effective Time (as defined in
Section 1.02(b) hereof) and subject to and upon the terms of this Agreement,
GoodAero shall be merged with and into the Company (the "Merger") in accordance
with the provisions of the General Corporation Law of the State of Delaware (the
"GCL"). Following the Merger, the Company shall continue as the surviving
corporation (the "Surviving Corporation") and the separate corporate existence
of GoodAero shall cease. The Company and GoodAero are sometimes collectively
referred to as the "Constituent Corporations".
SECTION 1.02. CLOSING AND EFFECTIVE TIME.
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(a) Subject to the provisions of Article VI hereof, the closing (the
"Closing") of the Merger shall take place at 10:00 a.m., New York time, at the
offices of Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004, on the fifth (5th) Business Day following the later to
occur of (i) the obtaining of the Last Regulatory Approval, or (ii) the
execution and delivery of the Creditor Agreements, but in no event later than
the Outside Closing Date or (iii) such other time, place or date as the Company,
GoodAero and Z/C may mutually agree. Failure to consummate the transactions
provided for in this Agreement on the date and time selected pursuant to this
Section 1.02(a) shall not, except as permitted by Section 7.01 hereof, result in
the termination of this Agreement and shall not relieve any party to this
Agreement of any obligation hereunder.
(b) The Merger shall become effective upon the filing of the
Certificate of Merger, substantially in the form of EXHIBIT 1.02 hereof (the
"Certificate of Merger"). The Certificate of Merger shall be filed with the
Secretary of State of the State of Delaware in accordance with the provisions of
Section 251 of the GCL at the time of the Closing. The date and time when the
Merger shall become effective are hereinafter referred to as the "Effective
Time."
SECTION 1.03. EFFECTS OF THE MERGER. The separate corporate
existence of the Company, as the Surviving Corporation, with all its purposes,
objects, rights, privileges, powers, certificates and franchises, shall continue
unimpaired by the Merger. At the Effective Time, the Surviving Corporation
shall succeed to all the properties and assets of the Constituent Corporations
and to all debts, choses in action and other interests due or belonging to the
Constituent Corporations and shall be subject to, and responsible for, all the
debts, liabilities and duties of the Constituent Corporations with the effects
provided by applicable provisions of the GCL.
SECTION 1.04. CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be the Second Amended and Restated
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with the provisions of the GCL, except that at the Effective Time the
Second Amended and Restated Certificate of Incorporation of the Company shall be
amended and restated as provided in the form of Certificate of Merger attached
hereto as EXHIBIT 1.02.
(b) The By-laws of GoodAero as in effect immediately prior to the
Effective Time as attached hereto as Exhibit 1.04(b) shall be the By-laws of the
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Surviving Corporation, until duly amended in accordance with applicable law, the
Certificate of Incorporation of the Surviving Corporation and such By-laws.
SECTION 1.05. DIRECTORS. The directors of GoodAero immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation except as otherwise provided in the Stockholders' Agreement and
shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time until their
respective successors are duly elected or appointed and qualified.
SECTION 1.06. OFFICERS. The officers of the Company immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation from the Effective Time
until their respective successors are duly elected or appointed and qualified.
SECTION 1.07. CONVERSION/CANCELLATION OF STOCK. Except as provided in
Section 1.08 hereof, as of the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any shares of GoodAero Stock,
each share of GoodAero Stock issued and outstanding immediately prior to the
Effective Time shall be converted into and become shares of senior convertible
preferred stock of the Surviving Corporation (the "Senior Convertible Preferred
Stock"), at the conversion ratio of 105 shares of Senior Convertible Preferred
Stock for each share of GoodAero Stock, such that the total number of shares of
GoodAero Stock outstanding immediately prior to the Effective Time shall be
converted into 5460 shares of Senior Convertible Preferred Stock in the
aggregate. Except as provided in Sections 1.08 and 1.09 hereof, as of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any Company Stock, each share of Company Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled without
any consideration being payable or paid by the Company therefor. Except as
provided in this Section 1.07 and in Section 1.09 hereof, as of and after the
Effective Time, no holder of any certificate that immediately before the
Effective Time represented GoodAero Stock or Company Stock shall have any rights
as a holder of GoodAero Stock or Company Stock, respectively. All options,
warrants or other rights, if any, to acquire any GoodAero Stock or Company Stock
existing immediately before the Effective Time shall be canceled, without any
consideration being payable or paid by the Company therefor.
SECTION 1.08. CANCELLATION OF TREASURY STOCK. At the Effective Time,
all shares of GoodAero Stock, if any, that are owned directly or indirectly by
GoodAero, and all shares of Company Stock, if any, that are owned directly or
indirectly by the
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Company, as treasury stock shall be cancelled without any consideration being
payable or paid therefor.
SECTION 1.09. SHARES OF DISSENTING STOCKHOLDERS. Any shares of
Company Stock held by Persons who are entitled under applicable law to exercise,
and who have duly exercised, their rights of appraisal with respect to the
Merger pursuant to Section 262 of the GCL (the "Dissenting Stockholders") shall
become the right to receive the consideration as may be determined to be due to
such Dissenting Stockholders pursuant to the GCL; PROVIDED, HOWEVER, that shares
of Company Stock outstanding at the Effective Time held by any Dissenting
Stockholder who shall, after the Effective Time, withdraw his demand for
appraisal or otherwise lose his right of appraisal as provided in such laws,
shall thereupon be cancelled without any consideration being payable or paid
therefor as provided in Section 1.07 hereof.
SECTION 1.10. EXCHANGE OF CERTIFICATES. At the Effective Time, the
Surviving Corporation shall deliver to the holders of the GoodAero Stock
certificates representing in the aggregate 5460 shares of Senior Convertible
Preferred Stock, in exchange for the certificates representing all the issued
and outstanding shares of GoodAero Stock.
SECTION 1.11. CLOSING OF TRANSFER BOOKS. At the Effective Time,
the stock transfer books of GoodAero and of the Company as to GoodAero Stock
and Company Stock shall be closed and no transfer of shares of GoodAero Stock
or Company Stock shall thereafter be made. If, after the Effective Time,
certificates formerly representing shares of GoodAero Stock or Company Stock
are presented to the Surviving Corporation, they shall be cancelled as
provided in Section 1.07 hereof.
SECTION 1.12. WITHHOLDING RIGHTS. The Company shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of GoodAero Stock or Company Stock such amounts as the
Company is required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Company, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of GoodAero Stock or Company
Stock in respect of which such deduction and withholding was made by the
Company.
SECTION 1.13. LOST CERTIFICATES. In the event any certificate for
shares of GoodAero Stock shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate to
be lost, stolen or
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<PAGE>
destroyed, the Company shall issue in exchange for such lost, stolen or
destroyed certificate the shares of Senior Convertible Preferred Stock (and any
dividends or distributions with respect thereto and any cash in lieu of
fractional shares) deliverable in respect thereof as determined herein. When
authorizing such payment in exchange for any lost, stolen or destroyed
Certificate, the person to whom the Senior Convertible Preferred Stock is to be
issued shall, if requested by the Company, give the Company a bond satisfactory
to the Company in such sum as the Company may reasonably direct or otherwise
indemnify the Company in a manner satisfactory to the Company against any claim
that may be made against the Company or GoodAero with respect to the certificate
alleged to have been lost, stolen or destroyed.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND Z/C
The Company (except as to Sections 2.31 through 2.34) and Z/C hereby
jointly and severally represent and warrant to GoodAero and the GoodAero
Stockholders as follows (which representations and warranties shall survive the
Closing only to the extent provided in Section 8.01).
SECTION 2.01. ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
it is now being conducted and to own, operate or lease the properties and assets
it currently owns, operates or holds under lease. The Company is duly qualified
or licensed to do business and is in good standing as a foreign corporation in
each jurisdiction set forth on SCHEDULE 2.01 hereto, which are all of the
jurisdictions where the character of its business or the nature of its
properties makes such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not have a material adverse effect on
the business, prospects, results of operations, financial condition or assets of
the Company. The Company has heretofore delivered to GoodAero true and correct
copies of the Second Amended and Restated Certificate of Incorporation and
Second Amended and Restated By-laws of the Company as in effect on the date
hereof. The Company has all requisite corporate power and authority to enter
into this Agreement and, subject to receipt of Stockholder Approval, Third Party
Approvals and all Requisite Regulatory Approvals, to carry out its obligations
under this Agreement and to consummate the transactions contemplated hereby.
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SECTION 2.02. SUBSIDIARIES. (a) The Company has no subsidiaries and
does not have any legal or beneficial interest in any corporation, partnership,
joint venture or other entity.
SECTION 2.03. CAPITALIZATION. The authorized capital stock of the
Company consists of (a) 9,000,000 shares of Class A Common Stock, of which
8,872,200 shares are issued and outstanding as of the date hereof and owned of
record by the Persons set forth on SCHEDULE 2.03 hereto, (b) 2,000,000 shares of
Class B Common Stock, of which no shares are issued and outstanding as of the
date hereof, (c) 25,000,000 shares of Class C Common Stock, of which 1,405,548
shares are issued and outstanding as of the date hereof and owned of record by
the Persons set forth on SCHEDULE 2.03 hereto, (d) 1,000,000 shares of Prior
Preferred Stock, of which 480,000 shares are issued and outstanding as of the
date hereof and owned of record by the Persons set forth on SCHEDULE 2.03
hereto, (e) 600,000 shares of Junior Preferred Stock, of which 600,000 shares
are issued and outstanding on the date hereof, and owned of record by the
Persons set forth on SCHEDULE 2.03 hereto, and (f) 1,000,000 shares of
Preference Stock, of which no shares are issued and outstanding on the date
hereof. There are no shares of Company Stock held as treasury shares. All
outstanding shares of Company Stock have been duly authorized and validly issued
and are fully paid and non-assessable. Except as set forth in SCHEDULE 2.03,
there are no outstanding options, warrants, convertible securities, calls,
rights, commitments, preemptive rights or agreements or instruments or
understandings of any character, to which the Company is a party or by which the
Company is bound, obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, contingently or otherwise, additional shares of
Company Stock or any securities or obligations convertible into or exchangeable
for such shares or to grant, extend or enter into any such option, warrant,
convertible security, call, right, commitment, preemptive right or agreement
(all of the foregoing, collectively, "Company Stock Options"). Those Persons
identified on SCHEDULE 2.03 hereto are herein referred to as "Company
Stockholders." There are no outstanding obligations of the Company to purchase
or otherwise acquire any Company Stock (collectively, "Company Put
Obligations").
SECTION 2.04. AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved by the Board of Directors of the Company, subject to Stockholder
Approval, and no other corporate proceedings on the part of the Board of
Directors of the Company or the Company are necessary to authorize the Merger,
this Agreement and the transactions contemplated hereby. The vote of Z/C is the
only vote of any Company Stockholders under the GCL that is necessary for
Stockholder Approval of the Merger, this Agreement, and the transactions
contemplated thereby. This
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Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and (ii) general principles of equity
(whether applied in a proceeding at law or in equity).
SECTION 2.05. NO VIOLATION. The execution and delivery of this
Agreement by the Company does not, and the consummation by the Company of the
transactions contemplated by this Agreement will not, (i) conflict with, or
result in any violation of or default or loss of any benefit under, any
provision of the Company's Second Amended and Restated Certificate of
Incorporation or Second Amended and Restated By-laws; (ii) except as otherwise
set forth in Schedule 2.05 hereto and subject to the matters described in
Section 2.06 hereof, conflict with or result in any violation of or default or
loss of any benefit under, any Permit, concession, grant, franchise, law, rule
or regulation, or any judgment, decree or order of any court or other
governmental agency or instrumentality to which the Company is a party or to
which any of its property is subject; or (iii) except as otherwise set forth in
SCHEDULE 2.05, conflict with, or result in a breach or violation of or default
or loss of any benefit under, or accelerate the performance required by, the
terms of any agreement, contract, indenture or other instrument to which the
Company is a party or to which any of its property is subject, or constitute a
default or loss of any right thereunder or an event which, with the lapse of
time or notice or both, might result in a default or loss of any right
thereunder or the creation of any lien, charge or encumbrance upon any of the
assets or properties of the Company.
SECTION 2.06. APPROVALS. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement by the Company will not require the consent, approval, order or
authorization of any Governmental Entity or Regulatory Authority or any other
Person under any Permit, agreement, indenture or other instrument to which the
Company is a party or to which any of its properties is subject, other than
Stockholder Approval and the items disclosed in SCHEDULE 2.05, and no
declaration, filing or registration with any Governmental Entity or Regulatory
Authority is required or advisable by the Company in connection with the
execution and delivery of this Agreement and the consummation of transactions
contemplated by this Agreement, except for (a) the delivery and filing of the
Certificate of Amendment to the Company's Second Amended and Restated
Certificate of Incorporation as contemplated by Section 6.02(l) hereof, (b) the
delivery and filing of the Certificate of Merger as required by the GCL, (c) the
filing pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the
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termination of the applicable waiting period under such Act, (d) the applicable
requirements of the Federal Aviation Act of 1958, as amended, and the
regulations of the Department of Transportation thereunder.
SECTION 2.07. FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) The Company has delivered to GoodAero complete copies of the
Company's audited consolidated balance sheets (including, without limitation, a
retained earnings line item) as of December 31, 1994 and 1995, and the related
statements of operations, and cash flows (together with the auditors' reports
thereon) for the fiscal years then ended, together with notes to such financial
statements (the "Audited Financial Statements").
The Company has also delivered to GoodAero complete copies of the
Company's unaudited consolidated balance sheet as at November 30, 1996 (the
"November 30 Balance Sheet"), and the related statements of operations, and cash
flows for the eleven months then ended (the "Interim Financial Statements",
which term shall include without limitation the November 30 Balance Sheet).
The Audited Financial Statements and the Interim Financial Statements
are herein collectively referred to as the "Financial Statements."
(b) Except as set forth in SCHEDULE 2.07(B), the Financial Statements
have been prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP") throughout the periods covered thereby, and the
balance sheets included therein present fairly as of their respective dates the
financial condition of the Company (subject, in the case of Interim Financial
Statements, to normal year-end adjustments and the omission of footnote
disclosure required by GAAP). Except as set forth in Schedule 2.07(b), all
liabilities and obligations, whether absolute, accrued, contingent or otherwise,
whether direct or indirect, and whether due or to become due, which existed at
the date of the 1995 Audited Financial Statements and/or the Interim Financial
Statements have been disclosed in the balance sheets included in the 1995
Audited Financial Statements, in notes to the 1995 Audited Financial Statements
or in the Interim Financial Statements. The statements of operations and
retained earnings included in the Financial Statements present fairly the
results of operations and retained earnings of the Company for the periods
indicated, and the statements of cash flows and notes included in the Financial
Statements present fairly the information purported to be shown thereby. The
statements of operations included in the Financial Statements do not contain any
items of special or non-recurring income
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or other income not earned in the ordinary course of business except as
expressly specified therein.
(c) Except as projected to occur as contemplated by SCHEDULE 2.10,
since November 30, 1996 there has been (i) no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company, whether as a
result of any legislative or regulatory change, revocation of any license or
right to do business, fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation or act of God or otherwise, or (ii) no change
in the assets or liabilities or in the business or condition, financial or
otherwise, of the Company except in the ordinary course of business; and no fact
or condition exists or, to the best knowledge of the Company, is contemplated or
threatened which might cause such a change in the future.
SECTION 2.08. INTENTIONALLY OMITTED.
SECTION 2.09. CORPORATE ACTION. All corporate action of the Board of
Directors and of the stockholders of the Company taken on or prior to the date
hereof has been duly authorized and adopted in accordance with applicable law
and the Second Amended and Restated Certificate of Incorporation and Second
Amended and Restated By-laws of the Company and has been duly recorded in its
corporate minute books.
SECTION 2.10. ABSENCE OF CERTAIN TRANSACTIONS. Except as set forth
on SCHEDULE 2.10 and except for the execution of this Agreement or as otherwise
specifically contemplated or permitted by this Agreement, since November 30,
1996:
(a) ORDINARY COURSE. In the reasonable judgment of the Company's
executive management, the Company has: (i) carried on its business in the usual,
regular and ordinary course consistent with past practice and in compliance in
all material respects with all applicable laws, rules and regulations; (ii) used
commercially reasonable efforts to preserve its business organization, maintain
its rights and franchises, keep available the services of its officers and
employees and preserve the goodwill and its relationships with customers,
suppliers and others having business dealings with it; and (iii) used
commercially reasonable efforts to preserve in full force and effect all
material leases, operating agreements, easements, rights-of-way, permits,
Permits, contracts and other material agreements which relate to the assets of
the Company and has performed or caused to be performed all material obligations
of the Company in or under any of such leases, agreements and contracts relating
to such assets.
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(b) DIVIDENDS; SECURITIES. The Company has not (i) declared or paid
any dividend or made any other distribution with respect to Company Stock, (ii)
redeemed, purchased, cancelled or otherwise acquired, directly or indirectly,
any outstanding shares of Company Stock except as otherwise contemplated in this
Agreement without payment of any other or additional consideration therefor,
(iii) issued additional stock, warrants, options or any other similar rights to
acquire Company Stock, (iv) made any payments of principal or interest on
Company Debt Securities, (v) split, combined or reclassified any of its capital
stock or issued or authorized the issuance of any other securities in respect
of, in lieu of or in substitution for shares of, its capital stock except as
otherwise contemplated in this Agreement in exchange therefor without payment of
any other or additional consideration therefor, or (vi) taken any preliminary
action with respect to the foregoing. Except as expressly provided herein, the
Company has not (i) purchased, acquired, issued, delivered, sold or authorized
the issuance, delivery or sale of any stock appreciation rights or of any shares
of its capital stock of any class or any securities convertible into or
exchangeable for, or rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities or (ii) entered into any agreement or
understanding or take any preliminary action with respect to the matters
referred to in clause (i) of this sentence.
(c) CERTAIN TRANSACTIONS. Except for the Merger, the Company has not
merged or consolidated, reorganized, restructured, recapitalized, liquidated or
filed a voluntary petition in bankruptcy.
(d) GOVERNING DOCUMENTS; INCONSISTENT AGREEMENTS. Except as provided
in Section 1.04 and 6.02(l) hereof, the Company has not (i) amended its Second
Amended and Restated Certificate of Incorporation or Second Amended and Restated
By-laws or (ii) entered into, any agreement or incurred any obligation, the
terms of which would be violated by the consummation of the transactions
contemplated by this Agreement.
(e) INDEBTEDNESS. Except as expressly provided in the Creditor
Agreements or as set forth in SCHEDULE 2.10(E), the Company has not incurred,
assumed or guaranteed any obligation for borrowed money, incurred any account
payable except in the ordinary course of business, or entered into or modified
any contract, agreement, commitment or arrangement with respect to the
foregoing.
(f) EMPLOYEE CONTRACTS AND BENEFIT PLANS. Except as expressly
provided herein, the Company has not adopted or amended, or permitted any ERISA
Affiliate to adopt or amend, (other than amendments that reduce the amounts
payable
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by the Company or any ERISA Affiliate or amendments required by law to preserve
the qualified status of a Plan) any Plan, Benefit Program, employee benefit plan
(within the meaning of Section 3(3) of ERISA) or collective bargaining agreement
or entered into any employment, severance or similar contract with any Person
(including, without limitation, contracts with management of the Company or any
ERISA Affiliate that might require that payments be made upon the consummation
of the transactions contemplated hereby) or amended any such existing contracts
to increase any amounts payable thereunder or benefits provided thereunder. The
Company has not granted any increase in compensation to any employees or paid
any bonus, except for increases in salary or wages of the Company in the
ordinary course of business in accordance with past practice. Neither the
Company, not any ERISA Affiliate nor any Plan, nor any trust created thereunder,
has (i) engaged in any transaction in connection with which the Company, or any
ERISA Affiliate could be subjected (directly or indirectly) to either a civil
penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA
or a tax imposed by Section 4975 of the Code, (ii) incurred any "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or Section
412 of the Code) whether or not waived, (iii) terminated any Plan in a manner,
or taken any other action with respect to any Plan, that could result in the
imposition of a lien on any property of the Company or any ERISA Affiliate
pursuant to Section 4068 of ERISA or that could otherwise result in the
liability of any of such entities to any Person, (iv) taken any action that
could adversely affect the qualification of any Plan or its compliance with the
applicable requirements of ERISA or that might result in any "reportable event"
(as such term is defined in Section 4043(b) of ERISA) or (v) failed to make full
payment when due of all amounts which, under the provisions of any Plan, Benefit
Program, agreement relating thereto or applicable law, the Company or any ERISA
Affiliate is required to pay as contributions thereto. The Company has filed,
and has caused each ERISA Affiliate to file, on a timely basis, all reports and
forms required by federal regulations with respect to any Plan or Benefit
Program except where the failure to make such filing on a timely basis would
have no material adverse affect on the business, prospects, results of
operations, financial condition or assets of the Company or such ERISA
Affiliate.
(g) PROHIBITED DISPOSITIONS. Except as set forth on SCHEDULE 2.10,
other than provision of services in the ordinary course of business and
consistent with present practice or except as expressly permitted by GoodAero in
writing, the Company has not, (i) sold, leased, transferred or otherwise
disposed of any of its assets or property having a book or market value in
excess of $50,000 in the aggregate or that was otherwise, material, individually
or in the aggregate, to the business, results of operations or financial
condition of the Company, (ii) entered into, or consented to the entering into,
any agreement granting a preferential right to sell, lease or otherwise
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dispose of any of such assets. Except as set forth on SCHEDULE 5.07,
notwithstanding anything to the contrary above, the Company has not leased,
sold, purchased or otherwise acquired or disposed of any interest in or usage of
any rights to any (i) aircraft, (ii) landing rights or landing slots or (iii)
gates, ticket counters or other airport facilities.
(h) LINES OF BUSINESS AND CAPITAL EXPENDITURES. Except as set forth
on Schedule 2.10, the Company has not (i) entered into any new line of business;
(ii) changed its investment, liability management and other material policies in
any material respect; (iii) incurred or committed to any capital expenditures,
obligations or liabilities in connection therewith other than capital
expenditures, obligations or liabilities that do not exceed in the aggregate
$50,000; (iv) acquired or agreed to acquire by merging or consolidating with, or
acquired or agreed to acquire by purchasing a substantial portion of the assets
of, or in any other manner, any business or Person; or (v) otherwise, except as
to the acquisition of materials and supplies for its services and activities in
the ordinary course of business and consistent with past practices, acquired or
agreed to acquire any assets or made any lease commitments for a total
consideration in the aggregate in excess of $50,000. Except as set forth on
SCHEDULE 2.10, the Company has not made any investment in any Person. The
Company has not waived any material right or cancelled any material contract,
debt or claim or prepaid any of its obligations, except as set forth on Schedule
2.10.
(i) ACCOUNTING METHODS. Except as set forth on SCHEDULE 2.10(I), the
Company has not changed its methods of accounting in effect at December 31, 1995
except as required by GAAP as concurred in by Arthur Andersen & Co., the
Company's independent auditors, or changed any of its methods of accounting for
income and deductions for federal income tax purposes from those employed in the
preparation of the federal income tax return of the Company for the taxable year
ended December 31, 1995, except as required by changes in law. The Company has
not changed its fiscal year.
SECTION 2.11. TAXES. Except as disclosed on SCHEDULE 2.11 hereto (a)
all tax returns (including, without limitation, income, profit, franchise, sales
and use, excise, severance, occupation, property, gross receipts, payroll and
withholding tax returns and information returns), deposits and reports (all such
returns, deposits and reports herein referred to collectively as "Tax Returns"
or singularly as a "Tax Return") of or relating to any foreign, federal, state
or local or other governmental tax (all, together with any penalties, additions
to tax, fines and interest thereon or related thereto, herein referred to
collectively as "Taxes" or singularly as a "Tax") that are required to be filed
or deposited (taking into account all extensions) before the Effective
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Time for, by, on behalf of or with respect to the Company, including, but not
limited to, those relating to the income, business, operations or property of
the Company and those which include or should include the Company, have been or
will be filed or deposited with the governmental authorities when due and all
Taxes shown to be due and payable on such Tax Returns have been or will be paid
in full when due; (b) all such Tax Returns and the information and data
contained therein have been or will be properly and accurately compiled and
completed, fairly present or will fairly present the information purported to be
shown therein and reflect or will reflect all liabilities for Taxes for the
periods covered by such Tax Returns; (c) to the Company's knowledge, none of
such Tax Returns are now under audit or examination by any foreign, federal,
state or local or other governmental authority; and there are no agreements,
waivers or other arrangements providing for an extension of time with respect to
the assessment or collection of any Tax or deficiency of any nature against the
Company or with respect to any such Tax Return or any suits or other judicial or
administrative actions, proceedings, investigations or claims now pending or to
the Company's knowledge, overtly threatened against the Company with respect to
any Tax; and (d) the latest balance sheet included in the Financial Statements
reflects and includes adequate provisions for the payment in full of any and all
Taxes not yet due for any and all periods up to and including the date of such
balance sheet.
SECTION 2.12. LITIGATION. Except as set forth on SCHEDULE 2.12,
there is no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, overtly threatened against the Company or any of its
properties or rights (including without limitation no charge of patent and/or
trademark infringement or claim that a patent license should or need be taken to
enable the Company to continue its present commercial activities free of patent
infringement) by or before any Governmental Entity or by any Person, or any
basis in fact therefor known to the Company, against the Company or any of its
officers, directors, employees in their capacities as such, or the Company's
assets, business or products, whether at law or in equity. No insolvency
proceedings of any character, including, without limitation, bankruptcy,
receivership, reorganization, composition or arrangement with creditors,
voluntary or involuntary, involving the Company, are pending, or, to the
knowledge of the Company, overtly threatened and the Company has not made any
assignment for the benefit of creditors, or taken any action with a view to any
such insolvency proceedings. Except as set forth on SCHEDULE 2.12, the Company
is not a party to or bound by any judgment, writ, injunction, order or decree.
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SECTION 2.13. COMPLIANCE WITH LAWS; ENVIRONMENTAL MATTERS.
(a) COMPLIANCE WITH LAWS. (i) Except as set forth on SCHEDULE
2.13(A), the Company is in compliance in all material respects with all
applicable laws, rules or regulations relating to or affecting the operation,
conduct or ownership of its property or business. (ii) Except as set forth on
SCHEDULE 2.13(A), to the Company's knowledge, no investigation or review by any
Governmental Entity with respect to the Company is pending or, to the knowledge
of the Company, overtly threatened, nor has any Governmental Entity indicated to
the Company an intention to conduct the same.
(b) ENVIRONMENTAL MATTERS. Specifically, without limiting the
representations contained in subsection (a) hereof, the Company represents and
warrants with respect to the Company and its properties and operations as
follows:
(i) The Company and its properties and operations have been,
and are, in compliance in all material respects with all Environmental Laws;
(ii) There is no suit, claim, action, investigation, inquiry,
or proceeding now pending or, to the Company's knowledge, overtly threatened
by any Governmental Entity or by any other Person or entity for
non-compliance with any Environmental Law by the Company or with respect to
the Company's property or operations;
(iii) There are no citations, fines or penalties heretofore
assessed against the Company or with respect to any of its property under any
Environmental Law that remain unpaid, nor has the Company received any
notices or any other material communications from any Governmental Entity
with respect to any violations or alleged violations of any Environmental Law
or any federal, state, local or foreign law, regulation, ordinance,
directive, guidance or agency policy relating to worker health and safety
that remain unresolved (which resolution is not appealable).
(iv) (A) The Company has obtained all Environmental Permits, if
any, necessary for the operation of the Company by the Company.
(v) The Company is not currently operating or required to be
operating any business or facility under any judicial or administrative
compliance order, schedule, decree, or agreement, any judicial or
administrative consent decree, order or agreement, or any other judicial or
administrative corrective action decree, order, or agreement issued or
entered into under any Environmental Law;
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(vi) To the Company's knowledge, there are no underground
storage tanks on any property currently leased by the Company.
(vii) To the Company's knowledge, there is no asbestos or
asbestos-containing material at, on, or in any real property or improvement
currently leased by the Company;
(viii) All Hazardous Substances generated by the Company have
been stored, transported, treated and disposed of by carriers or treatment,
storage and disposal facilities authorized or maintaining valid permits under
all applicable Environmental Laws;
(ix) No Person has disposed of or Released any Hazardous
Substances on, at, or under any property currently or in the past owned,
leased, or operated by the Company;
(x) There are no Environmental Remediation Costs for which the
Company reasonably anticipates payment or accrual that are required or are
planned to be expended relating to the operation of the business;
(xi) There is no suit, claim, action, investigation, inquiry,
or proceeding now pending or, to the Company's knowledge, overtly threatened
by any Governmental Entity or by any Person relating to any Release of any
Hazardous Substance generated by or relating to the Company or any of its
properties or operations, whether occurring at, on, or from property owned,
leased or operated by the Company or occurring at, on, or from property
owned, leased, or operated by another Person.
(xii) The Company has no Environmental Liability, contingent or
otherwise; and
(xiii) There are no Environmental Reports in the Company's
possession or control.
SECTION 2.14. TITLE TO PROPERTY.
(a) SCHEDULE 2.14 identifies by street address all real estate leased
by the Company (the "Leased Premises"). The Company does not own any real
property. The Leased Premises are leased to the Company pursuant to written
leases, copies of which have been provided to GoodAero. Except as set forth in
SCHEDULE 2.14, the
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Company is not in default under any material term of any lease or other
agreement relating to the Leased Premises.
(b) The Company has good and merchantable title to all personalty of
any kind or nature owned by the Company free and clear of all liens,
encumbrances or claims whatsoever (including, to the Company's knowledge, liens
on the lessor's interest in leasehold estates leased to the Company), except for
(i) liens, encumbrances, defects or irregularities of title identified on
SCHEDULE 2.14, (ii) liens for non-delinquent ad valorem taxes and non-delinquent
statutory liens arising other than by reason of default, (iii) statutory liens
of landlords, liens of carriers, warehousemen, mechanics and materialmen
incurred in the ordinary course of business for sums not yet due, (iv) liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; and (v) minor irregularities of title which do not in the aggregate
materially detract from the value or use of said personalty. The Company as
lessee has the right under valid and subsisting leases to use, possess and
control all personalty leased by and material to the Company as now used,
possessed and controlled by the Company.
SECTION 2.15. CONDITION OF PROPERTY AND RELATED MATTERS.
(a) SCHEDULE 2.15 sets forth a complete and accurate list of all
aircraft and all aircraft engines used by the Company, all of which are leased
by the Company, and during the Company's use or possession of such aircraft and
aircraft engines all such aircraft and aircraft engines have been maintained in
all material respects by or on behalf of the Company in accordance with and are
in compliance with the Company's maintenance program approved by the Federal
Aviation Administration in all material respects by or on behalf of the Company
and there is in force an appropriate airworthiness certification with respect to
each such aircraft.
(b) All buildings, machinery, equipment and other tangible assets
owned or leased by the Company are in good operating condition, maintenance and
repair, ordinary wear and tear excepted, are usable in the ordinary course of
business and are reasonably adequate and suitable for the uses to which they are
being put. All such property conforms in all material respects to all
applicable federal, state and local laws, statutes, ordinances, rules and
regulations, including the Federal Aviation Act of 1958, as amended, and the
rules and regulations promulgated thereunder. None of the Company's premises or
equipment is in need of maintenance or repairs other than ordinary routine
maintenance and repairs which are not material, individually or in the
aggregate, in nature or cost.
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(c) All properties and assets reflected in the latest balance sheet
included in the Financial Statements have a fair market or realizable value
approximately equal to the value thereof as reflected therein.
(d) The inventories owned by the Company shown in the latest balance
sheet included in the Financial Statements are properly valued at the lower of
cost or market in accordance with GAAP, are usable or saleable and not obsolete
and can reasonably be anticipated to be used in the ordinary course of business
of the Company.
(e) The accounts receivable of all kinds of the Company, net of the
allowance for doubtful accounts applicable thereto included in the latest
balance sheet included in the Financial Statements, are collectible in full over
the period of usual trade terms, and there do not exist any defenses,
counterclaims and set-offs, and all such receivables are actual and bona fide
receivables representing obligations for the total dollar amount thereof shown
on the books of the Company. The Company has fully performed all obligations
with respect thereto which it was obligated to perform to the date hereof.
SECTION 2.16. CONTRACTS. (a) SCHEDULE 2.16 is a complete list of
all written or oral (i) employment contracts, arrangements or policies,
(including without limitation any collective bargaining contract or union
agreement) of the Company which may not be immediately terminated without
penalty (or any augmentation or acceleration of benefits); (ii) leases, sales
contracts and other agreements with respect to any property, real or personal,
of the Company which provide for the receipt or expenditure by the Company after
January 1, 1997, of more than $100,000; (iii) contracts or commitments for
capital expenditures or acquisitions in excess of $100,000 for one project or
set of related projects; (iv) agreements, contracts, indentures or other
instruments relating to the borrowing of money, or the guarantee of any
obligation (third party or otherwise) for the borrowing of money; (v) contracts
or agreements providing for any covenant not to compete by the Company or
otherwise restricting in any way the Company's engaging in the airline business
or competing in any business activity (including a description of the businesses
to which the covenant not to compete applies); (vi) contracts or agreements
relating to consultancies, professional retentions, agency or sales arrangements
pertaining to the Company or its activities which provide for the receipt or
expenditure by the Company after January 1, 1997, of more than $100,000; (vii)
contracts, agreements or commitments requiring the Company to indemnify or hold
harmless any Person providing for the potential expenditure by the Company of
more than $100,000 in the aggregate; and (viii) contracts, agreements,
arrangements or commitments, other than the foregoing, which provide for the
receipt or expenditure by the Company after January 1, 1997, of
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more than $100,000, (all agreements, arrangements or commitments required to be
identified in SCHEDULE 2.16 being hereinafter referred to as "Contracts"). True
and correct copies of all the Contracts identified in SCHEDULE 2.16 have been
furnished to GoodAero or its counsel. Except as set forth on SCHEDULE 2.16: (i)
all Contracts are valid and subsisting, and the Company has duly performed its
obligations thereunder in all material respects to the extent such obligations
have accrued, and (ii) no breach or default thereunder by the Company or, to the
knowledge of the Company, any other party thereto has occurred that could impair
the ability of the Company to enforce any material rights thereunder. Except as
set forth on SCHEDULE 2.16, there are no liabilities of any of the parties to
any of the Contracts arising from any breach of or default in any provision
thereof or which would permit the acceleration of any obligation of any party
thereto or the creation of a lien or encumbrance upon any asset of the Company.
(b) Except as otherwise contemplated by this Agreement, following
receipt of all of the Third Party Approvals, the continuation, validity and
effectiveness of all Contracts under the current material terms thereof will not
be adversely affected by the transactions contemplated by this Agreement, and
there are no negotiations pending or in progress to revise any such Contracts
outside the ordinary course of business, except as contemplated by Sections
6.02(k) and 6.02(m) hereof.
(c) Except as set forth on SCHEDULE 2.16 or otherwise contemplated by
this Agreement, the Company does not have outstanding any bid, contract,
commitment or proposal not made in the ordinary course of business.
(d) To the Company's knowledge, (i) no material customers or
suppliers of the Company intend to cease purchasing from, selling to or dealing
with the Company, and (ii) no such customer or supplier intends to alter in any
material respect the amount of such purchases, sales or the extent of dealings
with the Company or would alter in any significant respect such purchases, sales
or dealings in the event of the consummation of the transactions contemplated
hereby.
SECTION 2.17. EMPLOYEE AND LABOR MATTERS AND PLANS.
(a) SCHEDULE 2.17(A) lists each of the following plans, contracts,
policies and arrangements which is or, within six years prior to the Closing
Date, was sponsored, maintained or contributed to by, or otherwise binding upon
the Company, or, in the case of an "employee pension plan" (as defined in
Section 3(2) of ERISA), an ERISA Affiliate for the benefit of any current or
former employee, director or other personnel (including any such plan, contract,
policy or arrangement approved or
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adopted before, but effective on or after, the date of this Agreement): (i) any
"employee benefit plan," as such term is defined in Section 3(3) of ERISA,
whether or not subject to the provisions of ERISA, (ii) any personnel policy,
and (iii) any other employment, consulting, collective bargaining, stock option,
stock bonus, stock purchase, phantom stock, incentive, bonus, deferred
compensation, retirement, severance, vacation, dependent care, employee
assistance, fringe benefit, medical, dental, sick leave, death benefit, golden
parachute or other compensatory plan, contract, policy or arrangement which is
not an employee benefit plan as defined in Section 3(3) of ERISA (each such
plan, contract, policy and arrangement being herein referred to as an "Employee
Plan").
(b) With respect to each Employee Plan, except as set forth on
Schedule 2.17(b), the Company has delivered to GoodAero true and complete copies
of (1) each contract, plan document, policy statement, summary plan description
and other written material governing or describing the Employee Plan and/or any
related funding arrangements (including, without limitation, any related trust
agreement or insurance company contract) or, if there are no such written
materials, a summary description of the Employee Plan; and (2), WHERE
APPLICABLE, (a) the last two annual reports (5500 series) filed with the
Internal Revenue Service or the Department of Labor; (b) the most recent balance
sheet and financial statement; (c) the most recent actuarial report or valuation
statement; (d) the most recent determination letter issued by the Internal
Revenue Service, as well as any other determination letter, private letter
ruling, opinion letter or prohibited transaction exemption issued by the
Internal Revenue Service or the Department of Labor within the last six years
and any application therefor which is currently pending; and (e) the last PBGC-1
filed with Pension Benefit Guaranty Corporation ("PBGC").
(c) Each Employee Plan has been maintained and administered in
accordance with its terms and in compliance with the provisions of applicable
law, including, without limitation, applicable disclosure, reporting, funding
and fiduciary requirements imposed by ERISA and/or the Code in all material
respects. All contributions, insurance premiums, benefits and other payments
required to be made to or under each Employee Plan have been made timely and in
accordance with the governing documents and applicable law. With respect to
each Employee Plan, (1) no application, proceeding or other matter is pending
before the Internal Revenue Service, the Department of Labor or any other
governmental agency; (2) except as set forth in SCHEDULE 2.17(C), no action,
suit, proceeding or claim (other than routine claims for benefits) is pending or
threatened; and (3) to the knowledge of the Company, no facts exist which could
give rise to an action, suit, proceeding or claim which, if asserted, could
result in any liability or expense to the Company, or the plan assets.
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(d) With respect to each Employee Plan which is an "employee benefit
plan" within the meaning of Section 3(3) of ERISA or which is a "plan" within
the meaning of Section 4975(e) of the Code, there has occurred no transaction
which is prohibited by Section 406 of ERISA or which constitutes a "prohibited
transaction" under Section 4975(c) of the Code and with respect to which a
prohibited transaction exemption has not been granted and is not currently in
effect.
(e) SCHEDULE 2.17(E) identifies each funded Employee Plan which is an
employee pension plan within the meaning of Section 3(2) of ERISA (other than a
multiemployer plan within the meaning of Section 3(37) of ERISA). With respect
to each such Employee Plan, (a) the Employee Plan is a qualified plan under
Section 401(a) or 403(a) of the Code, and its related trust is exempt from
federal income taxation under Section 501(a) of the Code; (b) a request for
favorable IRS determination letter has been made and, since the date of such
request, the Employee Plan has not been amended or operated in a manner which
would adversely affect its qualified status and no event has occurred which has
caused or could cause the loss of such status; (c) there has been no termination
or partial termination within the meaning of Section 411(d)(3) of the Code; (d)
no Employee Plan is covered by Section 412 of the Code; and (e) no such Employee
Plan is covered by Title IV of ERISA. Neither the Company nor any ERISA
Affiliate has ceased operations at a facility so as to become subject to the
provisions of Section 4068(f) of ERISA, withdrawn as a substantial employer so
as to become subject to the provisions of Section 4063 of ERISA or ceased making
contributions on or before the Closing Date to any Employee Plan which is a
pension plan subject to Section 4064(a) of ERISA.
(f) Each trust which is intended to be exempt from federal income
taxation pursuant to Section 501(c)(9) of the Internal Revenue Code has been
identified as such on SCHEDULE 2.17(F), and each such trust satisfies the
requirements of that Section and is covered by a favorable IRS determination
letter, and neither the trust nor any related plan has been amended or operated
since the date of the most recent determination letter in a manner which would
adversely affect such exempt status.
(g) None of the Employee Plans is a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(h) The Company and its ERISA Affiliates have complied in all
material respects with the provisions of Section 4980B of the Code with respect
to any Employee Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. Except as set forth in the agreements on SCHEDULE 2.16,
No Employee Plan provides health or death benefits (whether or not insured) to
current or former
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employees or other personnel of the Company beyond the termination of their
employment or other services. Except as set forth in SCHEDULES 2.16 AND
2.17(H), each Employee Plan may be unilaterally terminated and/or amended by the
Company at any time.
(i) Other than the Special Bonuses, the consummation of the
transactions contemplated by this Agreement will not (either alone or in
conjunction with another event, such as a termination of employment or other
services) entitle any employee or other person to receive severance or other
compensation which would not otherwise be payable absent the consummation of the
transactions contemplated by this Agreement or cause the acceleration of the
time of payment or vesting of any award or entitlement under any Employee Plan.
(j) Except as set forth in the agreements on SCHEDULE 2.16, SCHEDULE
2.17(J) hereto sets forth a complete and accurate list showing the names and the
rate of compensation (and the portions thereof attributable to salary and
bonuses, respectively) of all officers of the Company, or any ERISA Affiliate
and of all employees of the Company, or any ERISA Affiliate that are entitled to
receive annual base salary or other compensation in excess of $50,000 (or the
equivalent thereof in foreign currency). Except as set forth in the employment
agreements identified in SCHEDULE 2.16(A), there are no covenants, agreements or
restrictions to which the Company, or any ERISA Affiliate is a party, including
but not limited to employee non-compete agreements, prohibiting, limiting or in
any way restricting any officer or employee listed on SCHEDULE 2.17(J) hereto
from engaging in any types of business activity in any location. To the best of
the Company's knowledge, no officer or employee listed on SCHEDULE 2.17(J)
hereto, and no group of the Company's or any ERISA Affiliate's employees, has
any plans to terminate their employment. There has not been, and the Company
does not anticipate, any adverse change in relations with employees as a result
of the announcement of the transactions contemplated by this Agreement. Neither
the Company, nor any ERISA Affiliate has instituted any "freeze" of, or delayed
or deferred the grant of, any cost-of-living or other salary adjustments for any
of its employees.
(k) SCHEDULE 2.17(K) hereto sets forth a complete and accurate list
of all employees of the Company and the ERISA Affiliates receiving short-term
disability benefits, long-term disability benefits and/or workers' compensation
benefits as of the date of this Agreement.
(l) SCHEDULE 2.17(L) hereto sets forth by number and employment
classification the approximate numbers of employees employed by the Company, and
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each ERISA Affiliate as of November 30, 1996, and, except as set forth therein,
none of said employees is subject to union or collective bargaining agreements.
There have been no governmental audits of the equal employment opportunity
practices of the Company and, to the knowledge of the Company, no basis for such
claim exists, except in connection with the matters disclosed in SCHEDULE 2.12.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or strike, dispute, slowdown
or stoppage pending or threatened against or involving the Company and none has
occurred since July 22, 1994. No representation question exists respecting the
employees of the Company and no collective bargaining agreement is currently
being negotiated by the Company, nor is any grievance procedure or arbitration
proceeding pending under any collective bargaining agreement and no claim
therefor has been asserted. Except for a pending vote of ramp employees
regarding representation by the International Association of Machinists, the
Company has not received notice from any union or employees setting forth
demands for representation, elections which have not yet been held, terms of
employment or working conditions or from any union or group of employees for
present or future changes in wages.
SECTION 2.18. INSURANCE POLICIES. SCHEDULE 2.18 to this Agreement
contains a correct and complete summary description of all insurance policies of
the Company covering the Company, any employees or other agents of the Company
or any assets of the Company. Each such policy is in full force and effect, is
with responsible insurance carriers and is substantially equivalent in coverage
and amount to policies covering companies of approximately the size of the
Company and in businesses similar to that in which the Company are engaged, in
light of the risk to which such companies and their employees, businesses,
properties and other assets may be exposed. All retroactive premium adjustments
under any worker's compensation policy of the Company have been recorded in the
Company's financial statements in accordance with GAAP. All premiums with
respect to the insurance policies listed on SCHEDULE 2.18 which are due and
payable prior to the Effective Time have been paid or will be paid prior to the
Effective Time on a timely basis, and no notice of cancellation or termination
has been received with respect to any such policy. The Company has not failed
to give any notice or present any claim thereunder known to the Company in due
and timely fashion. There are no pending claims against such insurance by the
Company as to which the insurers have denied coverage or otherwise reserved
rights. The Company has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance since the date it commenced operations.
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The Company has provided to GoodAero computer print-outs containing
information furnished by the Company's insurance carriers, which provides a
brief description of all product liability claims, workers' compensation claims,
automobile claims and general liability claims for the Company which includes
all unresolved claims.
SECTION 2.19. RECORDS. The Company has records that accurately and
validly reflect its transactions and accounting controls sufficient to insure
that such transactions are (i) in all material respects executed in accordance
with its management's general or specific authorization and (ii) recorded in
conformity with GAAP. The data processing equipment, data transmission
equipment, related peripheral equipment and software used by the Company in the
operation of its business (including any disaster recovery facility) to generate
and retrieve such records are comparable to those of companies of approximately
the size of the Company and in businesses similar to that in which the Company
is engaged.
SECTION 2.20. NO UNDISCLOSED LIABILITIES. Except as set forth on
SCHEDULE 2.20 hereto, the liabilities on the latest balance sheet included in
the Financial Statements consist solely of accrued obligations and liabilities
incurred by the Company in the ordinary course of its business to Persons which
are not Affiliates of the Company. Except as set forth on SCHEDULE 2.20 hereto,
there are no liabilities of the Company of any kind whatsoever, whether or not
accrued and whether or not contingent or absolute, determined or determinable or
otherwise, including without limitation documentary or standby letters of
credit, bid or performance bonds, or customer or third party guarantees, and no
existing condition, situation or set of circumstances that could reasonably
result in such a liability, other than (i) liabilities disclosed in the
Financial Statements, (ii) liabilities which have arisen after the date of the
latest balance sheet included in the Financial Statements in the ordinary course
of business and consistent with past practice (none of which is a liability for
breach of contract, breach of warranty, tort, infringement claim or lawsuit),
(iii) liabilities under the executory portion of any Contract or other written
purchase order, sales order, lease, agreement or commitment of any kind by which
the Company is bound and which was entered into in the ordinary course of the
Company's business and consistent with past practice, and (iv) liabilities under
the executory portion of any Permit. Except as set forth on SCHEDULE 2.20
hereto, no claims have been asserted for indemnification by any Person against
the Company under any law or agreement or pursuant to the Company's Amended and
Restated Certificate of Incorporation or Amended and Restated By-laws (or
equivalent governing document) and, to the Company's knowledge, there do not
exist any facts or circumstances that might reasonably give rise to such a claim
against the Company thereunder.
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SECTION 2.21. BROKERAGE FEES. Neither the Company, Z/C nor any of
their Affiliates has retained any financial advisor, broker, agent or finder or
paid or agreed to pay any financial advisor, broker, agent or finder on account
of this Agreement or any transaction contemplated hereby or any transaction of
like nature that would be required to be paid by the Company or GoodAero. Z/C
agrees to indemnify and hold the GoodAero Group and the Company Group harmless
from and against any and all claims, liabilities or obligations with respect to
any fees, commissions or expenses asserted by any person against the Company
Group or the GoodAero Group on the basis of any act, statement, agreement or
commitment alleged to have been made by the Company, Z/C, or their Affiliates.
SECTION 2.22. BANK ACCOUNTS. SCHEDULE 2.22 sets forth completely and
accurately the name of each bank in which the Company has an account or safe
deposit box, the name in which the account or box is held and the names of all
persons authorized to draw thereon or to have access thereto.
SECTION 2.23. WARRANTIES. Intentionally Omitted.
SECTION 2.24. NO PRODUCT LIABILITIES. The Company has not incurred,
nor does the Company know or have any reason to believe there is any basis for
alleging, any liability, damage, loss, cost or expense as a result of any defect
or other deficiency (whether of design, materials, workmanship, labeling,
instructions or otherwise) ("Product Liability") with respect to any service
rendered by the Company prior to the Effective Time, whether such Product
Liability is incurred by reason of any express or implied warranty, any doctrine
of common law (tort, contract or other), any statutory provision or otherwise
and irrespective of whether such Product Liability is covered by insurance.
SECTION 2.25. SUPPLIERS AND CUSTOMERS. Except as set forth on
SCHEDULE 2.25, neither the Company nor, to the knowledge of the Company, any
officer, director or Affiliate of the Company, nor any relative or spouse (or
relative of such spouse) of any such officer, director or Affiliate of the
Company nor any entity controlled by one of more of the foregoing:
(i) owns, directly or indirectly, any interest in (excepting less
than 5% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director,
employee or consultant of, any Person which is, or is engaged in
business as, a competitor, lessor, lessee, supplier, distributor,
sales agent, customer or client of the Company;
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(ii) owns, directly or indirectly, in whole or in part, any material
tangible or intangible property that the Company uses in the conduct
of the Company's business; or
(iii) has any cause of action or other claim whatsoever against,
or owes any amount in excess of $25,000 to, the Company, except for
claims in the ordinary course of business such as for accrued vacation
pay, travel and entertainment reimbursement, accrued benefits under
employee benefit plans, and similar matters and agreements existing on
the date hereof.
SECTION 2.26. INTELLECTUAL PROPERTIES. (a) SCHEDULE 2.26 contains an
accurate and complete list of all domestic and foreign patents, patent
applications, patent licenses, trade names, trademarks and service marks
(collectively with the associated goodwill of each, "Trademarks"), Trademark
registrations and applications (whether pending or abandoned), copyright
registrations and applications (whether pending or abandoned), and licenses of
rights in computer software, Trademarks, copyrights, owned (in whole or in
part), licensed to any extent or used or anticipated to be used by the Company
in the conduct of its business (collectively, the "Intellectual Property").
(b) (i) The Company is the owner of or duly licensed to use the entire
right, title and interest in and to the Intellectual Property, copyrights, trade
secrets and technology used in the conduct of its business; (ii) each item
constituting part of the Intellectual Property in which the Company has an
ownership or license interest has been, to the extent indicated in SCHEDULE
2.26, duly registered with, filed in or issued by, as the case may be, the
United States Patent and Trademark Office or such other Governmental Entities,
domestic or foreign, as are indicated in SCHEDULE 2.26; and (iii) each Trademark
registration, copyright registration and patent owned by the Company, and to the
Company's knowledge, used by the Company, exists, has been maintained in good
standing, and remains in full force and effect.
(c) (i) To the Company's best knowledge, no claim of infringement or
misappropriation of patents, trade secrets, trademarks, trade names, service
marks or copyrights of any other Person has been made against the Company; and
(ii) to the Company's best knowledge, the Company is not infringing or
misappropriating any patents, trade secrets, trademarks, trade names, service
marks or copyrights of any other Person. Without limiting the foregoing, to the
best knowledge of the Company, no claim is pending or threatened or, except as
set forth on SCHEDULE 2.26, has been made since January 1, 1986, to the effect
that the conduct by the Company of its business conflicts with or infringes in
any way upon any patents, trade secrets, trademarks, trade names, service marks
or copyrights owned by others, that the Company needs or should enter into
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a license arrangement so as to continue the conduct of its business without
infringing any other Person's patents, trade secrets, trademarks, trade names,
service marks or copyrights, or that any of the trademarks, service marks or
trade names set forth on SCHEDULE 2.26 has been abandoned.
(d) Without limiting any other provisions hereof, except as set forth on
SCHEDULE 2.26, the Company has not granted any license, franchise or permit to
any Person to use any of the Intellectual Property of the Company and no other
Person has the right to use the same trademarks, service marks or trade names
owned by the Company or any similar trademarks, service marks or trade name in
connection with the same or similar services as the Company.
(e) Since January 1, 1994, the business conducted by the Company has not
been conducted under any corporate, trade or fictitious name other than "Midway
Airlines Corporation" and "Midway Airlines".
SECTION 2.27. PERMITS. The Company has all Permits. SCHEDULE 2.27
contains a true and complete list of the Permits, exclusive of any Permits with
respect to state or local sales, use or other Taxes. All of the Permits are in
full force and effect. No outstanding notice of cancellation or termination has
been delivered to the Company in connection with any such Permit nor has any
such cancellation or termination been threatened. No application, action or
proceeding is pending for the modification of any such Permits or, to the
knowledge of the Company, overtly threatened that may result in the revocation,
modification, nonrenewal or suspension of any Permits, the issuance of a
cease-and-desist order, or the imposition of any administrative or judicial
sanction. The Company has filed when due all documents required to be filed
with any Governmental Entity in connection with such Permits and all such
filings were accurate and complete in all material respects. The most recent
report filed with respect to the Company pursuant to 14 C.F.R. Part 204 was
accurate and complete in all material respects as of the date of such filing
and, except as disclosed on SCHEDULE 2.27, remains accurate and complete in all
material respects as of the date hereof.
SECTION 2.28. NO ILLEGAL OR IMPROPER TRANSACTIONS. Except as set
forth on SCHEDULE 2.28 hereto, neither the Company, nor, to the Company's
knowledge, any director, officer or employee of the Company, has directly or
indirectly used funds or other assets of the Company, or made any promise or
undertaking in such regards, for (i) illegal contributions, gifts, entertainment
or other expenses relating to political activity; (ii) illegal payments to or
for the benefit of governmental officials or employees, whether domestic or
foreign; (iii) illegal payments to or for the benefit of any person, firm,
corporation or other entity, or any director, officer, employee, agent or
representative thereof; (iv) gifts,
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entertainment or other expenses that jeopardize the normal business relations
between the Company and any of its respective customers; or (v) the
establishment or maintenance of a secret or unrecorded fund; and (vi) there have
been no false or fictitious entries made in the books or records of the Company.
SECTION 2.29. RESTRICTIVE DOCUMENTS, TERRITORIAL RESTRICTIONS AND
LOCATION OF ASSETS. Except as set forth in the agreements set forth on SCHEDULE
2.16 and SCHEDULE 2.29 hereto, the Company is not subject to, or a party to, any
charter, by-law, mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind or character, which would prevent consummation of
the transactions contemplated by this Agreement, or the continued operation of
the Company's business after the date hereof or the Effective Time on
substantially the same basis as heretofore operated or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
Except as set forth in SCHEDULE 2.29, the Company is not restricted by any
written agreement or understanding with third parties from carrying on its
business anywhere in the world. Except as set forth in SCHEDULE 2.29, all
assets of the Company are located in the United States of America, and, except
for technical services and sales activities, the Company does not (i) conduct
operations, (ii) own or lease real property, (iii) maintain offices or (iv)
employ personnel in countries other than the United States of America.
SECTION 2.30. NO MISLEADING STATEMENTS. This Agreement, the
information and schedules referred to herein and the information contained in
the Financial Statements that have been furnished to GoodAero in connection with
the transactions contemplated by this Agreement do not and will not include any
untrue statement of a material fact and do not and will not omit to state any
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
SECTION 2.31. ORGANIZATION. Z/C is a limited partnership duly
organized, validly existing and in good standing under the laws of Delaware.
Z/C has full corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby.
SECTION 2.32. AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved by the Executive Committee of Z/C and no other corporate
proceedings on the part of Z/C are necessary to authorize the Merger, this
Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Z/C and constitutes the legal valid and binding
obligation of Z/C, enforceable against Z/C in accordance with its
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terms, except as such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and (ii) general principles of equity (whether applied in a proceeding
at law or in equity).
SECTION 2.33. NO VIOLATION. The execution and delivery of this
Agreement by Z/C do not, and the consummation by it of the transactions
contemplated hereby will not, (i) conflict with, or result in any violation of
or default under, any provision of the governing documents of Z/C; (ii) conflict
with or result in any violation of any Permit, concession, grant, franchise,
law, rule or regulation, or any judgment, decree or order of any court or other
governmental agency or instrumentality to which Z/C is a party or to which any
of its property is subject; or (iii) conflict with, or result in a breach or
violation of or default under, or accelerate the performance required by, the
terms of any agreement, contract, indenture or other instrument to which Z/C is
a party or to which any of its property is subject, or constitute a default
thereunder or an event which, with the lapse of time or notice or both, might
result in a default or the creation of any lien, charge or encumbrance upon any
of the assets or properties of Z/C. Z/C is in compliance in all material
respects with all applicable laws, rules or regulations relating to or affecting
the operation, conduct or ownership of its property or business.
SECTION 2.34. APPROVALS. The execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement by Z/C
will not require the consent, approval, order or authorization of any
Governmental Entity or Regulatory Authority or any other Person under any
Permit, agreement, indenture or other instrument to which Z/C is a party or to
which any of its properties are subject, and no declaration, filing or
registration with any Governmental Entity or Regulatory Authority is required or
advisable by Z/C in connection with the execution and delivery of this Agreement
and the consummation of such transactions, except for (i) the delivery and
filing of the Certificate of Merger as required by the GCL, (ii) the filing
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended,
and the termination of the applicable waiting period under such Act and (iii)
the applicable requirements of the Federal Aviation Act of 1958, as amended, and
the regulations of the Department of Transportation thereunder.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GOODAERO
AND THE GOODAERO STOCKHOLDERS
GoodAero and the GoodAero Stockholders hereby jointly and severally
represent and warrant to the Company and Z/C as follows:
SECTION 3.01. ORGANIZATION. GoodAero is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. GoodAero has full corporate power and authority to enter into this
Agreement and to carry out its obligations under this Agreement and to
consummate the transactions contemplated hereby.
SECTION 3.02. CAPITALIZATION. The authorized capital stock of
GoodAero consists of 10,000 shares of common stock, of $1.00 par value per
share, of which 52 shares are issued and outstanding as of the date hereof and
owned of record by the Persons set forth on SCHEDULE 3.02 hereto. No shares of
GoodAero Stock are held as treasury shares. All outstanding shares of GoodAero
Stock have been duly authorized and validly issued and are fully paid and
non-assessable. Except as set forth in SCHEDULE 3.02, there are no outstanding
options, warrants, convertible securities, calls, rights, commitments,
preemptive rights or agreements or instruments or understandings of any
character, to which GoodAero is a party or by which GoodAero is bound,
obligating GoodAero to issue, deliver or sell, or cause to be issued, delivered
or sold, contingently or otherwise, additional shares of GoodAero Stock or any
securities or obligations convertible into or exchangeable for such shares or to
grant, extend or enter into any such option, warrant, convertible security,
call, right, commitment, preemptive right or agreement. There are no
outstanding obligations of GoodAero to purchase or otherwise acquire any
GoodAero Stock.
SECTION 3.03. AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved by the Board of Directors of GoodAero, subject to Stockholder
Approval, and no other corporate proceedings on the part of the Board of
Directors of GoodAero are necessary to authorize the Merger, this Agreement and
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by GoodAero and constitutes the legal, valid and binding obligation of
GoodAero, enforceable against GoodAero in accordance with its terms, except as
such enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally and
(ii) general principles of equity (whether applied in a proceeding at law or in
equity).
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SECTION 3.04. NO VIOLATION. The execution and delivery of this
Agreement by GoodAero does not, and the consummation by GoodAero of the
transactions contemplated by this Agreement will not, (i) conflict with, or
result in any violation of or default under, any provision of GoodAero's
Certificate of Incorporation or By-laws; (ii) conflict with or result in any
violation of any Permit, concession, grant, franchise, law, rule or regulation,
or any judgment, decree or order of any court or other governmental agency or
instrumentality to which GoodAero is a party or to which any of its property is
subject; or (iii) conflict with, or result in a breach or violation of or
default under, or accelerate the performance required by, the terms of any
agreement, contract, indenture or other instrument to which GoodAero is a party
or to which any of its property is subject, or constitute a default thereunder
or an event which, with the lapse of time or notice or both, might result in a
default or the creation of any lien, charge or encumbrance upon any of the
assets or properties of GoodAero. GoodAero is in compliance in all material
respects with all applicable laws, rules or regulations relating to or affecting
the operation, conduct or ownership of its property or business.
SECTION 3.05. APPROVALS. The execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement by
GoodAero will not require the consent, approval, order or authorization of any
Governmental Entity or Regulatory Authority or any other Person under any
Permit, agreement, indenture or other instrument to which GoodAero is a party or
to which any of its properties is subject, other than Stockholder Approval, and
no declaration, filing or registration with any Governmental Entity or
Regulatory Authority is required or advisable by GoodAero in connection with the
execution and delivery of this Agreement and the consummation of such
transactions, except for (i) the delivery and filing of the Certificate of
Merger as required by the GCL, (ii) the filing pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the termination of the
applicable waiting period under such Act and (iii) the applicable requirements
of the Federal Aviation Act of 1958, as amended, and the regulations of the
Department of Transportation thereunder.
SECTION 3.06. NO LIABILITIES/NET CAPITAL. Except for expenses
incurred in connection with the formation of GoodAero and the transactions
contemplated by this Agreement, there are no liabilities or obligations of
GoodAero of any kind whatsoever, whether or not accrued and whether or not
contingent or absolute, determined, determinable or otherwise. As of the
Closing, GoodAero shall have capital in the amount of $15 million in cash, net
of any liabilities or obligations of GoodAero whatsoever, including without
limitation those referred to in the immediately preceding sentence.
SECTION 3.07. BROKERAGE FEES. Neither GoodAero nor any of its
Affiliates has retained any financial advisor, broker, agent or finder or paid
or agreed to pay any
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financial advisor, broker, agent or finder on account of this Agreement or any
transaction contemplated hereby or any transaction of like nature that would be
required to be paid by the Company or Z/C. GoodAero and the GoodAero
Stockholders jointly and severally agree to indemnify and hold the Z/C Group and
the Company Group harmless from and against any and all claims, liabilities or
obligations with respect to any fees, commissions or expenses asserted by any
person against the Company Group or Z/C Group on the basis of any act,
statement, agreement or commitment alleged to have been made by the GoodAero or
its Affiliates.
ARTICLE IV
COVENANTS
SECTION 4.01. ACCESS TO RECORDS. At all reasonable times from and
after the date hereof until the Effective Time, the Company shall afford
GoodAero and its accountants, counsel and other representatives full and
complete access to the properties, employees and officers of the Company and to
all books, accounts, financial and other records and contracts of every kind of
the Company. Any information regarding the Company heretofore obtained from the
Company by GoodAero, its accountants, counsel or other representatives or
hereafter obtained by any of them pursuant to this Section 4.01 shall be used
and held by them in accordance with that certain Confidentiality Agreement dated
October 24, 1996, between the shareholders of GoodAero and the Company. The
Company shall also furnish to GoodAero as promptly as practicable (i) following
the end of each calendar month after the date hereof, balance sheets and related
statements of operations, retained earnings and cash flows of the Company as of
the end of such month (all such financial statements shall be covered by and
conform to the representations and warranties set forth in Section 2.07 hereof
and shall be included in the term "Financial Statements" for purposes of this
Agreement); and (ii) all financial and operating data and other information
concerning its business, properties and personnel as GoodAero may reasonably
request. Before the Effective Time, the Company will, as requested by GoodAero,
make available on a reasonable basis the officers and other appropriate
employees of the Company to discuss with representatives of GoodAero the
condition, operation, business and prospects of the Company and shall use
commercially reasonable efforts to arrange for the officers and other
appropriate employees of each operator, owner or lessor of properties in which
the Company has an interest and of each supplier and customer whose relationship
with the Company is material to the Company to discuss with representatives of
GoodAero such relationship.
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SECTION 4.02. STOCKHOLDER APPROVAL. Each of the Company and GoodAero
shall, through its respective board of directors, recommend to each of the
Company Stockholders and the GoodAero Stockholders, respectively, approval of
this Agreement and the Merger and, as promptly as practicable after the date of
this Agreement, use its best efforts to obtain Stockholder Approval. Z/C agrees
to vote its shares of Company Stock in favor of Stockholder Approval. GoodAero
Stockholders agree to vote their shares of GoodAero Stock in favor of
Stockholder Approval.
SECTION 4.03. LITIGATION AND CLAIMS. The Company shall promptly
inform GoodAero in writing of any litigation against the Company, or of any
claim or controversy or contingent liability known to the Company that might
reasonably be expected to become the subject of litigation, against the Company
or affecting any of its property.
SECTION 4.04. NOTICE OF CHANGES BY THE COMPANY. The Company shall
promptly inform GoodAero in writing of any change, which in the Company's
reasonable judgment, shall have occurred or shall have been threatened (or any
development shall have occurred or shall have been threatened involving a
prospective change) in the financial condition, results of operations, business,
prospects or assets of the Company that is or may reasonably be expected to
become materially adverse to the Company. The Company shall promptly inform
GoodAero in writing if in the Company's reasonable judgment any representation
or warranty made by the Company in this Agreement shall cease to be accurate;
provided that this covenant does not supersede the application of
Sections 6.02(a) and 6.02(e) at the Closing. From time to time prior to the
Effective Time, the Company will promptly supplement or amend the Schedules and
Exhibits hereto with respect to any matter hereafter arising which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth or described in the Schedules and Exhibits hereto; provided that this
covenant does not supersede the application of Sections 6.02(a) and 6.02(e) at
the Closing. No supplement or amendment of a Schedule or Exhibit made pursuant
to this Section shall be deemed to cure any breach of, affect or otherwise
diminish any representation or warranty made in this Agreement unless GoodAero
specifically agrees thereto in writing; provided that this covenant does not
supersede the application of Sections 6.02(a) and 6.02(e) at the Closing.
SECTION 4.05. DISSENTING STOCKHOLDERS. The Company shall give
GoodAero prompt notice of any demands received from Dissenting Stockholders, if
any, for payment of the fair value for their shares of Company Stock.
SECTION 4.06. CAPITAL STRUCTURE OF THE SURVIVING CORPORATION. In
connection with the Merger, the Surviving Corporation shall issue Surviving
Corporation Common Stock as set forth in subparagraphs (i) through (iv) below of
this Section 4.06, such that,
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after taking into account the Merger and all of the transactions contemplated
by such subparagraphs, the capital structure of the Surviving Corporation
shall be as set forth on EXHIBIT 4.06:
(i) As of the Closing, the Surviving Corporation shall have
reserved 1144 shares of Surviving Corporation Common Stock which represents
10% of the Fully Diluted Surviving Corporation Stock for issuance (and/or
issued) to management employees of the Surviving Corporation pursuant to a
stock option plan and/or stock award plan to be adopted by the Surviving
Corporation;
(ii) In connection with the restructuring of the obligations
owed by the Company to AA and the Aircraft Creditors, at the Closing the
Surviving Corporation shall issue (A) warrants for the purchase of 572 shares
of Surviving Corporation Common Stock which represents 5% of the Fully
Diluted Surviving Corporation Stock to AA pursuant to the agreements
concerning AA referred to in Section 6.02(k), and (B) 572 shares of Surviving
Corporation Common Stock which represents 5% of the Fully Diluted Surviving
Corporation Stock to the Aircraft Creditors, pursuant to the agreements
concerning the Aircraft Creditors referred to in Section 6.02(k);
(iii) At the Closing, the Surviving Corporation shall issue to
Z/C 2548 shares of Surviving Corporation Common Stock (which represents
approximately 22.3% of the Fully Diluted Surviving Corporation Stock), in
consideration of an amount equal to $7,000,000; and
(iv) At the Closing, the Surviving Corporation shall issue to
Robert R. Ferguson, III, options for the purchase of 1144 shares of Surviving
Corporation Common Stock which represents 10% of the Fully Diluted Surviving
Corporation Stock.
SECTION 4.07. OBLIGATIONS OF Z/C. Z/C shall be liable for and shall
pay as primary obligor (a) all amounts in excess of $7,000,000 necessary to
obtain the release from all liabilities and obligations under the First Bank
Guaranty as set forth in section 6.04 hereof; and (b) all amounts incurred in
connection with cancellation of (i) any and all outstanding Company Stock
Options held by any Person prior to the Effective Time and shares of Company
Stock held by Company Stockholders and all declared, undeclared or accrued, but
unpaid, dividends on the foregoing Company Stock; (ii) the Company Debt
Securities (as hereafter defined); and (iii) payment of the Special Bonuses.
Z/C hereby covenants and agrees that under no circumstances shall it (a)
liquidate or terminate its existence until satisfactory evidence of the payment
in full and discharge of the foregoing liabilities shall have been provided to
the Surviving Corporation or (b) assign its
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obligations hereunder without the prior written consent of the Surviving
Corporation in its sole discretion.
SECTION 4.08. CAPITAL STRUCTURE OF GOODAERO. At the Effective Time,
GoodAero Stockholders shall have capitalized GoodAero in the amount of
$15,000,000 in cash, net of all liabilities or obligations of GoodAero,
including, without limitation, in connection with the formation of GoodAero and
the transactions contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS BY THE COMPANY
During the period from the date of this Agreement through the
Effective Time, the Company agrees (except to the extent GoodAero shall
otherwise consent in writing) that:
SECTION 5.01. ORDINARY COURSE. Except as provided in this Article V,
the Company shall in the reasonable judgment of the Company's executive
management, (i) carry on its business in the usual, regular and ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws, rules and regulations, (ii) use commercially reasonable
efforts to preserve its business organization, maintain its rights and
franchises, keep available the services of its officers and employees and
preserve the goodwill and its relationships with customers, suppliers and others
having business dealings with it, and (iii) use commercially reasonable efforts
to preserve in full force and effect all material leases, operating agreements,
easements, rights-of-way, permits, Permits, contracts and other material
agreements which relate to the assets of the Company and shall perform or cause
to be performed all material obligations of the Company in or under any of such
leases, agreements and contracts relating to such assets.
SECTION 5.02. DIVIDENDS; SECURITIES. The Company shall not (i)
declare or pay any dividend or make any other distribution with respect to
Company Stock, (ii) redeem, purchase, cancel or otherwise acquire, directly or
indirectly, any outstanding shares of Company Stock except as otherwise
contemplated in this Agreement without payment of any other or additional
consideration therefor, (iii) issue additional stock, warrants, options or any
other similar rights to acquire Company Stock, or (iv) make any payments of
principal or interest on Company Debt Securities, and, (v) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect
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of, in lieu of or in substitution for shares of, its capital stock except as
otherwise contemplated in this Agreement in exchange therefor without payment of
any other or additional consideration therefor, or (vi) take any preliminary
action with respect to the foregoing. Except as expressly provided herein, the
Company shall not (i) purchase, acquire, issue, deliver, sell or authorize the
issuance, delivery or sale of any stock appreciation rights or of any shares of
its capital stock of any class or any securities convertible into or
exchangeable for, or rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities or (ii) enter into any agreement or
understanding or take any preliminary action with respect to the matters
referred to in clause (i) of this sentence.
SECTION 5.03. CERTAIN TRANSACTIONS. Except for the Merger, the
Company shall not merge or consolidate, reorganize, restructure, recapitalize,
liquidate or file a voluntary petition in bankruptcy.
SECTION 5.04. GOVERNING DOCUMENTS; INCONSISTENT AGREEMENTS. Except
as provided in Sections 1.04 and 6.02(l) hereof, the Company shall not (i) amend
its Second Amended and Restated Certificate of Incorporation or Second Amended
and Restated By-laws or (ii) enter into any agreement or incur any obligation,
the terms of which would be violated by the consummation of the transactions
contemplated by this Agreement.
SECTION 5.05. INDEBTEDNESS. Except as expressly provided in the
Creditor Agreements, the Company shall not incur, assume or guarantee any
obligation for borrowed money, or incur any account payable except in the
ordinary course of business, or enter into or modify any contract, agreement,
commitment or arrangement with respect to the foregoing.
SECTION 5.06. EMPLOYEE CONTRACTS AND BENEFIT PLANS. Except as
expressly provided herein, the Company shall not, and shall not permit any ERISA
Affiliate to, adopt or amend (other than amendments that reduce the amounts
payable by the Company or any ERISA Affiliate or amendments required by law to
preserve the qualified status of a Plan) any Plan, Benefit Program, employee
benefit plan (within the meaning of Section 3(3) of ERISA) or collective
bargaining agreement or enter into any employment, severance or similar contract
with any Person (including, without limitation, contracts with management of the
Company, or any ERISA Affiliate that might require that payments be made upon
the consummation of the transactions contemplated hereby) or amend any such
existing contracts to increase any amounts payable thereunder or benefits
provided thereunder. The Company shall not grant any increase in compensation
to any employees or pay any bonus, except for increases in salary or wages of
the Company in the ordinary course of business in accordance with past practice
which does not include the
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Special Bonuses. Neither the Company, any ERISA Affiliate nor any Plan, nor any
trust created thereunder, shall (i) engage in any transaction in connection with
which the Company, or any ERISA Affiliate could be subjected (directly or
indirectly) to either a civil penalty assessed pursuant to subsections (c), (i)
or (l) of Section 502 of ERISA or a tax imposed by Section 4975 of the Code,
(ii) incur any "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA or Section 412 of the Code) whether or not waived, (iii)
terminate any Plan in a manner, or take any other action with respect to any
Plan, that could result in the imposition of a lien on any property of the
Company or any ERISA Affiliate pursuant to Section 4068 of ERISA or that could
otherwise result in the liability of any of such entities to any Person, (iv)
take any action that could adversely affect the qualification of any Plan or its
compliance with the applicable requirements of ERISA or that might result in any
"reportable event" (as such term is defined in Section 4043(b) of ERISA) or (v)
fail to make full payment when due of all amounts which, under the provisions of
any Plan, Benefit Program, agreement relating thereto or applicable law, the
Company or any ERISA Affiliate is required to pay as contributions thereto. The
Company shall, and shall cause each ERISA Affiliate to, file, on a timely basis,
all reports and forms required by federal regulations with respect to any Plan
or Benefit Program except where the failure to make such filing on a timely
basis would have no material adverse affect on the business, prospects, results
of operations, financial condition or assets of the Company or such ERISA
Affiliate.
SECTION 5.07. PROHIBITED DISPOSITIONS. Except as set forth on
SCHEDULE 5.07, other than provision of services in the ordinary course of
business and consistent with present practice or except as expressly permitted
by GoodAero in writing, the Company shall not, (i) sell, lease, transfer or
otherwise dispose of any of its assets or property having a book or market value
in excess of $50,000 in the aggregate or that are otherwise material,
individually or in the aggregate, to the business, results of operations or
financial condition of the Company or (ii) enter into, or consent to the
entering into, any agreement granting a preferential right to sell, lease or
otherwise dispose of any of such assets. Except as set forth on SCHEDULE 5.07,
notwithstanding anything to the contrary above, the Company shall not lease,
sell, purchase or otherwise acquire or dispose of any interest in or usage of
any rights to any (i) aircraft, (ii) landing rights or landing slots or (iii)
gates, ticket counters or other airport facilities.
SECTION 5.08. LINES OF BUSINESS AND CAPITAL EXPENDITURES. Except as
expressly permitted by GoodAero in writing the Company shall not (i) enter into
any new line of business; (ii) change its investment, liability management and
other material policies in any material respect; (iii) incur or commit to any
capital expenditures, obligations or liabilities in connection therewith other
than capital expenditures, obligations or liabilities that do not exceed in the
aggregate $50,000; (iv) acquire or agree
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to acquire by merging or consolidating with, or acquire or agree to acquire by
purchasing a substantial portion of the assets of, or in any other manner, any
business or Person; or (v) otherwise, except as to the acquisition of materials
and supplies for its services and activities in the ordinary course of business
and consistent with past practices, acquire or agree to acquire any assets or
make any lease commitments for a total consideration in the aggregate in excess
of $50,000. The Company shall not make any investment in any Person. The
Company shall not waive any material right or cancel any material contract, debt
or claim or prepay any of its obligations.
SECTION 5.09. ACCOUNTING METHODS. Except as set forth in
Schedule 5.09, the Company did not change since December 31, 1995 and shall not
change its methods of accounting in effect at December 31, 1995 except as
required by GAAP as concurred in by Arthur Andersen & Co., the Company's
independent auditors, or any of its methods of accounting for income and
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax return of the Company for the taxable year
ended December 31, 1995, except as required by changes in law. The Company
shall not change its fiscal year.
SECTION 5.10. EXCLUSIVITY. In consideration of the expenditure of
time, effort and expense to be undertaken by GoodAero in connection with the
preparation of this Agreement, and the investigations and review of the business
of the Company, prior to the Closing Date, the Company and Z/C shall not, and
shall cause their respective officers, directors, employees, agents, advisors
and other representatives not to, directly or indirectly, solicit, continue or
initiate discussions with, engage in negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
other than GoodAero (a "Competitor") regarding (i) the sale or other disposition
of the capital stock or debt of the Company held by Z/C to a Competitor, (ii)
the sale or other disposition of all or substantially all of the assets of the
Company to a Competitor, (iii) any merger or consolidation involving the Company
and a Competitor, or (iv) any other transaction resulting in a change of control
of the Company to a Competitor (any of the events described in subparagraphs (i)
through (iv) above, a "Competing Transaction"); provided, however, that nothing
in this Section 5.10 shall prohibit the Board of Directors of the Company from
(i) furnishing information pursuant to an appropriate confidentiality letter
concerning the Company and its businesses, properties or assets to a Competitor
who has made an unsolicited proposal for a Competing Transaction, or (ii)
engaging in discussions or negotiations with such a Competitor who has made an
unsolicited proposal for a Competing Transaction, but in each case referred to
in the foregoing clauses (i) and (ii) only (x) after the Board of Directors of
the Company concludes in good faith based on the advice of outside counsel that
such action is necessary for the Board of Directors of the Company to comply
with its fiduciary obligations to Company Stockholders under
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applicable law. Notwithstanding anything in this Agreement to the contrary, the
Company shall immediately inform GoodAero orally and in writing of the receipt
by it of any proposal for a Competing Transaction.
(b) The Board of Directors of the Company shall not (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to GoodAero, the
approval or recommendation by such Board of Directors of this Agreement, (ii)
approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) approve the Company entering into any agreement with
respect to any Competing Transaction, unless an unsolicited proposal for a
Competing Transaction is received from a Competitor and the Board of Directors
of the Company concludes in good faith based on the advice of outside counsel
that in order to comply with its fiduciary obligations to stockholders under
applicable law, it is necessary for the Board of Directors to withdraw or modify
its approval or recommendation of this Agreement, approve or recommend such
Competing Transaction, enter into an agreement with respect to such Competing
Transaction or terminate this Agreement, provided that no such action shall be
taken prior to five (5) days after written notice of such Competing Transaction
has been provided to GoodAero and provided further that either the Board of
Directors shall reject such Competing Transaction or such action shall be taken
and notice thereof given to GoodAero no later than five (5) days after notice of
such Competing Transaction has been provided to GoodAero. A failure to reject
such Competing Transaction or to give such notice to GoodAero within such 5-day
period shall be deemed an election by the Company to terminate this Agreement
and shall entitle GoodAero to immediate payment of the GoodAero Costs and
Expenses and, within fifteen (15) days after the Closing of a Competing
Transaction, payment of the Topping Fee. In the event the Board of Directors of
the Company takes any of the foregoing actions, the Company shall, within
fifteen (15) days thereafter, pay GoodAero the GoodAero Costs and Expenses and,
within fifteen (15) days after the closing of a Competing Transaction, pay
GoodAero the Topping Fee. Notwithstanding anything contained in this Agreement
to the contrary, any action by the Board of Directors permitted by this Section
5.10 shall not constitute a breach of this Agreement by the Company if the
Company pays the GoodAero Costs and Expenses and, if applicable, the Topping
Fee.
SECTION 5.11. OTHER ACTIONS. The Company shall not take any action
that would or might reasonably be expected to result in any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue in any material respects after the date hereof or any of the
conditions to the Merger set forth in Article VI not being satisfied in any
material respects, except as may be required by any applicable law, rule,
regulation, or any judgment, decree or order of any court or other governmental
agency or instrumentality.
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ARTICLE VI
CONDITIONS OF CLOSING
SECTION 6.01. CONDITIONS TO ALL PARTIES' OBLIGATIONS.
The obligations of all the parties to this Agreement to effect the Merger shall
be subject to the fulfillment of the following conditions:
(a) Stockholder Approval from the stockholders of each of the Company
and GoodAero shall have been obtained.
(b) No temporary restraining order, preliminary or permanent
injunction or other order or restraint issued by any court of competent
jurisdiction, no order, decree, restraint or pronouncement by any Governmental
Entity, and no other legal restraint or prohibition which would prevent or have
the effect of preventing the consummation of the Merger shall have been issued
or adopted or be in effect.
(c) All permits, approvals, filings and consents required to be
obtained or made, and all waiting periods required or contemplated to expire,
prior to the consummation of the Merger under applicable federal laws of the
United States or applicable laws of any state or foreign country having
jurisdiction over the Merger and the other transactions contemplated herein
shall have been obtained, made or expired, as the case may be, including without
limitation notifications, approvals or filings pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the Federal Aviation Act of
1958, as amended (all such permits, approvals, filings and consents and the
lapse of all such waiting periods being referred to as the "Requisite Regulatory
Approvals"), if any, and all such Requisite Regulatory Approvals shall be in
full force and effect.
SECTION 6.02. CONDITIONS TO THE OBLIGATIONS OF GOODAERO TO EFFECT THE
MERGER. The obligations GoodAero under this Agreement to effect the Merger are
subject to the fulfillment at or prior to the Closing of the following
conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company and Z/C set forth in Article II hereof shall be
true and correct as of the date of this Agreement and at and as of the Closing,
except where the failure of such representations and warranties to be true and
correct would not result in any Material Adverse Effect; provided, however that,
notwithstanding anything to the contrary in this Section 6.02(a), there shall be
deemed to be no Material Adverse Effect if:
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(i) in the event Signing Discrepancies exceed $1,000,000 in the
aggregate, Z/C pays to the Surviving Corporation at the Closing an amount in
cash equal to the excess of the Signing Discrepancies over $1,000,000 (it being
understood that Z/C shall have the right, but under no circumstances the
obligation, to make such payment); and
(ii) in the event Changes After Signing exceed $2,000,000 in the
aggregate, Z/C pays to the Surviving Corporation at the Closing an amount in
cash equal to (x) the excess of the Changes After Signing over $2,000,000, less
(y) the amount of any payment made pursuant to the Section 6.02(a)(i) (it being
understood that Z/C shall have the right, but under no circumstances the
obligation, to make such payment).
(b) COVENANTS AND AGREEMENTS. The Company and Z/C shall have duly
performed and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed by or complied with by
either or both of them prior to or at the Closing. None of the events or
conditions entitling GoodAero to terminate this Agreement under Article VII
hereof shall have occurred and be continuing.
(c) CONSENTS. Any consent required for the consummation of the
Merger under any agreement, contract or license described in any exhibit or
schedule hereto or referred to herein, or for the continued enjoyment by the
Company of the benefits of any Contract or Permit after the Merger, shall have
been obtained.
(d) OPINIONS OF COUNSEL. GoodAero shall have received the opinion
of Rosenberg & Liebentritt as to Z/C and the General Counsel of the Company as
to the Company, each, in form and content satisfactory to GoodAero,
substantially in the form of EXHIBITS 6.02(D) (I) AND (II) hereof.
(e) CERTIFICATE OF THE COMPANY. GoodAero shall have received a
certificate from each of (i) the Company, satisfactory in form and substance to
GoodAero, executed on behalf of the Company by the President of the Company, as
to compliance with the matters set forth in paragraphs (a), (b), (c), (g), (h)
and (j) of this Section 6.02 and (ii) Z/C, satisfactory in form and substance to
GoodAero, executed on behalf of Z/C, as to compliance with the matters set forth
in paragraphs (a), (b) and (h).
(f) RESIGNATION OF DIRECTORS. GoodAero shall have received from the
Company letters of resignation from the directors of the Company.
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(g) CAPITAL STRUCTURE OF THE SURVIVING CORPORATION. The Company
shall have taken those actions set forth in Section 4.06 of this Agreement.
(h) NO ADVERSE DECISION. There shall not be any action taken or
overtly threatened, or any statute, rule, regulation or order enacted, entered,
overtly threatened, or deemed applicable to the transactions contemplated
hereby, by any United States federal or state government or governmental
authority or court that, whether in connection with the grant of a Requisite
Regulatory Approval, any agreement proposed by any United States federal or
state government or governmental authority, or otherwise, (i) requires or could
reasonably be expected to require (x) any divestiture by the Company of a
portion of the business of the Company that GoodAero in its sole judgment
believes will have a material adverse effect on the Company or (ii) imposes any
condition upon the Company that in GoodAero's sole judgment (x) would be
materially burdensome to the Company or (y) would materially increase the costs
incurred or that will be incurred by GoodAero as a result of consummating the
Merger and the other transactions contemplated hereby. There shall be no
action, suit, investigation or proceeding pending or threatened by or before any
Governmental Entity which (i) seeks to restrain, enjoin, prevent the
consummation of or otherwise affect the transactions contemplated by this
Agreement or (ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with any such
transactions.
(i) PROCEEDINGS; RECEIPT OF DOCUMENTS. All corporate and other
proceedings taken or required to be taken in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to GoodAero and GoodAero's counsel, and
GoodAero and GoodAero's counsel shall have received all such information and
such counterpart originals or certified or other copies of such documents as
GoodAero or its counsel may reasonably request. GoodAero shall have received
such other agreements, instruments, approvals, opinions and other documents as
it may reasonably request.
(j) ADVERSE CHANGE. From November 30, 1996 to the Effective Time,
the Company shall not have suffered any Extraordinary Adverse Event.
(k) AGREEMENTS. The agreements with AA, the Aircraft Creditors and
Ameritech Corporation, consistent with the terms set forth in EXHIBIT 6.02(K)
hereof (the "Creditor Agreements"), shall have been duly executed and delivered
in form and substance satisfactory to GoodAero in its sole discretion.
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(l) AMENDMENT TO CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Company shall have been amended to read as set forth in
EXHIBIT 1.02 hereof.
(m) AVSA, S.A.R.L. The obligations owed by the Company to AVSA,
S.A.R.L. shall have been resolved in form and substance satisfactory to GoodAero
in its sole discretion.
(n) STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement in the form
of EXHIBIT 6.02(N) hereof (the "Stockholders' Agreement") shall have been duly
executed and delivered.
(o) CANCELLATION OF COMPANY STOCK OPTIONS. All of the Company Stock
Options issued prior to the Effective Time, if any, and all declared, undeclared
or accrued, but unpaid, dividends on shares of Company Stock shall have been
cancelled without any payment being made by the Company in consideration
therefor.
(p) CANCELLATION OF CERTAIN DEBT SECURITIES. All of the Company's
subordinated debt securities issued and outstanding immediately prior to the
Effective Time, plus all declared or accrued but unpaid interest thereon, if
any, (collectively, "Company Debt Securities") shall have been cancelled without
any payment being made by the Company in consideration therefor.
(q) PAYMENT OF SPECIAL BONUSES. Z/C shall have paid the Special
Bonuses.
(r) STOCK SUBSCRIPTION. Z/C shall have subscribed for 2548 shares of
Surviving Corporation Common Stock and paid an amount equal to $7,000,000 in
consideration therefor.
SECTION 6.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND Z/C TO
EFFECT THE MERGER. The obligations of the Company and Z/C under this Agreement
to effect the Merger are subject to the fulfillment at or prior to the Closing
of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of GoodAero set forth in Article III hereof shall be true and
correct in all material respects as of the date when made and at and as of the
Closing.
(b) COVENANTS. GoodAero shall have duly performed and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing. None of the
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events or conditions entitling the Company or Z/C to terminate this Agreement
under Article VII shall have occurred and be continuing.
(c) CERTIFICATE OF GOODAERO. The Company shall have received a
certificate of GoodAero, satisfactory in form and substance to the Company,
executed on behalf of GoodAero by the President of GoodAero, as to compliance
with the matters set forth in paragraphs (a), (b) and (f) of this Section 6.03.
(d) OPINION OF COUNSEL. The Company and Z/C shall have received the
opinion of Fulbright & Jaworski L.L.P., counsel to GoodAero, in form and content
satisfactory to the Company and Z/C, substantially in the form of EXHIBIT
6.03(D) hereto. Z/C shall have received the opinion of the General Counsel of
the Company in the form and content satisfactory to Z/C substantially in the
form of Exhibit 6.02(d)(ii) hereto.
(e) CAPITALIZATION OF GOODAERO. GoodAero shall have capital in the
amount of $15,000,000 cash, net of all liabilities or obligations of GoodAero,
including, without limitation, in connection with the formation of GoodAero and
the transactions contemplated by this Agreement, and the Company and Z/C shall
have received satisfactory evidence thereof.
(f) NO ADVERSE DECISION. There shall not be any action taken or
overtly threatened, or any statute, rule, regulation or order enacted, entered,
overtly threatened, or deemed applicable to the transactions contemplated
hereby, by any United States federal or state government or governmental
authority or court that, whether in connection with the grant of a Requisite
Regulatory Approval, any agreement proposed by any United States federal or
state government or governmental authority, or otherwise, (i) requires or could
reasonably be expected to require (x) any divestiture by the Company of a
portion of the business of the Company that the Company or Z/C in its reasonable
judgment believes will have a material adverse effect on the Company or (ii)
imposes any condition upon the Company that in the Company's or Z/C's reasonable
judgment will be materially burdensome to the Company. There shall be no
action, suit, investigation or proceeding pending or threatened by or before any
Governmental Entity which (i) seeks to restrain, enjoin, prevent the
consummation of or otherwise affect the transactions contemplated by this
Agreement or (ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with any such
transaction, other than with respect to those matters identified in Section 4.07
for which Z/C shall be responsible.
(g) PROCEEDINGS; RECEIPT OF DOCUMENTS. All corporate and other
proceedings taken or required to be taken in connection with the transactions
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contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company and Z/C and, the Company and
Z/C counsel, and the Company and Z/C and the Company and Z/C's counsel shall
have received all such information and such counterpart originals or certified
or other copies of such documents as the Company and Z/C or its counsel may
reasonably request. The Company and Z/C shall have received such other
agreements, instruments, approvals, opinions and other documents as it may
reasonably request.
(h) AVSA, S.A.R.L. The obligations owed by the Company to AVSA,
S.A.R.L. shall have been resolved in form and substance reasonably satisfactory
to the Company and Z/C in their reasonable discretion.
(i) CREDITOR AGREEMENTS. The Creditor Agreements shall have been
duly executed and delivered in form and substance reasonably satisfactory to the
Company and Z/C in their reasonable discretion.
(j) STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement shall have
been duly executed and delivered.
SECTION 6.04. ADDITIONAL CONDITION TO THE OBLIGATIONS OF Z/C TO
EFFECT THE MERGER. The obligations of Z/C to effect the Merger are subject to
the fulfillment at or prior to the Closing of the following additional
condition. At GoodAero's sole cost and expense, not to exceed $7,000,000 in the
aggregate: (i) Z/C shall have been released in full (up to $7,000,000 in the
aggregate, which amount includes all amounts referred to in the parenthetical in
Paragraph 6.04(ii) below) from all liabilities and obligations under the First
Bank Guaranty by substitution of a letter of credit or otherwise (provided that
any amounts in excess of $7,000,000 required to obtain such release shall have
been paid by Z/C pursuant to Section 4.07 hereof), and (ii) all amounts (up to
$7,000,000 in the aggregate, which amount includes all amounts referred to in
the parenthetical in Paragraph 6.04(i) above) advanced by Z/C under the First
Bank Guaranty, plus all accrued but unpaid interest thereon, shall have been
returned by First Bank to Z/C.
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ARTICLE VII
TERMINATION, AMENDMENTS AND WAIVERS
SECTION 7.01. TERMINATION. This Agreement may be terminated at any
time prior to the filing of the Certificate of Merger, whether before or after
Stockholder Approval:
(a) by the mutual consent of the Boards of Directors of GoodAero and
the Company and the Executive Committee of Z/C;
(b) by GoodAero, the Company or Z/C if the Effective Time shall not
have occurred on or before the Outside Closing Date, provided that the
terminating party is not in Default;
(c) by the Company or Z/C after the occurrence of a Default by
GoodAero;
(d) by GoodAero after the occurrence of a Default by the Company;
(e) by GoodAero, if, after the date of this Agreement, there shall
have occurred an Extraordinary Adverse Event.
SECTION 7.02. EFFECT OF TERMINATION.
In the event of termination of this Agreement by either the Company,
Z/C or GoodAero as provided in Section 7.01 hereof, this Agreement shall, except
as provided in this Section 7.02, forthwith become void and there shall not be
any liability or obligation with respect to the terminated provisions of this
Agreement on the part of the Company Group, Z/C Group or GoodAero Group, except
and to the extent such termination results from the willful breach by a party of
any of its representations, warranties or agreements hereunder. The termination
of this Agreement shall not relieve Z/C of its obligations under Section 2.21 or
GoodAero of its obligations under Section 3.07 and the second sentence of
Section 4.01 or any party of its obligations under Section 10.10.
SECTION 7.03. AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken by their respective Boards of Directors or
Executive Committees, at any time before or after Stockholder Approval but,
after any such Stockholder Approval, no amendment shall be made which decreases
the consideration to be received for shares of GoodAero Stock in the Merger or
which in any way materially and adversely affects the rights of the holders of
Company Stock without the further approval of such holders. This
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Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
SECTION 7.04. WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken by their respective Boards of Directors or
Executive Committees or pursuant to delegated authority therefrom, may (i)
extend the time for the performance of any of the obligations or other acts of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party hereto contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the agreements
or conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
SECTION 8.01. SURVIVAL. Except as otherwise specifically provided in
this Section 8.01, Section 8.02 or Section 8.03, none of the representations,
warranties, covenants or agreements made by the Company and/or Z/C, or GoodAero
and/or GoodAero Stockholders in this Agreement or in any closing certificate or
instrument delivered in connection herewith shall survive the Closing.
Notwithstanding the foregoing, the representations and warranties of the parties
contained in Sections 2.01 - 2.06, 2.21, 2.31 - 2.34 and 3.01 - 3.07 hereof
(collectively, the "Surviving Representations and Warranties") shall survive the
Effective Time and shall expire on the date two (2) years after the Effective
Time (the "Expiration Date"). No action or proceeding may be brought with
respect to any of the representations and warranties unless written notice
thereof, setting forth in reasonable detail the nature of the claimed
misrepresentation or breach of warranty, shall have been delivered to the party
alleged to be in breach prior to the Expiration Date. The covenants and
agreements of the parties hereto contained in this Agreement (other than in
Sections 4.01, 4.05, 4.10 and 5.10 which shall not survive the Closing)
(collectively, the "Surviving Covenants") shall survive the Effective Time
without limitation.
SECTION 8.02. INDEMNIFICATION. Subject to the other provisions of
this Article VIII, from and after the Effective Time (a) Z/C shall indemnify and
hold harmless the Company Group and the GoodAero Group from and against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
amounts paid in settlement, losses, claims and damages (collectively, "Losses
and Damages") actually incurred by the
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Company Group and/or the Z/C Group, as the case may be, to the extent they are
the direct result of any breach of the Surviving Representations and Warranties
by the Company or Z/C or nonfulfillment of or failure to perform any of the
Surviving Covenants (other than those contained in Section 4.06) made by or on
behalf of the Company or Z/C under this Agreement, and (b) GoodAero Stockholders
shall jointly and severally indemnify and hold harmless the Z/C Group and the
Company Group from and against any Losses and Damages actually incurred by the
Z/C Group and/or the Company Group, as the case may be, to the extent they are
the direct result of any breach of the Surviving Representations and Warranties
by GoodAero or the GoodAero Stockholders or nonfulfillment of or failure to
perform any of the Surviving Covenants by or on behalf of GoodAero or the
GoodAero Stockholders under this Agreement or the nonfulfillment of or failure
to perform the covenants and agreements of the Surviving Corporation contained
in Section 4.06(iii).
SECTION 8.03. ENVIRONMENTAL INDEMNIFICATION.
(a) For purposes of this Section 8.03 only, the term "Environmental
Liabilities" shall mean (i) Environmental Liabilities as defined in Article IX
hereof, and (ii) all Losses and Damages to the extent they are the direct result
of a breach of the representations and warranties in Section 2.13(b).
(b) From and after the Effective Time, Z/C shall indemnify and hold
harmless the GoodAero Stockholders from and against all Environmental
Liabilities actually incurred directly by the GoodAero Stockholders that arise
from Environmental Conditions which were caused directly by or arise from acts
or omissions of the Company which occurred before the Effective Time; provided
that in no event shall Z/C be responsible for Environmental Liabilities incurred
by GoodAero Stockholders that arise from Environmental Conditions which were
caused by or arise from acts or omissions of the Company or any other Person
(other than Z/C) after the Effective Time. In the event that Environmental
Liabilities arise from Environmental Conditions which were caused by or arise
from acts or omissions which occurred both before and after the Effective Time,
such liabilities shall be allocated between the periods before and after the
Effective Time based upon the relative contribution of the acts or omissions
occurring in each period to such Environmental Liabilities and then only that
share of the Environmental Liabilities allocated to the periods before the
Effective Time will be deemed to be allocated to Z/C.
The indemnification set forth in this subsection (b) shall survive the Effective
Time without limitation.
(c)(i) Subject to Section 8.03(c)(ii), from and after the Effective
Time, Z/C shall indemnify and hold harmless the Company from and against all
Environmental
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Liabilities actually incurred by the Company that arise from Environmental
Conditions which were caused directly by or arise from acts or omissions of the
Company which occurred before the Effective Time; provided that in no event
shall Z/C be responsible for Environmental Liabilities incurred by the Company
that arise from Environmental Conditions which were caused by or arise from acts
or omissions of the Company or any other Person (other than Z/C) after the
Effective Time. In the event that Environmental Liabilities arise from
Environmental Conditions which were caused by or arise from acts or omissions
which occurred both before and after the Effective Time, such liabilities shall
be allocated between the periods before and after the Effective Time based upon
the relative contribution of the acts or omissions occurring in each period to
such Environmental Liabilities and then only that share of the Environmental
Liabilities allocated to the periods before the Effective Time will be deemed to
be allocated to Z/C.
(ii) Notwithstanding anything to the contrary in Section 8.03(c)(i):
(A) the Company shall not be entitled to recover any amount under Section
8.03(c)(i) until the total amount which the Company would be entitled to recover
under Section 8.03(c)(i), but for this Section 8.03(c)(ii)(A) (the "Gross
Indemnity Amount"), exceeds Two Million ($2,000,000), and then the Company shall
only be entitled to recover the excess of the Gross Indemnity Amount over Two
Million ($2,000,000); and (B) the Company shall not be entitled to recover any
amount under Section 8.03(c)(i) in the event that Z/C and its Permitted
Transferees, if any, (as defined in the Stockholders Agreement) transfer to the
treasury of the Company all of the Surviving Corporation Common Stock then held
by Z/C and its Permitted Transferees, if any, in which case (x) Z/C and its
Permitted Transferees shall no longer be stockholders of the Surviving
Corporation and (y) Z/C shall have no further liability or obligation of any
kind to the Company under Section 8.03(c)(i).
The indemnification set forth in this subsection (c) shall survive until the
Expiration Date.
SECTION 8.04. PROCEDURES. The Z/C Group, the Company Group, the
GoodAero Stockholders or the GoodAero Group, as the case may be, are referred to
herein as the "Indemnified Parties." If an Indemnified Party intends to seek
indemnity under this Article VIII, such Indemnified Party shall promptly notify
Z/C or GoodAero Stockholders, as the case may be (the "Indemnifying Party"), in
writing of such claims setting forth the basis for and the amount of such claims
in reasonable detail, provided that the failure to provide such notice shall not
affect the obligations of the Indemnifying Party unless it is actually
prejudiced thereby, subject, however, to the time period in Section 8.01 hereof.
In the event such claim involves a claim by a third party against the
Indemnified Party, the Indemnifying Party shall have thirty (30) days (the "30
Day Period") after receipt of such notice to decide whether it will undertake,
conduct and control, through counsel of its own choosing and at its own expense,
the settlement or
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defense thereof, and if it so decides, the Indemnified Party shall cooperate
with it in connection therewith, provided that the Indemnified Party may
participate (subject to the Indemnifying Party's control) in such settlement or
defense through counsel chosen by it, and provided further that the fees and
expenses of such Indemnified Party's counsel shall be borne by the Indemnified
Party; PROVIDED, HOWEVER, that any Indemnified Party is hereby authorized prior
to any notice from the Indemnifying Party of its undertaking of the defense, to
file any motion, answer or other pleading which the Indemnified Party shall
reasonably deem necessary to protect its interests and which shall otherwise
have become due, provided further, however, that, within the 30 Day Period, no
such motion, answer or other pleading shall agree to pay, settle or otherwise
concede or compromise the matter which is the subject of the claim for
indemnification. The Indemnifying Party may, without the consent of the
Indemnified Party, settle or compromise or consent to the entry of any judgment
in any action involving only the payment of money which includes as an
unconditional term thereof the delivery by the claimant or plaintiff to the
Indemnified Party of a duly executed written release of the Indemnified Party
from all liability in respect of such action which written release shall be
reasonably satisfactory in form and substance to counsel for the Indemnified
Party. The Indemnifying Party shall not, without the written consent of the
Indemnified Party settle or compromise any action involving relief other than
the payment of money in any manner that, in the reasonable judgment of the
Indemnified Party, would materially and adversely affect the Indemnified Party;
provided, however, that if the Indemnified Party shall fail or refuse to consent
to a settlement, compromise or judgment proposed by the Indemnifying Party and
approved by the third Person in any such action and a judgment thereafter shall
be entered or a settlement or compromise thereafter shall be effected on terms
less favorable in the aggregate to the Indemnified Party than the settlement,
compromise or judgment proposed by the Indemnifying Party, the Indemnifying
Party shall have no liability hereunder with respect to any Losses and Damages
in excess of those that were provided for in the settlement, compromise or
judgment proposed by the Indemnifying Party or any costs or expenses related to
such claim arising after the date such settlement, compromise or judgment was so
proposed. If the Indemnifying Party does not notify the Indemnified Party
within thirty (30) days after the receipt of the Indemnified Party's notice of a
claim of indemnity hereunder that it elects to undertake the defense thereof,
the Indemnified Party shall have the right to contest, settle or compromise the
claim but shall not thereby waive any right to indemnity therefor pursuant to
this Agreement. So long as the Indemnifying Party is contesting any such claim
in good faith, the Indemnified Party shall not pay, settle or otherwise concede
or compromise any such claim, unless such settlement includes as an
unconditional term thereof the delivery by the claimant or plaintiff and by the
Indemnified Party to the Indemnifying Party of duly executed written releases of
the Indemnifying Party from all liability in respect of such claim which written
releases shall be reasonably satisfactory in form and substance to counsel for
the Indemnifying Party at
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no cost to the Indemnifying Party. The Indemnified Party shall cooperate fully
in all aspects of any investigation, defense, pre-trial activities, trial,
compromise, settlement or discharge of any claim in respect of which indemnity
is sought pursuant to this Article VIII.
SECTION 8.05. TAX, INSURANCE AND OTHER BENEFITS. The amount of any
claim by an Indemnified Party shall be reduced by any Tax, insurance or other
benefits which such party or its Group receives in respect of or as a result of
such claim or the facts or circumstances relating thereto. If any Losses and
Damages for which indemnification is provided hereunder are subsequently reduced
by any Tax benefit, insurance payment or other recovery from a third party, the
amount of such reduction shall be remitted to the Indemnifying Party.
SECTION 8.06. INDEMNIFICATION EXCLUSIVE REMEDY. Subject to Section
10.03 hereof, from and after the Effective Time, indemnification pursuant to
(and to the extent afforded by) the provisions of this Article VIII shall be the
exclusive remedy of the parties for any branch of any representations,
warranties, covenants or agreements made by any party in this Agreement or in
any closing certificate or instrument delivered in connection herewith. Subject
to Section 10.03 hereof, from and after the Effective Time, the only legal
action which may be asserted by any party with respect to any matter which is
the subject of this Article VIII shall be a contract action to enforce, or to
recover damages for the breach of, this Article VIII.
ARTICLE IX
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"AA" shall mean AMR Corporation and its Affiliates.
"Affiliate" or "affiliate" shall mean, with respect to any Person, any
Person that, directly or indirectly, controls or is controlled by or is under
common control with such Person.
"Agreement" shall mean this Agreement and Plan of Merger.
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"Aircraft Creditors" shall mean Fokker Aircraft B.V., Wings Aircraft
Finance, Inc., Stockholm Aircraft Finance V B.V., DASA Netherlands XVI B.V., and
Debis AirFinance B.V.
"Audited Financial Statements" shall have the meaning given such term in
Section 2.07(a) hereof.
"Business Day" shall mean any day, other than a Saturday, Sunday or legal
holiday under the Federal laws of the United States.
"Certificate of Merger" shall have the meaning given such term in Section
1.02(b) hereof.
"Changes After Signing" shall mean the failure of representations and
warranties to be true and correct in all respects at and as of the Closing
(other than by reason of the failure of such representations and warranties to
be true and correct in all respects as of the date hereof).
"Class A Common Stock" shall mean the Class A Common Stock, par value $.01
per share, of the Company.
"Class B Common Stock" shall mean the Class B Common Stock, par value $.01
per share, of the Company.
"Class C Common Stock" shall mean the Class C Common Stock, par value $.01
per share, of the Company.
"Closing" shall have the meaning given such term in Section 1.02 hereof.
"Closing Date" shall be the date on which Closing occurs.
"Code" shall have the meaning given such term in Section 1.12 hereof.
"Company" shall have the meaning given such term in the opening recitals
hereof.
"Company Debt Securities" shall have the meaning given such term in Section
6.02(p) hereof.
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"Company's knowledge", "best of the Company's knowledge," or words of
similar import shall mean the actual knowledge of any of John Selvaggio, Steven
Westberg, Jon Waller, any officer of the Company or any individual holding a
director level position or above at the Company.
"Company Put Obligations" shall have the meaning given to such term in
Section 2.03 hereof.
"Company Stock" shall mean all shares of the Company's capital stock
authorized, issued or outstanding prior to the Effective Time, of whatever class
or series, including, without limitation, all of the Class A Common Stock, Class
B Common Stock, Class C Common Stock, Junior Preferred Stock, Prior Preferred
Stock and Preference Stock of the Company.
"Company Stockholders" shall have the meaning given such term in Section
2.03 hereof.
"Company Stock Options" shall have the meaning given to such term in
Section 2.03 hereof.
"Competing Transaction" shall have the meaning given such term in Section
5.10 hereof.
"Competitor" shall have the meaning given such term in Section 5.10 hereof.
"Constituent Corporations" shall have the meaning given such term in
Section 1.01 hereof.
"Contracts" shall have the meaning given such term in Section 2.16(a)
hereof.
"Creditor Agreements" shall have the meaning given such term in Section
6.02(k) hereof.
"Default" shall mean, as to any party to this Agreement, a default by such
party in the performance of any of its material obligations hereunder and the
continuation of such default for a period of 5 days after notice if the Company
or Z/C (in the case of a default by GoodAero) or GoodAero (in the case of a
default by the Company or Z/C) shall thereafter notify such defaulting party
that a Default has occurred.
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"Dissenting Stockholders" shall have the meaning given such term in
Section 1.09 hereof.
"Effective Time" shall have the meaning given such term in Section 1.02(b)
hereof.
"Employee Plan" shall have the meaning given such term in Section 2.17(a)
hereof.
"Environmental Conditions" means any pollution, contamination, degradation,
damage or injury caused by, related to, arising from, or in connection with the
generation, handling, use, treatment, storage, transportation, disposal,
discharge, Release (as that term is defined below), or emission of any
"Hazardous Substance."
"Environmental Law" or "Environmental Laws" shall mean all federal, state,
local, or municipal laws, statutes, rules, regulations, directives, guidances,
policies, ordinances, decrees, orders, and decisions of any Governmental Entity,
including judicial decisions at common law, relating to (i) the control of any
potential pollutant or protection of the air, water or land, (ii) solid, gaseous
or liquid waste generation, handling, treatment, storage, disposal or
transportation, and (iii) exposure to hazardous, toxic or other substances
alleged to be harmful, and includes without limitation, (1) the terms and
conditions of any Environmental Permit, and (2) judicial, administrative, or
other regulatory decrees, judgments, orders, and decisions of any Governmental
Entity. The term "Environmental Laws" shall include, but not be limited to the
following statutes and the regulations promulgated thereunder: the Clean Air
Act, 42 U.S.C. Section 7401 ET SEQ., the Clean Water Act, 33 U.S.C. Section 1251
ET SEQ., the Resource Conservation Recovery Act ("RCRA"), 42 U.S.C. Section 6901
ET SEQ., the Superfund Amendments and Reauthorization Act, 42 U.S.C. Section
11011 ET SEQ., the Toxic Substances Control Act, 15 U.S.C. Section 2601 ET
SEQ., the Water Pollution Control Act, 33 U.S.C. Section 1251, ET SEQ., the
Safe Drinking Water Act, 42 U.S.C. Section 300f ET SEQ., the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 ET SEQ., and the Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. Section 11001 ET SEQ. The term "Environmental Law" shall also
mean all foreign, federal, state, local, and municipal laws, statutes, rules,
regulations, directives, guidances, policies, ordinances, decrees, orders, and
decisions of any Governmental Entity dealing with the subject matter of the
above-listed federal statutes, the subject matter of subparagraphs (i) through
(iii) above, or promulgated by any governmental or quasi-governmental agency
with authority over such matters in those municipalities, localities, states,
and countries in which the Company owns (or owned) assets or conducts (or
conducted) business.
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"Environmental Liabilities" shall mean any and all costs (including
Environmental Remediation Costs), damages, settlements, expenses, penalties,
fines, taxes, prejudgment and post-judgment interest, court costs and attorneys'
fees incurred or imposed (i) pursuant to any order, notice of responsibility,
directive, injunction, judgment or similar act (including settlements) by any
Governmental Entity to the extent arising out of or under Environmental Laws or
(ii) pursuant to any claim or cause of action by a Governmental Entity or other
third Person for personal injury, property damage, damage to natural resources,
Environmental Remediation Costs to the extent arising out of or attributable to
any violation of, or any remedial obligation under, any Environmental Law.
"Environmental Permit" shall mean any license, permit, registration,
consent, identification number, authorization, or other approval required for
the operation of the Company by any Environmental Law.
"Environmental Remediation Costs" shall mean all costs and expenses
relating to activities or actions to (i) clean up or remove Hazardous Substances
from the environment, (ii) prevent or minimize the movement, leaching, or
migration of Hazardous Substances into the environment, (iii) mitigate the
Release or threatened Release of Hazardous Substances into the environment, or
the injury or damage from such Release, or (iv) comply with the requirements of
any Environmental Laws or permits. Environmental Remediation Costs include,
without limitation, costs and expenses payable in connection with the foregoing
for reasonable legal, engineering, or other related services; for investigation,
testing, sampling, and monitoring; for boring, excavation, and construction; for
removal, modification or replacement of equipment or facilities; for labor and
material; and for proper storage, treatment or disposal of Hazardous Substances.
"Environmental Reports" shall mean any written audits, assessments,
evaluations, inspections, investigations, laboratory testing, checklists, and
surveys performed by or for any Person relating to Environmental Conditions or
compliance with Environmental Laws at any facility or parcel of real property
owned or leased at any time by the Company.
"EPA" shall mean the United States Environmental Protection Agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company would be deemed to be a "single
employer"
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within the meaning of Section 4001(b)(1) of ERISA or subsections (b), (c), (m)
or (o) of Section 414 of the Code.
"Exchange Act" shall have the meaning given such term in Section 8.05.
"Extraordinary Adverse Event" shall mean:
(i) the Company shall fail to have in force any certificates or
authorizations required by the Federal Aviation Administration or the
United States Department of Transportation to operate a commercial airline
in the United States, or any proceeding shall be pending or overtly
threatened with respect thereto, or the Company shall have agreed to a
complete or partial suspension of service covered by said certificates and
authorizations;
(ii) the filing of any petition or the commencement of any case or
proceeding by the Company under any provision or chapter of the Federal
Bankruptcy Code or any other federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization;
(iii) the filing of any petition or the commencement of any case or
proceeding described in subparagraph (ii) above against the Company or any
of its assets; or the filing of an answer by the Company admitting the
allegations of any such petition, case or proceeding; or the appointment of
or the taking of possession by a custodian, trustee, agent or receiver for
a material portion of the assets of the Company in any such case or
proceeding; or an adjudication that the Company is bankrupt; or
(iv) any accident that results in a passenger fatality or any material
damage to an aircraft.
"Financial Statements" shall have the meaning given such term in Section
2.07(a) hereof.
"First Bank" shall mean First Bank National Association, a national banking
association
"First Bank Guaranty" shall mean that certain Guaranty and Pledge
Agreement, dated as of August 22, 1996, as amended through the Closing, made and
given by Z/C in favor of First Bank, in consideration of certain accommodations
extended by
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First Bank to the Company relating to that certain Processing Agreement, dated
as of April 1, 1994 as thereafter amended, by and between the Company and First
Bank.
"Fully Diluted Surviving Corporation Stock" shall mean (i) all Surviving
Corporation Common Stock issuable upon conversion of the Senior Convertible
Preferred Stock issued to GoodAero in the Merger; plus (ii) all Surviving
Corporation Common Stock issued to Z/C as contemplated by Section 4.06 hereof;
plus (iii) all Surviving Corporation Common Stock issued, or reserved for
issuance, to management employees of the Surviving Corporation as of the Closing
as contemplated by Section 4.06, plus (iv) all Surviving Corporation Common
Stock issued, or reserved for issuance, to AA and the Aircraft Creditors as of
the Closing as contemplated by Section 4.06 hereof, plus (v) all Surviving
Corporation Common Stock reserved for issuance to Robert R. Ferguson, III as of
the Closing as contemplated by Section 4.06 hereof.
"GAAP" shall have the meaning given such term in Section 2.07(b) above.
"GCL" shall mean the General Corporation Law of the State of Delaware.
"GoodAero" shall have the meaning given such term in the opening recitals
hereof.
"GoodAero Costs and Expenses" shall have the meaning given such term in
Section 10.11 hereof.
"GoodAero Stock" shall mean all shares of GoodAero's capital stock,
authorized, issued or outstanding prior to the Effective Time, of whatever class
or series.
"GoodAero Stockholders" shall have the meaning given such term in the
opening recitals hereof.
"Governmental Entity" shall mean any foreign or domestic court,
administrative agency or commission or other governmental authority or
instrumentality.
"Gross Indemnity Amount" shall have the meaning given such term in Section
8.03(c)(ii).
"Group" shall mean a Person and such Person's Affiliates and their
respective directors, members of their executive committees, officers,
employees, representatives, stockholders, controlling persons and agents and
each of the heirs, executors, successors and assigns of any of the foregoing.
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"Hazardous Substance" shall mean any chemical, waste, pollutant, or
contaminant that is regulated under any Environmental Law and includes but is
not limited to: (A) petroleum and petroleum substances, (B) asbestos, (C)
polychlorinated byphenyls, (D) any substance designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act,
33 U.S.C. Section 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317),
(E) any substance defined as a "hazardous substance" pursuant to Section 101 of
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 ET SEQ. (42 U.S.C. Section 9601), and the Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. Section 11001 ET SEQ., (F) any
substance defined as a "solid waste" or a "hazardous waste" pursuant to Section
1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 ET SEQ. (42 U.S.C. Section 6903), and (G) any substance regulated by any
state, local, municipal, or foreign governmental entity with authority dealing
with the subject matter of the above-listed federal Environmental Laws.
"Indemnified Parties" shall have the meaning given such term in Section
8.02 hereof.
"Indemnifying Party" shall have the meaning given such term in Section 8.03
hereof.
"Intellectual Property" shall have the meaning given such term in Section
2.26 hereof.
"Interim Financial Statements" shall have the meaning given such term in
Section 2.07(a) hereof.
"IRS" shall mean the Internal Revenue Service.
"Junior Preferred Stock" shall mean Junior Preferred Stock, $.01 par value,
of the Company.
"Last Regulatory Approval" shall mean the final Requisite Regulatory
Approval required or advisable and sought by applicable federal laws of the
United States and laws of any state or foreign country having jurisdiction over
the Merger, if any, for the Merger to be consummated from any agency or
instrumentality of the United States or of such state or foreign country,
including the expiration of any applicable waiting period.
"Leased Premises" shall have the meaning set forth in Section 2.14 hereof.
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"Losses and Damages" shall have the meaning given such term in Section 8.02
hereof.
"Material Adverse Effect" shall mean a material adverse effect on the
business, financial condition, results of operations, assets, liabilities and
properties of the Company measurable solely in monetary terms and aggregating,
in the reasonable judgment of GoodAero, in excess of $1,000,000 as to Signing
Discrepancies and in excess of $2,000,000 as to Signing Discrepancies and
Changes after Signing.
"Merger" shall have the meaning given such term in Section 1.01 hereof.
"November 30 Balance Sheet" shall have the meaning given such term in
Section 2.07(a) hereof.
"Outside Closing Date" shall mean January 31, 1997, or, if by January 31,
1997, the Last Regulatory Approval has not been received, but all applications
therefor have been completed and are pending, and the parties have no reasonable
cause to believe the same will be denied, such later date as the parties shall
mutually agree upon, it being understood that the parties shall act reasonably
and in good faith to extend the Outside Closing Date beyond January 31, 1997, as
warranted to accommodate the governmental consent and approval process.
"PBGC" shall have the meaning given such term in Section 2.17(b) hereof.
"Permits" shall mean all franchises, licenses, authorizations, approvals,
permits (excluding Environmental Permits), consents or other rights granted by
Federal, state or local governmental authorities and all certificates of
convenience or necessity, immunities, privileges, licenses, consents, grants,
ordinances and other rights, of every character whatsoever required for the
conduct of business and the use of properties as presently conducted or used.
"Person" shall mean an individual, corporation, partnership, joint venture,
trust or unincorporated organization, or a government or any agency or political
subdivision thereof.
"Preference Stock" shall mean Preference Stock, $.01 par value, of the
Company.
"Prior Preferred Stock" shall mean Prior Preferred Stock, $.01 par value,
of the Company.
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"Product Liability" shall have the meaning given such term in Section 2.24
hereof.
"Regulatory Authority" shall mean any United States Federal or state
government or governmental authority the approval of which, or filing with, is
legally required or permitted for consummation of the Merger and the other
transactions contemplated hereby.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the environment of any Hazardous Substances.
"Requisite Regulatory Approvals" shall have the meaning given such term in
Section 6.01(c) hereof.
"Senior Convertible Preferred Stock" shall have the meaning given such term
in Section 1.07 hereof.
"Signing Discrepancies" shall mean the failure of representations and
warranties to be true and correct in all respects as of that date of this
Agreement.
"Special Bonuses" shall mean bonuses or other payments payable to Company
personnel upon consummation of the transactions contemplated by this Agreement
without regard to whether the recipient's employment has been terminated.
"Stockholder Approval" shall mean the written consent by the holders of the
number of outstanding shares of capital stock of the Company or GoodAero, as the
case may be, required under the GCL and the applicable certificate of
incorporation to approve this Agreement, the Merger and the transactions
contemplated hereby.
"Stockholders' Agreement" shall have the meaning given such term in Section
6.02(n) hereof.
"Surviving Corporation" shall have the meaning given such term in Section
1.01 hereof.
"Surviving Corporation Common Stock" shall mean the common stock, no par
value, of the Surviving Corporation.
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"Surviving Covenants" shall have the meaning given such term in Section
8.01 hereof.
"Surviving Representations and Warranties" shall have the meaning given
such term in Section 8.01 hereof.
"Tax" shall have the meaning given such term in Section 2.11 hereof.
"Taxes" shall have the meaning given such term in Section 2.11 hereof.
"Tax Return(s)" shall have the meaning given such term in Section 2.11
hereof.
"Third Party Approvals" shall have the meaning given such term in Section
10.01 hereof.
"30 Day Period" shall have the meaning given such term in Section 8.04.
"Trademarks" shall have the meaning given such term in Section 2.26 hereof.
"Z/C" shall have the meaning given such term in the opening recitals
hereof.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. TAKING OF NECESSARY ACTION. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees, subject to
applicable laws, to use all commercially reasonable efforts promptly to take or
cause to be taken all action and promptly to do or cause to be done all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the foregoing, the Company, GoodAero and Z/C shall use their
commercially reasonable efforts to obtain and make all consents, approvals,
assurances and filings of or with third parties (the "Third Party Approvals")
and Governmental Entities necessary or, in the reasonable opinion of GoodAero,
the Company or Z/C, advisable for the consummation of the transactions
contemplated by this Agreement. Each party shall cooperate with the other in
good faith to help the other satisfy its obligations in this action. If at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, or to vest the
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Surviving Corporation with full title to and benefits of all properties, assets,
rights, approvals, immunities and franchises of GoodAero, the proper officers or
directors of the Surviving Corporation, shall take all such necessary action.
SECTION 10.02. EFFECT OF DUE DILIGENCE. No investigation by or on behalf
of GoodAero into the business, operations, prospects, assets or condition
(financial or otherwise) of the Company shall diminish in any way the effect of
any representations or warranties made by the Company and Z/C in this Agreement
or shall relieve the Company and Z/C of any of their respective obligations
under this Agreement.
SECTION 10.03. SPECIFIC PERFORMANCE. GoodAero, the Company, Z/C and the
GoodAero Stockholders understand and agree that the covenants and undertakings
on each of their parts herein contained are uniquely related to the desire of
GoodAero, the GoodAero Stockholders, the Company and Z/C to consummate the
Merger, that the Merger is a unique business opportunity for the Company, Z/C,
GoodAero and the GoodAero Stockholders, and that, although monetary damages may
be available for the breach of such covenants and undertakings, monetary damages
would be an inadequate remedy therefor. Accordingly, the Company, Z/C, GoodAero
and the GoodAero Stockholders agree that GoodAero and the GoodAero Stockholders
shall be entitled to obtain specific performance and obligations by the Company
and Z/C of every such covenant and undertaking contained herein to be performed
by the Company and Z/C and that the Company and Z/C shall be entitled to obtain
specific performance from GoodAero and the GoodAero Stockholders of each and
every covenant and undertaking herein contained to be observed or performed by
GoodAero and/or the GoodAero Stockholders.
SECTION 10.04. ANNOUNCEMENTS. Until the Effective Time and except for any
public disclosure which the Company and GoodAero in good faith believe is
required by law, no party to this Agreement shall issue any press release or
make any public statement (including without limitation statements to employees,
customers and suppliers) regarding the transactions contemplated hereby, without
the prior written approval of the other party which will not be unreasonably
withheld; provided, that nothing herein shall prohibit the Company, Z/C or their
representatives from communicating with the stockholders and creditors of the
Company with respect to this Agreement and the terms hereof, provided that such
Persons shall be informed of the confidential nature of this Agreement in
connection with any such communication.
SECTION 10.05. SUCCESSORS AND ASSIGNS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent
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of the other parties hereto. Notwithstanding the foregoing, GoodAero may assign
its rights and obligations in this Agreement to a direct or indirect wholly
owned subsidiary of GoodAero. No other Person will have any rights or
obligations hereunder except as provided in Article VIII with respect to
Indemnified Parties. Notwithstanding the foregoing GoodAero Stockholders may
assign or otherwise transfer their rights under Section 8.03 hereof to their
Permitted Transferees as defined in the Stockholders' Agreement.
SECTION 10.06. ENTIRE AGREEMENT. This Agreement, together with the
Schedule and Exhibits hereto, contains the entire agreement among the parties
hereto with respect to the Merger, this Agreement and the transactions
contemplated thereby.
SECTION 10.07. NOTICES. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
If to GoodAero or the GoodAero Stockholders, to:
GoodAero, Inc.
SAS Campus Drive
Cary, North Carolina 27513
Attention: James H. Goodnight, Ph.D
with copies to:
GoodAero, Inc.
SAS Campus Drive
Cary, North Carolina 27513
Attention: W. Greyson Quarles
Howard Wolf, Esq.
Fulbright & Jaworski L.L.P.
1301 McKinney Street
Houston, Texas 77010
Marilyn Mooney, Esq.
Fulbright & Jaworski L.L.P.
801 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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<PAGE>
If to the Company, to:
Midway Airlines Corporation
300 West Morgan Street, 12th Floor
Durham, North Carolina 27701
Attention: Chief Executive Officer
with copy to:
Midway Airlines Corporation
300 West Morgan Street, 12th Floor
Durham, North Carolina 27701
Attention: General Counsel
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If to Z/C, to:
Zell/Chilmark Fund, L.P.
Two North Riverside Plaza, Suite 1900
Chicago, Illinois 60606
Attention: Rod Dammeyer
with copies to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1515
Chicago, Illinois 60606
Attention: Alisa M. Singer
SECTION 10.08. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without reference to or application of any conflicts of laws principles.
SECTION 10.09. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 10.10. EXPENSES. Subject to Section 4.08, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring the same (including, but not limited to, fees and expenses of legal
counsel, accountants, investment bankers, brokers or other representatives or
consultants); provided, however, that Z/C and not the Company (or the Surviving
Corporation) shall be responsible for any such fees and expenses incurred by
either of them, other than fees and expenses related to (a) obtaining the
Requisite Regulatory Approvals, (b) restructuring the Company's obligations to
AA, the Aircraft Creditors and any other creditors, and (c) services performed
by the Company's accountants (it being understood that the Company and not Z/C
shall be responsible for the payment of the fees and expenses referred to in the
immediately preceding subparagraphs (a) through (c) of this Section 10.10).
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SECTION 10.11. FEES. If, prior to the Closing, and provided that GoodAero
has not breached this Agreement, (i) Z/C or the Company breaches Section 5.10,
or (ii) Z/C or the Company enters into a letter of intent or definitive
agreement concerning a Competing Transaction, then, (A) within fifteen (15) days
after the closing of such Competing Transaction, Z/C shall pay to GoodAero in
cash an amount equal to $1,000,000 (the "Topping Fee"), and (B) within fifteen
(15) days after the occurrence of any event described in the foregoing clauses
(i) and (ii), Z/C shall pay to GoodAero in cash an amount equal to out-of-pocket
expenses reasonably incurred by GoodAero in connection with this Agreement and
the transactions contemplated hereby which are supported by reasonable
documentation provided to Z/C, (collectively, the "GoodAero Costs and
Expenses"), in each case without interest, which payments will serve as
GoodAero's sole and exclusive remedy in respect of the events described in
subparagraphs (i) and (ii) of this Section 10.11, and GoodAero will not be
entitled to any other rights and remedies provided by law or in equity.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
MIDWAY AIRLINES CORPORATION GOODAERO, INC.
By: /s/ John N. Selvaggio By: /s/ James H. Goodnight
--------------------------------- ---------------------------------
Name: John N. Selvaggio Name: James H. Goodnight
Title: President and CEO Title: President
ZELL/CHILMARK FUND L.P. GOODAERO STOCKHOLDERS
As to Article III, Section 4.02,
Section 4.08,
Article VIII and Article X only
By: /s/ Rod Dammeyer By: /s/ James H. Goodnight
--------------------------------- ---------------------------------
Name: Rod Dammeyer James H. Goodnight, Ph.D
Title: Managing Director
By: /s/ John P. Sall
---------------------------------
John P. Sall
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<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT dated as of January 31, 1997 to Agreement and Plan of
Merger, dated as of January 17, 1997, by and among Midway Airlines Corporation,
a Delaware corporation, GoodAero, Inc., a Delaware corporation, and, for
purposes of Article III, Section 4.02, Section 4.08, Article VIII and Article X
only, James H. Goodnight, Ph.D and John P. Sall (collectively, the "GoodAero
Stockholders"), and Zell/Chilmark Fund L.P., a Delaware limited partnership.
Capitalized terms used and not otherwise defined in this Amendment shall have
the meanings ascribed to them in the Agreement.
The parties hereto agree to amend the definition of "Outside Closing Date"
to read as follows:
"Outside Closing Date" shall mean February 7, 1997, or, if by February
7, 1997, the Last Regulatory Approval has not been received, but all
applications therefor have been completed and are pending, and the parties
have no reasonable cause to believe the same will be denied, such later
date as the parties shall mutually agree upon, it being understood that the
parties shall act reasonably and in good faith to extend the Outside
Closing Date beyond February 7, 1997, as warranted to accommodate the
governmental consent and approval process.
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
MIDWAY AIRLINES CORPORATION GOODAERO, INC.
By: /s/ Jonathan S. Waller By: /s/ James H. Goodnight
--------------------------------- ---------------------------------
Name: Jonathan S. Waller Name: James H. Goodnight
Title: Senior Vice President Title: President
ZELL/CHILMARK FUND L.P. GOODAERO STOCKHOLDERS
By: /s/ Don Liebentritt By: /s/ James H. Goodnight
--------------------------------- ---------------------------------
Don Liebentritt, Vice President James H. Goodnight, Ph.D
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of ZC, Inc., as a partner of
ZC Partnership, as general
partner of ZC Limited Partnership,
as general partner of
Zell/Chilmark Fund L.P. By: /s/ John P. Sall
---------------------------------
John P. Sall
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<PAGE>
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
SECOND AMENDMENT, dated as of February 7, 1997, to Agreement and Plan of
Merger, dated as of January 17, 1997, as amended by First Amendment to Agreement
and Plan of Merger, dated as of January 31, 1997, by and among Midway Airlines
Corporation, a Delaware corporation, GoodAero, Inc., a Delaware corporation,
and, for purposes of Article III, Section 4.02, Section 4.08, Article VIII and
Article X only, James H. Goodnight, Ph.D and John P. Sall (collectively, the
"GoodAero Stockholders"), and Zell/Chilmark Fund L.P., a Delaware limited
partnership. Capitalized terms used and not otherwise defined in this Amendment
shall have the meanings ascribed to them in the Agreement.
The parties hereto agree to the following:
1. Exhibit 1.02, the Certificate of Merger, including the Restated
Certificate of Incorporation attached thereto, shall be amended in its entirety
as set forth in Exhibit A.
2. Section 1.04(b) shall be amended to read as follows:
(b) The By-laws of GoodAero as in effect immediately prior to the
Effective Time in substantially the form as attached hereto as
Exhibit 1.04(b) shall be the By-laws of the Surviving Corporation, until
duly amended in accordance with applicable law, the Certificate of
Incorporation of the Surviving Corporation and such By-laws.
3. Section 1.07 shall be amended to read as follows:
SECTION 1.07. CONVERSION/CANCELLATION OF STOCK. Except as provided in
Section 1.08 hereof, as of the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any shares of GoodAero
Stock, each share of GoodAero Stock issued and outstanding immediately
prior to the Effective Time shall be converted into and become shares of
senior convertible preferred stock of the Surviving Corporation (the
"Senior Convertible Preferred Stock"), at the conversion ratio of 105
shares of Senior Convertible Preferred Stock for each share of GoodAero
Stock, such that the total number of shares of GoodAero Stock outstanding
immediately prior to the Effective Time shall be converted into 5460 shares
of Senior Convertible Preferred Stock in the aggregate. Except as provided
in Sections 1.08 and 1.09 hereof, as of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any Company
Stock, each share of Company Stock issued and outstanding immediately prior
to the
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Effective Time shall be converted at the Effective Time into the right to
receive in cash (the "Cash Consideration") $.01 per outstanding share of
Company Stock. Except as provided in this Section 1.07 and in Section 1.09
hereof, as of and after the Effective Time, no holder of any certificate
that immediately before the Effective Time represented GoodAero Stock or
Company Stock shall have any rights as a holder of GoodAero Stock or
Company Stock, respectively. All options, warrants or other rights, if
any, to acquire any GoodAero Stock or Company Stock existing immediately
before the Effective Time shall be canceled, without any consideration
being payable or paid by the Company therefor.
4. Section 1.10 shall be amended to read as follows:
SECTION 1.10. EXCHANGE OF CERTIFICATES.
(a) At the Effective Time, the Surviving Corporation shall deliver to
the holders of the GoodAero Stock certificates representing in the
aggregate 5460 shares of Senior Convertible Preferred Stock, in exchange
for the certificates representing all the issued and outstanding shares of
GoodAero Stock.
(b) At the Effective Time, Z/C shall deliver to the Company an amount
of funds sufficient in the aggregate to provide all funds necessary for the
Company to disburse the payments to which the holders of Company Stock
shall be entitled, subject to reduction or reimbursement to the extent any
holder of Company Stock entitled to receive the Cash Consideration in the
Merger provides a written waiver and release in form and substance
satisfactory to GoodAero and the Company. As soon as practicable after the
Effective Time, the Company shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Company Stock, a form letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the certificate will pass, only upon delivery of the certificates to the
Company) and instructions for use in effecting the surrender of the
certificate in exchange for the consideration specified in Section 1.07.
Except as set forth in Section 1.13 hereof, payments to holders of Company
Stock shall be made only upon surrender to the Company of their
certificates for shares of Company Stock of the Company and a properly
completed letter of transmittal. Until so surrendered, certificates for
shares of Common Stock shall represent, after the Effective Time, solely
the right to receive the consideration specified in Section 1.07, except as
otherwise provided in Section 1.09 hereof. Stock certificates surrendered
to the Company shall be cancelled. No interest will be paid or will accrue
on the cash payable upon the surrender of any such certificate. If the
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payment is to be made to a person other than the registered holder of the
certificate surrendered, it shall be a condition of such payment that the
certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall
pay any transfer or other taxes required by reason of the payment to the
person other than the registered holder of the certificate surrendered, or
establish to the satisfaction of the Company that such tax has been paid or
is not applicable.
5. Section 1.11 shall be amended to read as follows:
SECTION 1.11. CLOSING OF TRANSFER BOOKS. At the Effective Time, the
stock transfer books of GoodAero and of the Company as to GoodAero Stock
and Company Stock shall be closed and no transfer of shares of GoodAero
Stock or Company Stock shall thereafter be made. If, after the Effective
Time, certificates formerly representing shares of GoodAero Stock or
Company Stock are presented to the Surviving Corporation, they shall be
exchanged for such consideration and cancelled as provided in Section 1.07
hereof.
6. Section 1.13 shall be amended to read as follows:
SECTION 1.13. LOST CERTIFICATES. In the event any certificate for
shares of GoodAero Stock or Company Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed, the Company
shall issue in exchange for such lost, stolen or destroyed certificate
(i) in the case of GoodAero Stock, shares of Senior Convertible Preferred
Stock (and any dividends or distributions with respect thereto and any cash
in lieu of fractional shares) deliverable in respect thereof as determined
herein and (ii) in the case of Company Stock, the Cash Consideration
payable in respect thereof as determined herein. When authorizing such
payment in exchange for any lost, stolen or destroyed Certificate, the
person to whom the (x) Senior Convertible Preferred Stock or (y) the Cash
Consideration, as the case may be, is to be issued shall, if requested by
the Company, give the Company a bond satisfactory to the Company in such
sum as the Company may reasonably direct or otherwise indemnify the Company
in a manner satisfactory to the Company against any claim that may be made
against the Company or GoodAero with respect to the certificate alleged to
have been lost, stolen or destroyed.
7. Section 4.06(ii) shall be amended to read as follows:
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(ii) In connection with the restructuring of the obligations owed by
the Company to AA, debis AirFinance B.V., and Wings Aircraft Finance, Inc.,
at the Closing the Surviving Corporation shall issue (A) warrants for the
purchase of 572 shares of Surviving Corporation Common Stock which
represents 5% of the Fully Diluted Surviving Corporation Stock to AA
pursuant to the agreements concerning AA referred to in Section 6.02(k),
(B) 381 shares of Surviving Corporation Common Stock which represents 3% of
the Fully Diluted Surviving Corporation Stock to debis AirFinance B.V.,
pursuant to any agreements concerning such creditor referred to in Section
6.02(k), and (C) 191 shares of Surviving Corporation Common Stock which
represents 2% of the Fully Diluted Surviving Corporation Stock to Wings
Aircraft Finance, Inc., pursuant to any agreements concerning such creditor
referred to in Section 6.02(k);
8. Section 6.02(n) shall be amended to read as follows:
(n) STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement in
substantially the form of EXHIBIT 6.02(N) hereof (the "Stockholders'
Agreement") shall have been duly executed and delivered.
9. Section 6.02(s) shall be added to read as follows:
(s) Z/C shall have complied with the provisions of Section 1.10(b)
hereof.
10. The definition of "Surviving Corporation Common Stock" shall be
amended to read as follows:
"Surviving Corporation Common Stock" shall mean the common stock, par
value $.01 per share, of the Surviving Corporation.
11. The definition of "Outside Closing Date" shall be amended to read as
follows:
"Outside Closing Date" shall mean February 14, 1997, or, if by
February 14, 1997, the Last Regulatory Approval has not been received, but
all applications therefor have been completed and are pending, and the
parties have no reasonable cause to believe the same will be denied, such
later date as the parties shall mutually agree upon, it being understood
that the parties shall act reasonably and in good faith to extend the
Outside Closing Date beyond February 14, 1997, as warranted to accommodate
the governmental consent and approval process.
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[INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
MIDWAY AIRLINES CORPORATION GOODAERO, INC.
By: /s/ Jonathan Waller By: /s/ James H. Goodnight
--------------------------------- ---------------------------------
Name: Jonathan Waller Name: James H. Goodnight
Title: Senior Vice President Title: President
ZELL/CHILMARK FUND L.P. GOODAERO STOCKHOLDERS
By: /s/ Don Liebentritt By: /s/ James H. Goodnight
--------------------------------- ---------------------------------
Don Liebentritt, Vice President James H. Goodnight, Ph.D
of ZC, Inc., as a partner of
ZC Partnership, as general
partner of ZC Limited Partnership,
as general partner of
Zell/Chilmark Fund L.P.
By: /s/ John P. Sall
---------------------------------
John P. Sall
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EXHIBIT 10.43
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS,
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Void After 5:00 p.m., New York City Time,
on February 11, 2004
_____________________________
OPTION TO PURCHASE SHARES OF COMMON STOCK
OF MIDWAY AIRLINES CORPORATION
Midway Airlines Corporation, a Delaware corporation (the "Company"), hereby
certifies that in consideration of his role as Senior Vice President and Chief
Financial Officer of the Company and other good and valuable consideration,
Steven Westberg (the "Optionee") is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Option, at any time
or times up to 5:00 p.m., New York City time, on February 11, 2004, the
expiration date of this Option, One Hundred Sixty-Four (164) fully paid and
non-assessable shares of the common stock, $.01 par value per share (the "Common
Stock"), at an initial purchase price of $2,747.25 per share, as the same may be
adjusted in accordance with the provisions hereof (the "Exercise Price").
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder, and the term
"Shares" includes all stock of any class, classes or series whether now or
hereafter authorized (however designated) of the Company, the holders of which
shall have the right (without limitation as to amount) either to all or to a
share of the balance of current dividends and liquidating distributions after
the payment of dividends and distributions on any shares entitled to preference.
The number and character of the Shares which may be purchased upon exercise
of this Option and the purchase price per share in effect from time to time are
subject to adjustment from time to time as hereinafter provided.
1. COMPLIANCE WITH THE SECURITIES ACT OF 1933.
The Shares issuable upon exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "Act"). The Optionee, by
acceptance hereof, agrees that
<PAGE>
this Option and all Shares purchased upon exercise hereof will be disposed of
only in accordance with the Act and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder. The Shares shall bear an
appropriate legend to such effect.
2. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER
OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS.
(a) ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Section 2, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(i) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in
shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of
its Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such
dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event specified above
shall occur.
(b) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) hereof need be made
if such adjustment would amount to a change in such Exercise Price of
less than $.05; PROVIDED, HOWEVER, that the amount by which any
adjustment is not made by reason thereof shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(c) ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to paragraph (a), each Option shall thereupon evidence
the right to purchase that number of shares of Common Stock
(calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon exercise of the Option by
the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment.
(d) REORGANIZATIONS. In case of any capital reorganization, other than in
the cases referred to in paragraph (a) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of
2
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such outstanding shares of Common Stock into shares of other stock or
other securities or property), (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter
be deliverable upon exercise of any Option (in lieu of the number of
shares of Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the
number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of such Option would have been entitled
upon such Reorganization if such Option had been exercised in full
immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the
application of the provisions herein set forth with respect to the
rights and interests of Option holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon
exercise of Options. Any such adjustment shall be made by and set
forth in a supplemental agreement between the Company, or any
successor thereto, and the Option holders and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior
to the consummation thereof the successor corporation, or if the
Company shall be the surviving corporation in any such Reorganization
and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall
assume by written instrument the obligation to deliver to the
registered holder of any Option Certificate such shares of stock,
securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of
sale or conveyance or other transfer of all or substantially all of
the assets of the Company as a part of a plan for liquidation of the
Company, all rights to exercise any Option shall terminate thirty
(30) days after the Company gives written notice to each registered
holder of a Option Certificate that such sale or conveyance or other
transfer has been consummated.
(e) EXERCISE PRICE NOT LESS THAN PAR VALUE. In no event shall the
Exercise Price be adjusted below the par value per share of the Common
Stock.
(f) NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(i) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other
than cash to the holders of its Common Stock; or
(ii) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other
rights or options; or
(iii) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), any
capital reorganization, any consolidation or merger (other
than a merger in which no distribution of securities or other
property is made to holders of Common Stock), or any
3
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sale, transfer of all or substantially all of the assets of
the Company, or the liquidation, dissolution or winding up of
the Company; or
(iv) issue any shares of Common Stock in exchange for shares of
preferred stock of the Company, other than upon conversion of
such shares of preferred stock;
then, in each such case, the Company shall cause notice of such
proposed action to be mailed to the Optionee. Such notice shall
specify the date on which the books of the Company shall close, or a
record be taken, for determining holders of Common Stock entitled to
receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as
the case may be, and the date as of which it is expected that holders
of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been
fixed. Such notice shall be mailed in the case of any action covered
by Subsection (f)(i) or (f)(ii) above, at least ten (10) days prior to
the record date for determining holders of the Common Stock for
purposes of receiving such payment or offer, and in the case of any
action covered by Subsection (f)(iii) or (f)(iv) above, at least ten
(10) days prior to the earlier of the date upon which such action is
to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(g) NOTICE OF ADJUSTMENTS. Whenever any adjustment is made pursuant to
this Section 2, the Company shall cause notice of such adjustment to
be mailed to the Optionee within fifteen (15) days thereafter, such
notice to include in reasonable detail (i) the events precipitating
the adjustment, (ii) the computation of any adjustments, and (iii) the
Exercise Price, the number of shares or the securities or other
property purchasable upon exercise of the Option after giving effect
to such adjustment.
(h) OPTION CERTIFICATE AMENDMENTS. Irrespective of any adjustments
pursuant to this Section 2, Option Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of
any adjustments.
(i) FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any Option to issue fractional shares of Common Stock
which may result from adjustments in accordance with this Section 2 to
the Exercise Price or number of shares of Common Stock purchasable
under each Option. If more than one Option is exercised at one time
by the same registered holder, the number of full shares of Common
Stock which shall be deliverable shall be computed based on the number
of shares deliverable in exchange for the aggregate number of Options
exercised. With respect to any final fraction of a share called for
upon the exercise of any Option or Options, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a share of Common Stock,
as determined by the Company on the basis of the market price per
share of Common Stock on the business day next preceding the date of
such exercise. The registered holder of each Option Certificate, by
his acceptance of
4
<PAGE>
the Option Certificate, shall expressly waive any right to receive any
fractional share of Common Stock upon exercise of the Options. For
the purposes hereof, the market price share of Common Stock at any
date shall mean the last reported sale price regular way or, in case
no such reported sale takes place on such date, the average of the
last reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is
admitted to trading or listed if that is the principal market for the
Common Stock or if not listed or admitted to trading on any national
securities exchange or if such national securities exchange is not the
principal market for the Common Stock, the closing bid price as
reported by the NASDAQ System or its successor, if any. If the price
of the Common Stock is not so reported, then such market price shall
mean the last known price paid per share by a purchaser of such stock
in an arms-length transaction. All calculations made hereunder shall
be to the nearest 1/100th of a share.
(j) The Company shall at all times reserve and keep available, out of its
treasury stock or authorized and unissued stock, solely for the
purpose of effecting the exercise of this Option, such number of
shares of Common Stock and other securities of the Company as shall,
from time to time, be sufficient to effect the exercise of this
Option. All shares of Common Stock issued on exercise of this Option
shall be validly issued, fully paid and nonassessable.
(k) For purposes of this Option, the number of shares of Common Stock at
any time outstanding shall include the maximum number of shares of
Common Stock issuable at such time as a result of the conversion of
any and all shares of preferred stock which are then outstanding and
convertible into shares of Common Stock and as a result of the
exercise of any warrant or other right to subscribe to or purchase, or
any options for the purchase of shares of Common Stock.
3. EXPIRATION.
This Option shall be void after 5:00 p.m., New York City time, on February
11, 2004, and no rights herein given to the holder of this Option shall exist
thereafter.
4. OPTION HOLDER NOT DEEMED A STOCKHOLDER.
No holder of this Option as such, shall be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose, nor
shall anything contained in this Option be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Option of the Shares which he is then entitled to receive upon
the due exercise of this Option.
5
<PAGE>
5. NO LIMITATION ON CORPORATE ACTION.
Except as otherwise provided herein, no provisions of this Option and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or
merge with or into another corporation, or to transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
6. EXERCISE OF OPTION.
(a) VESTING. The Option shall become exercisable as follows: (1) that
portion representing 32.8 Shares shall become exercisable on
February 11, 1998; (2) that portion representing 32.8 Shares shall
become exercisable on February 11, 1999; (3) that portion representing
32.8 Shares shall become exercisable on February 11, 2000; (4) that
portion representing 32.8 Shares shall become exercisable on February
11, 2001; and (5) that portion representing 32.8 Shares shall become
exercisable on February 11, 2002.
(b) FULL EXERCISE. This Option may be exercised as a whole (as to that
portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by the holder hereof by surrendering
this Option, with the form of subscription at the end hereof duly
executed by such holder, to the Company at any time before 5:00 p.m.,
New York City time, on February 11, 2004, at the principal office of
its transfer agent accompanied by payment in cash or by certified or
official bank check, payable to the order of the Company, of the
product obtained by multiplying the number of Shares called for on the
face of this Option (giving effect to any adjustments therein) by the
purchase price then in effect.
(c) PARTIAL EXERCISE. This Option also may be exercised in part (as to
that portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by surrendering this Option in the
manner specified in subsection (b) of this Section 6, except that the
number of Shares or other securities or property receivable upon the
exercise of this Option as a whole shall be proportionately reduced.
Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the holder hereof a new Option or Options (herein
collectively referred to as "this Option") of like tenor evidencing
the rights of such holder to purchase a number of shares with respect
to which the Option shall not have been exercised (as such number
would be constituted on the date hereof.)
DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after any exercise
of this Option and payment of the sum payable upon such exercise, and in any
event within 10 days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable Shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional Shares to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the Fair Market
Value of a Share.
6
<PAGE>
Issuance and delivery of the Shares deliverable on the due exercise of this
Option may be postponed by the Company and its transfer agent during any period,
not exceeding forty days, for which the transfer books of the Company for the
Shares are closed between (1) the record date set by the Board of Directors for
the determination of stockholders entitled to vote at or to receive notice of
any stockholders' meeting, or entitled to receive payment of any dividends or to
any allotment of rights or to exercise rights in respect of any change,
conversion or exchange of capital stock, and (2) the date of such meeting of
stockholders, the date for the payment of such dividends, the date for such
allotment of rights, or the date when any such change or conversion or exchange
of capital stock shall go into effect, as the case may be.
7. TRANSFER OF OPTIONS.
This Option shall not be transferable by the Optionee other than by will or
under the laws of descent and distribution, and shall be exercisable, during the
Optionee's lifetime, only by the Optionee.
8. TERMINATION OF EMPLOYMENT OF OPTIONEE.
If, before the date of expiration of the Option, the Optionee and the
Company sever the employment relationship for any reason the Option shall
terminate and the ability of the Optionee to exercise his/her right to purchase
Shares hereunder shall end at 9:00 a.m. E.S.T. on the earlier of the date of
expiration of the Option or the date which is 30 days following the date of the
severance of the employment relationship; provided that if the Company severs
the employment relationship for "Cause" as such term is defined below, then the
Option shall terminate and the ability of the Optionee to exercise his/her right
to purchase Shares hereunder shall end at 9:00 a.m. E.S.T. on the date the
employment relationship is severed. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance of the
employment relationship between the Company and the Optionee, shall be
determined by the Company at the time thereof. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age or disability under the then
established rules of the Company, the Option shall terminate on the earlier of
such date of expiration or one year after the date of such retirement. In the
event of such retirement, the Optionee shall have the right prior to the
termination of such Option to exercise the Option to the extent to which he was
entitled to exercise such Option immediately prior to such retirement. Upon the
death of the Optionee, his executors, administrators, or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the earlier of the date
of expiration or one year following the date of such death, to exercise the
Option, in whole or in part. For purposes of this paragraph only, "Cause" means
(1) the failure or refusal by Optionee to carry out specific directions of the
President or Chief Executive Officer of the Company assigned to Optionee
hereunder, which failure or refusal is not remedied by Optionee within 30 days
after written notice from the Company, (2) the commission by Optionee of a
felony involving moral turpitude, or (3) the gross negligence or the breach of
any statutory or common law duty to the Company by Optionee in the performance
of Optionee's duties.
7
<PAGE>
9. NO EMPLOYMENT OBLIGATION.
The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the employment of the Optionee shall not be diminished or
affected by reason of the fact that this Option has been granted to the
Optionee.
10. NOTICES.
All communications hereunder shall be in writing and, if sent to the holder
hereof shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing such holder's address as set forth below,
and if sent to the Company, shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to the Company at its address
as set forth below.
If to Optionee:
___________________
___________________
If to the Company:
Midway Airlines Corporation
300 W. Morgan Street, 12th Floor
Durham, North Carolina 27701
ATTENTION: Secretary
11. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time or times after the date of a
Qualified Public Offering, the Company shall determine to register any
of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), whether in connection with a public offering of
securities by the Company, a public offering thereof by stockholders,
or both (but not in connection with a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act
is applicable), the Company will promptly give written notice thereof
to the Optionee, and will file a registration statement at the
Securities and Exchange Commission and use its best efforts to effect
the registration under the Securities Act of all securities issued
upon exercise of the Option which the Optionee may request in a
writing delivered to the Company within fifteen (15) days after the
notice given by the Company; PROVIDED, HOWEVER, that in the event that
any registration pursuant to this Section 11 shall be, in whole or in
part, an underwritten public offering of Common Stock, the number of
shares to be included in such an underwriting may be reduced if and to
the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities
to be sold by the Company therein. These rights shall be subordinate
to the rights
8
<PAGE>
of the stockholders to that certain Stockholders Agreement dated as of
February 11, 1997 by and among the Company and certain stockholders.
For purposes of this Section, Qualified Public Offering shall mean an
underwritten public offering of shares of Common Stock pursuant to a
registration statement filed with the Commission under the Securities
Act, in which net proceeds, after deducting underwriters' discounts
and commissions and offering expenses, to the Company equal or exceed
$15,000,000 and the Company has a Market Capitalization in excess of
$40,000,000. For purposes of this Section, "Market Capitalization"
shall mean the number of shares outstanding on a fully diluted basis
multiplied by the price per share of the initial public offering.
(b) REGISTRATION EXPENSES. In the event of a registration described
herein, all reasonable expenses of registration including, without
limitation, printing expenses, fees and disbursements of counsel, and
independent public accountants, fees and expenses (including counsel
fees incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities
Dealers, Inc. and fees of transfer agents and registrars), shall be
borne by the Company, except that the Optionee shall bear underwriting
commissions and discounts attributable to his securities being
registered.
(c) RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, the Company will use its best efforts to file with the
Commission such information as the Commission may require under either
of said sections; and in such event, the Company shall use its best
efforts to take all action as may be required as a condition to the
availability of Rule 144 of the Securities Act (or any successor
exemptive rule hereinafter in effect).
Dated: February 11, 1997
MIDWAY AIRLINES CORPORATION
By:___________________________
Name:_________________________
Title:________________________
ATTEST:
By ___________________________
Name:_________________________
Title:________________________
ACKNOWLEDGED AND AGREED:
___________________________
STEVEN WESTBERG
___________________________
DUPLICATE ORIGINAL
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<PAGE>
EXERCISE FORM
TO BE EXECUTED BY THE OPTIONEE
IF HE DESIRES TO EXERCISE THIS OPTION
_____________________________
The undersigned hereby exercises the right to purchase Shares covered
by this Option according to the conditions thereof and herewith makes payment of
the purchase of such Shares in full.
_________________________
Signature
_________________________
Address
_________________________
Number of Shares
Being Purchased
Dated: _______________
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<PAGE>
EXHIBIT 10.44
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS,
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Void After 5:00 p.m., New York City Time,
on February 11, 2004
_____________________________
OPTION TO PURCHASE SHARES OF COMMON STOCK
OF MIDWAY AIRLINES CORPORATION
Midway Airlines Corporation, a Delaware corporation (the "Company"), hereby
certifies that in consideration of his role as Senior Vice President and General
Counsel of the Company and other good and valuable consideration, Jonathan S.
Waller (the "Optionee") is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Option, at any time or times up
to 5:00 p.m., New York City time, on February 11, 2004, the expiration date of
this Option, Forty One (41) fully paid and non-assessable shares of the common
stock, $.01 par value per share (the "Common Stock"), at an initial purchase
price of $2,747.25 per share, as the same may be adjusted in accordance with the
provisions hereof (the "Exercise Price").
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder, and the term
"Shares" includes all stock of any class, classes or series whether now or
hereafter authorized (however designated) of the Company, the holders of which
shall have the right (without limitation as to amount) either to all or to a
share of the balance of current dividends and liquidating distributions after
the payment of dividends and distributions on any shares entitled to preference.
The number and character of the Shares which may be purchased upon exercise
of this Option and the purchase price per share in effect from time to time are
subject to adjustment from time to time as hereinafter provided.
1. COMPLIANCE WITH THE SECURITIES ACT OF 1933.
The Shares issuable upon exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "Act"). The Optionee, by
acceptance hereof, agrees that
<PAGE>
this Option and all Shares purchased upon exercise hereof will be disposed of
only in accordance with the Act and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder. The Shares shall bear an
appropriate legend to such effect.
2. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER
OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS.
(a) ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Section 2, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(i) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in
shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of
its Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such
dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event specified above
shall occur.
(b) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) hereof need be made
if such adjustment would amount to a change in such Exercise Price of
less than $.05; PROVIDED, HOWEVER, that the amount by which any
adjustment is not made by reason thereof shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(c) ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to paragraph (a), each Option shall thereupon evidence
the right to purchase that number of shares of Common Stock
(calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon exercise of the Option by
the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment.
(d) REORGANIZATIONS. In case of any capital reorganization, other than in
the cases referred to in paragraph (a) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of
2
<PAGE>
such outstanding shares of Common Stock into shares of other stock or
other securities or property), (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter
be deliverable upon exercise of any Option (in lieu of the number of
shares of Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the
number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of such Option would have been entitled
upon such Reorganization if such Option had been exercised in full
immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the
application of the provisions herein set forth with respect to the
rights and interests of Option holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon
exercise of Options. Any such adjustment shall be made by and set
forth in a supplemental agreement between the Company, or any
successor thereto, and the Option holders and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior
to the consummation thereof the successor corporation, or if the
Company shall be the surviving corporation in any such Reorganization
and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall
assume by written instrument the obligation to deliver to the
registered holder of any Option Certificate such shares of stock,
securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of
sale or conveyance or other transfer of all or substantially all of
the assets of the Company as a part of a plan for liquidation of the
Company, all rights to exercise any Option shall terminate thirty
(30) days after the Company gives written notice to each registered
holder of a Option Certificate that such sale or conveyance or other
transfer has been consummated.
(e) EXERCISE PRICE NOT LESS THAN PAR VALUE. In no event shall the
Exercise Price be adjusted below the par value per share of the Common
Stock.
(f) NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(i) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other
than cash to the holders of its Common Stock; or
(ii) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other
rights or options; or
(iii) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), any
capital reorganization, any consolidation or merger (other
than a merger in which no distribution of securities or other
property is made to holders of Common Stock), or any
3
<PAGE>
sale, transfer of all or substantially all of the assets of
the Company, or the liquidation, dissolution or winding up of
the Company; or
(iv) issue any shares of Common Stock in exchange for shares of
preferred stock of the Company, other than upon conversion of
such shares of preferred stock;
then, in each such case, the Company shall cause notice of such
proposed action to be mailed to the Optionee. Such notice shall
specify the date on which the books of the Company shall close, or a
record be taken, for determining holders of Common Stock entitled to
receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as
the case may be, and the date as of which it is expected that holders
of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been
fixed. Such notice shall be mailed in the case of any action covered
by Subsection (f)(i) or (f)(ii) above, at least ten (10) days prior to
the record date for determining holders of the Common Stock for
purposes of receiving such payment or offer, and in the case of any
action covered by Subsection (f)(iii) or (f)(iv) above, at least ten
(10) days prior to the earlier of the date upon which such action is
to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(g) NOTICE OF ADJUSTMENTS. Whenever any adjustment is made pursuant to
this Section 2, the Company shall cause notice of such adjustment to
be mailed to the Optionee within fifteen (15) days thereafter, such
notice to include in reasonable detail (i) the events precipitating
the adjustment, (ii) the computation of any adjustments, and (iii) the
Exercise Price, the number of shares or the securities or other
property purchasable upon exercise of the Option after giving effect
to such adjustment.
(h) OPTION CERTIFICATE AMENDMENTS. Irrespective of any adjustments
pursuant to this Section 2, Option Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of
any adjustments.
(i) FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any Option to issue fractional shares of Common Stock
which may result from adjustments in accordance with this Section 2 to
the Exercise Price or number of shares of Common Stock purchasable
under each Option. If more than one Option is exercised at one time
by the same registered holder, the number of full shares of Common
Stock which shall be deliverable shall be computed based on the number
of shares deliverable in exchange for the aggregate number of Options
exercised. With respect to any final fraction of a share called for
upon the exercise of any Option or Options, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a share of Common Stock,
as determined by the Company on the basis of the market price per
share of Common Stock on the business day next preceding the date of
such exercise. The registered holder of each Option Certificate, by
his acceptance of
4
<PAGE>
the Option Certificate, shall expressly waive any right to receive any
fractional share of Common Stock upon exercise of the Options. For
the purposes hereof, the market price share of Common Stock at any
date shall mean the last reported sale price regular way or, in case
no such reported sale takes place on such date, the average of the
last reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is
admitted to trading or listed if that is the principal market for the
Common Stock or if not listed or admitted to trading on any national
securities exchange or if such national securities exchange is not the
principal market for the Common Stock, the closing bid price as
reported by the NASDAQ System or its successor, if any. If the price
of the Common Stock is not so reported, then such market price shall
mean the last known price paid per share by a purchaser of such stock
in an arms-length transaction. All calculations made hereunder shall
be to the nearest 1/100th of a share.
(j) The Company shall at all times reserve and keep available, out of its
treasury stock or authorized and unissued stock, solely for the
purpose of effecting the exercise of this Option, such number of
shares of Common Stock and other securities of the Company as shall,
from time to time, be sufficient to effect the exercise of this
Option. All shares of Common Stock issued on exercise of this Option
shall be validly issued, fully paid and nonassessable.
(k) For purposes of this Option, the number of shares of Common Stock at
any time outstanding shall include the maximum number of shares of
Common Stock issuable at such time as a result of the conversion of
any and all shares of preferred stock which are then outstanding and
convertible into shares of Common Stock and as a result of the
exercise of any warrant or other right to subscribe to or purchase, or
any options for the purchase of shares of Common Stock.
3. EXPIRATION.
This Option shall be void after 5:00 p.m., New York City time, on February
11, 2004, and no rights herein given to the holder of this Option shall exist
thereafter.
4. OPTION HOLDER NOT DEEMED A STOCKHOLDER.
No holder of this Option as such, shall be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose, nor
shall anything contained in this Option be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Option of the Shares which he is then entitled to receive upon
the due exercise of this Option.
5
<PAGE>
5. NO LIMITATION ON CORPORATE ACTION.
Except as otherwise provided herein, no provisions of this Option and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or
merge with or into another corporation, or to transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
6. EXERCISE OF OPTION.
(a) VESTING. The Option shall become exercisable as follows: (1) that
portion representing 8.2 Shares shall become exercisable on
February 11, 1998; (2) that portion representing 8.2 Shares shall
become exercisable on February 11, 1999; (3) that portion representing
8.2 Shares shall become exercisable on February 11, 2000; (4) that
portion representing 8.2 Shares shall become exercisable on February
11, 2001; and (5) that portion representing 8.2 Shares shall become
exercisable on February 11, 2002.
(b) FULL EXERCISE. This Option may be exercised as a whole (as to that
portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by the holder hereof by surrendering
this Option, with the form of subscription at the end hereof duly
executed by such holder, to the Company at any time before 5:00 p.m.,
New York City time, on February 11, 2004, at the principal office of
its transfer agent accompanied by payment in cash or by certified or
official bank check, payable to the order of the Company, of the
product obtained by multiplying the number of Shares called for on the
face of this Option (giving effect to any adjustments therein) by the
purchase price then in effect.
(c) PARTIAL EXERCISE. This Option also may be exercised in part (as to
that portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by surrendering this Option in the
manner specified in subsection (b) of this Section 6, except that the
number of Shares or other securities or property receivable upon the
exercise of this Option as a whole shall be proportionately reduced.
Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the holder hereof a new Option or Options (herein
collectively referred to as "this Option") of like tenor evidencing
the rights of such holder to purchase a number of shares with respect
to which the Option shall not have been exercised (as such number
would be constituted on the date hereof.)
DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after any exercise
of this Option and payment of the sum payable upon such exercise, and in any
event within 10 days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable Shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional Shares to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the Fair Market
Value of a Share.
6
<PAGE>
Issuance and delivery of the Shares deliverable on the due exercise of this
Option may be postponed by the Company and its transfer agent during any period,
not exceeding forty days, for which the transfer books of the Company for the
Shares are closed between (1) the record date set by the Board of Directors for
the determination of stockholders entitled to vote at or to receive notice of
any stockholders' meeting, or entitled to receive payment of any dividends or to
any allotment of rights or to exercise rights in respect of any change,
conversion or exchange of capital stock, and (2) the date of such meeting of
stockholders, the date for the payment of such dividends, the date for such
allotment of rights, or the date when any such change or conversion or exchange
of capital stock shall go into effect, as the case may be.
7. TRANSFER OF OPTIONS.
This Option shall not be transferable by the Optionee other than by will or
under the laws of descent and distribution, and shall be exercisable, during the
Optionee's lifetime, only by the Optionee.
8. TERMINATION OF EMPLOYMENT OF OPTIONEE.
If, before the date of expiration of the Option, the Optionee and the
Company sever the employment relationship for any reason the Option shall
terminate and the ability of the Optionee to exercise his/her right to purchase
Shares hereunder shall end at 9:00 a.m. E.S.T. on the earlier of the date of
expiration of the Option or the date which is 30 days following the date of the
severance of the employment relationship; provided that if the Company severs
the employment relationship for "Cause" as such term is defined below, then the
Option shall terminate and the ability of the Optionee to exercise his/her right
to purchase Shares hereunder shall end at 9:00 a.m. E.S.T. on the date the
employment relationship is severed. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance of the
employment relationship between the Company and the Optionee, shall be
determined by the Company at the time thereof. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age or disability under the then
established rules of the Company, the Option shall terminate on the earlier of
such date of expiration or one year after the date of such retirement. In the
event of such retirement, the Optionee shall have the right prior to the
termination of such Option to exercise the Option to the extent to which he was
entitled to exercise such Option immediately prior to such retirement. Upon the
death of the Optionee, his executors, administrators, or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the earlier of the date
of expiration or one year following the date of such death, to exercise the
Option, in whole or in part. For purposes of this paragraph only, "Cause" means
(1) the failure or refusal by Optionee to carry out specific directions of the
President or Chief Executive Officer of the Company assigned to Optionee
hereunder, which failure or refusal is not remedied by Optionee within 30 days
after written notice from the Company, (2) the commission by Optionee of a
felony involving moral turpitude, or (3) the gross negligence or the breach of
any statutory or common law duty to the Company by Optionee in the performance
of Optionee's duties.
7
<PAGE>
9. NO EMPLOYMENT OBLIGATION.
The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the employment of the Optionee shall not be diminished or
affected by reason of the fact that this Option has been granted to the
Optionee.
10. NOTICES.
All communications hereunder shall be in writing and, if sent to the holder
hereof shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing such holder's address as set forth below,
and if sent to the Company, shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to the Company at its address
as set forth below.
If to Optionee:
________________
________________
If to the Company:
Midway Airlines Corporation
300 W. Morgan Street, 12th Floor
Durham, North Carolina 27701
ATTENTION: Secretary
11. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time or times after the date of a
Qualified Public Offering, the Company shall determine to register any
of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), whether in connection with a public offering of
securities by the Company, a public offering thereof by stockholders,
or both (but not in connection with a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act
is applicable), the Company will promptly give written notice thereof
to the Optionee, and will file a registration statement at the
Securities and Exchange Commission and use its best efforts to effect
the registration under the Securities Act of all securities issued
upon exercise of the Option which the Optionee may request in a
writing delivered to the Company within fifteen (15) days after the
notice given by the Company; PROVIDED, HOWEVER, that in the event that
any registration pursuant to this Section 11 shall be, in whole or in
part, an underwritten public offering of Common Stock, the number of
shares to be included in such an underwriting may be reduced if and to
the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities
to be sold by the Company therein. These rights shall be subordinate
to the rights
8
<PAGE>
of the stockholders to that certain Stockholders Agreement dated as of
February 11, 1997 by and among the Company and certain stockholders.
For purposes of this Section, Qualified Public Offering shall mean an
underwritten public offering of shares of Common Stock pursuant to a
registration statement filed with the Commission under the Securities
Act, in which net proceeds, after deducting underwriters' discounts
and commissions and offering expenses, to the Company equal or exceed
$15,000,000 and the Company has a Market Capitalization in excess of
$40,000,000. For purposes of this Section, "Market Capitalization"
shall mean the number of shares outstanding on a fully diluted basis
multiplied by the price per share of the initial public offering.
(b) REGISTRATION EXPENSES. In the event of a registration described
herein, all reasonable expenses of registration including, without
limitation, printing expenses, fees and disbursements of counsel, and
independent public accountants, fees and expenses (including counsel
fees incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities
Dealers, Inc. and fees of transfer agents and registrars), shall be
borne by the Company, except that the Optionee shall bear underwriting
commissions and discounts attributable to his securities being
registered.
(c) RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, the Company will use its best efforts to file with the
Commission such information as the Commission may require under either
of said sections; and in such event, the Company shall use its best
efforts to take all action as may be required as a condition to the
availability of Rule 144 of the Securities Act (or any successor
exemptive rule hereinafter in effect).
Dated: February 11, 1997
MIDWAY AIRLINES CORPORATION
By:___________________________
Name:_________________________
Title:________________________
ATTEST:
By____________________________
Name:_________________________
Title:________________________
ACKNOWLEDGED AND AGREED:
_____________________________
JONATHAN S. WALLER
_____________________________
DUPLICATE ORIGINAL
9
<PAGE>
EXERCISE FORM
TO BE EXECUTED BY THE OPTIONEE
IF HE DESIRES TO EXERCISE THIS OPTION
_____________________________
The undersigned hereby exercises the right to purchase Shares covered
by this Option according to the conditions thereof and herewith makes payment of
the purchase of such Shares in full.
_________________________
Signature
_________________________
Address
_________________________
Number of Shares
Being Purchased
Dated: _______________
10
<PAGE>
EXHIBIT 10.45
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS,
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Void After 5:00 p.m., New York City Time,
on February 11, 2004
_____________________________
OPTION TO PURCHASE SHARES OF COMMON STOCK
OF MIDWAY AIRLINES CORPORATION
Midway Airlines Corporation, a Delaware corporation (the "Company"), hereby
certifies that in consideration of his role as Senior Vice President of the
Company and other good and valuable consideration, Joanne Smith (the "Optionee")
is entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Option, at any time or times up to 5:00 p.m., New York
City time, on February 11, 2004, the expiration date of this Option, Forty One
(41) fully paid and non-assessable shares of the common stock, $.01 par value
per share (the "Common Stock"), at an initial purchase price of $2,747.25 per
share, as the same may be adjusted in accordance with the provisions hereof (the
"Exercise Price").
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder, and the term
"Shares" includes all stock of any class, classes or series whether now or
hereafter authorized (however designated) of the Company, the holders of which
shall have the right (without limitation as to amount) either to all or to a
share of the balance of current dividends and liquidating distributions after
the payment of dividends and distributions on any shares entitled to preference.
The number and character of the Shares which may be purchased upon exercise
of this Option and the purchase price per share in effect from time to time are
subject to adjustment from time to time as hereinafter provided.
1. COMPLIANCE WITH THE SECURITIES ACT OF 1933.
The Shares issuable upon exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "Act"). The Optionee, by
acceptance hereof, agrees that this Option and all Shares purchased upon
exercise hereof will be disposed of only in accordance
<PAGE>:
with the Act and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder. The Shares shall bear an appropriate legend
to such effect.
2. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER
OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS.
(a) ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Section 2, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(i) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in
shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of
its Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such
dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event specified above
shall occur.
(b) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) hereof need be made
if such adjustment would amount to a change in such Exercise Price of
less than $.05; PROVIDED, HOWEVER, that the amount by which any
adjustment is not made by reason thereof shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(c) ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to paragraph (a), each Option shall thereupon evidence
the right to purchase that number of shares of Common Stock
(calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon exercise of the Option by
the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment.
(d) REORGANIZATIONS. In case of any capital reorganization, other than in
the cases referred to in paragraph (a) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such
outstanding shares of Common Stock into shares of other stock or other
2
<PAGE>
securities or property), (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of any Option (in lieu of the number of
shares of Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the
number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of such Option would have been entitled
upon such Reorganization if such Option had been exercised in full
immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the
application of the provisions herein set forth with respect to the
rights and interests of Option holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon
exercise of Options. Any such adjustment shall be made by and set
forth in a supplemental agreement between the Company, or any
successor thereto, and the Option holders and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior
to the consummation thereof the successor corporation, or if the
Company shall be the surviving corporation in any such Reorganization
and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall
assume by written instrument the obligation to deliver to the
registered holder of any Option Certificate such shares of stock,
securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of
sale or conveyance or other transfer of all or substantially all of
the assets of the Company as a part of a plan for liquidation of the
Company, all rights to exercise any Option shall terminate thirty
(30) days after the Company gives written notice to each registered
holder of a Option Certificate that such sale or conveyance or other
transfer has been consummated.
(e) EXERCISE PRICE NOT LESS THAN PAR VALUE. In no event shall the
Exercise Price be adjusted below the par value per share of the Common
Stock.
(f) NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(i) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other
than cash to the holders of its Common Stock; or
(ii) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other
rights or options; or
(iii) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), any
capital reorganization, any consolidation or merger (other
than a merger in which no distribution of securities or other
property is made to holders of Common Stock), or any sale,
transfer of all or substantially all of the assets of the
Company, or the liquidation, dissolution or winding up of the
Company; or
3
<PAGE>
(iv) issue any shares of Common Stock in exchange for shares of
preferred stock of the Company, other than upon conversion of
such shares of preferred stock;
then, in each such case, the Company shall cause notice of such
proposed action to be mailed to the Optionee. Such notice shall
specify the date on which the books of the Company shall close, or a
record be taken, for determining holders of Common Stock entitled to
receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as
the case may be, and the date as of which it is expected that holders
of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been
fixed. Such notice shall be mailed in the case of any action covered
by Subsection (f)(i) or (f)(ii) above, at least ten (10) days prior to
the record date for determining holders of the Common Stock for
purposes of receiving such payment or offer, and in the case of any
action covered by Subsection (f)(iii) or (f)(iv) above, at least ten
(10) days prior to the earlier of the date upon which such action is
to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(g) NOTICE OF ADJUSTMENTS. Whenever any adjustment is made pursuant to
this Section 2, the Company shall cause notice of such adjustment to
be mailed to the Optionee within fifteen (15) days thereafter, such
notice to include in reasonable detail (i) the events precipitating
the adjustment, (ii) the computation of any adjustments, and (iii) the
Exercise Price, the number of shares or the securities or other
property purchasable upon exercise of the Option after giving effect
to such adjustment.
(h) OPTION CERTIFICATE AMENDMENTS. Irrespective of any adjustments
pursuant to this Section 2, Option Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of
any adjustments.
(i) FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any Option to issue fractional shares of Common Stock
which may result from adjustments in accordance with this Section 2 to
the Exercise Price or number of shares of Common Stock purchasable
under each Option. If more than one Option is exercised at one time
by the same registered holder, the number of full shares of Common
Stock which shall be deliverable shall be computed based on the number
of shares deliverable in exchange for the aggregate number of Options
exercised. With respect to any final fraction of a share called for
upon the exercise of any Option or Options, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a share of Common Stock,
as determined by the Company on the basis of the market price per
share of Common Stock on the business day next preceding the date of
such exercise. The registered holder of each Option Certificate, by
his acceptance of the Option Certificate, shall expressly waive any
right to receive any fractional share of Common Stock upon exercise of
the Options. For the purposes hereof,
4
<PAGE>
the market price share of Common Stock at any date shall mean the last
reported sale price regular way or, in case no such reported sale
takes place on such date, the average of the last reported bid and
asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading
or listed if that is the principal market for the Common Stock or if
not listed or admitted to trading on any national securities exchange
or if such national securities exchange is not the principal market
for the Common Stock, the closing bid price as reported by the NASDAQ
System or its successor, if any. If the price of the Common Stock is
not so reported, then such market price shall mean the last known
price paid per share by a purchaser of such stock in an arms-length
transaction. All calculations made hereunder shall be to the nearest
1/100th of a share.
(j) The Company shall at all times reserve and keep available, out of its
treasury stock or authorized and unissued stock, solely for the
purpose of effecting the exercise of this Option, such number of
shares of Common Stock and other securities of the Company as shall,
from time to time, be sufficient to effect the exercise of this
Option. All shares of Common Stock issued on exercise of this Option
shall be validly issued, fully paid and nonassessable.
(k) For purposes of this Option, the number of shares of Common Stock at
any time outstanding shall include the maximum number of shares of
Common Stock issuable at such time as a result of the conversion of
any and all shares of preferred stock which are then outstanding and
convertible into shares of Common Stock and as a result of the
exercise of any warrant or other right to subscribe to or purchase, or
any options for the purchase of shares of Common Stock.
3. EXPIRATION.
This Option shall be void after 5:00 p.m., New York City time, on February
11, 2004, and no rights herein given to the holder of this Option shall exist
thereafter.
4. OPTION HOLDER NOT DEEMED A STOCKHOLDER.
No holder of this Option as such, shall be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose, nor
shall anything contained in this Option be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Option of the Shares which he is then entitled to receive upon
the due exercise of this Option.
5
<PAGE>
5. NO LIMITATION ON CORPORATE ACTION.
Except as otherwise provided herein, no provisions of this Option and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or
merge with or into another corporation, or to transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
6. EXERCISE OF OPTION.
(a) VESTING. The Option shall become exercisable as follows: (1) that
portion representing 8.2 Shares shall become exercisable on
February 11, 1998; (2) that portion representing 8.2 Shares shall
become exercisable on February 11, 1999; (3) that portion representing
8.2 Shares shall become exercisable on February 11, 2000; (4) that
portion representing 8.2 Shares shall become exercisable on February
11, 2001; and (5) that portion representing 8.2 Shares shall become
exercisable on February 11, 2002.
(b) FULL EXERCISE. This Option may be exercised as a whole (as to that
portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by the holder hereof by surrendering
this Option, with the form of subscription at the end hereof duly
executed by such holder, to the Company at any time before 5:00 p.m.,
New York City time, on February 11, 2004, at the principal office of
its transfer agent accompanied by payment in cash or by certified or
official bank check, payable to the order of the Company, of the
product obtained by multiplying the number of Shares called for on the
face of this Option (giving effect to any adjustments therein) by the
purchase price then in effect.
(c) PARTIAL EXERCISE. This Option also may be exercised in part (as to
that portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by surrendering this Option in the
manner specified in subsection (b) of this Section 6, except that the
number of Shares or other securities or property receivable upon the
exercise of this Option as a whole shall be proportionately reduced.
Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the holder hereof a new Option or Options (herein
collectively referred to as "this Option") of like tenor evidencing
the rights of such holder to purchase a number of shares with respect
to which the Option shall not have been exercised (as such number
would be constituted on the date hereof.)
DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after any exercise
of this Option and payment of the sum payable upon such exercise, and in any
event within 10 days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable Shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional Shares to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the Fair Market
Value of a Share.
6
<PAGE>
Issuance and delivery of the Shares deliverable on the due exercise of this
Option may be postponed by the Company and its transfer agent during any period,
not exceeding forty days, for which the transfer books of the Company for the
Shares are closed between (1) the record date set by the Board of Directors for
the determination of stockholders entitled to vote at or to receive notice of
any stockholders' meeting, or entitled to receive payment of any dividends or to
any allotment of rights or to exercise rights in respect of any change,
conversion or exchange of capital stock, and (2) the date of such meeting of
stockholders, the date for the payment of such dividends, the date for such
allotment of rights, or the date when any such change or conversion or exchange
of capital stock shall go into effect, as the case may be.
7. TRANSFER OF OPTIONS.
This Option shall not be transferable by the Optionee other than by will or
under the laws of descent and distribution, and shall be exercisable, during the
Optionee's lifetime, only by the Optionee.
8. TERMINATION OF EMPLOYMENT OF OPTIONEE.
If, before the date of expiration of the Option, the Optionee and the
Company sever the employment relationship for any reason the Option shall
terminate and the ability of the Optionee to exercise his/her right to purchase
Shares hereunder shall end at 9:00 a.m. E.S.T. on the earlier of the date of
expiration of the Option or the date which is 30 days following the date of the
severance of the employment relationship; provided that if the Company severs
the employment relationship for "Cause" as such term is defined below, then the
Option shall terminate and the ability of the Optionee to exercise his/her right
to purchase Shares hereunder shall end at 9:00 a.m. E.S.T. on the date the
employment relationship is severed. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance of the
employment relationship between the Company and the Optionee, shall be
determined by the Company at the time thereof. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age or disability under the then
established rules of the Company, the Option shall terminate on the earlier of
such date of expiration or one year after the date of such retirement. In the
event of such retirement, the Optionee shall have the right prior to the
termination of such Option to exercise the Option to the extent to which he was
entitled to exercise such Option immediately prior to such retirement. Upon the
death of the Optionee, his executors, administrators, or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the earlier of the date
of expiration or one year following the date of such death, to exercise the
Option, in whole or in part. For purposes of this paragraph only, "Cause" means
(1) the failure or refusal by Optionee to carry out specific directions of the
President or Chief Executive Officer of the Company assigned to Optionee
hereunder, which failure or refusal is not remedied by Optionee within 30 days
after written notice from the Company, (2) the commission by Optionee of a
felony involving moral turpitude, or (3) the gross negligence or the breach of
any statutory or common law duty to the Company by Optionee in the performance
of Optionee's duties.
7
<PAGE>
9. NO EMPLOYMENT OBLIGATION.
The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the employment of the Optionee shall not be diminished or
affected by reason of the fact that this Option has been granted to the
Optionee.
10. NOTICES.
All communications hereunder shall be in writing and, if sent to the holder
hereof shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing such holder's address as set forth below,
and if sent to the Company, shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to the Company at its address
as set forth below.
If to Optionee:
__________________
__________________
If to the Company:
Midway Airlines Corporation
300 W. Morgan Street, 12th Floor
Durham, North Carolina 27701
ATTENTION: Secretary
11. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time or times after the date of a
Qualified Public Offering, the Company shall determine to register any
of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), whether in connection with a public offering of
securities by the Company, a public offering thereof by stockholders,
or both (but not in connection with a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act
is applicable), the Company will promptly give written notice thereof
to the Optionee, and will file a registration statement at the
Securities and Exchange Commission and use its best efforts to effect
the registration under the Securities Act of all securities issued
upon exercise of the Option which the Optionee may request in a
writing delivered to the Company within fifteen (15) days after the
notice given by the Company; PROVIDED, HOWEVER, that in the event that
any registration pursuant to this Section 11 shall be, in whole or in
part, an underwritten public offering of Common Stock, the number of
shares to be included in such an underwriting may be reduced if and to
the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities
to be sold by the Company therein. These rights shall be subordinate
to the rights
8
<PAGE>
of the stockholders to that certain Stockholders Agreement dated as of
February 11, 1997 by and among the Company and certain stockholders.
For purposes of this Section, Qualified Public Offering shall mean an
underwritten public offering of shares of Common Stock pursuant to a
registration statement filed with the Commission under the Securities
Act, in which net proceeds, after deducting underwriters' discounts
and commissions and offering expenses, to the Company equal or exceed
$15,000,000 and the Company has a Market Capitalization in excess of
$40,000,000. For purposes of this Section, "Market Capitalization"
shall mean the number of shares outstanding on a fully diluted basis
multiplied by the price per share of the initial public offering.
(b) REGISTRATION EXPENSES. In the event of a registration described
herein, all reasonable expenses of registration including, without
limitation, printing expenses, fees and disbursements of counsel, and
independent public accountants, fees and expenses (including counsel
fees incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities
Dealers, Inc. and fees of transfer agents and registrars), shall be
borne by the Company, except that the Optionee shall bear underwriting
commissions and discounts attributable to his securities being
registered.
(c) RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, the Company will use its best efforts to file with the
Commission such information as the Commission may require under either
of said sections; and in such event, the Company shall use its best
efforts to take all action as may be required as a condition to the
availability of Rule 144 of the Securities Act (or any successor
exemptive rule hereinafter in effect).
Dated: February 11, 1997
MIDWAY AIRLINES CORPORATION
By:___________________________
Name:_________________________
Title:________________________
ATTEST:
By ___________________________
Name:_________________________
Title:________________________
ACKNOWLEDGED AND AGREED:
______________________________
JOANNE SMITH
______________________________
DUPLICATE ORIGINAL
9
<PAGE>
EXERCISE FORM
TO BE EXECUTED BY THE OPTIONEE
IF HE DESIRES TO EXERCISE THIS OPTION
_____________________________
The undersigned hereby exercises the right to purchase Shares covered
by this Option according to the conditions thereof and herewith makes payment of
the purchase of such Shares in full.
_________________________
Signature
_________________________
Address
_________________________
Number of Shares
Being Purchased
Dated: _______________
10
<PAGE>
EXHIBIT 10.47
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS,
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Void After 5:00 p.m., New York City Time,
on February 11, 2004
_____________________________
OPTION TO PURCHASE SHARES OF COMMON STOCK
OF MIDWAY AIRLINES CORPORATION
Midway Airlines Corporation, a Delaware corporation (the "Company"), hereby
certifies that in consideration of his role as Vice President of the Company and
other good and valuable consideration, David Vance (the "Optionee") is entitled,
subject to the terms set forth below, to purchase from the Company upon
surrender of this Option, at any time or times up to 5:00 p.m., New York City
time, on February 11, 2004, the expiration date of this Option, Forty One (41)
fully paid and non-assessable shares of the common stock, $.01 par value per
share (the "Common Stock"), at an initial purchase price of $2,747.25 per share,
as the same may be adjusted in accordance with the provisions hereof (the
"Exercise Price").
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder, and the term
"Shares" includes all stock of any class, classes or series whether now or
hereafter authorized (however designated) of the Company, the holders of which
shall have the right (without limitation as to amount) either to all or to a
share of the balance of current dividends and liquidating distributions after
the payment of dividends and distributions on any shares entitled to preference.
The number and character of the Shares which may be purchased upon exercise
of this Option and the purchase price per share in effect from time to time are
subject to adjustment from time to time as hereinafter provided.
1. COMPLIANCE WITH THE SECURITIES ACT OF 1933.
The Shares issuable upon exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "Act"). The Optionee, by
acceptance hereof, agrees that this Option and all Shares purchased upon
exercise hereof will be disposed of only in accordance
<PAGE>
with the Act and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder. The Shares shall bear an appropriate legend
to such effect.
2. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER
OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS.
A. ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Section 2, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(i) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in
shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of
its Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such
dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution,
subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event specified above
shall occur.
(b) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) hereof need be made
if such adjustment would amount to a change in such Exercise Price of
less than $.05; PROVIDED, HOWEVER, that the amount by which any
adjustment is not made by reason thereof shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(c) ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to paragraph (a), each Option shall thereupon evidence
the right to purchase that number of shares of Common Stock
(calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon exercise of the Option by
the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment.
(d) REORGANIZATIONS. In case of any capital reorganization, other than in
the cases referred to in paragraph (a) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such
outstanding shares of Common Stock into shares of other stock or other
2
<PAGE>
securities or property), (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of any Option (in lieu of the number of
shares of Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the
number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of such Option would have been entitled
upon such Reorganization if such Option had been exercised in full
immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the
application of the provisions herein set forth with respect to the
rights and interests of Option holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon
exercise of Options. Any such adjustment shall be made by and set
forth in a supplemental agreement between the Company, or any
successor thereto, and the Option holders and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior
to the consummation thereof the successor corporation, or if the
Company shall be the surviving corporation in any such Reorganization
and is not the issuer of the shares of stock or other securities or
property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall
assume by written instrument the obligation to deliver to the
registered holder of any Option Certificate such shares of stock,
securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of
sale or conveyance or other transfer of all or substantially all of
the assets of the Company as a part of a plan for liquidation of the
Company, all rights to exercise any Option shall terminate thirty
(30) days after the Company gives written notice to each registered
holder of a Option Certificate that such sale or conveyance or other
transfer has been consummated.
(e) EXERCISE PRICE NOT LESS THAN PAR VALUE. In no event shall the
Exercise Price be adjusted below the par value per share of the Common
Stock.
(f) NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(i) declare any dividend payable in stock to the holders of its
Common Stock or make any other distribution in property other
than cash to the holders of its Common Stock; or
(ii) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other
rights or options; or
(iii) effect any reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), any
capital reorganization, any consolidation or merger (other
than a merger in which no distribution of securities or other
property is made to holders of Common Stock), or any sale,
transfer of all or substantially all of the assets of the
Company, or the liquidation, dissolution or winding up of the
Company; or
3
<PAGE>
(iv) issue any shares of Common Stock in exchange for shares of
preferred stock of the Company, other than upon conversion of
such shares of preferred stock;
then, in each such case, the Company shall cause notice of such
proposed action to be mailed to the Optionee. Such notice shall
specify the date on which the books of the Company shall close, or a
record be taken, for determining holders of Common Stock entitled to
receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as
the case may be, and the date as of which it is expected that holders
of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been
fixed. Such notice shall be mailed in the case of any action covered
by Subsection (f)(i) or (f)(ii) above, at least ten (10) days prior to
the record date for determining holders of the Common Stock for
purposes of receiving such payment or offer, and in the case of any
action covered by Subsection (f)(iii) or (f)(iv) above, at least ten
(10) days prior to the earlier of the date upon which such action is
to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(g) NOTICE OF ADJUSTMENTS. Whenever any adjustment is made pursuant to
this Section 2, the Company shall cause notice of such adjustment to
be mailed to the Optionee within fifteen (15) days thereafter, such
notice to include in reasonable detail (i) the events precipitating
the adjustment, (ii) the computation of any adjustments, and (iii) the
Exercise Price, the number of shares or the securities or other
property purchasable upon exercise of the Option after giving effect
to such adjustment.
(h) OPTION CERTIFICATE AMENDMENTS. Irrespective of any adjustments
pursuant to this Section 2, Option Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of
any adjustments.
(i) FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any Option to issue fractional shares of Common Stock
which may result from adjustments in accordance with this Section 2 to
the Exercise Price or number of shares of Common Stock purchasable
under each Option. If more than one Option is exercised at one time
by the same registered holder, the number of full shares of Common
Stock which shall be deliverable shall be computed based on the number
of shares deliverable in exchange for the aggregate number of Options
exercised. With respect to any final fraction of a share called for
upon the exercise of any Option or Options, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a share of Common Stock,
as determined by the Company on the basis of the market price per
share of Common Stock on the business day next preceding the date of
such exercise. The registered holder of each Option Certificate, by
his acceptance of the Option Certificate, shall expressly waive any
right to receive any fractional share of Common Stock upon exercise of
the Options. For the purposes hereof,
4
<PAGE>
the market price share of Common Stock at any date shall mean the last
reported sale price regular way or, in case no such reported sale
takes place on such date, the average of the last reported bid and
asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading
or listed if that is the principal market for the Common Stock or if
not listed or admitted to trading on any national securities exchange
or if such national securities exchange is not the principal market
for the Common Stock, the closing bid price as reported by the NASDAQ
System or its successor, if any. If the price of the Common Stock is
not so reported, then such market price shall mean the last known
price paid per share by a purchaser of such stock in an arms-length
transaction. All calculations made hereunder shall be to the nearest
1/100th of a share.
(j) The Company shall at all times reserve and keep available, out of its
treasury stock or authorized and unissued stock, solely for the
purpose of effecting the exercise of this Option, such number of
shares of Common Stock and other securities of the Company as shall,
from time to time, be sufficient to effect the exercise of this
Option. All shares of Common Stock issued on exercise of this Option
shall be validly issued, fully paid and nonassessable.
(k) For purposes of this Option, the number of shares of Common Stock at
any time outstanding shall include the maximum number of shares of
Common Stock issuable at such time as a result of the conversion of
any and all shares of preferred stock which are then outstanding and
convertible into shares of Common Stock and as a result of the
exercise of any warrant or other right to subscribe to or purchase, or
any options for the purchase of shares of Common Stock.
3. EXPIRATION.
This Option shall be void after 5:00 p.m., New York City time, on February
11, 2004, and no rights herein given to the holder of this Option shall exist
thereafter.
4. OPTION HOLDER NOT DEEMED A STOCKHOLDER.
No holder of this Option as such, shall be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose, nor
shall anything contained in this Option be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Option of the Shares which he is then entitled to receive upon
the due exercise of this Option.
5
<PAGE>
5. NO LIMITATION ON CORPORATE ACTION.
Except as otherwise provided herein, no provisions of this Option and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or
merge with or into another corporation, or to transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
6. EXERCISE OF OPTION.
(a) VESTING. The Option shall become exercisable as follows: (1) that
portion representing 8.2 Shares shall become exercisable on
February 11, 1998; (2) that portion representing 8.2 Shares shall
become exercisable on February 11, 1999; (3) that portion representing
8.2 Shares shall become exercisable on February 11, 2000; (4) that
portion representing 8.2 Shares shall become exercisable on February
11, 2001; and (5) that portion representing 8.2 Shares shall become
exercisable on February 11, 2002.
(b) FULL EXERCISE. This Option may be exercised as a whole (as to that
portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by the holder hereof by surrendering
this Option, with the form of subscription at the end hereof duly
executed by such holder, to the Company at any time before 5:00 p.m.,
New York City time, on February 11, 2004, at the principal office of
its transfer agent accompanied by payment in cash or by certified or
official bank check, payable to the order of the Company, of the
product obtained by multiplying the number of Shares called for on the
face of this Option (giving effect to any adjustments therein) by the
purchase price then in effect.
(c) PARTIAL EXERCISE. This Option also may be exercised in part (as to
that portion of the Shares which shall have become subject to exercise
pursuant to clause (a) above) by surrendering this Option in the
manner specified in subsection (b) of this Section 6, except that the
number of Shares or other securities or property receivable upon the
exercise of this Option as a whole shall be proportionately reduced.
Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the holder hereof a new Option or Options (herein
collectively referred to as "this Option") of like tenor evidencing
the rights of such holder to purchase a number of shares with respect
to which the Option shall not have been exercised (as such number
would be constituted on the date hereof.)
DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after any exercise
of this Option and payment of the sum payable upon such exercise, and in any
event within 10 days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable Shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional Shares to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the Fair Market
Value of a Share.
6
<PAGE>
Issuance and delivery of the Shares deliverable on the due exercise of this
Option may be postponed by the Company and its transfer agent during any period,
not exceeding forty days, for which the transfer books of the Company for the
Shares are closed between (1) the record date set by the Board of Directors for
the determination of stockholders entitled to vote at or to receive notice of
any stockholders' meeting, or entitled to receive payment of any dividends or to
any allotment of rights or to exercise rights in respect of any change,
conversion or exchange of capital stock, and (2) the date of such meeting of
stockholders, the date for the payment of such dividends, the date for such
allotment of rights, or the date when any such change or conversion or exchange
of capital stock shall go into effect, as the case may be.
7. TRANSFER OF OPTIONS.
This Option shall not be transferable by the Optionee other than by will or
under the laws of descent and distribution, and shall be exercisable, during the
Optionee's lifetime, only by the Optionee.
8. TERMINATION OF EMPLOYMENT OF OPTIONEE.
I. If, before the date of expiration of the Option, the Optionee and the
Company sever the employment relationship for any reason the Option shall
terminate and the ability of the Optionee to exercise his/her right to purchase
Shares hereunder shall end at 9:00 a.m. E.S.T. on the earlier of the date of
expiration of the Option or the date which is 30 days following the date of the
severance of the employment relationship; provided that if the Company severs
the employment relationship for "Cause" as such term is defined below, then the
Option shall terminate and the ability of the Optionee to exercise his/her right
to purchase Shares hereunder shall end at 9:00 a.m. E.S.T. on the date the
employment relationship is severed. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance of the
employment relationship between the Company and the Optionee, shall be
determined by the Company at the time thereof. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age or disability under the then
established rules of the Company, the Option shall terminate on the earlier of
such date of expiration or one year after the date of such retirement. In the
event of such retirement, the Optionee shall have the right prior to the
termination of such Option to exercise the Option to the extent to which he was
entitled to exercise such Option immediately prior to such retirement. Upon the
death of the Optionee, his executors, administrators, or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the earlier of the date
of expiration or one year following the date of such death, to exercise the
Option, in whole or in part. For purposes of this paragraph only, "Cause" means
(1) the failure or refusal by Optionee to carry out specific directions of the
President or Chief Executive Officer of the Company assigned to Optionee
hereunder, which failure or refusal is not remedied by Optionee within 30 days
after written notice from the Company, (2) the commission by Optionee of a
felony involving moral turpitude, or (3) the gross negligence or the breach of
any statutory or common law duty to the Company by Optionee in the performance
of Optionee's duties.
9. NO EMPLOYMENT OBLIGATION.
The granting of this Option shall not impose upon the Company any
obligation to employ or continue to employ the Optionee; and the right of the
Company to terminate the employment
7
<PAGE>
of the Optionee shall not be diminished or affected by reason of the fact that
this Option has been granted to the Optionee.
10. NOTICES.
All communications hereunder shall be in writing and, if sent to the holder
hereof shall be mailed by registered or certified mail or delivered or
telegraphed and confirmed in writing such holder's address as set forth below,
and if sent to the Company, shall be mailed by registered or certified mail or
delivered or telegraphed and confirmed in writing to the Company at its address
as set forth below.
If to Optionee:
_____________________
_____________________
If to the Company:
Midway Airlines Corporation
300 W. Morgan Street, 12th Floor
Durham, North Carolina 27701
ATTENTION: Secretary
11. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time or times after the date of a
Qualified Public Offering, the Company shall determine to register any
of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), whether in connection with a public offering of
securities by the Company, a public offering thereof by stockholders,
or both (but not in connection with a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act
is applicable), the Company will promptly give written notice thereof
to the Optionee, and will file a registration statement at the
Securities and Exchange Commission and use its best efforts to effect
the registration under the Securities Act of all securities issued
upon exercise of the Option which the Optionee may request in a
writing delivered to the Company within fifteen (15) days after the
notice given by the Company; PROVIDED, HOWEVER, that in the event that
any registration pursuant to this Section 11 shall be, in whole or in
part, an underwritten public offering of Common Stock, the number of
shares to be included in such an underwriting may be reduced if and to
the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities
to be sold by the Company therein. These rights shall be subordinate
to the rights of the stockholders to that certain Stockholders
Agreement dated as of February 11, 1997 by and among the Company and
certain stockholders.
For purposes of this Section, Qualified Public Offering shall mean an
underwritten public offering of shares of Common Stock pursuant to a
registration statement
8
<PAGE>
filed with the Commission under the Securities Act, in which net
proceeds, after deducting underwriters' discounts and commissions and
offering expenses, to the Company equal or exceed $15,000,000 and the
Company has a Market Capitalization in excess of $40,000,000. For
purposes of this Section, "Market Capitalization" shall mean the
number of shares outstanding on a fully diluted basis multiplied by
the price per share of the initial public offering.
(b) REGISTRATION EXPENSES. In the event of a registration described
herein, all reasonable expenses of registration including, without
limitation, printing expenses, fees and disbursements of counsel, and
independent public accountants, fees and expenses (including counsel
fees incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities
Dealers, Inc. and fees of transfer agents and registrars), shall be
borne by the Company, except that the Optionee shall bear underwriting
commissions and discounts attributable to his securities being
registered.
(c) RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, the Company will use its best efforts to file with the
Commission such information as the Commission may require under either
of said sections; and in such event, the Company shall use its best
efforts to take all action as may be required as a condition to the
availability of Rule 144 of the Securities Act (or any successor
exemptive rule hereinafter in effect).
Dated: February 11, 1997
MIDWAY AIRLINES CORPORATION
By:___________________________
Name:_________________________
Title:________________________
ATTEST:
By_________________________
Name:______________________
Title:_____________________
ACKNOWLEDGED AND AGREED:
___________________________
DAVID VANCE
___________________________
DUPLICATE ORIGINAL
9
<PAGE>
EXERCISE FORM
TO BE EXECUTED BY THE OPTIONEE
IF HE DESIRES TO EXERCISE THIS OPTION
_____________________________
The undersigned hereby exercises the right to purchase Shares covered
by this Option according to the conditions thereof and herewith makes payment of
the purchase of such Shares in full.
_________________________
Signature
_________________________
Address
_________________________
Number of Shares
Being Purchased
Dated: _______________
10
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PRO FORMA NET INCOME PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
SIX MONTHS ENDED
ENDED JUNE SEPTEMBER
30, 1997 30, 1997
------------ -------------
<S> <C> <C>
Historical weighted average common shares outstanding (1). . . . . . 2,130,682 2,130,682
Convertible preferred stock, assumed
converted to common stock at consummation of the planned initial
public offering (1)(2) . . . . . . . . . . . . . . . . . . . . . . . 3,728,693 3,728,693
Common stock equivalents for options and warrants
outstanding (1)(2)(3). . . . . . . . . . . . . . . . . . . . . . . . 1,126,235 1,126,235
----------- -----------
Shares used in computing pro forma net income per share. . . . . . . 6,985,610 6,985,610
----------- -----------
Net income for period. . . . . . . . . . . . . . . . . . . . . . . . $20,530,000 $22,252,000
----------- -----------
Pro forma net income per share . . . . . . . . . . . . . . . . . . . $ 2.94 $ 3.19
=========== ===========
</TABLE>
(1) All common stock, convertible preferred stock, options and warrants have
been adjusted for the 682.9108392-for-1 common stock split effective
November 11, 1997.
(2) Issuance of convertible preferred stock, options, warrants and other
potentially dilutive securities, at prices below the expected public
offering price during the twelve month period preceding the planned
offering, have been included as common stock equivalents as if they had
been issued as common stock at the Company's inception.
(3) The repurchase price for all periods used in computing the proceeds
received under the treasury stock approach is the estimated initial
public offering price.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 22, 1997, with respect to the financial
statements of Midway Airlines Corporation as of June 30, 1997 and December 31,
1996 and for the six months and year then ended, respectively, in Amendment No.
3 to the registration statement (Form S-1 No. 333-37375) and the related
prospectus of Midway Airlines Corporation dated November 25, 1997.
/s/ Ernst & Young LLP
Raleigh, North Carolina
November 24, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Midway Airlines Corporation:
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement (Registration Statement File No. 333-37375 Amendment No.
3 dated November 25, 1997).
ARTHUR ANDERSEN LLP
Raleigh, North Carolina
November 25, 1997
