Midway Airlines Corporation
300 West Morgan Street
Suite 1200
Durham, North Carolina 27701
(919) 956-4800
April 22, 1998
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of Midway
Airlines Corporation (the "Company") to be held at 10:00 a.m., Eastern Daylight
Time, on Tuesday, May 19, 1998 at the Marriott Hotel, 201 Foster Street in
Durham, North Carolina.
This is our first Annual Meeting of Shareholders and we will have a very
brief agenda asking you to consider only one proposal concerning election of
directors. This matter is explained more fully in the attached proxy statement,
which you are encouraged to read. We expect the formal meeting will run for
approximately one hour or less.
The Board of Directors recommends that you approve the proposal and urges
you to return your signed proxy card at your earliest convenience, whether or
not you plan to attend the annual meeting.
Sincerely,
/s/ ROBERT R. FERGUSON III
Robert R. Ferguson III
President, Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
Midway Airlines Corporation
300 West Morgan Street
Suite 1200
Durham, North Carolina 27701
(919) 956-4800
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 19, 1998
Notice is hereby given that the Annual Meeting of the Shareholders of
Midway Airlines Corporation, a Delaware corporation (the "Company"), will be
held on Tuesday, May 19, 1998, at 10:00 a.m., Eastern Daylight Time, at the
Marriott Hotel (formerly, the Omni Durham Hotel), 201 Foster Street in Durham,
North Carolina, for the following purposes:
(l) To elect two Class I Directors of the Company to hold office until
the Annual Meeting of Shareholders to be held in 2001 or until their
respective successors are duly elected and qualified; and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The holders of record of Common Stock at the close of business on April 8,
1998, will be entitled to vote at the meeting.
By Order of the Board of Directors,
/s/ JONATHAN S. WALLER
Jonathan S. Waller
Secretary
April 22, 1998
EACH SHARE OWNER IS URGED TO VOTE PROMPTLY BY SIGNING AND RETURNING THE ENCLOSED
PROXY CARD.
<PAGE>
Midway Airlines Corporation
300 West Morgan Street
Suite 1200
Durham, North Carolina 27701
(919) 956-4800
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1998
This Proxy Statement is furnished to the shareholders of Midway Airlines
Corporation (the "Company"), in connection with the solicitation by the Board of
Directors of the Company of proxies to be used at the annual meeting of
shareholders to be held on Tuesday, May 19, 1998, at 10:00 a.m., Eastern
Daylight Time, at the Marriott Hotel (formerly, the Omni Durham Hotel), 201
Foster Street in Durham, North Carolina, or any adjournment thereof.
Proxies in the form enclosed, properly executed by shareholders and
received in time for the meeting, will be voted as specified therein. If a
shareholder does not specify otherwise, the shares represented by his or her
proxy will be voted by the persons named in the proxy (i) "for" the Class I
director nominees listed therein, and (ii) in the discretion of such persons, in
connection with any other business that may properly come before the meeting.
The giving of a proxy does not preclude the right to vote in person should the
person giving the proxy so desire, and the proxy may be revoked at any time
before it is exercised by written notice delivered to the Secretary of the
Company at the above address at or prior to the meeting. This Proxy Statement
and accompanying form of proxy are to be mailed on or about April 22, 1998, to
shareholders of record on April 8, 1998 (the "Record Date").
At the close of business on the Record Date, there were outstanding and
entitled to vote 8,558,695 shares of Common Stock, par value $.01 per share (the
"Common Stock"). There are no other voting securities of the Company
outstanding.
The holders of record of Common Stock on the Record Date will be entitled
to one vote per share on each matter presented to such holders at the meeting.
The presence at the meeting, in person or by proxy, of the holders of a majority
of the outstanding shares of Common Stock having voting power with respect to a
subject matter (excluding shares held by the Company for its own account) is
necessary to constitute a quorum for the transaction of business with respect to
such subject matter at the meeting.
The Company will provide to each person solicited hereby, upon the written
request of such person, a copy of the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1997. Requests for such report must be sent to
the Company at the address set forth above, to Jonathan S. Waller, Secretary.
1
<PAGE>
ELECTION OF CLASS I DIRECTORS
General
Two directors will be elected at the Meeting to serve as the Class I
Directors of the Company's Board of Directors until the 2001 Annual Meeting of
Shareholders or until such person's successors shall be duly elected and
qualified. The Board of Directors recommends a vote for Robert R. Ferguson III
and W. Greyson Quarles as the Class I Directors. Each of Mr. Ferguson and Mr.
Quarles are currently directors of the Company.
In December 1997, in anticipation of the listing of the Common Stock on the
NASDAQ Stock Exchange, the Board of Directors expanded the number of directors
constituting the Board of Directors from four members to six members. Under
Section 4 of the Company's By-Laws, newly created directorships resulting from
any increase in the number of directors shall be filled solely by the
affirmative vote of at least two-thirds of the remaining directors then in
office. The Company's Board of Directors has initiated the process to fill the
two Class III directorship vacancies, but nominees have not yet been identified
and a final vote will not be held prior to the Meeting.
Unless contrary instructions are set forth in the proxies, it is intended
that the persons executing a proxy will vote all shares represented by such
proxy for the election as director of each of Mr. Ferguson and Mr. Quarles as a
Class I director. Should Mr. Ferguson or Mr. Quarles become unable or unwilling
to accept nomination or election, it is intended that the person acting under
the proxy will vote for the election of such other person as the Board of
Directors of the Company may recommend. Management has no reason to believe that
Mr. Ferguson or Mr. Quarles will be unable or unwilling to serve if elected.
There are currently two Class I directorships up for election. Proxies
cannot be voted for other than such directorships.
Directors
Set forth below is certain information concerning the current directors of
the Company, including the nominees for election as directors at the Meeting,
with each person's business experience for at least the past five years:
<TABLE>
<CAPTION>
Present
Position with Began Expiration of
Name Age the Company Directorship Present Term
- ---- --- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Robert R. Ferguson III 49 President, Chief 1997 1998
Executive Officer,
Chairman of the
Board and Class I
Director
W. Greyson Quarles 56 Class I Director 1997 1998
Howard Wolf 63 Class II Director 1997 1999
Gregory J. Robitaille 34 Class II Director 1997 1999
</TABLE>
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. From August 1991 to October 1994, Mr.
2
<PAGE>
Ferguson held various executive positions, including Chief Executive Officer at
Continental Airlines, Inc. Mr. Ferguson also serves on the Board of Directors of
Capital Cargo International Airlines, Inc., an air freight corporation.
W. Greyson Quarles has been a director of the Company since February 1997
and has served as Chief Financial Officer of SAS Institute, Inc., a computer
software corporation, since 1982.
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.
Gregory J. Robitaille has served as a Director of the Company since
February 1997 and has been employed by Equity Group Investments, Inc., which is
an affiliate of Zell/Chilmark Fund, L.P. 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.
Board of Directors Meetings; Compensation and Committees of the Board of
Directors
During the fiscal year ended December 31, 1997, all actions of the Board of
Directors were taken by unanimous written consent. Board of Directors meetings
were held on April 24, 1997, July 22, 1997, November 11, 1997 and December 4,
1997. With the exception of Mr. Quarles' absence from the November 11, 1997
meeting of the Board of Directors, the members of the Board of Directors
attended all Board of Directors meetings in 1997. Each non-employee member of
the Board of Directors is paid a fee of $1,500 for each meeting of the Board of
Directors attended in person by that member.
Although the Board of Directors has provided for the establishment of an
Audit Committee and a Compensation Committee, the members of these Committees
have not yet been selected pending the election of the Class III directors. The
Board of Directors has not provided for the establishment of an executive
committee or a nominating 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.
3
<PAGE>
INFORMATION REGARDING EXECUTIVE OFFICERS
Set forth below is certain information concerning each executive officer of
the Company as of April 8, 1998, with each person's business experience for at
least the past five years:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Robert R. Ferguson III 49 Chairman of the Board, President and Chief Executive Officer
Mark Coleman 51 Senior Vice President - Sales and Marketing
Jonathan S. Waller 37 Senior Vice President, General Counsel and Secretary
Steven Westberg 43 Senior Vice President and Chief Financial Officer
J. Carl Zeigler 37 Chief Information Officer
Thomas Duffy, Jr. 42 Vice President - Maintenance
Daniel Ryan 36 Vice President - Customer Service
David Vance 63 Vice President - Operations
</TABLE>
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.
Mark Coleman has served as Senior Vice President - Sales and Marketing of
the Company since April 1998. From December 1996 to February 1998, Mr. Coleman
served as Senior Vice President of Marketing and Planning at Western Pacific
Airlines, Inc. From July 1994 to August 1996, Mr. Coleman served as Senior Vice
President of Marketing for Trans World Airlines, Inc. From September 1992 to
July 1994, Mr. Coleman served as Vice President and General Manager of Avis
Wiscom International, Ltd., an Avis subsidiary. Western Pacific Airlines, Inc.
filed a petition for relief under the Federal bankruptcy laws in October 1997.
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 International Airlines, Inc.
J. Carl Zeigler has served as Chief Information Officer of the Company
since November 1997. From January 1997 to November 1997, Mr. Zeigler served as
the Director of Engineering for DBStar, Inc., a software developer. From January
1996 to December 1996, Mr. Zeigler served as Vice President of Technology at
UNIXware Technology Group, Inc. From December 1985 to December 1995, Mr. Zeigler
served as Manager, Open Systems Research and Development for SAS Institute, Inc.
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 1992, Mr. Duffy served as Manager
of Maintenance Sales with Triad International Maintenance Co.
4
<PAGE>
Daniel Ryan has served as Vice President - Customer Service of the Company
since April 1998. Prior to that time, Mr. Ryan served as the Company's Director
of Reservations from February 1997 to April 1998 and as the Company's Director
of Stations from August 1996 to February 1997. From 1988 to August 1996, Mr.
Ryan served in various positions with AMR Corporation and its subsidiary, Wings
West Airlines.
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.
Agreements with Named Executive Officers
The Company has agreements with three of the named executive officers
(Messrs. Ferguson, Waller and Westberg) 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. 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.
5
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
--------------------------------
Common
Annual Compensation Stock
------------------------ Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (# of shares) ($)
- --------------------------- ---- ------ ----- ------------- -----------
<S> <C> <C> <C> <C> <C>
Robert R. Ferguson III (1) 1996 -- -- -- --
Chairman of the Board, President 1997 177,036(1) 300(7) 781,250
and Chief Executive Officer
John N. Selvaggio (2) 1996 246,642 -- -- --
President and Chief Executive Officer 1997 28,192 -- -- 762,923(3)
Steven Westberg 1996 170,103 -- -- --
Senior Vice President and Chief 1997 170,385 300(7) 111,997 247,500(4)
Financial Officer
Jonathan S. Waller 1996 165,384 -- -- --
Senior Vice President, General Counsel 1997 164,303 300(7) 27,999 247,500(4)
and Secretary
Joanne Smith (5) 1996 154,834 -- -- --
Senior Vice President, Sales and 1997 168,502 300(7) 27,999 247,500(4)
Marketing
Martin Brueckner (6) 1996 44,541 -- -- --
Vice President, Customer Service 1997 122,092 300(7) 7,500 --
</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) Mr. Selvaggio's employment with the Company ended in February 1997.
(3) Amount reflects bonus of $480,000 paid by Zell/Chilmark Fund, L.P. on
behalf of the Company as a result of negotiations in connection with the
recapitalization and change in control of the Company in February 1997, and
$282,923 severance payment.
(4) Amount reflects bonus paid by Zell/Chilmark Fund, L.P. on behalf of the
Company as a result of negotiations in connection with the recapitalization
and change in control of the Company in February 1997.
(5) Ms. Smith resigned as Senior Vice President of the Company in April 1998.
(6) Mr. Brueckner's employment with the Company began in August 1996 and ended
in March 1998.
(7) Amount paid to all eligible full-time employees.
Board Compensation
Non-employee directors of the Company are paid a fee of $1,500 for each
board meeting attended in person.
6
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to grants
of options to the Named Executive Officers who were granted options during
fiscal 1997 and the potential realizable value of such options as at December
31, 1997:
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Percentage of
Number of Total Options Exercise
Securities Granted to Price Option Grant Date
Underlying Employees in per Expiration Present Value
Options Granted Fiscal 1997 Share Date ($)
--------------- ------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Robert R. Ferguson III 781,250(1) 58.3% $ 4.02 2/11/04 1,082,465
Steven Westberg 111,997(2) 8.4% 4.02 2/11/07 217,001
Jonathan S. Waller 27,999(2) 2.1% 4.02 2/11/07 54,250
Joanne Smith 27,999(2) 2.1% 4.02 2/11/07 54,250
Martin Brueckner 7,500(3) 0.6% 15.50 12/4/07 1,195
</TABLE>
Estimated fair value calculated using Black-Scholes with the following
assumptions:
<TABLE>
<CAPTION>
Risk-Free
Number Expected Rate Vesting
of ------------------------------------------- Dividend of Return Period
Shares Time to Exercise (years) Volatility Yield (%) (%) (Years)
------------------------ ------------------------ ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
(1) 390,625 2 0.551 0% 6% 0
195,313 4 0.551 0% 6% 1
195,312 6 0.551 0% 6% 2
(2) 167,995 5 0.551 0% 6% 5
(3) 7,500 6 0.551 0% 6% 5
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information with respect to options
exercised by the Named Executive Officers during fiscal 1997, and the number and
value of options held as at December 31, 1997.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Securities Underlying In-the-Money
Acquired on Value Unexercised Options Options at
Exercise Realized At December 31, 1997 December 31, 1997 ($)(1)
---------------------------- -------------------------------
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Ferguson III -- -- 390,625 390,625 4,337,891 4,337,891
Steven Westberg -- -- -- 111,997 -- 1,243,727
Jonathan S. Waller -- -- -- 27,999 -- 310,929
Joanne Smith (2) -- -- -- 27,999 -- 310,929
Martin Brueckner (3) -- -- -- 7,500 -- --
</TABLE>
(1) The closing price for the Common Stock as reported on December 31, 1997 was
$15.125. The value of unexercised in-the-money options is the difference
between the per share option exercise price and $15.125, multiplied by the
number of shares of Common Stock underlying in-the-money options.
(2) 5,600 shares of Common Stock underlying the options granted to Ms. Smith
became exercisable in February, 1998. The unexercisable shares underlying
the options granted to Ms. Smith expired upon her resignation of employment
in April 1998.
(3) All of the shares of Common Stock underlying the options granted to Mr.
Brueckner expired upon the end of his employment in March 1998.
7
<PAGE>
Performance Graph
The following graph compares the cumulative total return of the Common
Stock of Midway Airlines Corporation, the NASDAQ Composite Index and the NASDAQ
Transportation Index since December 4, 1997. The Company made an initial public
offering of Common Stock on December 4, 1997 at $15.50 per share. The graph
assumes $100 was invested in each of the Common Stock of the Company, the NASDAQ
Composite Index and the NASDAQ Transportation Index on that date. The graph does
not take into account trading commissions or taxes.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
12/4/97 12/31/97
Midway $100 $ 98
NASDAQ $100 $ 97
NASDAQ Transportation $100 $100
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 8, 1998, with
respect to (i) persons known to the Company to be beneficial holders of five
percent or more of the outstanding shares of Common Stock, (ii) named executive
officers and directors of the Company and (iii) all executive officers and
directors of the Company as a group.
Amount and Nature(l)
of Beneficial Ownership
-----------------------
Name and Address of Beneficial Common
Owner Stock %
- ------------------------------ --------- -----
James H. Goodnight, Ph.D 2,745,274 32.0%
SAS Campus Drive
Cary, North Carolina 27513
John P. Sall 1,333,418 15.6%
SAS Campus Drive
Cary, North Carolina 27513
Robert R. Ferguson III 585,938(2) 6.4%
300 West Morgan Street, #1200
Durham, North Carolina 27701
Steven Westberg 22,399(3) *
300 West Morgan Street, #1200
Durham, North Carolina 27701
Jonathan S. Waller 5,800(4) *
300 West Morgan Street, #1200
Durham, North Carolina 27701
W. Greyson Quarles 1,550 *
SAS Campus Drive
Cary, North Carolina 27513
Howard Wolf 2,500 *
Fulbright & Jaworski, LLP
1301 McKinney, #5100
Houston, Texas 70010-3095
Gregory J. Robitaille 500 *
Equity Investment Group, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
All Directors and Executive 630,137 6.8%
Officers as a Group (10 persons)
* Less than 1% of issued and outstanding shares of Common Stock.
(l) Each beneficial owner's ownership of Common Stock and percentage ownership
is determined by assuming that options, warrants and other convertible
securities that are held by all persons that are exercisable or convertible
within 60 days have been exercised or converted.
(2) Includes 585,938 shares of Common Stock issuable to Mr. Ferguson upon
exercise of an option.
(3) Includes 22,399 shares of Common Stock issuable to Mr. Westberg upon
exercise of an option.
(4) Includes 5,600 shares of Common Stock issuable to Mr. Waller upon exercise
of an option and 200 shares of Common Stock owned by Mr. Waller's wife and
mother-in-law.
9
<PAGE>
CHANGE IN CONTROL
On February 11, 1997, a change in control of the Company occurred when
GoodAero, Inc. was merged into the Company. At the time of this merger,
GoodAero, Inc. had $15,000,000 in cash, net of all liabilities and obligations.
James H. Goodnight, Ph.D and John P. Sall were the sole shareholders of
GoodAero, Inc. at the time of the merger. As a result of the merger, Dr.
Goodnight became the beneficial owner of 2,509,697 shares of Common Stock of the
Company (after giving effect to the November 1997 subdivision of shares and the
conversion of Dr. Goodnight's preferred stock) and Mr. Sall became the
beneficial owner of 1,218,995 shares of Common Stock of the Company (after
giving effect to the November 1997 subdivision of shares and the conversion of
Mr. Sall's preferred stock). At the time of the merger, Dr. Goodnight's and Mr.
Sall's combined percentage of equity in the Company was approximately 63% and
they had the combined power to vote 70% of all votes on all matters submitted
for a vote of stockholders. Prior to the merger, the Zell/Chilmark Fund, L.P.
possessed approximately 95% of the equity in the Company. Following purchases of
Common Stock made by Dr. Goodnight and Mr. Sall in December, 1997, they now own
2,745,274 and 1,333,418 shares of Common Stock of the Company, respectively.
These holdings represent approximately 32.0% and 15.6%, respectively, of the
outstanding shares of Common Stock of the Company.
On December 4, 1997, a change in control of the Company occurred when the
Company completed its initial public offering of Common Stock.
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 the Company. At that
time, Teletech was an affiliate of Zell/Chilmark Fund, L.P., the Company's then
majority shareholder. The Company terminated this agreement, effective May 15,
1997. The termination of the agreement led to a dispute between the Company and
Teletech which was settled in December, 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 it than could be obtained from
an unaffiliated party. The software sublicense terminates in August 1998.
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
Fund, L.P. The Agreement and Plan of Merger set forth the terms and conditions
under which GoodAero, Inc. would be merged into the Company, which occurred on
February 11, 1997.
Simultaneously with the closing of the recapitalization of the Company 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 credit card processing vendor as security for the Company's
performance of its obligations under its credit card processing agreement.
Through other arrangements made by the Company, this letter of credit was
replaced in February 1998.
In 1997 and 1998, the Company engaged the law firm of Fulbright & Jaworski,
L.L.P. to act as its counsel in connection with its purchase and financing of
certain aircraft and in connection with its filings and registrations with the
United States Securities and Exchange Commission. Howard Wolf, a senior partner
of Fulbright & Jaworski, L.L.P. is a member of the Company's Board of Directors.
10
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The financial statements of the Company at December 31, 1997 and 1996 and
for the years then ended, appearing in the annual report which accompanies this
proxy statement have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing in such annual report. 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 the annual report which accompanies this proxy statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto. 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 of the Company in February 1997, Arthur
Andersen LLP served as the Company's independent auditing firm. At the time of
the recapitalization of the Company in February 1997, the Company's new
management dismissed Arthur Andersen LLP and appointed Ernst & Young LLP to
serve as the Company's independent auditor. Arthur Andersen 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 of the Company, 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.
Ernst & Young LLP has been selected by the Board of Directors to serve as
the Company's independent accountants for the current year. Representatives of
Ernst & Young LLP are expected to be present at the annual meeting of
shareholders, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's officers, directors and persons who own more
than 10% of a registered class of the Company's equity securities to file
statements of ownership and changes in ownership with the Securities and
Exchange Commission on Form 3, Form 4, and Form 5 . Officers, directors and
greater than 10% stockholders are required by the regulation to furnish the
Company with copies of all Section 16(a) reports which they file.
Based solely on a review of reports on Form 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, the Company
believes that no person who at any time during 1997 was subject to the reporting
requirements of Section 16(a) with respect to the Company failed to meet such
requirements on a timely basis.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of shareholders intended to be presented at the annual
meeting of shareholders of the Company to be held in 1999 must be received by
the Company at its principal executive offices, no later than December 18, 1998
in order to be included in the proxy statement and form of proxy relating to
that meeting.
OTHER MATTERS
The management of the Company knows of no other matters that may come
before the meeting. However, if any matters other than those referred to above
should properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their best
judgment.
The cost of solicitation of proxies in the accompanying form will be paid
by the Company. In addition to solicitation by use of the mails, certain
directors, officers or employees of the Company may solicit the return of
proxies by telephone, telegram or personal interview.
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