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Registration No. 333-
38244
As Filed with the Securities and Exchange Commission on June 26, 2000
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MIDWAY AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 36-3915637
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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2801 Slater Road, Suite 200
Morrisville, North Carolina 27560
(919) 595-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JONATHAN S. WALLER, ESQ. Copies of Correspondence to:
Senior Vice President and General Counsel ROY L. GOLDMAN, ESQ.
Midway Airlines Corporation Fulbright & Jaworski L.L.P.
2801 Slater Road, Suite 200 666 Fifth Avenue
Morrisville, North Carolina 27560 New York, New York 10103
(919) 595-6000 (212) 318-3000
(Name, address, including zip code and
telephone
number, including area code, of agent for
service)
</TABLE>
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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 the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 26, 2000
PROSPECTUS
Midway Airlines Corporation
8,613,592 shares of common stock
$5.20 per share
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We are distributing, together with this prospectus, subscription rights to
purchase shares of our common stock to persons who own our common stock as of
the close of business on June 15, 2000, the record date. You will receive one
(1) subscription right for each share of our common stock that you own on the
record date. Each subscription right will entitle you to purchase one share of
our common stock at the subscription price of $5.20 per share.
The subscription rights are exercisable beginning on the date of this
prospectus and will expire at 5:00 p.m., New York City time, on July , 2000.
If you timely exercise all of your subscription rights, you will be entitled
to exercise over-subscription privileges to purchase additional shares of our
common stock at the same subscription price. The number of additional shares of
our common stock that you will be entitled to purchase will be equal to your
percentage ownership of our common stock on the record date multiplied by the
number of subscription rights that were not timely exercised by our other
stockholders, rounded down to the nearest whole number.
We are undertaking this rights offering to meet our obligations to reduce the
lender's commitment under the terms of a revolving credit facility with an
entity that is wholly owned by our two principal stockholders, who together own
approximately 47.4% of our outstanding common stock. Both of these stockholders
have agreed to exercise their respective basic subscription privileges and
over-subscription privileges in full and, if no other stockholders exercise
their subscription rights, these two stockholders will in aggregate own
approximately 69.4% of our outstanding common stock. Accordingly, we expect to
receive proceeds from the offering of at least $32.4 million and up to $44.8
million, before deducting expenses payable by us. We expect to issue at least
6,226,048 and up to 8,613,592 shares of common stock in the offering.
The subscription rights may not be sold, transferred or assigned, and will
not be listed for trading on any stock exchange.
Shares of our common stock are currently listed for quotation on the Nasdaq
National Market under the symbol "MDWY". On June 23, 2000, the closing price of
a share of our common stock on Nasdaq was $5 15/32.
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying additional shares of our common stock.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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Summary.................................................................... 1
Questions and Answers About Midway Airlines Corporation................... 1
Questions and Answers About the Rights Offering........................... 1
Note Regarding Forward-Looking Statements.................................. 6
Risk Factors............................................................... 7
Risk Factors Related to Midway and the Airline Industry................... 7
Risk Factors Related to Our Common Stock.................................. 14
Risk Factors Related to the Rights Offering............................... 16
Selected Financial Information............................................. 18
Use of Proceeds............................................................ 22
Dividend Policy............................................................ 22
Price Range of Common Stock................................................ 22
Capitalization............................................................. 23
The Rights Offering........................................................ 24
Federal Income Tax Considerations.......................................... 31
Description of Capital Stock............................................... 32
Determination of Offering Price............................................ 35
Plan of Distribution....................................................... 36
Legal Matters.............................................................. 36
Experts.................................................................... 36
Where You Can Find More Information........................................ 36
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Midway has not authorized any person to give you information that differs
from the information in this prospectus. You should rely solely on the
information contained in this prospectus. This prospectus is not an offer to
sell these securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale of these securities is not
permitted. The information in this prospectus is accurate only as of the date
of this prospectus, even if the prospectus is delivered to you after the
prospectus date, or you buy our common stock after the prospectus date.
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SUMMARY
This section answers in summary form some questions you may have about
Midway Airlines Corporation and this rights offering. The information in this
section is not complete and does not contain all of the information that you
should consider before exercising your subscription rights. You should read the
entire prospectus carefully, including the "Risk Factors" section and the
documents listed under "Where You Can Find More Information." For convenience,
references in this prospectus to "we," "us," or "Midway" mean Midway Airlines
Corporation.
Questions and Answers About Midway Airlines Corporation
What is Midway Airlines Corporation?
We are an all jet aircraft operator serving 22 destinations in 13 states and
the District of Columbia from our hub at Raleigh-Durham International Airport
in North Carolina, where we currently carry more passengers and operate more
flights than any other airline. We organize our business to attract and retain
business travelers by providing frequent non-stop service from Raleigh-Durham
International Airport to major business destinations, maintaining a high level
of service and offering American Airlines Inc. AAdvantage(R) frequent flyer
miles. We also fly leisure passengers traveling between the Northeast and
Florida.
Where are we located?
Our principal executive offices are located at:
2801 Slater Road, Suite 200
Morrisville, North Carolina 27560
Our telephone number is (919) 595-6000.
When were we formed?
We were incorporated under the laws of the State of Delaware in 1983 as Jet
Express, Inc. and renamed Midway Airlines Corporation in November 1993 in
connection with our commencement of jet operations.
Questions and Answers About the Rights Offering
What is a rights offering?
A rights offering is an opportunity for you to purchase additional shares of
our common stock at a fixed price of $5.20 per share and in an amount
proportional to your existing interest, which enables you to maintain your
current percentage ownership in Midway.
What is a subscription right?
We are distributing to you, at no charge, one (1) subscription right for
every share of common stock that you owned on June 15, 2000, the record date.
Each subscription right entitles you to purchase one share of our common stock
for $5.20. When you "exercise" a subscription right, that means that you choose
to purchase the common stock that the subscription right entitles you to
purchase. You may exercise any number of your subscription rights, or you may
choose not to exercise any subscription rights. Each right carries with it a
basic subscription privilege and an over-subscription privilege. You cannot
give or sell your subscription rights to anybody else; only you can exercise
them.
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What is the basic subscription privilege?
The basic subscription privilege of each subscription right entitles you to
purchase one (1) share of our common stock at a subscription price of $5.20.
What is the over-subscription privilege?
We do not expect that all of our stockholders will exercise all of their
basic subscription privileges. By extending over-subscription privileges to our
stockholders, we are providing for the purchase of those shares which are not
purchased through exercise of basic subscription privileges. The over-
subscription privilege entitles you, if you fully exercise your basic
subscription privilege, to subscribe for additional shares of common stock not
acquired by other holders of rights at the same subscription price of $5.20 per
share.
What are the limitations on the over-subscription privilege?
We will issue up to 8,613,592 shares of common stock in the rights offering.
The number of shares available for over-subscription privileges will be
8,613,592 minus the number of shares purchased upon exercise of all basic
subscription privileges. The number of additional shares of our common stock
that you will be entitled to purchase if you exercise the over-subscription
privilege will be equal to your percentage ownership of our common stock on the
record date multiplied by the number of subscription rights that were not
timely exercised by our other stockholders, rounded down to the nearest whole
number. However, in certain circumstances, in order to comply with applicable
state securities laws, we may not be able to honor all over-subscription
privileges even if we have shares available.
Why are we engaging in a rights offering?
We are proceeding with the rights offering to raise capital to allow us to
reduce to $10 million the commitment under our $30 million revolving credit
facility with Reedy Creek Investments, L.L.C., an entity that is wholly-owned
by our two principal stockholders, James H. Goodnight, Ph.D. and John P. Sall.
The revolving credit agreement requires us to reduce this commitment by
September 30, 2000. We have determined to use a rights offering in order to
allow our existing stockholders to participate in this offering and therefore
not have their interest in Midway be diluted by the issuance of additional
equity to a third party. Dr. Goodnight and Mr. Sall have agreed to exercise
their respective basic subscription privileges and over-subscription privileges
in full. Accordingly, Dr. Goodnight and Mr. Sall will acquire between 4,078,692
and 6,226,048 shares of our common stock, depending upon the number of other
stockholders who exercise their basic subscription privileges. If no
stockholders other than Dr. Goodnight and Mr. Sall exercise their basic
subscription privileges, Dr. Goodnight's ownership interest in Midway will
increase to approximately 46.7% from approximately 31.9% and Mr. Sall's
ownership interest in Midway will increase to approximately 22.7% from
approximately 15.5%.
The proceeds of the loans under the revolving credit facility are being used
for, and any proceeds from the sale of the common stock in the rights offering
which exceed the amount necessary to reduce the outstanding balance under the
revolving credit facility to $10 million will be used for, working capital and
capital expenditure requirements, including the funding of pre-delivery
deposits due to aircraft manufacturers.
How many shares may I purchase?
You will receive one (1) subscription right for each share of common stock
that you owned on June 15, 2000, the record date. Each subscription right
entitles you to purchase one share of common stock for $5.20. If you exercise
all of the subscription rights that you receive, you may have the opportunity
to purchase additional shares of common stock. On the enclosed subscription
certificate, you may exercise your over-subscription privilege by indicating
the number of additional shares that you wish to purchase for $5.20 per share.
However, we may not be able to honor your over-subscription privilege for as
many additional shares as you request on
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your subscription certificate, because you may only purchase that number of
additional shares of our common stock equal to your percentage ownership of our
common stock on the record date multiplied by the number of subscription rights
that were not timely exercised by our other stockholders, rounded down to the
nearest whole number. Subject to state securities laws and regulations, we have
the discretion to issue less than the total number of shares that may be
available for over-subscription requests in order to comply with state
securities laws.
How did Midway arrive at the $5.20 per share price?
In determining the price at which a share of common stock may be purchased
in this rights offering, our board of directors considered several factors,
including the historic and current market price of the common stock, our
business prospects, our history of profits and losses, general conditions in
the securities market, our need for capital, alternatives available to us for
raising capital, the amount of proceeds desired, the liquidity of our common
stock, the level of risk to our investors, and the need to offer shares at a
price that would be attractive to our investors relative to the then current
trading price of our common stock. We did not seek or obtain any opinion of
financial advisors or investment bankers in establishing the subscription
price.
How do I exercise my subscription rights?
You must properly complete the attached subscription certificate and deliver
it to the Subscription Agent before 5 p.m., New York City time, on July ,
2000. The address for the Subscription Agent is on page 29. Your subscription
certificate must be accompanied by proper payment for each share that you wish
to purchase.
What should I do if I want to participate in the rights offering but my shares
are held in the name of my broker or a custodian bank?
If you hold shares of Midway common stock through a broker, dealer or other
nominee, we will ask your broker, dealer or nominee to notify you of the rights
offering. If you wish to exercise your rights, you will need to have your
broker, dealer or nominee act for you. To indicate your decision with respect
to your rights, you should complete and return to your broker, dealer or
nominee the form entitled "Beneficial Owner Election Form." You should receive
this form from your broker, dealer or nominee with the other rights offering
materials.
How long will the rights offering last?
You will be able to exercise your subscription rights only during a limited
period. If you do not exercise your subscription rights before 5 p.m., New York
City time, on July , 2000, your subscription rights will expire. We may, in
our discretion, decide to extend the rights offering. In addition, if the
commencement of the rights offering is delayed, the expiration date will
similarly be extended.
After I exercise my subscription rights, can I change my mind?
No. Once you send in your subscription certificate and payment, you cannot
revoke the exercise of your subscription rights, even if you later learn
information about us that you consider to be unfavorable. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of our common stock at a price of $5.20 per share.
Is exercising my subscription rights risky?
The exercise of your subscription rights involves certain risks. Exercising
your subscription rights means buying additional shares of our common stock,
and should be carefully considered as you would view other equity investments.
Among other things, you should carefully consider the risks described under the
heading "Risk Factors," beginning on page 7.
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What happens if I choose not to exercise my subscription rights?
You will retain your current number of shares of common stock in Midway even
if you do not exercise your subscription rights. However, if other stockholders
exercise their subscription rights and you do not, your relative percentage
ownership of Midway will decrease, and your relative voting rights and economic
interests will be diluted. Because Dr. Goodnight and Mr. Sall, our two
principal stockholders who together own approximately 47.4% of our common
stock, have agreed to exercise their respective basic subscription privileges
and over-subscription privileges in full, your percentage ownership in Midway
will be reduced and your economic interest will be diluted if you do not
exercise your basic subscription privileges.
Can I sell or give away my subscription rights?
No. Subscription rights are not transferable.
Must I exercise any subscription rights?
No.
What are the federal income tax consequences of exercising my subscription
rights?
The receipt and exercise of your subscription rights are intended to be
nontaxable. You should seek specific tax advice from your personal tax advisor.
When will I receive my new shares?
If you purchase shares of common stock through the rights offering, you will
receive shares as soon as practicable after the expiration date of this rights
offering. Subject to state securities laws and regulations, we have the
discretion to delay allocation and distribution of any shares you may elect to
purchase by exercise of your basic or over-subscription privilege in order to
comply with state securities laws.
Can Midway cancel the rights offering?
Yes. Our board of directors may cancel the rights offering at any time
before 5:00 p.m., New York City time, on the expiration date of this rights
offering for any reason. If we cancel the rights offering, any money received
from stockholders will be refunded promptly, without interest. If we cancel the
rights offering, we will have to find an alternative way to reduce the
commitment under the revolving credit facility to $10 million by September 30,
2000. We cannot assure you that we will be able to do so.
How much money will Midway receive from the rights offering?
Our gross proceeds from the rights offering will depend on the number of
shares that are purchased. If we sell all 8,613,592 shares which may be
purchased upon exercise of the rights offered by this prospectus, then we will
receive proceeds of $44,790,678, before deducting expenses payable by us,
estimated to be $160,000. Since Dr. Goodnight and Mr. Sall, who currently own
approximately 31.9% and 15.5%, respectively, of our outstanding common stock,
without giving effect to the shares that may be issued upon the exercise of
outstanding warrants and stock options, have agreed to exercise their basic
subscription privileges and over-subscription privileges in full, we expect to
issue at least 6,226,048 shares and to receive proceeds of at least $32,375,450
from the rights offering, before deducting expenses.
How many shares of common stock will be outstanding after the rights offering?
The number of shares of common stock that will be outstanding after the
rights offering depends on the number of shares that are purchased. We expect
to issue at least 6,226,048 shares during this rights offering, and if we sell
all of the shares offered by this prospectus, then we will issue 8,613,592 new
shares of common
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stock. As a result, we expect to have between approximately 14,839,640 and
17,227,184 shares of common stock outstanding immediately after the rights
offering.
What if I have more questions?
If you have more questions about the rights offering, please contact
Corporate Investor Communications, Inc., the information agent for this rights
offering, at:
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Banks and brokers call: (800) 346-7885
All others call toll free: (888) 568-9320
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain forward-
looking statements, within the meaning of the Private Securities Litigation
Reform Act of 1995, about our financial condition, results of operations and
business that are based on our current and future expectations. You can find
many of these statements by looking for words such as "estimate," "project,"
"believe," "anticipate," "intend," "expect," and similar expressions. Such
statements reflect our current views with respect to future events and are
subject to risks and uncertainties, including those discussed under "Risk
Factors," that could cause actual results to differ materially from those
contemplated in such forward-looking statements. You are cautioned that no
forward-looking statement is a guarantee of future performance and you should
not place undue reliance on these forward-looking statements, which speak only
as of the date of this prospectus. We do not undertake any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events which may cause actual results to differ
from those expressed or implied by the forward-looking statements contained in
this prospectus.
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RISK FACTORS
An investment in our securities involves a high degree of risk. You should
carefully consider the risks and uncertainties described below and the other
information in this prospectus before deciding whether to invest in shares of
our common stock. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial condition
and operating results could be materially adversely affected. In such case, the
trading price of our common stock could decline and you may lose part or all of
your investment.
Risk Factors Related to Midway and the Airline Industry
The airline industry is characterized by low gross profit margins and high
fixed costs, and is highly competitive
Our business, as is typical in the airline industry generally, is
characterized by low gross profit margins and high fixed costs, principally for
debt service, fuel and personnel. 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 paid 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
our 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. We currently compete
with other air carriers either directly or indirectly on all of our routes.
Nearly all of these carriers have greater financial resources than we do, and
many of them have lower unit costs than we do. Furthermore, the introduction of
service or discounted fares by a major U.S. airline or one of its low cost
affiliates in markets served by us could also have an adverse impact upon our
business, financial condition and results of operations.
Since late 1997, we have experienced, and likely will continue to
experience, increased competition in the Raleigh-Durham market. In 1999, both
Southwest Airlines and MetroJet, the low-fare division of US Airways, initiated
service at Raleigh-Durham International Airport. Southwest began service to
five cities from Raleigh-Durham International Airport with 12 daily flights
and, as of April 29, 2000, operates service to six cities with 16 daily
flights. Although MetroJet announced plans to serve six cities from Raleigh-
Durham International Airport with 17 daily flights, as of June 20, 2000
MetroJet was not offering for sale any air transportation services to or from
Raleigh-Durham International Airport.
We have a significant amount of debt and capital lease obligations that could
adversely affect our ability to meet our strategic goals
We have a large amount of indebtedness when compared to the equity of our
stockholders. At March 31, 2000, our long-term debt and capital lease
obligations, including current portion, accounted for 63.8% of our total
capitalization. As of March 31, 2000, we had minimum operating and capital
lease obligations through the year ending December 31, 2016 aggregating
approximately $563 million. In addition, based on current interest rates, we
estimate that our operating and capital lease obligations will increase by
approximately $60 million annually following delivery of the 15 Boeing 737-700
aircraft and four Canadair Regional Jets currently subject to firm orders,
which deliveries are scheduled to be completed by October 2002. This amount
will increase if current interest rates increase during the aircraft delivery
period. These additional lease obligations, as well as any increase in interest
rates, could materially adversely affect our results of operations. The degree
to which we are leveraged, as well as our rent expense, could have significant
consequences, including the following:
. our ability to obtain additional financing for working capital and other
purposes could be limited;
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. a substantial portion of our cash flow will be required to service our
obligations under securities issued in aircraft financing transactions
and rent expense, diverting such cash from our operations; and
. we will be more vulnerable to adverse changes in general economic and
industry conditions and we may be less able to withstand competitive
pressures than our competitors that are less highly leveraged.
Our ability to make scheduled principal and interest payments on or to
refinance our obligations underlying securities issued in aircraft financing
transactions and our other debt obligations will depend upon our future
operating performance and cash flow, which are in turn dependent upon
prevailing economic conditions and financial, competitive, regulatory, business
and other factors, many of which are beyond our control. There can be no
assurance that our cash flows will be sufficient for the payment of our debt
and lease obligations. If we are unable to meet interest, principal or lease
payments, we could be required to seek renegotiation of such payments or obtain
additional equity or debt financing. To the extent we finance our activities
with additional debt, we may become subject to certain financial and other
covenants that may restrict our ability to pursue our growth strategy. There
can be no assurance that any such efforts would be successful or timely or that
we could obtain any such financing or refinancing on acceptable terms.
Increases in aircraft fuel costs will adversely affect our financial results
Because fuel costs constitute a significant portion of our total operating
expenses (approximately 12.6%, 10.5% and 11.2% for the years ended December 31,
1997, 1998 and 1999, respectively, and 8.6% and 14.0% for the three months
ended March 31, 1999 and 2000, respectively), significant changes in fuel costs
will materially affect our results of operations. We estimate that for the year
ended December 31, 1999, a ten percent increase in the price per gallon of
aircraft fuel would have increased our total operating expenses (excluding
equipment retirement charges) in 1999 by 1.1%. Our fuel costs increased
approximately 144% for the quarter ending March 31, 2000, from the quarter
ending March 31, 1999, primarily as a result of a 122% increase in fuel prices
subsequent to March 31, 1999. This increase, and any additional increases, in
the cost of fuel will adversely impact our results of operations in 2000
compared to 1999.
Historically, jet fuel costs have been subject to wide price fluctuations.
Jet fuel availability is also subject to periods of market surplus and
shortage. 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.
Our fuel requirements are met by approximately a dozen different suppliers.
We contract with these suppliers as fuel is needed, and the terms vary as to
price and quantity. We have not entered into any agreement that fixes the price
of fuel over any period of time.
In the event of a fuel supply shortage, higher fuel prices or curtailment of
scheduled service could result. There can be no assurance that increases in the
price of fuel can be offset by higher fares.
Our business is labor intensive and the general inflationary trend in labor
costs, along with the location of our hub and our position in the industry,
will increase our costs and may lead to excessive turn-over and attrition rates
Our business, as is typical in the airline industry generally, is labor
intensive, with labor costs representing approximately 15.1%, 17.4%, 19.6%,
19.1% and 18.4% of our operating costs before recapitalization and equipment
retirement charges for calendar years 1997, 1998 and 1999 and for the three
months ended March 31, 1999 and 2000, respectively. We are required to carry
the same number of crew on our flights regardless of the number of passengers
carried. The Raleigh-Durham area has experienced an unemployment rate which is
significantly less than the national average over the last several years. We
compete for labor against employers in the area that are leaders in the high-
technology, medical services, telecommunications, bio-technology and
pharmaceutical industries. We also compete for labor in highly skilled
positions (such as
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pilots and mechanics) against major airlines who offer wage and benefit
packages that generally exceed our wage and benefit packages. While we maintain
an active recruiting program for all job classifications, offer competitive
terms of employment and endeavor to maintain positive relationships with our
employees, we have in the past and may in the future suffer excessive turn-over
and attrition rates, which could have an adverse impact upon our operations. We
also expect wages to continue to increase both as a percentage of our overall
costs and on a gross basis.
Our growth strategy involves significant risk
Our growth strategy involves increasing the frequency of flights to markets
we currently serve, increasing the number of markets served and maximizing
connecting opportunities. Opening new markets requires us to commit a
substantial amount of resources, both before the new services commence and
throughout the early phases of the new operation. There can be no assurance
that these efforts will be successful. As part of our growth strategy, we are
also increasing the size of the planes we operate, and we currently have firm
orders to increase the number of 128 seat Boeing 737-700 aircraft we operate
from two to 17 by October 2002. In addition, in order to effect our growth
strategy, we may also need to obtain additional slots at certain destinations.
A slot is an authorization to take off or land at the designated airport within
a specified time window. There can be no assurance that we will be able to
identify and successfully establish new markets, that we will be able to fill a
sufficient number of seats on the larger planes to operate profitably or that
we will be able to obtain additional slots on a timely basis or at commercially
reasonable prices, if at all. Our failure to implement our growth strategy
could have a material adverse effect on our financial condition and results of
operations.
Our business is dependent on the Raleigh-Durham market
Our growth has focused and will, at least in the near-term, continue to
focus on adding flights to and from our Raleigh-Durham base of operations,
established in March 1995. Because all of our current flights have Raleigh-
Durham as the origin or destination, we remain highly dependent upon the
Raleigh-Durham market. Our growth strategy continues to emphasize the Raleigh-
Durham hub. A reduction in our share of the Raleigh-Durham market or reduced
passenger traffic to or from Raleigh-Durham in general could have a material
adverse effect on our financial condition and results of operations. In
addition, our dependence on a single hub and on a route network operating
largely on the East Coast makes our business more susceptible to adverse
weather conditions along the East Coast than some of our competitors that may
be better able to spread weather-related risks over larger route systems. For
example, during January 2000, due to severe weather, we effectively lost five
business days of operations, which had a significant adverse impact on our
first quarter 2000 results.
We are dependent on our relationship with American Airlines
We maintain a significant relationship with American Airlines. Part of this
relationship includes contractual arrangements with American that allow Midway
to participate in the AAdvantage(R) frequent flyer program and accept
AAirpass(R) tickets and American first class upgrades from its passengers. We
currently lease the Raleigh-Durham International Airport facility and purchase
a number of services, including yield management and ground handling, from
American.
Our contract with American to participate in the AAdvantage(R) frequent
flyer program extends through April 30, 2001, and gives us the ability to offer
AAdvantage(R) miles on several additional routes, though we may, as part of our
growth strategy, select routes that are not covered by our agreement with
American. The ability to offer AAdvantage(R) miles on additional routes and the
extension of the term of the agreement are the subject of ongoing discussions
between Midway and American. We believe that our participation in the
AAdvantage(R) program gives us 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
9
<PAGE>
agreement), there can be no assurance that we will be able to offer
AAdvantage(R) frequent flyer benefits to our customers after the expiration of
our current contract with American, and we may in the future choose or be
obligated to develop our own frequent flyer program or participate in an
alternate program.
American may terminate Midway's participation in the AAdvantage(R) program
under several circumstances, including:
. our commencement of a new frequent flyer program or our participation in
another frequent flyer program;
. any person or group becoming the owner of 20% or more of our outstanding
voting securities or any "Disqualified Investor" becoming the owner of
10% or more of our outstanding voting securities;
. our making a significant acquisition; or
. our 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 us.
"Disqualified Investor" is defined as:
. any other airline or airline-related services company;
. any person or entity offering a frequent traveler program; or
. any person or entity that American believes would likely, by virtue of
its affiliation with us, materially adversely affect American's
interests or objectives under any of its or its affiliates' agreements
with us.
In addition, American may terminate our lease of the Raleigh-Durham
International Airport facility and one other service agreement that we have
with American if any person or group acquires 30% or more of our voting
securities. Finally, if we pay any dividends or make any other cash or asset
distribution to our stockholders without American's consent at any time prior
to our payment in full of a certain promissory note to American, then American
may terminate the Raleigh-Durham International Airport facility lease, our
right to offer AAdvantage(R) frequent flyer benefits, our license of the yield
management system and one other service agreement that we have with American.
We are dependent on a limited number of routes
We derive a substantial majority of our operating income from a small number
of our 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 our financial condition and results of operations.
We depend in part on landing slots leased from others
The regulations of the Federal Aviation Administration ("FAA") 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 Ronald Reagan Washington National airports. We currently
lease seven of our ten slots at New York's LaGuardia Airport and ten of our
twelve slots at Ronald Reagan Washington National Airport from other airlines.
The United States Department of Transportation ("DOT") must grant slot
exemptions at LaGuardia Airport to airlines if certain conditions are met. We
have been granted nine slot exemptions at LaGuardia Airport which will allow us
to add a sixth round trip in the market in July 2000 and to terminate our
leasing of slots at LaGuardia Airport from other airlines upon expiration of
our leases, which expire as to two slots in October 2000 and as to the
remaining five slots in April 2001. The DOT has the discretionary authority to
grant limited slot exemptions at Ronald Reagan Washington National Airport to
airlines if certain conditions are met. We believe we meet these conditions and
have filed an application for
10
<PAGE>
four slot exemptions at Ronald Reagan Washington National Airport. Other
airlines have also filed for slot exemptions at Ronald Reagan Washington
National Airport. The DOT has issued an order establishing the procedures for
reviewing such requests, and has indicated it will issue its decision on those
applications no later than July 5, 2000. We cannot assure you that the DOT will
grant us these slot exemptions. The lease for four of our slots at Ronald
Reagan Washington National Airport is scheduled to expire in October 2000, and
the lease for our remaining six leased slots at Ronald Reagan Washington
National Airport is scheduled to expire April 1, 2001. To the extent we are not
granted slot exemptions effective upon expiration of these leases and we cannot
renew or replace these leases, our business will be harmed. Our route between
Raleigh-Durham International Airport and Ronald Reagan Washington National
Airport is one of our most important, and, as a result, an inability to obtain
slot exemptions or to renew or replace these leases could have a material
adverse effect on our financial condition and results of operations.
We operate a limited number of aircraft
We have a fleet of 32 jet aircraft, 27 of which are leased and five of
which, all CRJs, are owned. The limited number of aircraft we operate involves
financial risks not present for larger carriers that are able to spread their
operating costs over more equipment and routes. In addition, the lessor of four
of our F-100s has the right to terminate each of these leases on six months'
prior notice, 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 our service,
reputation and profitability.
We depend on a limited number of aircraft types
As of June 20, 2000, our fleet of 32 aircraft consists of eight 98-seat
Fokker F-100 aircraft, 22 50-seat Canadair Regional Jets (CRJs) and two 128-
seat Boeing 737-700s. We have firm orders for four additional CRJs to be
delivered by December 2001 and fifteen 737s to be delivered by October 2002.
However, the delivery schedule for the 737s may be impacted by a recently ended
strike of The Boeing Company's engineers. The additional aircraft will be
utilized to replace some or all of the F-100s, to serve existing Midway
destinations with greater frequency, and to enter new routes, providing our
customers with more non-stop jet destinations. We also have options to acquire
14 additional CRJs and 10 additional 737 aircraft. We have exercised an option
to terminate four F-100 leases prior to their scheduled termination dates. We
will return these four aircraft in the first half of 2001 at a pre-tax cost of
$2.1 million per aircraft. Our dependence on the F-100s and CRJs for the vast
majority of our flights could have a material adverse effect on us in the event
of a government directive prohibiting or restricting the use of one of these
aircraft types or in the case of adverse public perception of one of these
aircraft types. In addition, delay in delivery of the 737s may adversely affect
our growth and results of operations.
We are subject to extensive government regulation
We are subject to 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, consumer
protection and competitive practices. The FAA primarily regulates flight
operations, in particular matters affecting air safety, such as airworthiness
requirements for aircraft and pilot and flight attendant certification. We
believe we are in compliance with all requirements necessary to maintain in
good standing our operating authority granted by the DOT and our air carrier
operating certificate issued by the FAA. Additional laws and regulations have
been proposed from time to time that could significantly increase the cost of
our airline operations by, for instance, imposing additional requirements or
restrictions on operations. There can be no assurance that we 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 our
results of operations.
11
<PAGE>
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. Depending upon the scope of the FAA's order, these
requirements may cause us to incur substantial, unanticipated expenses.
We are 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.
In August 1998, the Compliance and Enforcement Branch of the FAA conducted
an inspection of our compliance with certain regulations related to our alcohol
and drug testing programs. In September 1998, the FAA notified us that it was
investigating alleged violations discovered in the August 1998 inspection. We
responded to these alleged violations in October 1998. In May 1999, the FAA
requested that we provide them supplemental information regarding certain
matters raised during the investigation. We promptly provided this information
to the FAA. While we are 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, a substantial assessment could have a
material adverse effect on our results of operations.
In September 1997, the Civil Aviation Security Division of the FAA conducted
an investigation of our compliance with certain regulations requiring us to
verify the accuracy of background information provided by our employees who
have access to secure airport areas. We revised our 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. The
investigation may result in the finding of violations of these regulations. We
have received no communications from the FAA in this respect since 1998. While
we are 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, a substantial assessment could have a material adverse
effect on our results of operations.
We have incurred operating losses from time to time
We began commercial flight operations in 1993 and incurred substantial
losses through September 30, 1996. Although we were profitable in the 13
quarters from October 1, 1996 through December 31, 1999, we incurred a loss of
$7.6 million in the first quarter of 2000. The first quarter 2000 loss was
primarily the result of:
. a $9.5 million pre-tax charge related to an option we exercised for the
early return of four Fokker F100s in the first half of 2001, a writedown
of the value of certain leasehold improvements associated with those
aircraft and related costs;
. an increase in fuel expense of $4.8 million year-over-year driven by a
122% increase in fuel prices;
. $1.2 million in Boeing 737-700 induction costs, including rent expense
incurred prior to revenue service and increased initial training costs;
and
. an estimated $4 million impact from severe January weather, which
included a record 20 inch snowfall that shut down our Raleigh-Durham hub
for three and one-half days.
There can be no assurance that we will be profitable in the future.
12
<PAGE>
Maintenance of our Fokker F-100s, which are no longer being manufactured, is
more expensive than maintenance of similar aircraft still in production
Eight of our current 32 aircraft are Fokker F-100s. Fokker Aircraft B.V., a
Dutch corporation, has ceased operations. As a result, the F-100 is no longer
being manufactured. Our cost to maintain F-100 aircraft generally exceeds the
cost of maintaining similar aircraft that are presently in production. Vendors
and suppliers of key parts are generally fewer in number and their products
more expensive, and engineering is not as readily available. Our inability to
obtain parts and servicing for our F-100 aircraft on a timely and cost-
effective basis could have a material adverse effect on our financial condition
and results of operations.
We are required to purchase four Airbus A320 aircraft that we no longer desire
to purchase
Pursuant to a March 1995 purchase agreement, we are obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. To support the
operation of the four A320 aircraft, we also agreed to purchase one IAE V2527-
A5 spare engine scheduled for delivery in November 2005 from International Aero
Engines AG. The purchase of the A320s and the associated spare engine no longer
fit with our current strategy. We are considering several alternatives with
respect to the A320s, including restructuring our agreement with Airbus or
selling our positions. There can be no assurance that we will be able to
restructure or sell our rights under this purchase agreement. If we are
required to take delivery of these aircraft or if we incur significant
financial expense in lieu of taking delivery, our financial position and
results of operations could be materially adversely affected.
Our business could be adversely affected if we lose the services of the key
personnel upon whom we depend
Our management and operations are dependent upon the efforts of our Chairman
of the Board, President and Chief Executive Officer, Robert R. Ferguson III,
and a small number of management and operating personnel. We do 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 our business.
Our business is seasonal and cyclical
Our financial 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 our high proportion of fixed costs, such seasonality
affects our profitability from quarter to quarter.
Many of our areas of operations experience adverse weather in the winter,
causing a greater percentage of our flights to be canceled and/or delayed than
in other quarters. For example, during January 2000, due to severe weather, we
effectively lost five business days of operations.
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 our results of
operations, particularly since current industry traffic patterns are based in
part on substantial stimulation of discretionary air travel.
Many of our employees are represented by labor unions
Our pilots, fleet service (ramp) agents and flight attendants are
represented by labor unions. The pilots' representative, Air Line Pilots
Association, was elected in December 1997. The fleet service employees'
representative, International Association of Machinists & Aerospace Workers,
AFL-CIO (IAM), was elected in June 1998. The flight attendants' representative,
the Association of Flight Attendants, AFL-CIO (AFA), was
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<PAGE>
elected in December 1998. Prior to those dates, none of our employees were
represented by a union. Our pilots recently ratified a collective bargaining
agreement with Midway that became effective on April 1, 2000. With respect to
the fleet service employees, a contract proposal was agreed upon by the IAM and
Midway, but an agreement submitted to the employees for ratification on October
28, 1999 was rejected. The IAM filed an application for mediation with the
National Mediation Board (NMB) on November 3, 1999. In February 2000, with the
assistance of an NMB-appointed mediator, we reached agreement with the IAM and
members of the fleet service agent negotiating committee on a collective
bargaining agreement. The agreement was then submitted to the fleet service
agents for ratification. On March 20, 2000, we were informally advised that the
fleet service agents voted not to approve the agreement. Further mediation will
be conducted in this matter. Negotiations with the AFA are ongoing.
Although we believe mutually acceptable agreements can be reached with the
unions representing our fleet service agents and flight attendants, the
ultimate outcome of the negotiations is unknown at this time. Union
representation of any of our employees could result in employee compensation
and working condition demands that may increase our operating expenses and
adversely affect our profitability.
Risk Factors Related to Our Common Stock
Volatility of our common stock price could result in substantial losses for
stockholders who exercise their subscription rights
The market price of our common stock ranged between a high closing price of
$17.125 and a low closing price of $6.125 during 1999 and from $6.938 to $4.75
in 2000 (through June 23, 2000) and may continue to be highly volatile and
subject to wide fluctuations in response to factors including the following,
some of which are beyond our control:
. actual or anticipated variations in our quarterly operating results;
. announcements of new service offerings or new pricing practices by us or
our competitors;
. changes in financial estimates by security analysts;
. under-performance against analysts' estimates;
. changing laws and government regulations relating to our business;
. results of regulatory inspections;
. increased market share penetration by our competitors;
. general economic conditions;
. aircraft operating costs, particularly fuel and personnel;
. additions or departures of key personnel;
. sales of additional shares of common stock; and
. existing and potential litigation or regulatory proceedings.
In addition, the stock market in general, and stocks of airlines in particular,
have from time to time experienced extreme price and volume fluctuations. This
volatility is often unrelated or disproportionate to the operating performance
of these companies. These broad market fluctuations may adversely affect the
market price of our common stock, regardless of our actual operating
performance.
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<PAGE>
We do not expect to pay cash dividends on our common stock
We have not paid cash dividends since our formation and do not anticipate
paying cash dividends in the foreseeable future, since we intend to retain any
future earnings to finance the expansion and continuing development of our
business. In addition, one of our debt instruments prohibits the payment of
dividends until the debt has been repaid and certain aircraft leases prohibit
the payment of dividends to insiders until other debt has been repaid. The
declaration and payment in the future of any cash dividends will be at the
discretion of our board of directors and will depend upon our earnings, capital
requirements and financial position, future loan covenants, general economic
conditions and other pertinent factors.
Anti-takeover provisions in our charter documents may delay or prevent a
takeover of Midway
Certain provisions of our charter documents may make it more difficult for a
third party to acquire control of us, even on terms that a stockholder might
consider favorable. Our amended and restated certificate of incorporation
authorizes our board of directors to issue preferred stock without stockholder
approval. The issuance of preferred stock could make it more difficult for a
third party to acquire us because the preferred stock could have dividend,
redemption, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of holders of our common
stock. Our board of directors does not currently have any intent to issue
shares of preferred stock.
Our amended and restated certificate of incorporation also provides that our
board of directors is divided into three classes, and the directors in each
class serve staggered three-year terms. Further, our bylaws set forth advance
notice procedures for the nomination by a stockholder of a candidate for
election to the board of directors and other matters to be brought before an
annual meeting of our stockholders. These provisions may make it more difficult
for stockholders to replace current members of our board of directors and may
make the acquisition of Midway by a third party more difficult.
The existence of controlling stockholders may limit your ability to influence
the outcome of matters requiring stockholder approval and could discourage
potential acquisitions of our business by third parties
James H. Goodnight, Ph.D. and John P. Sall currently own approximately 31.9%
and 15.5%, respectively, of our outstanding shares of common stock, without
giving effect to the shares that may be issued upon the exercise of outstanding
warrants and stock options. Although we are not aware of any arrangement or
understanding, contractual or otherwise, that obligates Dr. Goodnight and Mr.
Sall to act in concert with respect to Midway, the level of stock ownership by
Dr. Goodnight and Mr. Sall may allow them 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 our stockholders. 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 Midway.
In November 1999, Dr. Goodnight and Mr. Sall submitted to Midway a proposal
to merge Midway with a company owned by Dr. Goodnight and Mr. Sall. In the
merger proposal, all of the shares of Midway not owned by Dr. Goodnight and Mr.
Sall would have been exchanged for cash at $8.00 per share. A special committee
comprised of independent members of our board of directors was appointed to
review the proposal. In December 1999, we announced that the special committee
and Dr. Goodnight and Mr. Sall were unable to reach an agreement with respect
to the value of our common stock, and that the merger proposal had been
withdrawn by Dr. Goodnight and Mr. Sall.
On March 31, 2000, we closed a $30 million revolving credit facility with
Reedy Creek Investments, L.L.C., an entity that is wholly owned by Dr.
Goodnight and Mr. Sall. We are undertaking this rights offering to meet our
obligation under the revolving credit facility to reduce the commitment to $10
million by September 30, 2000. Both Dr. Goodnight and Mr. Sall have agreed to
exercise their respective basic
15
<PAGE>
subscription privileges and over-subscription privileges in full. As a result,
unless all stockholders exercise their basic subscription privileges, which we
believe is highly unlikely, Dr. Goodnight and Mr. Sall will increase their
respective ownership interests in Midway as a result of this rights offering.
If no other stockholders exercise their subscription rights, Dr. Goodnight and
Mr. Sall will in aggregate own approximately 69.4% of our outstanding common
stock.
This concentration of ownership could have the effect of delaying or
preventing a change in control or otherwise discouraging a potential acquirer
from attempting to obtain control of Midway, even on terms that a stockholder
might consider favorable. This in turn could harm the market price of our
common stock or prevent our stockholders from realizing a premium over the
market price for their shares of common stock.
In addition, amendments to certain provisions of our certificate of
incorporation and by-laws require the approval of 66 2/3% of our common stock.
To the extent that Dr. Goodnight and Mr. Sall own more than 66 2/3% of our
common stock as a result of the rights offering or otherwise, they will have
the ability to vote to amend our certificate of incorporation and by-laws
without obtaining the vote of any other stockholder.
The sale of a substantial amount of common stock could cause the market price
of our common stock to drop significantly
Sales of a substantial amount of our common stock in the public market, by
our principal stockholders or otherwise, or the perception that these sales may
occur, could materially adversely affect the market price of our common stock
and impair our ability to raise funds in additional stock offerings.
Risks Related to the Rights Offering
If you do not exercise all of your subscription rights, you may suffer
significant dilution of your percentage ownership of our common stock
This rights offering is designed to enable Midway to raise capital while
allowing all stockholders on the record date to maintain their relative
proportionate voting and economic interests. Our two principal stockholders,
Dr. Goodnight and Mr. Sall, have agreed to exercise their respective basic
subscription privileges and over-subscription privileges in full. To the extent
that you do not exercise your subscription rights and shares are purchased by
other stockholders in the rights offering, your proportionate voting interest
will be reduced, and the percentage that your original shares represent of our
expanded equity after exercise of the subscription rights will be
disproportionately diluted. If no stockholders other than Dr. Goodnight and Mr.
Sall exercise their basic subscription privileges, Dr. Goodnight's ownership
interest in Midway will increase to approximately 46.7% from approximately
31.9% and Mr. Sall's ownership interest in Midway will increase to
approximately 22.7% from approximately 15.5%, and the ownership interest of the
remaining stockholders, who currently own in the aggregate approximately 47.4%
of our common stock, will decrease to approximately 30.6%.
The price of our common stock may decline before or after the subscription
rights expire
We cannot assure you that the public trading market price of our common
stock will not decline after you elect to exercise your subscription rights. If
that occurs, you will have committed to buy shares of common stock at a price
above the prevailing market price and you will have an immediate unrealized
loss. Moreover, we cannot assure you that following the exercise of
subscription rights you will be able to sell your shares of common stock at a
price equal to or greater than the subscription price. Until shares are
delivered upon expiration of the rights offering, you may not be able to sell
the shares of our common stock that you purchase in the rights offering.
Certificates representing shares of our common stock purchased will be
delivered as soon as practicable after expiration of the rights offering. We
will not pay you interest on funds delivered to the Subscription Agent pursuant
to the exercise of rights.
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Once you exercise your subscription rights, you may not revoke the exercise
Once you exercise your subscription rights, you may not revoke the exercise,
even if less than all of the shares that we are offering are actually
purchased. If we elect to withdraw or terminate the rights offering, neither we
nor the Subscription Agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments.
The subscription price is not an indication of the value of Midway
The subscription price was set by our board of directors after considering a
variety of factors. The subscription price does not necessarily bear any
relationship to the book value of our assets, past operations, cash flows,
earnings, financial condition or any other established criteria for value. You
should not consider the subscription price as an indication of the present or
future value of Midway. Our board of directors has established the subscription
price at a 12.4% discount from the market price of the common stock at the time
the board of directors determined the subscription price to encourage all
stockholders to exercise their subscription rights and thereby raise capital
without diluting the interests of current stockholders. We have neither sought
nor obtained a valuation opinion from an outside financial consultant or
investment banker.
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<PAGE>
SELECTED FINANCIAL INFORMATION
Our selected financial information is derived from our Annual Report on Form
10-K for the year ended December 31, 1999 and our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000. You should read the following financial
information in conjunction with those reports, which are incorporated herein by
reference. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
Three Months
ended
Year ended December 31, March 31,
------------------------------------------------ ----------------
1995 1996(1) 1997(1) 1998(1) 1999 1999 2000
-------- -------- -------- -------- -------- ------- -------
(dollars in thousands except per share
amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating revenues:
Passenger.............. $118,568 $173,541 $179,000 $205,566 $213,018 $53,659 $59,063
Other.................. 4,034 6,493 7,275 5,873 4,928 1,327 1,281
-------- -------- -------- -------- -------- ------- -------
Total operating
revenues............. 122,602 180,034 186,275 211,439 217,946 54,986 60,344
Operating expenses:
Wages, salaries and
related costs......... 19,874 24,619 25,757 31,822 38,875 8,939 11,511
Aircraft fuel.......... 16,782 27,300 21,499 19,623 22,738 4,119 10,034
Aircraft and engine
rentals............... 30,889 34,113 30,495 29,927 31,429 7,317 10,807
Commissions............ 9,382 13,728 13,978 15,071 14,229 3,642 3,797
Maintenance, materials
and repairs........... 13,551 17,930 17,006 17,103 13,388 3,962 3,326
Other rentals and
landing fees.......... 11,924 12,711 9,812 9,646 10,098 2,391 3,431
Depreciation and
amortization.......... 2,056 1,346 1,999 6,162 7,938 1,729 2,338
Other operating
expenses.............. 43,769 54,603 49,862 53,541 59,773 14,639 17,282
Restructuring (2)...... 6,004 -- -- -- -- -- --
Impairment of long-
lived assets (3)...... -- 16,941 -- -- -- -- --
Equipment retirement
charges (4)........... -- -- -- 2,413 2,765 927 9,163
Recapitalization (5)... -- -- 750 -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Total operating
expenses............. 154,231 203,291 171,158 185,308 201,233 47,665 71,689
-------- -------- -------- -------- -------- ------- -------
Operating Income
(loss)................. (31,269) (23,257) 15,117 26,131 16,713 7,321 (11,345)
Interest income
(expense), net......... (413) (1,841) 114 (1,972) (1,621) (859) (849)
Other income (expense).. (222) 834 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Total other income
(expense).............. (635) (1,007) 114 (1,972) (1,621) (859) (849)
-------- -------- -------- -------- -------- ------- -------
Income (loss) before
income taxes and
extraordinary gain..... (32,264) (24,264) 15,231 24,159 15,092 6,462 (12,194)
Income tax expense
(benefit).............. -- -- 6,306 9,178 5,736 2,456 (4,634)
-------- -------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary gain..... (32,264) (24,264) 8,925 14,981 9,356 4,006 (7,560)
Extraordinary gain (6).. -- -- 15,969 -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss)....... (32,264) (24,264) 24,894 14,981 9,356 4,006 (7,560)
Preferred dividends..... (1,440) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss)
available for common
stockholders........... $(33,704) $(24,264) $ 24,894 $ 14,981 $ 9,356 $ 4,006 $(7,560)
======== ======== ======== ======== ======== ======= =======
</TABLE>
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<TABLE>
<CAPTION>
Three Months
ended
Year ended December 31, March 31,
---------------------------------------------------- ----------------------
1995 1996(1) 1997(1) 1998(1) 1999 1999 2000
------ ------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Amounts (7):
Basic earnings per
share:
Income before
extraordinary gain... $ 1.47 $ 1.75 $ 1.09 $ 0.47 $ (0.88)
Extraordinary gain.... 2.64 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income............ $ 4.11 $ 1.75 $ 1.09 $ 0.47 $ (0.88)
========== ========== ========== ========== ==========
Weighted average shares
used in computing
basic earnings per
share................. 6,059,051 8,574,972 8,602,395 8,602,395 8,608,426
========== ========== ========== ========== ==========
Diluted earnings per
share:
Income before
extraordinary gain... $ 1.24 $ 1.54 $ 0.98 $ 0.42 ($ 0.88)
Extraordinary gain.... 2.22 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income............ $ 3.46 $ 1.54 $ 0.98 $ 0.42 $ (0.88)
========== ========== ========== ========== ==========
Weighted average shares
used in
computing diluted
earnings per share.... 7,193,794 9,731,527 9,507,175 9,652,117 8,608,426
========== ========== ========== ========== ==========
Other Financial Data:
Cash flows provided by
(used in):
Operating activities... $ (805) $ 5,784 $ 10,283 $ 22,257 $ 21,979 $ 2,319 $ (4,226)
Investing activities... (6,876) (2,614) (25,219) (9,681) (51,345) (11,396) (12,289)
Financing activities... 3,571 4,836 58,640 (18,349) 7,981 (1,771) 12,990
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Three Months
ended
Year ended December 31, March 31,
---------------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Statistics (8)
Available seat miles (000s)...... 1,387,921 1,758,560 1,387,864 1,544,945 1,565,781 375,649 464,127
Revenue passenger miles (000s)... 692,681 998,959 875,752 1,008,567 1,031,583 238,624 310,823
Load factor...................... 49.9% 56.8% 63.1% 65.3% 65.9% 63.5% 67.0%
Break-even load factor (9)....... 60.8% 59.2% 57.5% 56.8% 60.4% 54.8% 70.4%
Departures....................... 24,403 29,192 26,898 35,990 46,751 10,482 14,491
Block hours...................... 38,933 48,682 42,867 55,783 71,705 16,071 22,192
Passenger revenue per ASM
(cents)......................... 8.54 9.87 12.90 13.31 13.60 14.3 12.7
Yield (cents).................... 17.12 17.37 20.44 20.38 20.65 22.5 19.0
Average fare..................... $ 89 $ 99 $ 108 $ 103 $ 103 $ 114 $ 95
Operating cost per available seat
mile (cents) (10)............... 10.68 10.60 12.28 11.84 12.68 12.4 13.5
Onboard passengers............... 1,338,438 1,742,957 1,660,140 1,995,117 2,063,192 471,593 621,319
Average seats per departure...... 108 104 101 88 68 74 66
Average stage length (miles)..... 532 571 524 475 471 467 459
Aircraft (average during
period)......................... 11.0 13.7 13.0 18.1 22.8 21.5 29.0
Aircraft utilization (hours per
day)............................ 9.9 9.8 9.0 8.4 8.6 8.3 8.4
Fuel price per gallon
(cents) (11).................... 69.0 80.6 73.4 57.3 61.7 36.3 79.5
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
----------------------------------------------- March 31,
1995 1996 1997 1998 1999 2000
-------- --------- -------- -------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents,
restricted cash and
short-term
investments............ $ 2,799 $ 12,805 $ 58,071 $ 58,248 $ 38,564 $ 41,947
Working capital
(deficit).............. (41,117) (42,198) 20,826 32,880 4,414 (9,376)
Equipment and property,
net.................... 9,258 6,669 46,574 103,007 120,405 124,353
Equipment purchase
deposits, net.......... 7,749 1,846 17,133 18,103 61,824 78,278
Total assets............ 56,010 38,384 139,810 203,581 256,689 290,856
Long-term debt and
capital lease
obligations (net of
current maturities).... 7,307 11,704 39,187 78,764 103,349 111,399
Stockholders' equity.... (18,385) (40,569) 48,486 70,463 83,136 75,620
</TABLE>
--------
(1) Midway reclassified certain balances to reflect classifications in the
1997, 1998 and 1999 financial statements.
(2) Midway recorded restructuring charges in 1995 related to the return of
four A320 aircraft and other related one-time charges.
(3) Midway recorded an impairment loss of $16.9 million from certain long-
lived assets, primarily intangible assets, that were determined by
Midway's management to be impaired in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
(4) Midway recorded equipment retirement charges in 1998 and 1999 related to
the return of four Fokker and one Airbus aircraft to their lessors. See
Note 2 of Notes to Financial Statements incorporated herein by reference
to Midway's Annual Report on Form 10-K for the year ended December 31,
1999. Midway
20
<PAGE>
recorded equipment retirement charges in the three months ended March 31,
2000 related to the exercise of an option to return four additional Fokker
aircraft prior to their lease termination dates.
(5) Midway recorded a one-time charge in 1997 related to its recapitalization.
See Note 12 of Notes to Financial Statements incorporated herein by
reference to Midway's Annual Report on Form 10-K for the year ended
December 31, 1999.
(6) Extraordinary gain consists of one-time gains recognized in connection
with Midway's recapitalization. See Note 12 of Notes to Financial
Statements incorporated herein by reference to Midway's Annual Report on
Form 10-K for the year ended December 31, 1999.
(7) Since Midway was recapitalized in February 1997 and all prior capital
stock was canceled at that time, per share amounts prior to 1997 are not
meaningful and are thus not presented.
(8) The airline operating terms used in this table have the following
meanings:
Aircraft (average during period): The average number of aircraft operated
during the 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.
Block hour: The total time an aircraft is in motion from brake release at
the origination to brake application at the destination.
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 (CASM): Operating expenses plus non-operating
expenses/(income) divided by ASMs.
Departure: A scheduled aircraft flight.
Fuel price per gallon: The average price per gallon of jet fuel for the
fleet (excluding into plane fees).
Load factor: Revenue passenger miles divided by available seat miles.
Onboard passengers: The number of revenue passengers carried.
Revenue passenger miles (RPMs): The number of miles flown by revenue
passengers.
Passenger revenue per available seat mile (PRASM): Passenger revenues
divided by ASMs.
Yield: The average scheduled passenger fare paid for each mile a scheduled
revenue passenger is carried.
(9) "Break-even load factor" as represented above excludes restructuring,
impairment of long-lived assets, equipment retirement charges and
recapitalization expenses. Had restructuring, impairment of long-lived
assets, equipment retirement charges and recapitalization expenses been
included for the years ended December 31, 1995, 1996, 1997, 1998 and 1999
and the three months ended March 31, 1999 and 2000 the break-even load
factor would have been 63.3%, 64.6%, 57.8%, 57.6%, 61.2%, 55.9% and 80.8%,
respectively.
(10) "Operating cost per available seat mile" as represented above equals total
operating costs less restructuring, impairment of long-lived assets,
equipment retirement charges and recapitalization expenses, divided by
available seat miles. Had restructuring, impairment of long-lived assets,
equipment retirement charges and recapitalization expenses been included
for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and the
three months ended March 31, 1999 and 2000 cost per available seat mile
would have been 11.11 cents, 11.56 cents, 12.33 cents, 11.99 cents, 12.85
cents, 12.69 cents and 15.44 cents, respectively.
(11) Excludes taxes and into-plane fees.
21
<PAGE>
We have analyzed our three most recently completed fiscal years in our last
Annual Report on Form 10-K that we filed and our first quarter of 1999 and 2000
in our last Quarterly Report on Form 10-Q that we filed. See "Where You Can
Find More Information."
USE OF PROCEEDS
Our gross proceeds from the rights offering will depend on the number of
shares that are purchased. If we sell all 8,613,592 shares which may be
purchased upon exercise of the rights offered by this prospectus, then we will
receive proceeds of $44,790,678, before deducting expenses payable by us,
estimated to be $160,000. Since Dr. Goodnight and Mr. Sall, who currently own
approximately 31.9% and 15.5%, respectively, of our outstanding shares of
common stock, without giving effect to the shares that may be issued upon the
exercise of outstanding warrants and stock options, have agreed to exercise
their basic subscription privileges and over-subscription privileges in full,
we expect to issue at least 6,226,048 shares and to receive proceeds of at
least $32,375,450 from the rights offering, before deducting expenses.
We will use the proceeds from the rights offering to pay all outstanding
borrowings under our $30 million revolving credit facility with Reedy Creek
Investments, L.L.C. At June 20, 2000, we had $5 million outstanding under this
facility. Any proceeds remaining after making these prepayments will be used
for working capital and capital expenditure requirements, including the funding
of pre-delivery deposits due to aircraft manufacturers.
The credit facility with Reedy Creek Investments matures on March 31, 2002,
although the commitment under the facility will reduce from $30 million to $10
million on the earlier of September 30, 2000 or the date we receive net
proceeds from a public equity offering. This rights offering will result in a
reduction of the commitment to $10 million. Borrowings under the credit
facility bear interest at the applicable LIBOR rate at the time of borrowing
plus 3% and are secured by our interest in certain aircraft parts and tooling.
We borrowed $15 million under this facility on March 31, 2000 to meet working
capital and capital expenditure requirements, including the funding of pre-
delivery deposits due to aircraft manufacturers. We subsequently repaid $10
million of these borrowings.
DIVIDEND POLICY
We have not paid cash dividends on our common stock since our formation and
do not anticipate paying cash dividends in the foreseeable future, since we
intend to retain any future earnings to finance the expansion and continuing
development of our business. In addition, one of our debt instruments prohibits
the payment of dividends until the debt has been repaid and certain aircraft
leases prohibit the payment of dividends to insiders until other debt has been
repaid. The declaration and payment in the future of any cash dividends will be
at the discretion of our board of directors and will depend upon the earnings,
capital requirements and financial position of Midway, future loan covenants,
general economic conditions and other pertinent factors.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"MDWY". Trading began in December 1997 upon the completion of Midway's initial
public offering of common stock, and the following table sets forth the
reported high and low closing sale prices of our common stock for the periods
indicated:
22
<PAGE>
<TABLE>
<CAPTION>
1998 High Low
---- ------- -------
<S> <C> <C>
First Quarter.................................................. $21.750 $16.125
Second Quarter................................................. 21.063 17.750
Third Quarter.................................................. 21.750 9.875
Fourth Quarter................................................. 14.875 9.688
<CAPTION>
1999 High Low
---- ------- -------
<S> <C> <C>
First Quarter.................................................. $17.125 $11.000
Second Quarter................................................. 12.625 9.000
Third Quarter.................................................. 9.875 6.125
Fourth Quarter................................................. 7.375 6.125
<CAPTION>
2000 High Low
---- ------- -------
<S> <C> <C>
First Quarter.................................................. $ 6.938 $ 4.750
Second Quarter (through June 23, 2000)......................... 6.063 4.813
</TABLE>
The closing price of our common stock was $5.9375 on March 29, 2000, the
last full trading day before we publicly announced the rights offering. The
closing price of our common stock was $ on June , 2000, the last full
trading day before the date of this prospectus. We urge you to obtain a current
stock quote for our common stock.
CAPITALIZATION
The following table shows our capitalization as of March 31, 2000. The table
also shows our capitalization as adjusted for the completion of the rights
offering (including application of net proceeds from that transaction as
described on page 22 under the heading "Use of Proceeds") at the subscription
price of $5.20 per share and assuming that all subscription rights are
exercised.
<TABLE>
<CAPTION>
March 31, 2000
------------------------
Actual As Adjusted
----------- ------------
(dollars in thousands)
<S> <C> <C>
Debt:
Current maturities of long-term debt and capital lease
obligations.......................................... $ 11,575 $ 6,575
Long-term debt and capital lease obligations(1)....... 121,399 111,399
----------- -----------
Total debt........................................... 132,974 117,974
----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value, 12 million shares
authorized; none issued and outstanding.............. -- --
Common stock, $0.01 par value, 25 million shares
authorized; 8,613,592 shares issued and outstanding
at March 31, 2000 and 17,227,184 issued and
outstanding after the rights offering................ 86 172
Additional paid-in capital............................ 54,349 98,894
Retained earnings ($51.1 million of accumulated
deficit eliminated in the quasi-reorganization as of
June 30, 1997)....................................... 21,141 21,141
----------- -----------
Total stockholders' equity........................... 75,576 120,207
----------- -----------
Total capitalization................................ $ 208,550 $ 238,181
=========== ===========
</TABLE>
--------
(1) Subsequent to March 31, 2000, we repaid $10 million outstanding at March
31, 2000 under our revolving credit facility with an entity owned by our
two principal stockholders, and at June 20, 2000, we had $5 million
outstanding under this facility.
23
<PAGE>
THE RIGHTS OFFERING
Before exercising any subscription rights, you should read carefully the
information set forth under "Risk Factors."
The Subscription Rights
We are distributing non-transferable subscription rights to stockholders who
owned shares of our common stock on June 15, 2000, the record date, at no cost
to the stockholders. We will give you one (1) subscription right for each share
of common stock that you owned on the record date. Each subscription right will
entitle you to purchase one share of common stock for $5.20. If you wish to
exercise your subscription rights, you must do so before 5 P.M., New York City
time, on July , 2000. After that date, the subscription rights will expire
and will no longer be exercisable.
Basic Subscription Privilege
Each subscription right will entitle you to receive, upon payment of $5.20,
one (1) share of common stock. You will receive the shares that you purchase
pursuant to your basic subscription privilege as soon as practicable after the
expiration date of this rights offering, whether you exercise your subscription
rights immediately prior to that date or earlier. You are not required to
exercise any or all of your rights unless you wish to purchase shares under
your over-subscription privilege described below, in which case you must
exercise all of your rights.
Over-Subscription Privilege
Subject to the limitations described below, each subscription right also
grants you an over-subscription privilege to purchase additional shares of
common stock that are not purchased by other stockholders. You are entitled to
exercise your over-subscription privilege only if you exercise your basic
subscription privilege in full. If you wish to exercise your over-subscription
privilege, you should indicate the number of additional shares that you would
like to purchase in the space provided on your subscription certificate.
However, you may not be able to purchase as many additional shares as you
requested on your subscription certificate, because you may only purchase that
number of additional shares of our common stock equal to your percentage
ownership of our common stock on the record date multiplied by the number of
subscription rights that were not timely exercised by our other stockholders,
rounded down to the nearest whole number. When you send in your subscription
certificate, you must also send the full purchase price for the number of
additional shares that you have requested to purchase (in addition to the
payment due for shares purchased through your basic subscription privilege). If
the number of additional shares you are eligible to purchase based on your
percentage ownership on the record date exceeds the number of shares you
requested, you will receive only the number of shares that you requested, and
the remaining shares will be divided among other stockholders exercising their
over-subscription privileges. In certain circumstances, however, in order to
comply with applicable state securities laws, we may not be able to honor all
over-subscription privileges even if we have shares available.
To determine if you have fully exercised your basic subscription privilege,
we will consider only the basic subscription privileges held by you in the same
capacity. For example, suppose you were granted rights to purchase shares of
Midway common stock you own individually and for shares of Midway common stock
you own jointly with your spouse. You only need to fully exercise your basic
subscription privilege with respect to your individually owned rights in order
to exercise your over-subscription privilege with respect to your individually
owned rights. You do not have to subscribe for any shares under the basic
subscription privilege owned jointly with your spouse to exercise your
individual over-subscription privilege.
When you complete the portion of the subscription certificate to exercise
the over-subscription privilege, you will be representing and certifying that
you have fully exercised your basic subscription privilege received in respect
of shares of Midway common stock you hold in that capacity. You must exercise
your over-subscription privilege at the same time you exercise your basic
subscription privilege in full.
24
<PAGE>
If you own your shares of Midway common stock through your broker, dealer or
other nominee holder who will exercise your over-subscription privilege on your
behalf, the nominee holder will be required to certify to us and the
Subscription Agent:
. the number of shares held on June 15, 2000, the record date, on your
behalf;
. the number of rights you exercised under your basic subscription
privilege;
. that your entire basic subscription privilege held in the same capacity
has been exercised in full; and
. the number of shares of Midway common stock you subscribed for pursuant
to the over-subscription privilege.
Your nominee holder must also disclose to us certain other information
received from you.
If you exercised your over-subscription privilege and are allocated less
than all of the shares of Midway common stock for which you wished to
subscribe, the excess funds you paid for shares of Midway common stock that are
not allocated to you will be returned in full by mail, without interest or
deduction, as soon as practicable after the expiration date of the rights.
Intended Purchases
Dr. Goodnight and Mr. Sall, who currently own approximately 31.9% and 15.5%,
respectively, of our outstanding shares of common stock, without giving effect
to the shares that may be issued upon the exercise of outstanding warrants and
stock options, have agreed to exercise their basic subscription privileges and
over-subscription privileges in full. As a result, we expect that at least
6,226,048 of the 8,613,592 shares offered in this rights offering will be
subscribed for.
No Recommendation to Rights Holders
Neither Midway nor its Board of Directors is making any recommendations to
you as to whether or not you should exercise your subscription rights. You
should make your decision based on your own assessment of your best interests
after reading this prospectus.
Expiration Date
The rights will expire at 5:00 p.m., New York City time, on July , 2000,
unless we decide to extend the rights offering. If you do not exercise your
subscription rights prior to that time, your subscription rights will expire
and will no longer be exercisable. We will not be required to issue shares of
common stock to you if the Subscription Agent receives your subscription
certificate or your payment after that time, regardless of when you sent the
subscription certificate and payment, unless you send the documents in
compliance with the guaranteed delivery procedures described below.
Withdrawal Right
Our board of directors may withdraw the rights offering in its sole
discretion at any time prior to 5:00 p.m. New York City time, on the expiration
date of this rights offering, for any reason (including, without limitation, a
change in the market price of our common stock). If we withdraw the rights
offering, any funds you paid will be promptly refunded, without interest
or penalty.
Determination of Subscription Price
Our board of directors chose the $5.20 per share subscription price after
considering a variety of factors, including the following:
. the historic and current market price of the common stock;
25
<PAGE>
. our business prospects;
. our history of profits and losses;
. general conditions in the securities market;
. our need for capital;
. alternatives available to us for raising capital;
. the amount of proceeds desired;
. the liquidity of our common stock; and
. the level of risk to our investors.
The $5.20 per share subscription price should not be considered an indication
of the actual value of Midway or of our common stock. We cannot assure you that
the market price of the common stock will not decline during or after the
rights offering. We also cannot assure you that you will be able to sell shares
of common stock purchased during the rights offering at a price equal to or
greater than $5.20 per share. We urge you to obtain a current quote for our
common stock before exercising your rights.
Transferability of Subscription Rights
Both the basic subscription privileges and over-subscription privileges are
non-transferable and non-assignable. Only you may exercise these subscription
rights.
Exercise of Subscription Privileges
You may exercise your subscription privileges by delivering to the
Subscription Agent prior to 5:00 p.m., New York City time, on July , 2000:
. A properly completed and duly executed subscription certificate;
. Any required signature guarantees; and
. Payment in full of $5.20 per share for the shares of common stock
subscribed for by exercising your basic subscription privileges and, if
desired, your over-subscription privileges.
You should deliver your subscription certificate and payment to the
Subscription Agent at the address shown under the heading "Subscription Agent."
We will not pay you interest on funds delivered to the Subscription Agent
pursuant to the exercise of rights.
Method of Payment
Payment for the shares must be made by check or bank draft (cashier's check)
drawn upon a United States bank or a postal, telegraphic or express money order
payable to the order of First Union National Bank, as Subscription Agent.
Payment for basic subscription privileges and over-subscription privileges may
also be effected through wire transfer as follows:
Bank Name: First Union National Bank
Address: 1525 West W.T. Harris Blvd., 3C3, Charlotte, NC 28288-1153
ABA#: 053000219
Account #: 5000000016439
Account Name: Midway Airlines Corporation Subscription Rights Offering
26
<PAGE>
Payment will be deemed to have been received by the Subscription Agent only
upon:
. clearance of any uncertified check;
. receipt by the Subscription Agent of any certified check or bank draft
drawn upon a U.S. bank or of any postal, telegraphic or express money
order;
. receipt by the Subscription Agent of any funds transferred by wire
transfer; or
. receipt of funds by the Subscription Agent through an alternative
payment method approved by Midway.
Please note that funds paid by uncertified personal check may take at least
five business days to clear. Accordingly, if you wish to pay by means of an
uncertified personal check, we urge you to make payment sufficiently in advance
of July , 2000, to ensure that the payment is received and clears before that
date. We also urge you to consider payment by means of a certified or cashier's
check or money order.
Guaranteed Delivery Procedures
If you want to exercise your subscription rights, but time will not permit
your subscription certificate to reach the Subscription Agent prior to 5:00
p.m., New York City time, on July , 2000, you may exercise your subscription
rights if you satisfy the following guaranteed delivery procedures:
(1) You send, and the Subscription Agent receives, payment in full for each
share of common stock being subscribed for through the basic
subscription privilege and the over-subscription privilege prior to
5:00 p.m., New York City time, on July , 2000;
(2) You send, and the Subscription Agent receives, prior to 5:00 p.m., New
York City time, on July , 2000, a notice of guaranteed delivery,
substantially in the form provided to you with your subscription
certificate, from a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or
correspondent in the United States. The notice of guaranteed delivery
must state your name, the number of subscription rights that you hold,
the number of shares of common stock that you wish to purchase pursuant
to the basic subscription privilege and the number of shares, if any,
you wish to purchase pursuant to the over-subscription privilege. The
notice of guaranteed delivery must guarantee the delivery of your
subscription certificate to the Subscription Agent within three Nasdaq
National Market trading days following the date of the notice of
guaranteed delivery; and
(3) You send, and the Subscription Agent receives, your properly completed
and duly executed subscription certificate, including any required
signature guarantees, within three Nasdaq National Market trading days
following the date of your notice of guaranteed delivery. The notice of
guaranteed delivery may be delivered to the Subscription Agent in the
same manner as your subscription certificate at the addresses set forth
under the heading "Subscription Agent," or may be transmitted to the
Subscription Agent by facsimile transmission, to facsimile number
(704) 590- 7628. You can obtain additional copies of the form of notice
of guaranteed delivery by requesting them from the Subscription Agent
at the address set forth under the heading "Subscription Agent" or from
the Information Agent at the address set forth under the heading "If
You Have Questions."
Signature Guarantee
Signatures on the subscription certificate must be guaranteed unless either
the subscription certificate provides that the shares of common stock to be
purchased are to be delivered directly to the record owner of such subscription
rights, or the subscription certificate is submitted for the account of a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States. If a signature
guarantee is required, signatures on the subscription certificate must be
guaranteed by an Eligible Guarantor Institution, as defined in Rule 17Ad-15 of
the Securities Exchange Act of 1934, as amended, subject to the
27
<PAGE>
standards and procedures adopted by the Subscription Agent. Eligible Guarantor
Institutions include banks, brokers, dealers, credit unions, national
securities exchanges and savings associations.
Notice to Beneficial Holders
If you are a broker, a trustee or a depositary for securities who holds
shares of Midway common stock for the account of others as a nominee holder,
you should notify the respective beneficial owners of such shares of the
issuance of the rights as soon as possible to find out such beneficial owners'
intentions. You should obtain instructions from the beneficial owner with
respect to the rights, as set forth in the instructions we have provided to you
for your distribution to beneficial owners. If the beneficial owner so
instructs, you should complete the appropriate subscription certificates and,
in the case of the over-subscription privilege, the related nominee holder
certification, and submit them to the Subscription Agent with the proper
payment. A nominee holder that holds shares for the account(s) of more than one
beneficial owner may exercise the number of rights to which all such beneficial
owners in the aggregate otherwise would have been entitled if they had been
direct record holders of Midway common stock on the record date, so long as the
nominee submits the appropriate subscription certificates and certifications
and proper payment to the Subscription Agent.
Beneficial Owners
If you are a beneficial owner of shares of Midway common stock or rights
that you hold through a nominee holder, we will ask your broker, dealer or
other nominee to notify you of this rights offering. If you wish to exercise
your rights, you will need to have your broker, dealer or other nominee act for
you. To indicate your decision with respect to your rights, you should complete
and return to your broker, dealer or other nominee the form entitled
"Beneficial Owner Election Form." You should receive this form from your
broker, custodian bank or other nominee with the other rights offering
materials.
Ambiguities in Exercise of Subscription Rights
If you do not specify the number of subscription rights being exercised on
your subscription certificate, or if your payment is not sufficient to pay the
total purchase price for all of the shares that you indicated you wished to
purchase, you will be deemed to have exercised the maximum number of
subscription rights that could be exercised for the amount of the payment that
the Subscription Agent receives from you. If your payment exceeds the total
purchase price for all of the subscription rights shown on your subscription
certificate, your payment will be applied, until depleted, to subscribe for
shares of common stock in the following order:
(1) to subscribe for the number of shares, if any, that you indicated on the
subscription certificate that you wished to purchase through your basic
subscription privilege;
(2) to subscribe for shares of common stock until your basic subscription
privilege has been fully exercised; and
(3) to subscribe for additional shares of common stock pursuant to the over-
subscription privilege (subject to any applicable limitation).
Any excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable by mail, without interest or deduction.
Regulatory Limitation
We will not be required to issue you shares of common stock pursuant to the
rights offering if, in our opinion, you would be required to obtain prior
clearance or approval from any state or federal regulatory authorities to own
or control such shares if, at the time the subscription rights expire, you have
not obtained such clearance or approval.
28
<PAGE>
State and Foreign Securities Laws
The rights offering is not being made in any state or other jurisdiction in
which it is unlawful to do so, nor are we selling or accepting any offers to
purchase any shares of common stock to you if you are a resident of any such
state or other jurisdiction. We may delay the commencement of the rights
offering in certain states or other jurisdictions in order to comply with the
securities law requirements of such states or other jurisdictions. It is not
anticipated that there will be any changes in the terms of the rights offering.
In our sole discretion, we may decline to make modifications to the terms of
the rights offering requested by certain states or other jurisdictions, in
which case stockholders who live in those states or jurisdictions will not be
eligible to participate in the rights offering.
Our Decision Binding on You
All questions concerning the timeliness, validity, form and eligibility of
any exercise of subscription rights will be determined by us, and our
determinations will be final and binding. In our sole discretion, we may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
subscription right by reason of any defect or irregularity in such exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as we determine in
our sole discretion. Neither Midway nor the Subscription Agent will be under
any duty to notify you of any defect or irregularity in connection with the
submission of a subscription certificate or incur any liability for failure to
give such notification.
No Revocation of Exercise of Subscription Right
After you have exercised your basic subscription privilege or over-
subscription privilege, you may not revoke that exercise. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of our common stock.
Shares of Common Stock Outstanding after the Rights Offering
Assuming we issue all of the shares of common stock offered in the rights
offering, 17,227,184 shares of common stock will be issued and outstanding.
This would represent a 100% increase in the number of outstanding shares of
common stock. If you do not exercise your basic subscription privileges, the
percentage of common stock that you hold will decrease if shares are purchased
by other stockholders in the rights offering.
Fees and Expenses
We will pay all fees charged by the Subscription Agent. You are responsible
for paying any other commissions, fees, taxes or other expenses incurred in
connection with the exercise of the subscription rights. Neither Midway nor the
Subscription Agent will pay such expenses.
Subscription Agent
We have appointed First Union National Bank as Subscription Agent for the
rights offering. The Subscription Agent's address for packages is:
<TABLE>
<CAPTION>
By Mail By Overnight Delivery
------- ---------------------
<S> <C>
Reorganization Department Reorganization Department
1525 West W.T. Harris Boulevard 1525 West W.T. Harris Boulevard
Mail Code 3C3, NC1153 Mail Code 3C3, NC1153
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 29262-1153
</TABLE>
The Subscription Agent's telephone number is (800) 829-8432 and its
facsimile number is (704) 590-7628. You should deliver your subscription
certificate, payment of the subscription price and notice of guaranteed
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delivery (if any) to the Subscription Agent. We will pay the fees and certain
expenses of the Subscription Agent, which we estimate will total $20,000. We
have also agreed to indemnify the Subscription Agent from any liability which
it may incur in connection with the rights offering.
If You Have Questions
If you have questions or need assistance concerning the procedure for
exercising subscription rights or if you would like additional copies of this
prospectus, the instructions or forms for use in connection with the rights
offering, you should contact Corporate Investor Communications, Inc., the
information agent for this rights offering, at:
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Banks and brokers call: (800) 346-7885
All others call toll free: (888) 568-9320
IMPORTANT: Please carefully read the instructions accompanying the
subscription certificate and follow those instructions in detail. Do not send
subscription certificates directly to us. You are responsible for choosing the
payment and delivery method for your subscription certificate, and you bear the
risks associated with such delivery. If you choose to deliver your subscription
certificate and payment by mail, we recommend that you use registered mail,
properly insured, with return receipt requested. We also recommend that you
allow a sufficient number of days to ensure delivery to the Subscription Agent
and clearance of payment prior to July , 2000. Because uncertified personal
checks may take at least five business days to clear, we strongly urge you to
pay, or arrange for payment, by means of certified or cashier's check or money
order.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material federal income tax considerations of
the rights offering to you and Midway. This summary is based on the Internal
Revenue Code of 1986, as amended, the Treasury regulations thereunder, judicial
authority and administrative rulings and practice, all of which are subject to
change at any time, possibly with retroactive effect. This summary is not a
complete discussion of all federal income tax consequences of the rights
offering, and, in particular, may not address federal income tax consequences
applicable to stockholders subject to special treatment under federal income
tax law, such as financial institutions, broker-dealers, life insurance
companies or traders in securities that elect to mark to market. Also, this
discussion does not address applicable tax consequences if you hold our common
stock as part of a hedging, straddle, constructive sale, conversion or other
risk reduction transaction. In addition, this summary does not address the tax
consequences of the rights offering under applicable state, local or foreign
tax laws. This discussion assumes that your shares of common stock and the
subscription rights and shares issued to you during the rights offering
constitute capital assets (generally, property held for investment) for federal
income tax purposes.
Receipt and exercise of the subscription rights distributed pursuant to the
rights offering is intended to be nontaxable to stockholders, and the following
summary assumes you will qualify for such nontaxable treatment. If, however,
the rights offering does not qualify as nontaxable, you would be treated as
receiving a taxable distribution equal to the fair market value of the
subscription rights on their distribution date. The distribution would be taxed
as a dividend to the extent made out of Midway's current or accumulated
earnings and profits; any excess would be treated first as a return of your
basis (investment) in your Midway stock and then as a capital gain. Expiration
of the subscription rights would result in a capital loss.
This discussion is included for your general information only. You should
consult your tax advisor to determine the tax consequences to you of the rights
offering in light of your particular circumstances, including any state, local
and foreign tax consequences.
Taxation of Stockholders
Receipt of a Subscription Right. You will not recognize any gain or other
income upon receipt of a subscription right.
Tax Basis and Holding Period of Subscription Rights. Your tax basis in each
subscription right will effectively depend on whether you exercise the
subscription right or allow the subscription right to expire.
If you exercise a subscription right, your tax basis in the subscription
right will be determined by allocating the tax basis of your common stock on
which the subscription right is distributed between the common stock and the
subscription right, in proportion to their relative fair market values on the
date of distribution of the subscription right. However, if the fair market
value of your subscription rights is less than 15% of the fair market value of
your existing shares of common stock, then the tax basis of each subscription
right will be deemed to be zero, unless you elect, by attaching an election
statement to your federal income tax return for the taxable year in which you
receive the subscription rights, to allocate tax basis to your subscription
rights.
If you allow a subscription right to expire, it will be treated as having no
tax basis.
Your holding period for a subscription right will include your holding
period for the shares of common stock upon which the subscription right is
issued.
Expiration of Subscription Rights. You will not recognize any loss upon the
expiration of a subscription right.
Exercise of Subscription Rights. You generally will not recognize a gain or
loss on the exercise of a subscription right. The tax basis of any share of
common stock that you purchase through the rights offering will be equal to the
sum of your tax basis (if any) in the subscription right exercised and the
price paid for the share. The holding period of the shares of common stock
purchased through the rights offering will begin on the date that you exercise
your subscription rights.
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Sale or Exchange of Shares Acquired Upon Exercise of Subscription Rights
If you sell or exchange shares of Midway common stock, you will generally
recognize gain or loss on the transaction. The gain or loss you recognize is
equal to the difference between the amount you realize on the transaction and
your basis in the shares you sold. Such gain or loss generally will be capital
gain or loss so long as you held the shares as a capital asset at the time of
the sale or exchange. Gain or loss from an asset held for more than one year
will generally be taxable as long-term capital gain or loss. If you are an
individual, any long-term capital gain is generally taxed at a maximum federal
income tax rate of 20%.
Taxation of Midway
We will not recognize any gain, other income or loss upon the issuance of
the subscription rights, the lapse of the subscription rights, or the receipt
of payment for shares of common stock upon exercise of the subscription rights.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the terms of our capital stock and highlights
some of the provisions of our amended and restated certificate of incorporation
and bylaws. Since we are only providing a general summary of certain terms of
our amended and restated certificate of incorporation and bylaws, you should
only rely on the actual provisions of the amended and restated certificate of
incorporation or the bylaws. If you would like to read the certificate of
incorporation or bylaws, they are on file with the Securities and Exchange
Commission.
Authorized and Outstanding Capital Stock
Our authorized capital stock consists of 25,000,000 shares of common stock,
par value $0.01 per share, and 12,000,000 shares of preferred stock, par value
$0.01 per share. As of June 15, 2000, there were 8,613,592 shares of common
stock outstanding and approximately 5,150 beneficial holders of common stock of
record. All outstanding shares of common stock are fully paid and non-
assessable. We have outstanding warrants to purchase 390,625 shares of our
common stock at a price of $0.0015 per share, subject to adjustment under
certain circumstances. 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
whole or in part at any time prior to expiration. Midway has reserved 390,625
shares of common stock for the possible exercise of these warrants. None of the
warrants have been exercised as of June 15, 2000. As of March 31, 2000, we also
had outstanding, under our 1997 option plan, options to purchase 922,346 shares
of our common stock at an exercise price of $4.02 per share and options to
purchase 220,935 shares of our common stock at an exercise price of $15.50 per
share. Midway has reserved 1,562,500 shares of common stock for the possible
exercise of options under the 1997 option plan.
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 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 Midway, holders of common stock would be entitled to share ratably in all of
our assets 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 Midway in the rights
offering when issued will be, duly authorized, validly issued, fully paid and
non-assessable.
Preferred Stock
Our 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
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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
Midway. Your rights as a holder of our common stock may be affected by any
preferred stock that we may issue. Our board of directors has no present plans
to issue any preferred stock.
Certain Limitations
Each lessor of Midway's F-100 aircraft has the right to terminate its lease
if, prior to our satisfaction of our obligations under certain promissory notes
issued to debis AirFrance B.V. or DASA Aircraft Finance XVI B.V., Midway makes
any redemption of, or any dividend or distribution with respect to, any shares
of Midway owned by any holder of equity in Midway representing the right to
vote 20% or more of the voting stock of Midway on any matter presented for vote
to the stockholders of Midway.
American Airlines may terminate Midway's participation in the AAdvantage(R)
frequent flyer program under several circumstances, including any person or
group becoming the owner of 20% or more of our outstanding voting securities or
any "Disqualified Investor" becoming the owner of 10% or more of our
outstanding voting securities. "Disqualified Investor" is defined as:
. any other airline or airline-related services company;
. any person or entity offering a frequent traveler program; or
. any person or entity that American believes would likely, by virtue of
its affiliation with us, materially adversely affect American's
interests or objectives under any of its or its affiliates' agreements
with us.
In addition, American may terminate our lease of the Raleigh-Durham
International Airport facility and one other service agreement that we have
with American if any person or group acquires 30% or more of our voting
securities. Finally, if we pay any dividends or make any other cash or asset
distribution to our stockholders without American's consent at any time prior
to our payment in full of a certain promissory note to American, then American
may terminate the Raleigh-Durham International Airport facility lease, our
right to offer AAdvantage(R) frequent flyer benefits, our license of the yield
management system and one other service agreement that we have with American.
Provisions Having Possible Anti-Takeover Effect
Classified Board of Directors. Our amended and restated certificate of
incorporation provides that our board of directors be divided into three
classes, the members of which will serve staggered three-year terms. We believe
that a classified board of directors could help to assure the continuity and
stability of the board of directors' and Midway'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 Midway, even though
such an attempt might be beneficial to Midway and its stockholders. Thus, the
classified board provision could increase the likelihood that incumbent
directors would retain their positions. In addition, our 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 majority vote of the remaining directors
then in office.
Advance Notice Provisions for Certain Stockholder Actions. Our bylaws
establish an advance notice procedure with regard to the nomination, other than
by or at the direction of the board of directors, of candidates for election as
directors. This procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the board of directors to
Midway's corporate secretary. 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 prescribed procedure, that
person will not be eligible for election as a director.
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The bylaws also establish an advance notice procedure with regard to certain
matters to be brought before an annual meeting of stockholders of Midway. Under
this procedure, a stockholder seeking to have any business conducted at an
annual meeting must give prior written notice, in proper form, to Midway's
corporate secretary. 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 prescribed procedure, that business will not be
conducted at the meeting.
Although the bylaws do not give the board of directors 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 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 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 Midway, even if
the conduct of such solicitation or such attempt might be beneficial to Midway
and its stockholders.
Delaware Section 203. Section 203 of the General Corporation Law of the
State of Delaware 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 (we refer to such a
person as 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):
. all mergers or consolidations;
. sales, leases, exchanges or other transfers of 10% or more of the
aggregate assets of the corporation;
. 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;
. 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
. 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 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:
. certain mergers or consolidations involving the corporation;
. a sale or other transfer of over 50% of the aggregate assets of the
corporation; or
. a tender or exchange offer for 50% or more of the outstanding voting
stock of the corporation.
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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. Midway 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 Midway. 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 General Corporation Law 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 General Corporation
Law does not change directors' duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
amended and restated certificate of incorporation limits the liability of
Midway's directors to Midway and its stockholders to the fullest extent
permitted by the Delaware General Corporation Law. Specifically, directors of
Midway will not be personally liable for monetary damages for breach by
directors of their fiduciary duty as directors, except for liability:
. for any breach of the director's duty of loyalty to Midway or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which relates
to the unlawful payment of dividends, stock repurchases or redemptions;
or
. for any transaction from which the director derived an improper personal
benefit.
The inclusion of this provision in the amended and restated certificate of
incorporation 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 Midway and its stockholders.
Transfer Agent
The transfer agent for the common stock is First Union National Bank.
DETERMINATION OF OFFERING PRICE
Our board of directors decided to set a $5.20 per share subscription price
after considering a variety of factors described elsewhere in this prospectus.
The $5.20 per share price should not be considered an indication of the actual
value of Midway or of our common stock. We cannot assure you that the market
price of the common stock will not decline during or after the rights offering.
We also cannot assure you that you will be able to sell shares of common stock
purchased during the rights offering at a price equal to or greater than $5.20
per share. We have neither sought, nor obtained, any valuation opinion from
outside financial advisors or investment bankers.
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PLAN OF DISTRIBUTION
On or about June , 2000, we will distribute the subscription rights,
subscription certificates and copies of this prospectus to individuals who
owned shares of common stock on June 15, 2000. If you wish to exercise your
subscription rights and purchase shares of common stock, you should complete
the subscription certificate and return it with payment for the shares, to the
Subscription Agent, First Union National Bank, at the address on page 29. If
you have any questions, you should contact the Information Agent, Corporate
Investor Communications, Inc., at (888) 568-9320. Banks and brokers should call
(800) 346-7885.
We have agreed to pay the Subscription Agent a fee of $19,000 plus certain
expenses and the Information Agent a fee of approximately $9,000 plus certain
expenses. We estimate that our total expenses in connection with the rights
offering will be $160,000.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule included in our Annual Report on Form 10-K for the year
ended December 31, 1999, as set forth in their report, which is incorporated by
reference into this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3, which
registers the securities that we are offering under this prospectus. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about us and the securities offered. The rules
and regulations of the SEC allow us to omit certain information included in the
registration statement from this prospectus.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may
read and copy this information at the following locations of the SEC:
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Seven World Trade Center
13th Floor
New York, New York 10048
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
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You may also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who
file electronically with the SEC. The address of that site is
http://www.sec.gov.
The SEC allows us to incorporate by reference information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, except for any information that is superseded by subsequent
incorporated documents or by information that is included directly in this
prospectus. Our descriptions in this prospectus concerning the contents of any
contract, agreement or document are not necessarily complete. For those
contracts, agreements or documents that we filed as exhibits to the
registration statement, you should read the exhibit for a more complete
understanding of the document or subject matter involved.
This prospectus includes by reference the documents listed below that we
previously have filed with the SEC and that are not delivered with this
document. They contain important information about Midway and its financial
condition.
<TABLE>
<CAPTION>
Filing Date Filed
------ --------------
<S> <C>
Annual Report on Form 10-K
for the year ended December 31,
1999 March 30, 2000
Current Report on Form 8-K
reporting closing of loan from
Reedy Creek Investments LLC April 14, 2000
Quarterly Report on Form 10-Q
for the quarter ended March 31,
2000 May 11, 2000
Current Report on Form 8-K
reporting record date for this
rights offering June 8, 2000
</TABLE>
Our SEC file number is 1-9329.
We incorporate by reference additional documents that we may file with the
SEC between the date of this prospectus and the termination of the offering of
securities under this prospectus. These documents include our periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as our proxy statements.
You may obtain any of these incorporated documents from us without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference in such document. You may obtain documents
incorporated by reference in this prospectus by requesting them from us in
writing or by telephone at the following address:
Midway Airlines Corporation
2801 Slater Road, Suite 200
Morrisville, North Carolina 27560
Attention: Secretary
Telephone: (919) 595-6000.
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PART II
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 11,825
Nasdaq listing fee............................................... 17,500
Printing and engraving expenses*................................. 20,000
Legal fees and expenses*......................................... 50,000
Accounting fees and expenses*.................................... 25,000
Subscription Agent fees and expenses*............................ 20,000
Information Agent fees and expenses*............................. 9,000
Miscellaneous*................................................... 6,675
--------
Total*......................................................... $160,000
========
</TABLE>
* Estimated
Item 15. Indemnification of Directors and Officers.
Pursuant to Section 145 of the Delaware General Corporation Law ("DGCL"),
Midway Airlines Corporation (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 no reasonable cause
to believe their conduct was unlawful. 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 purchased and maintains insurance for such persons.
The above discussion of Section 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by such statute.
Item 16. Exhibits.
See Index to Exhibits.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment of this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
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(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement 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.
(c) The undersigned registrant hereby undertakes that, insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant, the
registrant 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 of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Morrisville, State of North Carolina, on June
23, 2000.
MIDWAY AIRLINES CORPORATION
/s/ Robert R. Ferguson, III
By: _________________________________
Robert R. Ferguson, III
Chairman of the Board,
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert R. Ferguson, III Chairman of the Board, June 23, 2000
President and Chief Executive
______________________________________ Officer (Principal Executive
Robert R. Ferguson, III Officer)
/s/ Steven Westberg Executive Vice President and June 23, 2000
______________________________________ General Manager (Principal
Steven Westberg Financial and Accounting
Officer)
/s/ W. Greyson Quarles* Director June 23, 2000
______________________________________
W. Greyson Quarles
/s/ Gregory J. Robitaille* Director June 23, 2000
______________________________________
Gregory J. Robitaille
/s/ Timothy Smith* Director June 23, 2000
______________________________________
Timothy Smith
/s/ Gregory Harding-Brown* Director June 23, 2000
______________________________________
Gregory Harding-Brown
</TABLE>
/s/ Robert R. Ferguson, III
*By: ________________________________
Robert R. Ferguson, III
Attorney-in-Fact
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Form of Subscription Certificate.
5.1 Opinion of Fulbright & Jaworski L.L.P.
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney.*
99.1 Form of Instructions to Stockholders.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Stockholders Who Are Record Holders.*
99.4 Form of Letter to Stockholders Who Are Beneficial Owners.*
99.5 Form of Letter to Clients of Beneficial Owners.*
99.6 Form of Beneficial Owner Election Form.*
99.7 Form of Nominee Holder Certificate Form.*
99.8 Substitute Form W-9 for Use with Rights Offering.*
99.9 Form of Subscription Agent Agreement.
</TABLE>
--------
* Previously filed.
II-4
