<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM___________________________
COMMISSION FILE NO: 0-26432
AIRWAYS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-3315474
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6280 HAZELTINE NATIONAL DRIVE
ORLANDO, FLORIDA 32822
(Address of principal executive offices, including zip code)
(407) 859-1579
(Registrant's phone number, including area code)
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------------------- ------------------------------------------
COMMON STOCK , $.01 PAR VALUE N/A
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT
TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K
OR ANY AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT, COMPUTED BY REFERENCE TO THE LAST REPORTED PRICE AT WHICH
THE STOCK WAS SOLD ON JUNE 17, 1997, WAS $46,318,643. FOR PURPOSES OF THE
ABOVE STATEMENT ONLY, ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ARE ASSUMED TO BE AFFILIATES.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR
VALUE, OUTSTANDING AS OF JUNE 17, 1997, WAS 9,067,937.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE PROXY STATEMENT RELATING TO THE REGISTRANT'S 1997
ANNUAL SHAREHOLDERS MEETING ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
REPORT.
================================================================================
EXHIBIT INDEX IS LOCATED ON PAGES 21-23.
<PAGE> 2
AIRWAYS CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED MARCH 31, 1997
PART I
ITEM 1. BUSINESS
GENERAL
Airways Corporation ("Airways"), a Delaware corporation incorporated in 1995,
is the parent company of AirTran Airways, Inc. ("AirTran"), a domestic
commercial airline providing direct scheduled passenger air service from
Orlando, Florida to 23 locations in the eastern United States. AirTran
Airways, Inc. was incorporated under the laws of Delaware on September 7, 1993
and was acquired by AirTran Corporation from Conquest Airlines Corporation on
June 16, 1994.
AirTran began flying commercially on July 2, 1994 with one Boeing 737-200
aircraft providing charter services and commenced scheduled flight operations
on October 6, 1994. As of March 31, 1997, AirTran operated a fleet of ten
Boeing 737-200 aircraft.
In addition to owning AirTran, Airways operates a fixed base operation in Grand
Rapids, Minnesota (the "FBO"), which provides private aircraft services,
maintenance, fueling, hangar facilities, flight instruction, aircraft parts
sales and other ground services. The FBO began operations in 1944 and was
owned by Mesaba Aviation, Inc. Airways currently operates its FBO business
under a Federal Aviation Administration ("FAA") repair station certificate.
In May 1995, AirTran Corporation and Northwest Airlines, Inc. ("Northwest")
entered into an agreement to spin-off AirTran Corporation's Orlando-based jet
carrier and the FBO. To facilitate the spin-off, AirTran Corporation
established Airways, on April 7, 1995, as a wholly owned subsidiary into which
it consolidated the above operations. The spin-off, in the form of a dividend
of one share of Airways common stock for each share of AirTran Corporation to
the shareholders of AirTran Corporation (other than Northwest), was approved by
AirTran Corporation's shareholders on August 29, 1995. The distribution was
made on September 7, 1995 to shareholders of record (other than Northwest) on
August 31, 1995.
BUSINESS STRATEGY - AIRTRAN
AirTran's strategy is based on a commitment to customer service, reliability
and affordable service. AirTran sets its fares at a substantial discount to
stimulate demand, particularly by those who might otherwise have used ground
transportation. AirTran's one-way fares currently range from $39 (for flights
between two of its outstations) to $229.
AirTran's affordable service strategy depends on maintaining competitive
operating cost levels. In the year ended March 31, 1997 ("1997"), AirTran's
total cost per Available Seat Mile ("ASM") was $0.08, resulting in a 73%
break-even load factor. AirTran's fixed aircraft expenses (including hull
insurance and
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depreciation expense) were 9.6% of operating expenses during 1997. The key
elements in AirTran's strategy are:
# Reliable and Affordable Direct Jet Service. AirTran serves
primarily the leisure traveler seeking direct service to and from
Orlando. AirTran provides efficient service by: flying a single aircraft
type, offering fares on a "ticketless" basis and eliminating extra costs
such as first class seating, airport clubs, frequent flyer programs and
ticket offices.
# Simple Fare Structure. AirTran offers a simple, easy to understand
fare structure: tickets are sold on a one-way basis and priced by route,
demand and availability. Approximately 42% of AirTran's sales are made
directly to passengers, using its computerized reservation system.
The direct bookings grew by over 50% this past year as AirTran's
customers became more familiar with its 1-800-AIR-TRAN reservation line.
These seats are sold on a ticketless basis saving on the cost of
producing tickets and time during the boarding process. AirTran pays
sales commissions only on tickets sold through travel agencies.
# Motivated and Productive Work Force. AirTran seeks to employ a skilled
work force of motivated, productive and enthusiastic employees. AirTran
believes that its base wage and benefit levels are competitive and that
well-qualified candidates are available to meet its future hiring needs.
From time to time, AirTran's employees enter into discussions with
various union groups and, at present, the mechanics and stores clerks are
represented by the International Association of Machinists ("IAM").
# Corporate Culture. AirTran seeks to encourage and maintain a work
environment that is enjoyable for its employees and that makes flying
simple, inexpensive and fun for its customers. AirTran's advertising
brochures, uniforms and aircraft paint schemes are in a colorful,
distinctive style intended to create a relaxed tone and a unique identity
to make the traveler feel as though the vacation started upon boarding
AirTran's jet. Employee training emphasizes friendly, helpful service
intended to simplify the travel experience.
FARES, ROUTE SYSTEM AND SCHEDULING
AirTran provides direct scheduled passenger air service between Orlando and
cities principally in the eastern half of the United States. AirTran's
strategy in developing its route system is to serve medium-sized cities from
which direct service to Orlando is not typically provided by the major
airlines. This strategy involves flying long stage lengths to medium-sized
markets on a low frequency basis. Stage lengths range from approximately 95
(for the interstation flights between Columbia and Charleston, South Carolina)
to 1,140 miles and service is provided to most markets on a one-flight-per-day
schedule.
AirTran generally offers four fare levels in each market. The number of seats
available at each fare level is set according to market conditions. AirTran
may also offer promotional fares in certain markets. Tickets are
non-refundable but travel dates can be changed prior to departure for a $35
fee. All fares are sold on a one-way basis without any minimum, maximum or
overnight stay. The following table shows the expansion of AirTran's scheduled
route system and fleet through March 31, 1997.
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<TABLE>
<CAPTION>
AS OF TOTAL NUMBER DEPARTURES
MONTH END OF AIRCRAFT PER MONTH SCHEDULED CITIES ADDED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FISCAL YEAR 1995:
October 2 164 Orlando, Providence[*], Hartford [*],
Huntsville[*], Knoxville, & Newburgh
November 2 192 -
December 3 317 Ft. Lauderdale[*] and Islip[*]
January 3 326 -
February 3 266 Cincinnati, Albany, and Syracuse
March 4 362 Omaha
FISCAL YEAR 1996:
April 4 354 -
May 4 428 Nashville[*]
June 4 412 -
July 4 426 -
August 6 714 San Antonio [*], Dayton, Birmingham[*], and
Buffalo
September 6 642 -
October 7 880 Dallas [*], Greenville/Spartanburg, Kansas
City, and Norfolk
November 7 874 -
December 8 883 -
January 9 929 -
February 10 1,126 Allentown, Canton/Akron, and Rochester
March 10 1,223 Richmond
FISCAL YEAR 1997:
April 10 1,209 -
May 10 1,135 -
June 10 1,106 Greensboro
July 10 1,315 -
August 10 1,280 -
September 10 963 -
October 10 1,045 Chattanooga [*]
November 10 1,020 Toledo
December 10 1,034 Bloomington/Normal
January 10 1,060 -
February 10 1,075 Harrisburg, Charleston and Columbia
March 10 1,437 DesMoines and Moline
</TABLE>
[*] Service to these locations was discontinued.
AirTran is considering other routes that do not originate or terminate in
Orlando to determine whether such service can be provided on an efficient, cost
effective basis. Strategically, AirTran's selection of
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<PAGE> 5
routes includes an evaluation of the potential demand for service and the
existing level of service provided by other carriers. Tactically, it also
considers the availability and cost of airport operations in determining its
route structure and expansion plans.
MAINTENANCE AND REPAIRS
Aircraft maintenance consists of routine maintenance and major overhauls.
Routine maintenance is performed in Orlando and at its newest maintenance
station in Greensboro, North Carolina by AirTran's employees. In other cities,
that work is performed by FAA-approved contractors. Major overhauls or heavy
checks are performed by a contractor approved by the FAA to work on Boeing
737-200 aircraft.
AirTran's aircraft were manufactured between 1968 and 1985. AirTran believes
that its aircraft are mechanically reliable and although the maintenance costs
are higher (including costs to comply with FAA aging aircraft requirements and
procedures), it believes that total operating costs for the fleet will be
competitive with newer fleets because of the lower lease expenses and cost of
spare parts relative to newer aircraft.
AirTran maintains an inventory of rotable aircraft parts and supplies for
routine maintenance and obtains parts for major overhauls from vendors and
manufacturers when needed. Due to the large number of 737 aircraft in
commercial operation, AirTran expects that a reliable supply of engines and
replacement parts will continue to be available at market prices.
AIRCRAFT
AirTran's fleet currently consists of six leased and four owned Boeing 737-200
aircraft with average capacities of 126 passengers. The lease terms range from
three to seven years and require monthly lease payments of $45,000 to $142,000
as well as reserve payments for major engine and airframe overhauls.
According to FAA rules, the airline's fleet must comply with the FAA's Stage 3
noise level requirements according to the following schedule:
# 50 % currently,
# 75% by December 31, 1998 and
# full compliance by December 31, 1999.
Five of AirTran's aircraft currently meet Stage 3 requirements. AirTran
intends to remain in compliance with noise requirements through the acquisition
of Stage 3 aircraft and the installation of hush kits on Stage 2 aircraft
presently in its fleet. Hush kits certified by the FAA for the Boeing 737-200
aircraft are available at an installed cost of approximately $1.5 million per
aircraft.
Increased demand for short-to-medium-range jet aircraft caused higher leasing
costs for AirTran. Much of this demand was due to the entry of other low-cost
carriers which has abated somewhat recently. Although the Boeing 737 is the
most common type of jet aircraft currently in operation worldwide and the entry
of other low-fare carriers has abated, there can be no assurance that AirTran
will continue to be able to obtain additional aircraft at favorable lease
rates.
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<PAGE> 6
AirTran currently operates only Boeing 737-200 aircraft and believes that
maintenance and operating expenses are generally lower for airlines whose fleet
consists of a single aircraft type. AirTran may, however, consider other
aircraft types if they are better suited to its future needs.
FUEL
The cost of jet fuel, related taxes and fueling fees is AirTran's largest
operating expense, accounting for 19.5% of total operating costs during 1997.
Jet fuel costs are subject to wide fluctuations, primarily resulting from
changes in supply and the effects of world events. These changes in supply and
world events make prediction of the cost of jet fuel difficult. Increases in
fuel prices could have a materially adverse effect on AirTran's operating
results. AirTran has not entered into any fixed-price or guaranteed delivery
contracts for fuel.
AirTran's fleet is not as fuel efficient as one comprised of new medium-sized
jet aircraft. As a result, a significant increase in the price of jet fuel
would disproportionately affect AirTran's costs as compared to its competitors
using newer, more fuel efficient aircraft. AirTran intends to pass on fuel
cost increases through increased fares although there can be no assurance that
AirTran's competitive fare advantage wouldn't be negatively impacted.
INSURANCE
AirTran carries the types of insurance customary in the airline industry,
including coverage for public liability, passenger liability, property damage,
aircraft loss or damage, baggage and cargo liability and workers' compensation.
AirTran believes that this insurance is adequate in amount and risk covered.
There can be no assurance, however, that the insurance coverage would be
sufficient to protect AirTran adequately in the event of a catastrophic
accident.
SEASONALITY AND CYCLICALITY
The airline industry generally is subject to cyclical changes in the economy.
Because both personal discretionary travel and business travel may be expected
to decline during economic downturns, the airline industry tends to experience
poorer financial results during such periods. Further, because AirTran serves
primarily the leisure travel market, its results may be more affected by
declines in discretionary spending than airlines carrying more business
travelers.
Seasonal factors, primarily weather conditions and passenger demand, are
expected to affect AirTran's monthly passenger boardings. AirTran experiences
diminished demand in late spring, early fall and in mid-winter.
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<PAGE> 7
COMPETITION AND INDUSTRY CONSIDERATIONS
The airline industry is highly competitive as a result of the Airline
Deregulation Act of 1978 (the "Deregulation Act"). In general, the
Deregulation Act increased competition by eliminating restrictions on fares and
route selection. The removal of barriers to entry into new markets increased
the potential for competition by other carriers in AirTran's markets. The
Deregulation Act also contributed to the withdrawal of national and major
carriers from small to medium-sized cities by allowing them to obtain
additional long-haul routes more easily, which has contributed to the
development of the concept of a "hub and spoke" network.
AirTran's competition includes carriers with substantially greater financial
resources. Fare levels and passenger demand are negatively affected by a
number of factors, including the general state of the economy and intense fare
competition in the industry.
Competitive factors in the airline industry generally include fares, frequency
and dependability of service, convenience of flight schedules, frequent flier
programs, type of aircraft flown, airports served, control of a computerized
reservations system used by travel agencies, code-sharing relationships with
other airlines, relationships with travel agents, and efficiency and
reliability of reservations systems and ticketing services.
While AirTran chooses not to have a frequent flier program and does not control
a computerized reservations system used by travel agencies, it does have
affordable fares, the frequency demanded by its customer base, a strengthened
reliability performance over the past twelve months, a fleet of Boeing 737
aircraft which remain popular among the flying public, a schedule to airports
which are convenient to its customer base and a code sharing arrangement with
Comair which enables its customers to fly to nine other Florida destinations as
well as Nassau. AirTran believes, consequently, that it is competitive with
respect to several of those factors.
GOVERNMENT REGULATION
U.S. Department of Transportation ("DOT") - All interstate air carriers are
subject to regulation by the DOT and the FAA under the Federal Aviation Act of
1958, as amended (the "Aviation Act"). The DOT's jurisdiction extends
primarily to the economic aspects of air transportation, while the FAA's
regulatory authority relates primarily to air safety, including aircraft
certification and operations, crew licensing and training and maintenance
standards.
In general, the amount of economic regulation over interstate air carriers in
terms of market entry and exit, pricing and inter-carrier acquisitions and
agreements has been greatly reduced since the enactment of the Deregulation
Act. Consequently, barriers to entry into the domestic air transportation
business have been reduced and the post-entry regulation to which an airline is
subject has been simplified.
AirTran has a Certificate of Public Convenience and Necessity issued by the DOT
pursuant to Section 401 of the Aviation Act. Each United States carrier must
qualify as a United States citizen, which requires that it be organized under
the laws of the United States or a state, territory or possession thereof, that
its president and at least two-thirds of its Board of Directors and other
managing officers be United States citizens, that not more than 25% of its
voting stock be owned by foreign nationals and that the carrier not be otherwise
subject to foreign control.
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U.S. Federal Aviation Administration - AirTran also has an operating
certificate issued by the FAA pursuant to part 119 of the Federal Aviation
Regulations and operates in accordance with part 121 of those regulations. The
FAA has jurisdiction over the regulation of the flight operations generally,
including the licensing of pilots, dispatchers and maintenance personnel; the
establishment of minimum standards for training and maintenance; and technical
standards for flight, in-flight, dispatch, communications and ground equipment.
AirTran must obtain and maintain FAA certificates of airworthiness for all its
aircraft. AirTran's flight personnel, flight and emergency procedures,
aircraft, maintenance personnel and maintenance facilities are subject to
periodic inspections and tests by the FAA. FAA inspectors have flown on many
AirTran flights and have subjected its other flight and ground personnel to
periodic announced and unannounced checks. Since AirTran began operations,
issues raised by the FAA have been routine and have been addressed by immediate
correction or by ongoing changes in operational procedures.
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended, under the Airport Noise and Capacity Act of
1990 ("ANCA") and, along with the Environmental Protection Agency, under the
Clean Air Act, as amended, to monitor and regulate aircraft engine noise and
exhaust emissions. To AirTran's knowledge, its aircraft comply with all
applicable FAA noise control regulations and with current emissions standards.
ANCA requires the phase-out of Stage 2 aircraft (which meet less stringent
noise emission standards than later Stage 3 aircraft) in the contiguous 48
states by December 31, 1999. In September 1991, the FAA promulgated final
rules establishing interim compliance dates of December 31, 1994, December 31,
1996, and December 31, 1999, for phasing out Stage 2 aircraft.
Industry regulation:- The following are regulations and laws applicable to the
aviation industry:
# The Federal excise tax on domestic air transportation was reinstated
on August 27, 1996 for tickets sold for travel before January 1, 1997.
This tax, 10 % of the cost of an airline ticket, had previously expired on
January 1, 1996. The Company believes that its passenger revenues were
stimulated during the period the tax was not in effect although it is not
possible to estimate the dollar impact of the lapse due to the complexity
and number of factors affecting passenger revenue. This tax expired again
on January 1, 1997. On February 28, 1997, President Clinton signed
legislation reinstating the tax for tickets sold beginning March 7, 1997
for travel through September 30, 1997. Reinstatement of this tax may
dampen demand for air transportation which, in turn, may have a material
adverse effect on the Company's financial condition and results of
operations.
# Following the July 1996 accident involving a TWA aircraft and
speculation that the cause of the accident may have been sabotage,
President Clinton ordered new security measures related to passenger,
baggage and cargo screening. The increased security measures have
increased the Company's operating expenses although the dollar effect is
not considered material. The President also formed a special committee
which reviewed aviation safety and airport security as well as the air
traffic control system. The Committee made several recommendations in
the areas of safety, air traffic control and security although it remains
unclear whether and to what extent any of the recommendations will be
adopted and what impact they may have on the Company's financial condition
and results of operations.
# All air carriers are also subject to certain provisions of the
Communications Act of 1934, as amended, because of their extensive use of
radio and other communication facilities, and are required to obtain
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an aeronautical radio license from the Federal Communications Commission
("FCC"). To the extent AirTran is subject to FCC requirements, it has
taken all necessary steps to comply with those requirements.
# AirTran's labor relations are covered under Title II of the Railway
Labor Act of 1926, as amended, and are subject to the jurisdiction of
the National Mediation Board.
# During a period of fuel scarcity, air carrier access to jet fuel was
subject to allocation regulations promulgated by the Department of
Energy.
# The exemption from fuel tax for commercial aviation expired on October 1,
1995 and AirTran then became subject to that $0.043 per gallon tax.
AirTran paid the tax from October 1, 1995 through March 31, 1997 and the
impact is included in flight operations expense. Had AirTran been subject
to the tax for all of the prior year, operating expenses would have been
higher in 1996 by approximately $260,000. Various bills have been
introduced in Congress from time to time to renew the exemption, however,
none have been enacted and there can be no assurance that any will be
enacted.
# AirTran is also subject to regulatory control by DOT and foreign
jurisdictions with regard to international air transportation it has
provided in the past and expects to provide in future.
# AirTran is also subject to state and local laws and regulations at
locations where it operates and the regulations of various local
authorities that operate the airports it serves.
MARKETING
AirTran's marketing objective is to build on the growing awareness of its
service and benefits in the markets served. The message is focused on leisure
travelers and travel agents.
To communicate with potential customers efficiently, AirTran uses TV, radio and
newspaper advertisements. These marketing efforts highlight the destinations,
affordable fares and direct/nonstop jet service as well as the experienced
crews and AirTran's reliable service. All of the marketing materials direct
customers to call 1-800-AIRTRAN to make a reservation or to call a travel
agent.
EMPLOYEES
As of March 31, 1997 and 1996 Airways had 592 and 429 full-time equivalent
employees, respectively.
Management personnel directly involved in the supervision of flight operations,
training, maintenance and aircraft inspection must meet certain experience
levels set by the FAA. Under FAA regulations, pilots are required to be
licensed as commercial pilots, with specific ratings for the type of aircraft
flown, and must also be medically certified as physically fit. In order to
maintain licenses and medical certifications, pilots must satisfy periodic
continuation requirements, including recurrent training and recent flying
experience. Mechanics, quality control inspectors and flight dispatchers must
also be licensed and qualified for specific aircraft. Flight attendants are
required to have initial and periodic competency fitness training and
certification. As required by FAA regulations, all of these employees must
undergo pre-employment and periodic drug testing as well as employment and
background checks.
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AIRPORT OPERATIONS
AirTran's operations are based largely at the Orlando International Airport,
where it maintains its aircraft fleet. In Orlando, AirTran's employees provide
passenger services and catering and cleaning of the aircraft; all other ground
services are outsourced. In most other cities served by AirTran, other
contractors, including major airlines, provide all ground handling services
including passenger services. Ground handling services include greeting and
serving passengers at check-in, gate and baggage claim areas, catering, guiding
aircraft to and from gates, baggage handling services, aircraft cleaning,
lavatory and water servicing, de-icing and certain overnight aircraft
maintenance services. AirTran has at least one employee at each of the cities
it serves to promote sales and oversee its operations.
ITEM 2. PROPERTIES
REAL PROPERTY
AirTran's principal executive offices are located two miles from the Orlando
International Airport in a leased facility consisting of approximately 11,500
square feet of office space. This facility houses the executive offices of
both Airways and AirTran as well as the general administrative staff,
reservations staff and computer systems of AirTran. The lease agreement for
these premises expires in October 1998 and requires monthly lease payments of
$14,000. During 1996, AirTran entered into a ground lease with the Greater
Orlando Aviation Authority and a purchase agreement with Page AvJet to acquire
an aircraft hangar of approximately 70,000 square feet at the Orlando
International Airport for its operations staff, including flight operations and
station operations, and its maintenance staff, records, inventory and personnel
training facilities. AirTran paid $3.6 million for the hangar, improved the
facilities, and makes monthly ground lease payments of $8,900.
The FBO's principal offices are located in one leased and one owned facility at
Grand Rapids Itasca County Airport in Grand Rapids, Minnesota. The facilities
house the FBO's administrative offices and operations staff and systems. The
office lease expired in December 1996 and was renewed January 1, 1997 for six
years and requires monthly lease payments of $1,400. The other building is
owned, subject to a ground lease the term of which is concurrent with the
office lease, and is fully depreciated.
FLIGHT EQUIPMENT
As of March 31, 1997, AirTran's fleet consisted of ten Boeing 737-200 aircraft.
Of these, six were leased and four were owned. All aircraft in use are
maintained in airworthy condition in accordance with procedures approved by the
FAA. Three of the four owned aircraft were held subject to financing
arrangements pursuant to which liens on the aircraft were placed as of March
31, 1997.
Subsequent to the year end, the Company entered into a loan agreement under
which the fourth owned aircraft, which had been unencumbered, was used for
collateral to secure the loan.
ITEM 3. LEGAL PROCEEDINGS
Neither Airways nor AirTran is a party to any pending legal proceedings that
either believe would have a materially adverse effect on the financial
condition or results of operations of the consolidated companies.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended March 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION AND RELATED MATTERS
Airways' common stock is traded on the National Market System of The NASDAQ
Stock Market under the symbol "AAIR". The number of shareholders of record as
of June 17, 1997 was 908 and the closing price per share on that date was
$5.375. The number of shareholders is calculated, for this purpose, based on
number of record holders not the individual participants in security positions.
The table below sets forth information, for each quarter in 1996 and 1997
during which Airways' common stock was traded, concerning the high and low
sales prices. Airways has not paid cash dividends in the past and does not
intend to pay cash dividends in the foreseeable future. Airways presently
intends to retain any earnings it generates in the future for use in its
business with any future decision to pay cash dividends dependent on its
growth, profitability, financial condition and other factors the Board of
Directors may deem relevant. Quotations for such periods are as reported by
NASDAQ for National Market issues.
<TABLE>
<CAPTION>
STOCK PRICE RANGE IN 1996
-----------------------------------
HIGH LOW
---------- --------
<S> <C> <C>
First Quarter (1) (1)
Second Quarter $ 9.000 $ 7.250
Third Quarter $ 10.750 $ 7.250
Fourth Quarter $ 11.000 $ 8.125
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICE RANGE IN 1997
-------------------------------------
HIGH LOW
---------- ---------
<S> <C> <C>
First Quarter $ 10.750 $ 6.750
Second Quarter $ 7.250 $ 3.500
Third Quarter $ 5.625 $ 2.875
Fourth Quarter $ 6.375 $ 2.875
</TABLE>
(1) Airways stock was not publicly traded prior to August 31, 1995 and,
therefore, there is no data for the First Quarter 1996 or for any quarters in
1995.
The transfer agent for Airways' common stock is Norwest Bank Minnesota, N.A.,
161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone:
(612) 450-4064.
On January 8, 1997, the Company issued to a vendor, Aviation Management
Systems, Inc., a common stock purchase warrant for 50,000 shares of the
Company's common stock, exercisable at $3.82 per
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<PAGE> 12
share commencing immediately and expiring after two years. The warrant was
issued to the vendor in connection with its meeting certain cost savings
provisions contained in the vendor's contract with the Company. The warrant was
issued by the Company in reliance on Section 4 (2) of the Securities Act of 1933
("the Act"). The vendor was sophisticated in that it had such knowledge and
experience in financial and business matters so as to be capable of evaluating
the risks of such investment. The vendor was provided information about the
Company or had access to such information and was provided opportunities to ask
questions about the information provided or made available. Information
concerning restrictions on transfer of the securities was also provided and the
warrants bear a legend accordingly.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL DATA:
(Operating results are in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31
----------------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Total operating revenues . . . . . $ 102,624 $ 68,361 $ 9,607
Operating income (loss) . . . . . (12,122) 1,494 (6,421)
---------- --------- ---------
Net (loss) income . . . . . . . $ (6,991) $ 1,187 $ (3,496)
========== ========= =========
Net (loss) income per share . . . . $ (.77) $ .13 $ (.39)
========== ========= =========
Weighted average shares outstanding. . 9,029 9,230 8,927
Total assets . . . . . . . . . 73,948 69,654 13,544
Long term liabilities . . . . . . 16,497 13,828 71
</TABLE>
Note: Inasmuch as AirTran only commenced operations in 1995, results prior
thereto are not included herein. Share information for the year ended March
31, 1995 is on a pro-forma basis as Airways was incorporated in April 1995 and
prior thereto was a division of AirTran Corporation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Airways generated operating (loss) income of ($12,122,000) and $1,494,000 for
the years ended March 31, 1997 ("1997") and March 31, 1996 ("1996"),
respectively, a reduction of $13,616,000. Pre-tax (loss) income, as a
percentage of total revenues, was (12.4%) in 1997 and 2.9% in 1996. The
dramatic reduction, year over year, is the result of four separate factors.
First, demand in AirTran's segment of the travel industry was negatively
affected by the accident on May 11, 1996 of a ValuJet aircraft. Second, the
Company initiated an intensive and costly review of maintenance and other
operations systems and processes to enhance system safety, reliability and
efficiency. Third, fuel prices increased dramatically during the year and
last, the Company realigned its route system partly in response to the entry
into Orlando of other competing major airlines and partly to leave
underperforming markets.
Airways achieved operating income (loss) of $1,494,000 and ($6,421,000) for the
years ended 1996 and March 31, 1995 ("1995"), respectively, an improvement of
$7,915,000. Pre-tax income, as a percentage of total revenues, was 2.9% in
1996 and (66.8)% in 1995. The dramatic change, year over year, is principally
the result of AirTran's move from startup mode to full fledged operations.
12
<PAGE> 13
SELECTED OPERATING DATA
The table below sets forth selected operating data for AirTran for 1997, 1996
and 1995.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------
1997 1996 1995
-------------- ------------ -----------
<S> <C> <C> <C>
Available seat miles (1) 1,426,873,000 974,642,000 180,480,000
Revenue passenger miles (2) 932,305,000 605,130,000 80,783,000
Load factor (3) 65.3% 62.1% 44.8%
Yield per revenue passenger mile (4) $ 0.107 $ 0.107 $ 0.098
Passenger enplanements 1,089,000 685,000 87,000
Departures 13,569 8,861 1,627
Miles 11,295,000 7,739,000 1,432,000
Block Hours (5) 30,578 21,078 3,405
Average stage length (miles) (6) 832 873 880
Average daily aircraft utilization (hours) 8.4 8.9 4.9
Aircraft (end of period) 10 10 4
Full-time equivalent employees (end of period) 592 429 194
</TABLE>
(1) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(2) The number of scheduled miles flown by revenue passengers.
(3) Revenue passenger miles divided by available seat miles. Year over year
percent change is measured only as percentage points difference.
(4) Passenger revenue divided by revenue passenger miles.
(5) The number of hours aircraft were flown as measured from the time of
pushback from the gate to the time of arrival at the next airport's gate.
(6) The average length of the routes flown on AirTran's scheduled route
system.
13
<PAGE> 14
The table below sets forth the major components of operating revenue and
expenses per ASM for the Company as a comparison among the three years 1997,
1996 and 1995.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------
1997 1996 1995
------------- ------------ --------------
<S> <C> <C> <C>
Operating Revenue:
Passenger $ 0.070 $ 0.067 $ 0.044
Charter 0.000 0.002 0.007
Other 0.002 0.001 0.003
------------- ------------- -------------
Total operating revenue 0.072 0.070 0.053
------------- ------------- -------------
Operating expenses:
Flight operations 0.032 0.024 0.036
Maintenance 0.018 0.012 0.016
Aircraft and traffic services 0.012 0.014 0.013
Reservations, sales, and marketing 0.012 0.012 0.010
General and administrative 0.004 0.003 0.011
Depreciation and amortization 0.003 0.002 0.003
------------- ------------- -------------
Total operating expense 0.080 0.067 0.089
------------- ------------- -------------
Operating income $ (0.008) $ 0.003 $ (0.035)
============= ============= =============
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
OPERATING REVENUES
Total passenger revenues were $100,077,000 and $64,894,000 in 1997 and 1996, an
increase of $35,183,000 or 54.2%. The increase is a result of having the
entire fleet for twelve months of 1997 whereas in 1996, the fleet was building
up to that level through February 1996.
ASMs were 1,426,873,000 and 974,642,000 in 1997 and 1996, respectively, an
increase of 452,231,000 or 46.4%. This was principally the result of the
growth in departures and AirTran's fleet and mitigated somewhat by shorter
stage lengths in 1997. Revenue Passenger Miles ("RPM"s) were 932,305,000 and
605,130,000 in 1997 and 1996, respectively, an increase of 327,175,000 or
54.1%. This was driven by the increased capacity and improved load factor in
1997. Load factors were 65.3% and 62.1% in 1997 and 1996, respectively, an
increase of 3.2 percentage points.
AirTran also had charter revenue which is derived from making its airplanes
available to charter operators when they would otherwise not be efficiently
used. Charter revenues were $ 402,000 and $1,692,000 in 1997 and 1996,
respectively, a decrease of $1,290,000 or 76.2%. Often when the fleet is
expanded and additional aircraft are delivered, there is a period of adjustment
for the schedule during which aircraft utilization would drop; during such
times, the Company endeavors to use the aircraft in charter operations to
minimize this cost. During 1996, four aircraft were delivered whereas none were
delivered during 1997 accounting for the reduction in 1997.
In addition, the consolidated operations include other revenues, principally
cancellation revenue, change fees, liquor sales and the sales of the FBO which,
collectively, were $2,144,000 and $1,775,000 in 1997 and 1996, respectively, an
increase of $369,000 or 20.8%. The increase in other revenues is the result of
14
<PAGE> 15
increased sales by the FBO and reduced cancellation revenue for AirTran. The
FBO sold one of the aircraft that it had been holding for sale for $175,000 and
continued to market its inventory of spare parts successfully during 1997.
AirTran experienced lower cancellation revenue in 1997 as a result of offering
vouchers for later travel to passengers who otherwise would have had to forfeit
their fare.
Total passenger revenues were $64,894,000 and $7,896,000 in 1996 and 1995,
respectively. The increase of $56,998,000 or 721.9% in 1996 reflects the fact
that AirTran had just commenced scheduled operations in the third quarter of
1995.
ASMs were 974,642,000 and 180,480,000 in 1996 and 1995, respectively, an
increase of 794,162,000 or 440.0%. This was principally the result of the
growth in departures and AirTran's fleet. RPMs were 605,130,000 and 80,783,000
in 1996 and 1995, respectively, an increase of 524,347,000 or 649.1%. This
was the result of the increased ASMs as well as stronger load factors on
existing routes in 1996. Load factors were 62.1% and 44.8% in 1996 and 1995,
respectively, an increase of 17.3 percentage points.
Charter revenues were $1,692,000 and $1,241,000 in 1996 and 1995, respectively,
an increase of $451,000 or 36.3%. The increase reflects full year operations
and more aircraft during the year but the relatively small increase also
reflects the deliberate shift to scheduled service in 1996.
Other revenues were $1,775,000 and $470,000 in 1996 and 1995, respectively, an
increase of $1,305,000 or 277.7%. The increase in other revenues is
principally the result of full year operations.
OPERATING EXPENSES
Flight operations expense includes expenses related directly to the operation
of aircraft except for depreciation and amortization of aircraft and aircraft
improvements. Expenses for hull insurance, crew salaries and their overnight
expenses, aircraft fuel and flight operations administration are all included
in flight operations. Flight operations expenses were $45,507,000 and
$26,913,000 in 1997 and 1996, respectively, an increase of $18,594,000 or
69.1%. Departures were 13,569 and 8,861 in 1997 and 1996, respectively, an
increase of 4,708 or 53.1% which, together with the increased ASMs, drove a
significant portion of the increase in flight operations expense. Flight
operations expense increased significantly more than operating activity because
of several factors. Fuel prices escalated dramatically during 1997 causing fuel
expense to increase by $3,500,000 more than it otherwise would have. Also, the
Company embarked upon a program of intense scrutiny of its aircraft and its
maintenance and operational procedures during 1997. In order to facilitate
that work without disrupting its schedule of operations, the Company entered
into wet leases of aircraft for use during the periods when the Company's
aircraft weren't available. The wet leases cost the Company $3,322,000.
Flight operations expenses were $26,913,000 and $6,429,000 in 1996 and 1995,
respectively, an increase of $20,484,000 or 318.6%. Departures were 8,861 and
1,627 in 1996 and 1995, respectively, an increase of 7,234 or 444.6% which,
together with the increased ASMs, drove the increase in flight operations
expense. Better aircraft utilization and reduced fleet ownership costs
mitigated the increase, year over year, in flight operations expense. AirTran
purchased four aircraft in 1996 which shifts fleet ownership costs to
depreciation from flight operations expense.
15
<PAGE> 16
Maintenance expense includes all expenses related to the upkeep of aircraft.
Such expenses include labor, parts, supplies and contract maintenance. The
direct cost of airframe and engine overhauls are generally expensed and, for
leased aircraft, paid monthly to the lessors in the form of reserves. For
owned aircraft, AirTran reserves on a per flight hour basis for future
maintenance that becomes due in the ordinary course. These reserves are
recorded on AirTran's balance sheet each month as the aircraft are flown. The
reserves are then available for major overhauls when they occur. When aircraft
are first delivered to the Company and shortly thereafter, the cost of
overhauls of engines and airframes that may be required to render them fully
serviceable is capitalized and amortized over the period remaining until the
next scheduled overhaul. Maintenance expenses were $25,851,000 and $12,112,000
in 1997 and 1996, respectively, an increase of $13,739,000 or 113.4%. Three
cost drivers pushed maintenance expense dramatically higher during 1997.
Firstly, block hours (which are a cost driver for maintenance) were 30,578 and
21,078 in 1997 and 1996, respectively, an increase of 9,500 or 45.1%. The
increased block hours, year over year, would have contributed to increased
maintenance expense of approximately $5,500,000. Secondly, the Company
invested heavily in overhauling engines, airframes and related equipment. Much
of its equipment has been substantially improved and serviceable lives
extended. To that extent, those expenditures were capitalized and are recorded
in Fixed Assets on the balance sheet. Nonetheless, $3,400,000 more was spent
on repairs that were identified and necessary in the circumstances but which
did not significantly extend the useful lives of the underlying assets. Those
repairs were charged to expense in 1997. Thirdly, to facilitate the engine
overhauls, the Company entered into short term leases for replacement engines
which cost the Company $950,000 more in 1997 than in 1996. Lastly, the
previously mentioned independent review of the aircraft and the maintenance
procedures and records cost the Company $2,700,000.
Maintenance expenses were $12,112,000 and $2,845,000 in 1996 and 1995,
respectively, an increase of $9,267,000 or 325.7%. Maintenance expense is a
semi-variable cost, facilities and administrative salaries for which are
relatively fixed while reserve expense is driven principally by block hours.
Block hours were 21,078 and 3,405 in 1996 and 1995, respectively, an increase
of 17,673 or 519.0%. The increased block hours, year over year, contributed
substantially to the increased maintenance expense.
Aircraft and traffic servicing expense includes all expenses incurred at
airports, including landing fees, facilities rental, station labor, passenger
liability insurance, ground handling services and catering expenses. Aircraft
and traffic servicing expenses were $16,742,000 and $10,169,000 in 1997 and
1996, respectively, an increase of $6,573,000 or 64.6%. The increase is driven
largely by the increased number of flights, passengers, block hours and higher
load factors. As a consequence of the Company's extensive internal reviews and
renovations of aircraft, the operating reliability suffered during parts of
1997. This triggered the need to purchase alternative transportation, costing
$1,700,000 more in 1997, for passengers who would have otherwise not been able
to travel to their destinations.
Aircraft and traffic servicing expenses were $10,169,000 and $2,390,000 in 1996
and 1995, respectively, an increase of $7,779,000 or 325.5%. The increase was
driven by the increased number of flights, markets served, passengers, block
hours and higher load factors.
Reservations and sales expense includes all sales, marketing and advertising
expenses as well as the cost of reservations. Reservation expense includes
salaries of reservations personnel, computer reservation system expenses and
travel agent commissions. Reservations and sales expenses were $16,739,000 and
$11,901,000 in 1997 and 1996, respectively, an increase of $4,838,000 or 40.7%.
Although travel agency commission, advertising expense and reservation expenses
increased, they did not increase proportionately with revenue. The increases
were mitigated by the shift of customer mix toward
16
<PAGE> 17
passengers booking directly with AirTran on its toll-free 1-800-AIR-TRAN
reservations line as opposed to a travel agency. This reduced the Company's CRS
fees and commissions by nearly $1,000,000 compared to what it would have been if
the shift in bookings had not occurred. In addition, the Company's marketing
department established several cooperative advertising arrangements with other
companies to moderate its advertising expense in 1997.
Reservations and sales expenses were $11,901,000 and $1,830,000 in 1996 and
1995, respectively, an increase of $10,071,000 or 550.3%. The increase was due
to increased travel agent commissions, advertising and reservation activity
associated with higher passenger volume and increased sales of future tickets.
The increased activity was caused by the expansion of AirTran's service into
new markets and higher load factors on existing routes in 1996. AirTran had
passenger volume of 685,000 and 87,000 in 1996 and 1995, respectively, an
increase of 598,000 or 687.4%.
General and administrative expense includes the wages and benefits for both
companies' executive officers and various other administrative personnel. Also
included are costs for office supplies, legal expenses, accounting and
miscellaneous expenses. General and administrative expenses were $5,185,000
and $3,623,000 in 1997 and 1996, respectively, an increase of $1,562,000 or
43.1%. The principal cause of the increased expense in 1997 was the continued
development of headquarters and administrative infrastructure to support
AirTran's full and expanding operation.
General and administrative expenses were $3,623,000 and $2,012,000 in 1996 and
1995, respectively, an increase of $1,611,000 or 80.1%. The principal cause of
the increased expense in 1996 was the development of headquarters and
administrative infrastructure to support AirTran's full and expanding
operation. In addition, AirTran introduced a program of profit sharing for all
full time employees during 1996 which, due to Airtran's profitability,
contributed to the increase.
Depreciation and amortization expense includes depreciation on equipment,
aircraft and aircraft improvements and amortization of leasehold improvements,
goodwill and aircraft and loan acquisition costs. Depreciation and amortization
expense were $4,721,000 and $2,149,000 in 1997 and 1996, respectively, an
increase of $2,572,000 or 119.7%. Purchases of four aircraft, largely completed
in the latter part of 1997, were the principal cause of the increase.
Depreciation and amortization expense were $2,149,000 and $522,000 in 1996 and
1995, respectively, an increase of $1,627,000 or 311.7%. Purchases of aircraft
completed in the latter part of 1996 were the principal cause of the increased
depreciation expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $2,354,000 and $16,437,000 at March 31, 1997 and
1996, respectively, a decrease of $14,083,000 or 85.7%. The use of cash and
cash equivalents from operating activities was $1,879,000. The principal uses
of cash and cash equivalents were for purchases of property and equipment of
$11,126,000 and payments on long-term debt of $1,405,000.
Cash and cash equivalents were $16,437,000 and $961,000 at March 31, 1996 and
1995, respectively, an increase of $15,476,000 or 1,610.4%. Prior to the
distribution, AirTran Corporation ("Mesaba") contributed cash and property to
Airways having a book value of approximately $20,250,000 in 1996 in addition to
$8,750,000 invested in Airways in 1995. The principal sources of cash and cash
equivalents were Mesaba's capital contribution, proceeds of long-term debt of
$16,800,000 and cash generated from
17
<PAGE> 18
operating activities of $14,326,000. The principal uses of cash and cash
equivalents were for purchases of property and equipment of $28,380,000,
acquisition of other assets (excluding deferred loan costs) of $1,390,000 and
payments on long-term debt of $1,142,000.
Restricted cash were $12,670,000 and $11,309,000 at March 31, 1997 and 1996,
respectively, an increase of $1,361,000 or 12.1%. The increase of restricted
cash related to the advance bookings year over year and follows the increase in
air traffic liability.
Airways' consolidated current ratio was 0.82 to 1.0 and 1.1 to 1.0 at March 31,
1997 and 1996, respectively. The decrease in the ratio at March 31, 1997 was
principally the result of investing in property and equipment during the year.
During 1997, AirTran entered into the following financing arrangements:
# One installment loan with the seller to purchase aircraft equipment. The
loan amount was $1,250,000 and is secured by the equipment. The loan
carries a fixed interest rate of 10%. The note requires payment of
principal and interest monthly which will amortize the loan by November
2002.
# One short term installment loan with the seller to purchase jet engines.
The loan amount was $1,200,000 and is secured by the equipment. The loan
carries a fixed interest rate of 10%. The note requires payment of
principal and interest monthly which will amortize the loan by September
1997.
During 1996, AirTran entered into the following financing arrangements:
# Four long term loans with a major commercial financing company to finance
the purchase of three Boeing 737-200 aircraft. The aggregate financing
amount of the loans was $13,800,000 and is secured by the aircraft.
The loans carry fixed interest rates ranging from 5.85% to 11.67%. The
loans require payments of principal and interest on a monthly basis which
amortize the borrowing by December 2000.
# One short-term note with the seller to finance the purchase of one Boeing
737-200 aircraft. The loan amount was $1,000,000 and was secured by the
aircraft. The note carried a variable interest rate of LIBOR rate plus
4.1%. The note required payment of principal and interest on a monthly basis
which amortized the borrowing by December 1996.
# One long term loan with a major bank to finance part of the purchase of a
hangar at the Orlando International Airport. The loan amount was $2,000,000
and is secured by the hangar as well as security interests granted in
AirTran's leasehold improvements as well as $214,000 in cash. The loan
carries a variable interest rate equal to the prime rate plus 1%. The loan
requires repayment of principal in the amount of $25,000 monthly plus
interest accrued and, at various intervals, can require repayments of
greater amounts depending on Airways' cash flow.
# One long term loan with the seller to purchase aircraft equipment. The
loan amount was $400,000 and is secured by the equipment. The loan carries
a fixed interest rate of 10%. The loan requires payment of principal and
interest monthly which will amortize the loan by February 1999.
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<PAGE> 19
Airways had consolidated current assets of $32,666,000 and $35,969,000 as of
March 31, 1997 and 1996, respectively. Management believes that such assets,
along with internally generated funds as well as financing which management
believes is or will be made available, will satisfy projected operating and
capital needs. If AirTran increases its rate of growth over current
projections, acquires another company, purchases more aircraft (rather than
leasing additional aircraft) than is presently planned, sustains further
losses, or otherwise requires additional capital, other sources of funds will
need to be secured and there is no assurance that such funds will be secured.
During 1997, the Company invested heavily in its aircraft and engines. Much of
this investment was paid for from funds generated the year before or from the
Company's working capital. As a consequence, the Company has initiated several
undertakings which are designed to continue improving its profitability as well
as strengthening its working capital position. They are as follows:
# On June 13, 1997, the Company entered into a code-sharing agreement with
Comair, a large regional airline operating flights in Florida. The
code-sharing agreement permits AirTran Airways to sell tickets to its
passengers allowing them to connect in Orlando with Comair flights
continuing on to nine other Florida destinations other than Orlando. These
tickets will be sold to passengers under the tradename "AirTran's Florida
Connection". The Company began taking reservations on June 19 and carried
its first passenger that same day.
# On May 14, 1997, the Company entered into a five year loan agreement with
a financing company for a $1,600,000 loan secured by one of its aircraft.
# The Company intends to sell or refinance one of its aircraft in a
transaction which will likely generate in excess of $4,000,000 of
unrestricted cash. That transaction is expected to close on or around the
end of the first quarter of fiscal 1998.
# In addition, the Company has engaged an investment banker for the purpose
of refinancing the maintenance hangar it acquired at Orlando
International Airport last year. The hangar has an appraised value of
$7,100,000 and the Company's indebtedness is, at present, only $1,500,000.
A refinancing is expected to take place during the second quarter of the
Company's fiscal year.
# Lastly, the Company has a proposal from one of its major lenders to
refinance its two other owned aircraft.
The effect of inflation on either company is not considered material.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included in Part IV, Item
14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As a consequence of the relocation of the Company's headquarters to Orlando,
Florida in 1995, Airways terminated its relationship with the independent
public accounting firm of Arthur Andersen LLP ("AA") on September 28, 1995 AA's
report on Airways' financial statements for the fiscal year ended March 31,
1996, did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
From the time AA was engaged by Airways through the date of AA's dismissal,
there were no disagreements with AA on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of AA, would have
caused it to make reference to the subject matter of the disagreements in
connection with its report.
Airways hired the independent public accounting firm of KPMG Peat Marwick LLP
("KPMG") for the purpose of conducting audits for 1996 and 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Management" in Airways' Proxy
Statement for its 1997 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive Compensation" in Airways'
Proxy Statement for its 1997 Annual Meeting of Shareholders is incorporated
herein by reference; provided, however, the report of the Compensation
Committee on executive compensation and the stock performance graph contained
therein shall not be deemed to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information contained under the caption "Security Ownership of Management and
Certain Beneficial Owners" in Airways' Proxy Statement for its 1997 Annual
Meeting of Shareholders is incorporated herein by reference.
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<PAGE> 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Transactions with Management" and in
Airways' Proxy Statement for its 1997 Annual Meeting of Shareholders is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) A listing of financial statements and financial statement schedules filed
as part of this report is set forth in the "Index to Financial Statements"
following Part IV hereof.
(b) Reports on Form 8-K: None
(c) Exhibit Index - 1996 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of Airways Corporation. (1)
3.2 Bylaws of Airways Corporation. (1)
4.1 Form of Stock Certificate of common stock of Airways Corporation. (1)
4.2 Warrant Agreement between Airways Corporation and Aviation Management Systems, Inc.
dated January 8, 1997.
10.1 Air Carrier Certificate issued to AirTran Airways, Inc. effective June 6, 1994. (1)
10.2 Certificate of Public Convenience and Necessity for Interstate Air Transportation issued
to AirTran Airways, Inc., d/b/a AirTran Airways, effective November 30, 1994. (1)
10.3 FAA Repair Station Certificate. (1)
10.4.8 Secured Loan Agreement dated August 28, 1995 between Finova Capital Corporation, as Lender, and
AirTran Airways, Inc., as borrower. (2)
10.5 Distribution Agreement between AirTran Corporation, Mesaba Aviation, Inc. AirTran Airways, Inc. and
Airways Corporation. (2)
10.6 Agreement, dated May 18, 1995, between Northwest Airlines, Inc., Northwest Aircraft, Inc., Mesaba
Aviation, Inc. and AirTran Corporation. (2)
10.7 Lease of headquarters of Airways in Orlando, Florida. (1)
10.8 Airways Corporation 1995 Stock Option Plan. (1)
</TABLE>
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<PAGE> 22
<TABLE>
<S> <C>
10.9 Airways Corporation 1995 Directors Stock Option Plan. (1)
10.10 Severance Agreement between Robert D. Swenson and AirTran Corporation, Mesaba Aviation, Inc.
and Airways Corporation dated April 28, 1995. (1)
10.11 Lease of headquarters of Airways in Orlando, Florida, dated November 1, 1995. (3)
10.13 Security Agreement dated December 28, 1995 between C. I. T. Leasing Corporation, as lender and AirTran
Airways, Inc., as borrower. (3)
10.15 Security Agreement dated December 20, 1995 between Finova Capital Corporation, as lender and AirTran
Airways, Inc., as borrower. (3)
10.16 Security Agreement dated December 20, 1995 between Finova Capital Corporation,
as lender and AirTran Airways, Inc., as borrower. (3)
10.17.1 Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando
Aviation Authority and Page AvJet Corporation dated December 11, 1989.
10.17.2 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement by
and between Greater Orlando Aviation Authority and Page AvJet Corporation dated
June 22, 1990.
10.17.3 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar Lease
Agreement by and between Greater Orlando Aviation Authority and AirTran Airways, Inc.
dated January 25, 1996.
10.18 Agreement between AirTran Airways, Inc. and MarketLink, Inc. dated January 26, 1996.
10.19 Letter of Credit Facility Agreement between SunTrust Bank, Central Florida, N.A. and AirTran Airways, Inc.
and Airways Corporation dated March 7, 1996.
10.20 Term Note between SunTrust Bank, Central Florida, N.A. and AirTran Airways, Inc. and Airways Corporation dated
March 7, 1996.
10.21 Leasehold Mortgage and Security Agreement between AirTran Airways, Inc. and SunTrust Bank, Central Florida, N.A.
dated March 7, 1996.
10.22 Security Agreement between AirTran Airways, Inc. and SunTrust Bank, Central Florida, N.A., dated March 7, 1996.
11.0 Statement of Computation of Weighted Average Shares and Per Share Earnings.
16.0 Letter re: Change in Independent Public Accountants. (4)
18.1 Preference letter re: Change in accounting principles re: credit card processing fee
expense
18.2 Preference letter re: Change in accounting principles re: CRS fee expense.
21.0 Subsidiary of Airways Corporation.
23.1 Letter re: Consent of Arthur Andersen LLP.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
23.2 Letter re: Consent of KPMG Peat Marwick LLP.
27.0 Financial Data Schedule (submitted only in electronic format).
</TABLE>
(1) Incorporated by reference to Airways Corporation's Form S-4 Registration
Statement (File No. 33-93104).
(2) Incorporated by reference to the Airways Corporation's Form 10-Q for the
quarter ended September 30, 1995.
(3) Incorporated by reference to Airways Corporation's Form 10-Q for the
quarter ended December 31, 1995.
(4) Incorporated by reference to Airways Corporation's Form 8-K filed on
September 28, 1995.
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<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIRWAYS CORPORATION
REGISTRANT
By: /s/ Robert D. Swenson
--------------------------------
Robert D. Swenson
Chairman of the Board, President and
Chief Executive Officer
Date: June 27, 1997
24
<PAGE> 25
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert D. Swenson
- -------------------------------------
Robert D. Swenson Chairman of the Board, Chief June 27, 1997
Executive Officer and Director of
Airways and Chairman of the
Board, President and Chief
Executive Officer of AirTran
Airways, Inc.
(Principal Executive Officer)
/s/ Mark B. Rinder
- -------------------------------------
Mark B. Rinder Vice President of Finance and Chief June 27, 1997
Financial Officer of Airways
Corporation and Vice President of
Finance and Chief Financial
Officer of AirTran Airways, Inc.
(Principal Financial and Accounting
Officer)
/s/ Lawrence Brinker
- -------------------------------------
Lawrence Brinker General Counsel and Secretary, June 27, 1997
Airways Corporation and AirTran
Airways, Inc.
/s/ John K. Ellingboe
- -------------------------------------
John K. Ellingboe Director June 27, 1997
/s/ Roger T. Munt
- -------------------------------------
Roger T. Munt Director June 27, 1997
/s/ Alan R. Stephen
- -------------------------------------
Alan R. Stephen Director June 27, 1997
</TABLE>
25
<PAGE> 26
AIRWAYS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
NO.
-------
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Balance Sheets, March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Operations for the years ended March 31, 1997, 1996 and 1995. . . . . . . . 31
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995 . . . . . . . 32
Consolidated Statements of Changes in Shareholders' Equity and Group Equity for the years ended March 31,
1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . 35
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts - Schedule not filed herewith is omitted because
of the absence of conditions under which it is required. N/A
</TABLE>
26
<PAGE> 27
INDEPENDENT AUDITORS REPORT
Board of Directors
Airways Corporation:
We have audited the accompanying consolidated balance sheets of Airways
Corporation and subsidiary (the "Company") as of March 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and group equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of Airways
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Airways Corporation
and subsidiary as of March 31, 1997 and 1996 and the results of its operations
and its cash flows for the years ended March 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
As discussed in Notes 10 and 11 to the consolidated financial statements, the
Company changed its methods of accounting for Computer Reservation System fee
expense in 1997 and Credit card processing fee expense in 1996.
KPMG PEAT MARWICK LLP
Orlando, Florida
June 6, 1997
27
<PAGE> 28
INDEPENDENT AUDITORS REPORT
To Airways Corporation:
We have audited the combined statements of operations, changes in group equity
and cash flows of the Airways Group for the year ended March 31, 1995. These
financial statements are the responsibility of The Airways Group's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the results of operations and cash flows of the Airways
Group for the year ended March 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 19, 1995
28
<PAGE> 29
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,354 $16,437
Restricted cash 12,670 11,309
Account receivable, net 4,212 3,135
Inventory, expendable parts and supplies 1,034 1,847
Prepaid expenses 4,020 1,947
Deferred Tax Asset 8,376 1,294
------- -------
Total current assets 32,666 35,969
------- -------
Property and equipment
Flight equipment 34,485 24,943
Other property and equipment 9,405 6,587
Less: Accumulated depreciation (6,192) (2,072)
------- -------
37,698 29,458
------- -------
Other assets:
Goodwill, net 1,749 1,891
Lease and equipment deposits 1,244 1,339
Other assets, net 591 997
------- -------
Total assets $73,948 $69,654
======= =======
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
29
<PAGE> 30
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts Payable $18,022 $ 9,362
Air traffic liability 16,198 14,912
Accrued expenses 908 2,775
Current portion of long-term debt 3,157 3,574
Current portion of maintenance reserves 1,525 307
Income taxes payable - 533
------- -------
Total current liabilities 39,810 31,463
------- -------
Long-term debt, less current portion 10,539 10,277
Maintenance Reserves 3,186 2,207
Deferred income taxes 2,772 1,344
------- -------
Total liabilities 56,307 45,291
------- -------
Stockholders' equity
Preferred stock, $.01 par value per shares,
1,000,000 shares authorized, no shares
issued or outstanding - -
Common stock, $.01 par value per shares,
19,000,000 shares authorized, 9,061,937
and 8,966,937 shares issued and
outstanding at March 31, 1997 and 1996,
respectively 91 90
Additional paid-in capital 26,618 26,350
Accumulated deficit (9,068) (2,077)
------- -------
Total stockholders' equity 17,641 24,363
------- -------
Total liabilities and stockholders' equity $73,948 $69,654
======= =======
Commitments and contingencies
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1997, 1996 and 1995
(In thousands, except per share information)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Passenger $ 100,077 $64,894 $ 7,896
Charter 402 1,692 1,241
General aviation and other 2,144 1,775 470
--------- ------- --------
Total operating revenues 102,623 68,361 9,607
--------- ------- --------
Operating expenses:
Flight operations 45,507 26,913 6,429
Maintenance 25,851 12,112 2,845
Aircraft and traffic servicing 16,742 10,169 2,390
Reservations, sales and marketing 16,739 11,901 1,830
General and administrative 5,185 3,623 2,012
Depreciation and amortization 4,721 2,149 522
--------- ------- --------
Total operating expenses 114,745 66,867 16,028
--------- ------- --------
Operating (loss) income (12,122) 1,494 (6,421)
Interest (income) and other (984) (1,007) (59)
Interest expense 1,507 524 -
--------- ------- --------
(Loss) income before income taxes (12,645) 1,977 (6,362)
Income tax (benefit) expense (5,654) 790 (2,866)
--------- ------- --------
Net (loss) income $ (6,991) $ 1,187 $ (3,496)
========= ======= ========
Net (loss) income per share (pro-forma in 1996 and 1995) $ (0.77) $ .13 $ (0.39)
========= ======= ========
Weighted average shares outstanding (pro-forma in 1996
and 1995) 9,029 9,230 8,927
========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (6,991) $ 1,187 $ (3,496)
Adjustments to reconcile net (loss) income to
net cash provided by (used for) operating activities:
Depreciation and amortization 4,721 2,146 522
Maintenance Reserves 2,197 2,229 285
Deferred taxes (5,654) 21 -
Compensation expense incurred in connection
with stock options granted and issued - 224 -
Change in current operating items:
Restricted cash (1,361) (7,544) (3,765)
Accounts receivable, net (1,077) (2,722) (333)
Inventories 813 435 (68)
Prepaid expenses and deposits (2,073) (1,527) (357)
Accounts payable and accrued liabilities 6,793 8,060 1,839
Air traffic liability 1,286 11,284 3,628
Income tax payable (533) 533 -
-------- -------- --------
Net cash flows (used for) provided by
operating activities (1,879) 14,326 (1,745)
Investing activities:
Purchase of Conquest Sun Airlines, Inc. - - (2,500)
Purchase of property and equipment, net (11,126) (28,380) (2,277)
Increase (decrease) in other assets 58 (1,390) (1,356)
-------- -------- --------
Net cash flows used for investing activities (11,068) (29,770) (3,633)
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
32
<PAGE> 33
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Financing activites:
Capital contributions - 15,154 8,831
Proceeds from long-term debt - 16,800 -
Repayments of long-term debt (1,405) (1,142) -
Proceeds from issuance of common stock 269 108 -
Borrowings from former parent - - 458
Repayments to former parent - - (458)
---------- --------- --------
Net cash flows (used) provided by financing activities (1,136) 30,920 8,831
Net (decrease) increase in cash and short-term investments $ (14,083) $ 15,476 $ 953
Cash and short-term investments at begining of year $ 16,437 $ 961 $ 8
---------- --------- --------
Cash and short-term investments at end of year $ 2,354 $ 16,437 $ 961
========== ========= ========
Supplemental disclosures of cash flow activities:
Cash paid for interest $ 1,459 $ 501 $ -
========== ========= ========
Cash paid for income taxes $ 533 $ 278 $ -
========== ========= ========
Supplemental disclosure of non-cash investing and financing activities:
During the year ended March 31, 1997 and 1996, the Company
purchased $1,250 and $400 of flight equipment with
long-term debt.
</TABLE>
33
<PAGE> 34
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND GROUP EQUITY
For the years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Group Common Preferred Paid-in (Accumulated Stockholders'
Equity Shares Stock Stock Capitol Deficit) Equity
------ ------ ------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1994 $ 2,123 - - - - $ 232 $ 2,355
Net Loss - - - - - (3,496) (3,496)
Capitol Contributions 8,831 - - - - - 8,831
-----------------------------------------------------------------------------------------
Balance, March 31, 1995 10,954 - - - - (3,264) 7,690
Net Income - - - - - 1,187 1,187
Stock options granted
and exercised under
stock option plan - 40 1 - 331 - 332
Shares issued and
contribution of group
equity (10,954) 8,927 89 - 26,019 - 15,154
-----------------------------------------------------------------------------------------
Balance, March 31, 1996 - 8,967 90 - 26,350 (2,077) 24,363
Net Loss - - - - - (6,991) (6,991)
Stock options granted
and exercised under
stock option plan - 99 1 - 268 - 269
-----------------------------------------------------------------------------------------
Balance, March 31, 1997 - 9066 $ 91 - $ 26,618 $ 9,068 $ 17,641
-----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1997, 1996 and 1995
(Dollars in thousands, except share and per share amounts)
(1) CORPORATE ORGANIZATION AND BUSINESS
In June 1994, AirTran Corporation, former parent company, now doing business as
Mesaba Holdings, Inc. ("Mesaba"), acquired the common stock of Conquest Sun
Airlines, Inc. ("Conquest") for $2,500 in a transaction accounted for under the
purchase method of accounting. At the time of the acquisition, Conquest had
recently obtained U.S. Department of Transportation ("DOT") approval to operate
a jet airline. Conquest's name was subsequently changed to AirTran Airways,
Inc. ("AirTran") and scheduled passenger service commenced on October 6, 1994.
In March 1995, Mesaba and Northwest Airlines, Inc. ("Northwest") entered into
an agreement to spin off AirTran Airways, Inc. and a fixed-base operation
("FBO") in Grand Rapids, Minnesota. Under the terms of the spin-off, on April 7,
1995, Mesaba established a new wholly-owned subsidiary, Airways Corporation (the
"Company") into which the above operations were consolidated (and previously
referred to as The Airways Group) in order to facilitate the distribution of the
Company common stock to Mesaba shareholders (other than Northwest). In
connection with the spin-off, Mesaba made a contribution in cash and certain
assets to the Company prior to the spin-off date. The distribution was approved
by Mesaba's shareholders on August 29, 1995 and was made on September 7, 1995 to
the shareholders of record (other than Northwest) on August 31, 1995.
The FBO has historically operated as a division of Mesaba. The accompanying
consolidated financial statements present the results of the combined entities
whereby significant intercompany accounts and transactions are eliminated.
AirTran serves 23 cities from Orlando, operating as AirTran Airways. The FBO
sells aircraft parts, provides fueling and other aircraft servicing, rentals and
flight training.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents consist primarily of U.S. government securities and
interest-bearing deposits with maturities of less than 90 days and are stated
at cost, which approximates market. Restricted cash represents amounts
escrowed relating to the Company's air traffic liability and to cash
collateralizing the Company's long-term debt.
35
<PAGE> 36
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(b) INVENTORY
Inventory parts held for sale by the FBO are stated at the lower of average cost
or market and consist of expendable aircraft service parts and fuel. Consumable
spare parts, materials and supplies relating to flight equipment are expensed as
purchased.
(c) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis for financial reporting purposes with no residual values except for the
aircraft which are assumed to have 10% residual value. The depreciable lives
used for the principal depreciable asset classifications are:
<TABLE>
<CAPTION>
Depreciable Lives
-----------------
<S> <C>
Aircraft 5-12 years
Rotable parts 5 years
Leasehold improvements Shorter of useful life or lease term
Buildings 20 years
Other equipment 3-5 years
</TABLE>
Equipment and property under capital leases are amortized over the term of the
leases and such amortization is included in depreciation and amortization.
(d) GOODWILL
The excess of purchase price paid for Conquest over the fair market value of net
tangible assets acquired totaled $2,141 and is being amortized over 15 years.
Accumulated amortization totaled $393 and $250 at March 31, 1997 and 1996,
respectively.
(e) OTHER ASSETS
Certain costs incurred in connection with the acquisition of aircraft and the
start-up of AirTran's airline service have been deferred. As of March 31, 1997
and 1996, such costs totaled $1,335 and $1,297 respectively, and consisted of
initial flight crew training,
36
<PAGE> 37
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
aircraft rent and insurance expenses incurred prior to AirTran's scheduled
airline service. Pre-operating costs are being amortized over three years and
accumulated amortization totaled $743 and $300 at March 31, 1997 and 1996,
respectively. Development costs relating to new routes, obtaining regulatory
approval, and administrative and promotional costs are charged to expense as
incurred.
(f) REVENUE RECOGNITION
Passenger and charter revenues are recorded as income when the respective
services are rendered or the passenger ticket otherwise expires. Cash received
on advance ticket and charter sales is deferred and recorded as air traffic
liability.
(g) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, which is an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
(h) INCENTIVE COMPENSATION
In October, 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 - "Accounting for
Stock-Based Compensation" (SFAS 123), effective for financial statements with
fiscal years beginning after December 15, 1996. SFAS 123 establishes the
financial accounting and reporting standard for stock-based employee
compensation plans as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. This statement
defines a fair value-based method of accounting for employee based stock options
and encourages all entities to adopt this method of accounting for all employee
stock compensation plans. However, it does allow an entity to continue applying
37
<PAGE> 38
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("Opinion 25") to measure the intrinsic value-based compensation
cost. Entities electing to remain with the accounting method prescribed by
Opinion 25 must make pro forma disclosures of net income and earnings per share,
as if the fair valued-based method of accounting as prescribed by SFAS 123 had
been applied. The Company has elected to continue accounting for its stock-
based compensation plans prescribed by Opinion 25 and has included in the Notes
to the Consolidated Financial Statements the pro forma disclosures required by
SFAS 123.
(i) AIRFRAME AND ENGINE OVERHAUL EXPENSE
The Company has adopted the accrual method for recognizing the estimated cost
of future airframe and engine overhaul expenses. The accrual method provides
for estimating the cost of such overhauls, when they occur in the ordinary
course, and recording the estimated cost, based on an hourly rate, in
maintenance expense. Costs associated with overhauls of airframes and engines
which occur at or near the aircraft's introduction into the fleet are
capitalized and amortized over the period to the next overhaul. The actual
expenditures of ongoing overhauls not incurred at inception are charged to the
accrual and any deficiency or excess is charged or credited to expense in the
period incurred.
(j) NET (LOSS) INCOME PER SHARE
Net (loss) income per share is computed based on the weighted average number of
common shares and, if dilutive, common stock equivalent shares (options)
outstanding in 1997 and for the prior years is on a pro-forma basis.
(k) CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of the
Company and AirTran, a wholly-owned subsidiary of the Company. All material
intercompany transactions have been eliminated.
(l) CONCENTRATION OF CREDIT RISK
At March 31, 1997, most of the Company's receivables related to tickets sold to
individual passengers through the use of major credit cards on the Company's
flights. These receivables are short-term, generally being settled within 14
days after sale. The Company does not believe it is subject to any significant
concentration of credit risk.
38
<PAGE> 39
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(m) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
(n) RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform with the 1997 presentation. These reclassifications had
no impact on net income or shareholder's or group equity as previously reported.
(o) FUTURE APPLICATION ACCOUNTING STANDARDS
On March 3, 1997 the FASB issued Statement of Financial Accounting Standards No.
128 (SFAS 128) "Earnings per Share". The new statement is effective for fiscal
years beginning after December 15, 1997 and applies to all entities that have
issued common stock or potential common stock (e.g. options, warrants,
convertible securities etc.) if those securities trade in a public market or in
a stock exchange or over-the-counter market. SFAS 128 replaces primary Earnings
Per Share ("EPS") with Basic EPS. Basic EPS will be computed by dividing
reported earnings available to common stockholders by weighted average shares
outstanding. No dilution for any potentially dilutive securities is included.
Fully diluted EPS, now called diluted EPS is still required.
(3) PROPERTY AND EQUIPMENT
The Company's aircraft fleet consisted of ten Boeing 737-200s, of which six are
held under operating leases as of March 31, 1997. The remaining four aircraft
are owned by the Company and had a net book value of $17,716 at March 31, 1997.
Approximately $4,380 and $2,514 has been accrued for major airframe and engine
overhauls as of March 31, 1997 and 1996, respectively. The Company estimates
that the costs of major engine and airframe overhauls due in 1998 will total
approximately $6,500, virtually all of which is either reserved and on the
balance sheet, will be reversed during 1998 pursuant to the Company's
accounting policies for leased and owned aircraft or will be reimbursable from
lessors.
39
<PAGE> 40
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(3), CONTINUED
The aircraft operating leases require future minimum rental payments as follows
at March 31, 1997:
<TABLE>
<S> <C>
1998 $ 5,443
1999 4,558
2000 3,002
2001 3,002
2002 2,893
Thereafter 1,278
-------
$ 20,176
========
</TABLE>
Rent expense under aircraft operating leases totaled approximately $5,984 and
$4,535 in 1997 and 1996, respectively and is included in flight operations in
the accompanying consolidated statements of operations. In addition, the Company
spent $3,322 and $54 on subservice aircraft rentals which was also charged to
expense in 1997 and 1996, respectively.
(4) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
As detailed in Note 3 the Company leases six aircraft under operating leases.
In addition, the Company leases office and hangar facilities and certain
terminal facilities under operating leases which are all month to month lease
terms. Rent expense under all facility operating leases totaled approximately
$554 in 1997, $365 in 1996 and $360 in 1995.
CREDIT FACILITY
The Company has negotiated with a bank to issue eleven letters of credit
totaling $1,100 which were outstanding at March 31, 1997. In the event advances
under the facility are drawn, the borrowings would bear interest at the bank's
prime rate plus 1-1/4%. No amounts were drawn under this facility as of or
during the year ended March 31, 1997.
40
<PAGE> 41
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(4), CONTINUED
LITIGATION
The Company is a party to ongoing legal proceedings arising in the ordinary
course of business. In the opinion of management, the resolution of these
matters will not have a materially adverse effect on the Company's financial
position, results of operations, or its cash flows.
AIRCRAFT COMMITMENTS
In order to comply with the Airport Noise and Capacity Act (ANCA) requirements,
the Company is required to purchase hush kits for its aircraft to convert them
from Stage 2 to Stage 3. The installation of these hush kits will bring the
aircraft into compliance with FAA Stage 3 noise level requirements. The
projected payments associated with the purchase of the hush kits are $0 in
fiscal year 1998 and $3,000 in 1999 and based on those purchases combined with
AirTran's current plans for aircraft acquisitions and upcoming aircraft lease
expirations, it will continue to meet the Stage 3 requirements. The Company
has contracted to purchase four hush kits for its aircraft at its installed
cost of $6,000 of which two have already been purchased during fiscal 1997.
41
<PAGE> 42
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(5) LONG-TERM DEBT
Long-term debt as of March 31, 1997 is summarized as follows:
<TABLE>
<S> <C>
Installment loan, dated August 1995, collateralized by flight equipment,
payments of $100 plus interest at 11.67%, maturing August 2000 $ 3,332
Installment loan, dated August 1995, collateralized by flight equipment,
payments of $23 including interest at 5.85%, maturing August 2000 834
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $85 including interest at 10.04%, maturing December 2000 3,182
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $85 including interest at 10.04%, maturing December 2000 3,182
Installment loan, dated February 1996, collateralized by flight equipment,
payments of $13 including interest at 10%, maturing February 1999 269
Term loan, dated March 1996, collateralized by a hangar, payments of $25
plus interest at prime + 1% (9.25% as of March 31, 1996), maturing
October 2002 1,700
Installment loan, dated December 1996, collateralized by flight equipment,
payments of $23 including interest of 10%, maturing November 2002 1,198
------------
Total long-term debt 13,697
Less current installments of long-term debt 3,157
------------
Net long-term debt $ 10,540
============
</TABLE>
42
<PAGE> 43
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(5), CONTINUED
The aggregate amounts of principal maturities of debt outstanding at March 31,
1997, for the five subsequent years are as follows:
<TABLE>
<S> <C>
1998 $ 3,157
1999 3,452
2000 3,642
2001 2,520
2002 546
Thereafter 380
---------
$ 13,697
=========
</TABLE>
(6) INCOME TAXES
Income tax (benefit) expense attributable to (loss) income for the years ended
March 31, 1997, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1997
Federal - $ (3,931) $ (3,931)
State - (1,723) (1,723)
--------- -------- --------
- $ (5,654) $ (5,654)
========= ======== ========
1996
Federal $ 722 $ (52) $ 670
State 89 31 120
--------- -------- --------
$ 811 $ (21) $ 790
========= ======== ========
1995
Federal $ (2,423) $ (59) $ (2,482)
State (514) 12 (502)
--------- -------- --------
$ (2,937) $ (47) $ (2,984)
========= ======== ========
</TABLE>
43
<PAGE> 44
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
Total income tax (benefit) expense for the years ended March 31, 1997, 1996 and
1995 differed from amounts computed by applying the U.S. federal income tax rate
of 35% to (loss) income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (4,425) $ 672 $ (2,163)
(Increase) decrease in income tax expense (benefit)
resulting from:
Nondeductible expenses 5 - (60)
State income tax (benefit) expense
net of federal income taxes (1,120) 72 (502)
Reorganization costs 42
Other, net (114) 4 (141)
-------- -------- --------
$ (5,654) $ 790 $ (2,866)
======== ======== ========
</TABLE>
44
<PAGE> 45
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets and deferred tax liabilities as of March 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Workers' compensation - $ 11
Alternative minimum tax credit carry forwards - 337
Deferred maintenance costs 1,730 946
Vacation Pay 139 -
Net Operating Loss carry forward 6,507 -
------ ------
Total gross deferred tax assets $8,376 $1,294
------ ------
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation $2,602 $ 996
Deferred pre-operating costs 170 267
Prepaid expenses, principally due to prepaid
commissions - 46
Other - 35
------ ------
Total gross deferred tax liabilities 2,772 1,344
------ ------
Net deferred tax (liabilities) $5,604 $ (50)
====== ======
Presented as:
Current deferred income tax asset $5,604
======
Noncurrent deferred tax (liability) $ 50
------
</TABLE>
The valuation allowance for deferred tax assets as of March 31, 1997 and 1996
was $0. The net change in the total valuation allowance for the years ended
March 31, 1997 and 1996 was $0. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income or the reversal of deferred tax liabilities during the periods
in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon
management's projections for future taxable income over the periods which the
deferred tax assets are deductible,
45
<PAGE> 46
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences as of March 31, 1997. See Note 14 to
the Consolidated Financial Statements for subsequent events which have a bearing
on the Company's operating plan under which these estimates were made.
As of March 31, 1997, the Company has alternative minimum tax credit
carryforwards of $0.
(7) BENEFIT PROGRAM
The Company introduced a profit sharing arrangement during 1996 covering
substantially all employees. Profit sharing expense was $0 in 1997 and $338 in
1996.
(8) FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt is estimated using the present
value of discounted cash flows based on the borrowing rate currently available
to the Company for debt with similar remaining terms and maturity. The carrying
amounts reported in the consolidated financial statements for cash and cash
equivalents, restricted cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to their immediate or short-term maturities.
The carrying amounts of the Company's long-term debt with variable interest
rates approximate fair value as these instruments are repriced regularly.
The carrying amount and fair value of the Company's fixed long-term debt at
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Long-term debt $13,696 $13,649
</TABLE>
(9) EFFECT OF FOURTH QUARTER RESULTS
Adjustments were made to the air traffic liability during the fourth quarters
of 1997 and 1996 which totaled $1,742 and $1,197, respectively, of which $1,742
and $886 were recorded as additional passenger revenue in 1997 and 1996,
respectively, and $311 was recorded as other revenue in 1996. These
adjustments were made to record passenger, cancellation and change fee revenue
not previously recognized by the Company. The Company has put into place
accounting processes, during fiscal 1998, which will enable it to record these
revenues more closely in line with when they are earned.
46
<PAGE> 47
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(9), CONTINUED
In addition, other adjustments were made in 1996 to operating expenses for
costs incurred which were under accrued in prior periods totaling $1,515.
Adjustments were made to flight operations expense - $660, maintenance - $490,
aircraft and traffic services - $85 and reservations and sales expense - $280.
(10) CHANGE IN ACCOUNTING METHOD FOR CREDIT CARD PROCESSING FEE EXPENSE IN
1996
Credit card processing fees paid are deferred and recognized when the passenger
travel has been completed. Prior to 1996, these fees were expensed when paid.
The new method was adopted to match the credit card processing fee expense more
appropriately with the related revenue and to make treatment consistent with the
Company's standard revenue recognition policies. The effect of the change was to
increase income by approximately $165 or $0.02 per share net of the effect of
income taxes in 1996. The cumulative effect of the change in accounting
principle on prior years is immaterial.
(11) CHANGE IN ACCOUNTING METHOD FOR CRS FEE EXPENSE IN 1997
Computer Reservation System (CRS) fees, the fees charged for travel agents' use
of the computer reservation systems owned by others, are deferred and
recognized when the passenger travel has been completed. Prior to 1997, these
fees were expensed when paid. The new method was adopted to match the CRS fee
expense more appropriately with the related revenue and to make treatment
consistent with the Company's standard revenue recognition policies. The effect
of the change was to increase income by approximately $144 or $0.02 per share
net of the effect of income taxes in 1997. The cumulative effect of the change
in accounting principle on prior years is immaterial.
(12) STOCK-BASED COMPENSATION
In 1995, the Airways Corporation Stock Option Plan and Director Stock Option
Plan (the "Plans") were established. The Plans provide for the granting to
directors, officers and key employees of the Company qualified and non-qualified
stock options and incentive stock options. Options are granted at the fair
market value of the Company's common stock at the time of grant for a period not
in excess of ten years. Generally, options vest over a one year period from
the date of grant. The purchase price of the stock may not be less than 110% of
the fair market value of the Company's common stock on the date of the grant for
participants owning 10% or more of the outstanding common stock or 100% of the
fair market value for all other participants. As of March 31, 1996, 40,000
options had been exercised pursuant to a change made to the Plan resulting in
$224 of compensation expense during the year ended March 31, 1996. A total of
1,300,000 shares of the Company's common stock have been reserved for issuance
pursuant to options
47
<PAGE> 48
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
granted under the Plans. At March 31, 1997 the number of shares available for
future grant was 358,000.
Information with respect to stock options granted under the Plans is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Balance, beginning of fiscal year 610,000 $ 4.60 0 -
Granted 344,000 5.22 820,000 $ 4.13
Lapsed 119,000 5.43 103,000 2.81
Exercised 32,000 2.70 107,000 2.70
------- ------- ------- ------
Outstanding at 3/31 803,000 $ 4.82 610,000 $ 4.60
======= ======= ======= ======
Exercisable at
year end March 31 503,000 - 0 -
======= ======= ======= ======
</TABLE>
48
<PAGE> 49
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(12), CONTINUED
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0-5 496,000 4.6 years $ 3.04 350,000 $ 2.70
$5-10 282,000 5.1 years $ 7.43 128,000 $ 8.73
$10-15 25,000 4.9 years $ 10.75 25,000 $10.75
------- -------
$0-15 803,000 4.8 years $ 4.82 503,000 $ 4.63
------- -------
</TABLE>
The Company applies Opinion 25 in accounting for the Plans. Since stock
options under the Plans are issued at fair market value on the date of award,
no compensation cost has been recognized.
SFAS 123 provides an alternative to Opinion 25 whereby values may be ascribed
to options using a valuation model and amortize to compensation expense over
the vesting period of the options. Had the Company applied SFAS 123 in
accounting for stock options, net income and net income per share would have
been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
In Thousands Per Share In Thousands Per Share
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Net Income $ (6,991) (.77) $ 1,187 0.13
SFAS No. 123 pro-forma
adjustment after tax $ (620) (.07) $ (298) (0.03)
--------- ----- --------- ------
Net Income pro-forma $ (7,611) (.84) $ 889 0.10
--------- ----- --------- ------
</TABLE>
49
<PAGE> 50
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(12), CONTINUED
The pro forma adjustments relate to options granted during 1997 and 1996 for
which a fair value on the date of grant was determined using the Black-Schole
option pricing model. Valuation and related assumption information are
presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Valuation Assumption:
Expected life 4 4
Expected volatility 69.00% 69.00%
Risk free interest rate 6.53% 5.97%
Expected annual dividend per share 0 0
Expected annual forfeitures 0 0
</TABLE>
50
<PAGE> 51
INDEX TO EXHIBITS
EXHIBIT # NAME
4.1 Warrant Agreement between Airways Corporation and Aviation
Management Systems, Inc. dated January 8, 1997
10.19 Letter of Credit Facility Agreement between SunTrust Bank,
Central Florida, N.A. and AirTran Airways, Inc.
and Airways Corporation dated March 7, 1996.
10.20 Term Note between SunTrust Bank, Central Florida, N.A. and
AirTran Airways, Inc. and Airways Corporation dated
March 7, 1996.
10.21 Leasehold Mortgage and Security Agreement between AirTran
Airways, Inc. and SunTrust Bank, Central Florida, N.A.
dated March 7, 1996.
10.22 Security Agreement between AirTran Airways, Inc. and
SunTrust Bank, Central Florida, N.A., dated March 7, 1996.
11.0 Statement of Computation of Weighted Average Shares and Per
Share Earnings.
18.0 Preference letter re: Change in accounting principles.
21.0 Subsidiary of Airways Corporation.
23.1 Letter re: Consent of Arthur Andersen LLP.
23.2 Letter re: Consent of KPMG Peat Marwick LLP.
27.0 Financial Data Schedule (submitted only in electronic format).
51
<PAGE> 1
EXHIBIT 4.1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT, UNLESS IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION
IS NOT THEN REQUIRED.
STOCK PURCHASE WARRANT
THIS WARRANT, is issued as of and effective as of the 8th day of
January 1997, by Airways Corporation, a Delaware corporation (the "Company"),
to John Shaffer dba Aviation Management Systems (the "Holder").
1. ISSUANCE OF WARRANT. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company hereby
grants to the Holder the right to purchase up to 50,000 shares (the "Shares")
of common stock, par value, $.01 per share of the Company in accordance with
the terms of this Warrant.
2. EXERCISE PRICE. The exercise price per share for which all or
any of the Shares may be purchased pursuant to the terms of this Warrant shall
be $3.82 per share (the "Exercise Price"), subject to adjustment as set forth
herein.
3. EXERCISE OF WARRANT. Subject to Section 10, the rights
represented by this Warrant shall terminate 2 years from the effective date
hereof. The period during which the Warrant shall be exercisable shall be
referred to as the Exercise Period. Payment of the Exercise Price for Shares
purchased under this Warrant shall be made upon exercise of the Warrant and
shall be paid to the Company in cash (certified or cashier's check). The Holder
shall have the right to exercise the Warrant two times during the Exercise
Period. Any such exercise may be as to all or any increment of Shares issuable
pursuant to the Warrant. Upon exercise, the Holder shall deliver a written
notice of intent to exercise, in substantially the form of the "Notice to
Exercise" attached hereto as Exhibit A, to the Company at 6280 Hazeltine
National Drive, Orlando, Florida 32822 or such address as the Company shall
designate in a written notice to the Holder.
If any law or regulation requires the Company to take any action with
respect to the Shares specified in such notice, then the date for the delivery
of such Shares against payment therefor shall be extended for the period
necessary to take such action. In the event of any failure to pay for the
number of Shares specified in such notice on the date set forth therein, the
exercise of the Warrant with respect to such number of Shares shall be treated
as if it had never been made. As soon as reasonably practical after the Holder
has validly exercised the Warrant, the Company shall cause the appropriate
number of Shares to be issued and delivered to the Holder.
<PAGE> 2
4. CHANGES IN CAPITAL STRUCTURE. If there is any change in the
capital structure of the Company through a consolidation, reorganization,
recapitalization or merger in which the Company is the surviving entity, the
number of shares issuable pursuant to the Warrant and the Exercise Price shall
be adjusted by the Board as it deems equitable, in its absolute discretion, to
prevent dilution or enlargement of the rights of the Holder. Any other
transactions (including, but not limited, the Company's issuance of its common
stock in acquisitions, the sale of the Company's stock in an initial public
offering or a private offering, the granting of options under the Company's
Stock Option Plan, or granting options outside of the Stock Option Plan) will
not result in any adjustment to the number of Shares issuable under the Warrant
or the Exercise Price.
In the event of a dissolution or liquidation of the Company, the
Warrant shall be canceled to the extent not previously exercised. In the event
of any reorganization or merger, in which the Company is not the surviving
entity, the plan or agreement respecting such reorganization or merger shall
define the rights under this Warrant.
5. RIGHTS PRIOR TO PURCHASE OF STOCK. The Holder shall have no
right as a shareholder with respect to any of the Shares covered by the
Warrant until the Holder had made full payment for the Shares being purchased
and said Shares have been issued and delivered to the Holder. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such Shares are fully paid for, issued and
delivered, except as provided in Section 4.
6. CERTAIN RESTRICTIONS. The Holder will acquire the Shares for
the Holder's own account, for investment only and without a view to resale or
distribution except in compliance with the Securities Act of 1933 (the "Act")
and any applicable state securities laws, and upon the acquisition of the
Shares, the Holder will enter into such written representations, warranties and
agreements as the Company may request in order to comply with the Act, any
applicable state securities laws and this Warrant. The issuance of Shares to
the Holder pursuant to the exercise of the Warrant shall be conditioned upon
the execution by the Holder of a stock purchase agreement containing such terms
and conditions at the Company in its sole discretion may require.
7. WITHHOLDING TAXES. The Holder agrees that he is an independent
contractor, and that he will pay, on the date of exercise of the Warrant, the
taxes required to be paid, if any, pursuant to any law or regulation of any
governmental authority, whether federal, state, local, domestic or foreign.
8. SHARES RESERVED. The Company shall at all times during the
Exercise Period reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of this Warrant.
- 2 -
<PAGE> 3
9. NONTRANSFERABILITY. The Warrant may not be transferred except
by will or the laws of descent and distribution and, during the lifetime of the
Holder, and may be exercised only by the Holder. Except as provided in the
preceding sentence, no Warrant nor any interest in the Warrant shall be subject
to assignment, transfer, pledge, hypothecation or other disposition either by
voluntary or involuntary act of the Holder or the Holder's heir or beneficiary
or by operation of law. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Warrant contrary to the provisions
hereof, or the levy of any execution, attachment or similar process upon the
Warrant shall be null, void and without effect. Nor shall such Warrant or right
be subject to the demands or claims of any creditor of such person.
Additionally, neither the Holder nor any other person or entity shall have any
interest in any specific asset or assets or stock of the Company by reason of
the granting of the Warrant.
10. DELAY IN EXERCISE. The Board of Directors of the Company may
determine in its discretion, that listing, registration or qualification of the
Shares subject to the Warrant upon any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of the exercise of such Warrant, and
in such event such Warrant may not be exercised in whole or in part unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board of
Directors of the Company.
IN WITNESS WHEREOF, the parties have executed this Warrant effective as
of the 8th day of January, 1997.
AIRWAYS CORPORATION
By: /s/ Robert D. Swenson
------------------------------
Name: Robert D. Swenson
------------------------------
Title: PRESIDENT
---------------------------
/s/ John Shaffer
----------------------------------
JOHN SHAFFER D.B.A. AVIATION
MANAGEMENT SYSTEMS
- 3 -
<PAGE> 4
EXHIBIT A
---------
NOTICE OF EXERCISE
To: AIRWAYS CORPORATION
I hereby purchase form AIRWAYS CORPORATION (the "Company") ______
shares of its Common Stock in accordance with the terms of the Warrant dated as
of January 8, 1997. I hereby tender payment in the amount of $_______.
I hereby request that certificates for such shares of Common Stock (or
any other securities or other property issuable upon such exercise) be issued
in the name of and delivered to the address set forth below.
---------------------------------------
John Shaffer d.b.a. Aviation Management
Systems
Address:
-------------------------------
-------------------------------
-------------------------------
---------------------------------------
Taxpayer Identification Number
or Social Security Number:
-4-
<PAGE> 1
EXHIBIT 10.19
LETTER OF CREDIT FACILITY AGREEMENT
THIS LETTER OF CREDIT FACILITY AGREEMENT, made and entered into as of
the 7th day of March, 1996 (this "Agreement"), by and between SUNTRUST BANK,
CENTRAL FLORIDA, NATIONAL ASSOCIATION, a national banking association at 200 S.
Orange Avenue, Orlando, Florida 32801, hereinafter referred to as "Bank", and
AIRTRAN AIRWAYS, INC., A DELAWARE CORPORATION, AND AIRWAYS CORPORATION, A
DELAWARE CORPORATION, of 6280 Hazeltine National Drive, Orlando, Florida 32822
hereinafter collectively referred to as "Applicant".
W I T N E S S E T H :
WHEREAS, the Applicant has requested the Bank to extend to it a letter
of credit facility under which the Bank will agree, from time to time to issue
on its behalf certain standby letters of credit in the maximum aggregate face
amount of $1,000,000.00; and
WHEREAS, the Bank has agreed to extend said letter of credit facility
and to issue such letters of credit from time to time on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
agree as follows:
1. Definitions. As used herein:
"Agreement" shall mean this Letter of Credit Facility Agreement
originally executed by the parties hereto and all permitted supplements,
amendments, modifications and restatements thereof.
"Banking Day" shall mean that part of the day for dealings by and
between banks, excluding Saturday, Sunday or a day in which commercial banks in
Florida are authorized to close.
"Collateral" shall mean interest bearing cash or cash equivalent
collateral pledged to the Bank from time to time as security for the Letters of
Credit.
"Day" shall mean a calendar day, unless the context indicates
otherwise.
"Default Rate" shall mean twenty-five percent (25%) per annum, or the
maximum rate allowed, from time to time, by applicable law, whichever is less.
<PAGE> 2
"Event of Default" shall have the meaning ascribed to it in paragraph 8
of this Agreement.
"Facility" shall mean the letter of credit facility in the maximum
aggregate principal amount of $1,000,000.00 extended to the Applicant by the
Bank pursuant to this Agreement.
"Facility Documents" shall mean this Agreement, the Letter of Credit
Documents and all other documents, agreements, certificates, schedules, notes,
statements and opinions, however described, referenced herein or executed or
delivered pursuant hereto or in connection with or arising with the Facility or
the Letters of Credit or the transactions contemplated by this Agreement.
"Letter of Credit" and "Letters of Credit" shall mean any one or more
of the standby letters of credit issued for the account of the Applicant
pursuant to paragraph 2 hereof, whether issued by or through the actions of the
Bank, as the same may be transferred, renewed, modified, amended or restated
from time to time in the manner provided therein.
"Letter of Credit Documents" shall mean the Application and Agreement
for Standby Letter of Credit agreements executed and delivered by the Applicant
to the Bank for each standby Letter of Credit issued hereunder.
"Leasehold Mortgage and Security Agreement" shall mean that certain
Leasehold Mortgage and Security Agreement encumbering certain real and personal
property located in Orange County, Florida dated of even date herewith given by
the Applicant to the Bank to secure a Promissory Note executed by the Applicant
of even date herewith in the principal amount of $2,000,000.00.
"Obligations" shall mean, individually and collectively, all payment
and performance duties, obligations and liabilities of the Applicant to the
Bank, however and whenever incurred, acquired or evidenced, whether primary or
secondary, direct or indirect, absolute or contingent, sole or joint and
several, or due or to become due, including without limitation, all such duties,
obligations and liabilities of the Applicant to the Bank under and pursuant to
the Facility Documents and all renewals, modifications, amendments, extensions
or replacements of any thereof.
"Person" shall mean any individual, joint venturer, partnership, firm,
corporation, trust, unincorporated organization or other organization or entity,
or a governmental body or any department or agency thereof, and shall include
both the singular and the plural.
2
<PAGE> 3
"Security Agreement" shall mean that certain Security Agreement dated
of even date herewith by and between the Applicant and the Bank.
"Termination Date" shall mean the earlier to occur of (a) the
occurrence of an Event of Default, or (b) June 30, 1997, or such later date as
the Bank, in its sole and absolute discretion, may agree to in writing, or (c)
thirty (30) days after notice of termination is given by the Applicant to the
Bank, provided that (i) the Applicant shall provide Collateral in the amount of
one hundred percent (100%) of the stated amount of all outstanding Letters of
Credit, and (ii) the Applicant executes, or has executed, the Bank's standard
application and standard documentation for each outstanding Letter of Credit.
1. Amount and Terms of the Facility.
(a) The Facility. The Bank agrees from time to time, upon and subject
to the terms and conditions of this Agreement, upon its prior approval, to issue
on behalf of the Applicant, standby Letters of Credit up to the aggregate face
amount of $1,000,000.00. No standby Letter of Credit issued under the Facility
shall have a stated amount in excess of $1,000,000.00. At no time shall the
aggregate face amount of all Letters of Credit issued under the Facility exceed
$1,000,000.00. The Letters of Credit issued under the Facility shall be secured,
as provided in subparagraph 1(b) hereof.
(b) Collateral. For each standby Letter of Credit issued hereunder, the
Applicant shall provide Collateral acceptable to the Bank in the amount of one
hundred percent (100%) of the stated amount of each such Letter of Credit.
(c) Payment of Facility. The entire unpaid principal balance of the
Facility shall mature and be due and payable in full upon the earlier to occur
of (i) the Termination Date, or (ii) the date of any payment being made under
any Letter of Credit which has not been reimbursed by the Applicant pursuant to
the terms hereof and/or of the Letter of Credit Documents.
2. Letters of Credit.
(a) Issuance of Letters of Credit. Upon the terms and provisions and
subject to the conditions contained in this Agreement, the Bank shall issue or
cause the issuance of one or more standby Letters of Credit upon the request of
the Applicant; provided, however, the Bank's agreement to issue Letters of
Credit shall terminate on the Termination Date, and further provided, however,
that notwithstanding the amount of the Facility, the Bank shall not be required
to consider the issuance of any Letter of Credit if (i) the face amount of the
Letter of
3
<PAGE> 4
Credit to be issued plus the aggregate face amounts of all Letters of Credit
outstanding would exceed the amount of the Facility or (ii) the expiration date
thereof could occur after the Termination Date. The issuance of such Letters of
Credit is subject to compliance with the conditions precedent set forth in this
Agreement, to the prior approval of the Bank and to the Bank's standard
procedures for issuance of a Letter of Credit, including, but not limited to,
the submission of an application for any standby Letters of Credit on the Bank's
approved forms. The Letters of Credit will be in such form as is reasonably
acceptable to the Bank and the documentation therefor will include an
unconditional obligation of the Applicant to immediately pay the amount properly
drawn under any Letter of Credit, as set forth in subparagraph 2(c).
(b) Draws Under Letters of Credit. Each of the Letters of Credit may be
drawn upon by presentment to the Bank, at its office at 200 South Orange Avenue,
Orlando, Florida 32801 (or such other office as may be specified therein), of
the original Letter of Credit, together with such supporting documents and
certificates as may be required by the Letter of Credit. The Bank may honor any
draft, certificate or other document reasonably conforming in form and substance
to the requirements described in and/or forms annexed to the Letter of Credit,
and may afford the beneficiary notice of and an opportunity to correct
non-conforming items capable of cure, each in the sole and absolute discretion
of the Bank and without any notice to or consent from the Applicant.
(c) Reimbursement by Applicant. The Applicant hereby agrees as follows:
(i) to pay to the Bank on demand, prior to or immediately upon any payment being
made under any Letter of Credit pursuant to any drawing thereunder, an amount
equal to such amount to be paid under such Letter of Credit; and (b) to pay to
the Bank interest on any and all amounts required to be paid as provided in this
subparagraph 3(c) from and after the due date thereof until payment in full,
payable on demand at the Default Rate. If any payment under any Letter of Credit
with respect to any drawing thereunder shall be paid or reimbursed to the Bank
on or before the date such payment is made by the Bank, no interest shall be
payable on the reimbursed amount. If the Applicant shall fail to make any such
payment, the Bank may deduct such amount from any deposit balance, account,
item, certificate of deposit or money of the Applicant in the possession of the
Bank or any of its affiliates.
(d) Setoff. The Applicant each hereby grant to the Bank a lien on, and
a security interest in, the deposit balances, accounts, items, certificates of
deposit and monies of the Applicant in the possession of or on deposit with the
Bank or any of its affiliates to secure and as Collateral for the payment and
4
<PAGE> 5
performance of the Obligations. Upon default, the Bank may at any time and from
time to time, without demand or notice, appropriate and set-off against and
apply the same to the Obligations when and as due and payable.
(e) Increase in Costs. In addition to the payment of the amount of all
requested draws under all Letters of Credit and all interest, if any, as stated
above, if there shall be any increase in the direct or indirect cost to the Bank
of issuing, causing the issuance of or maintaining a Letter of Credit, or any
reduction in any amount received or to be received with respect to a Letter of
Credit by the Bank hereunder due to:
(i) The introduction of any change in any applicable law or the
interpretation or administration thereof, including without
limitation, the imposition, modification or application of (A)
any reserve, special deposit, assessment or similar
requirement respecting Letters of Credit issued by, assets
held by, or deposits in or for the account of, the Bank, (B)
any requirement to withhold or deduct from any amount payable
to the Bank hereunder, or payable directly or indirectly to
the Bank, any taxes, levies, imports, duties, fees,
deductions, withholdings or charges of a similar nature, or to
any interest thereon, or any penalties with respect thereto,
imposed, levied, collected, assessed, withheld or deducted by
any governmental authority, including subdivisions and taxing
authorities thereof, or (C) any other restriction or condition
effecting a Letter of Credit or this Agreement; or
(ii) The compliance of the Bank with any regulation, guideline or
request from any central bank or other authority (whether or
not having the force of law);
the Applicant from time to time, within 10 days upon demand by the Bank, shall
pay to the Bank additional amounts sufficient to indemnify the Bank against such
increased costs and reduced receipts. A certificate setting forth the basis for
the additional amounts in reasonable detail as to the amount and manner of
calculation of such increased costs and reduced receipts submitted to the
Applicant by the Bank shall be conclusive (absent manifest error) as to the
existence and the amount thereof. If the Bank has not received payment for such
amounts by the time it receives from the Applicant the next succeeding payment
for reimbursement of a requested draw under a Letter of Credit or any other
payment which may be due hereunder, whether intended by the Applicant to be
reimbursement of a draw
5
<PAGE> 6
or otherwise, the Bank may apply such payment first to the reduction of the
amounts of such costs and receipts.
(f) Termination of Facility. The Facility shall not otherwise be deemed
to have been terminated until each of the outstanding Letters of Credit have
been presented, have expired by their terms without presentment or have been
surrendered to the Bank for cancellation.
3. Letter of Credit Fees. With regard to the issuance of any such
Letters of Credit, the Applicant agrees to pay to the Bank for each standby
Letter of Credit issued by the Bank on behalf of the Applicant hereunder, a fee
equal to one hundred basis points (1.00%) per annum on the face amount of each
such standby Letter of Credit, payable quarterly in advance, based on a 360 day
year, for actual number of days elapsed, in immediately available funds,
beginning on the date of initial issuance of any standby Letter of Credit and on
the first day of each quarterly period thereafter; provided, however, that no
fee for any standby Letter of Credit issued hereunder shall be less than
$500.00.
4. Negative Covenants. So long as any Obligation is outstanding, the
Applicant will not without the prior written consent of Bank, which consent will
not be unreasonably withheld:
(a) Additional Indebtedness. Except as permitted in the Leasehold
Mortgage and Security Agreement and the Security Agreement, incur, create,
assume or permit or suffer to exist any additional indebtedness or liability for
borrowed money, any indebtedness evidenced by notes, bonds, debentures or
similar obligations or any conditional sales or title retention agreement or
capitalized lease; or
(b) Lien or Security Interest. Except as permitted in the Leasehold
Mortgage and Security Agreement and the Security Agreement, create, suffer or
permit any other lien or security interest against any of its assets now or
hereafter in existence.
5. Affirmative Covenants. The Applicant covenants, for so long as any
Obligation is outstanding and unpaid or unperformed, as follows:
(a) Maintenance of Corporate Existence; Compliance with Laws. Each
Applicant shall at all times preserve and maintain in full force and effect its
corporate existence, powers, rights, licenses, permits and franchises in the
jurisdiction of its incorporation; continue to conduct and operate its business
substantially as conducted and operated during the present and preceding fiscal
year of the Applicant; operate in substantial compliance with all applicable
laws, statutes, regulations, certificates of authority and orders in respect of
the conduct of
6
<PAGE> 7
its business; and qualify and remain qualified as a foreign corporation in each
jurisdiction in which qualification is necessary or appropriate in view of its
business and operations.
(b) Inspection. The Applicant will permit the Bank to visit any of the
properties and places of business of the Applicant and to discuss its affairs,
finances and accounts with its officers all at such reasonable times and as
often as may be reasonably be requested.
(c) Leasehold Mortgage and Security Agreement. The Applicant will
comply with all of the covenants of the Leasehold Mortgage and Security
Agreement, which covenants are incorporated herein and made a part of this
Agreement provided, however, in the event said Leasehold Mortgage and Security
Agreement is terminated in accordance with the terms thereof or for any reason,
the covenants in said Leasehold Mortgage and Security Agreement as provided
herein shall continue to be the covenants incorporated herein by reference and
Applicant's obligation to comply with said covenants shall continue in full
force and effect under this Agreement.
(d) Banking Relationship. The Applicant shall maintain their primary
bank accounts and banking relationships with the Bank.
6. Representations. Applicant warrants that:
(a) Organization, Corporate Powers, etc. Each Applicant (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, (ii) has all requisite power and authority,
corporate and otherwise, to own their respective properties and assets and to
carry on their respective business as now conducted and proposed to be
conducted, (iii) are duly qualified to do business and are in good standing in
every jurisdiction in which the character of their properties or assets owned or
the nature of its activities conducted makes such qualification necessary
including the State of Florida, and (iv) have the power and authority to execute
and deliver, and to perform its obligations under this Agreement and the other
Facility Documents.
(b) Authorization of Facility, etc. The execution, delivery and
performance of the Facility Documents by the Applicant (a) have been duly
authorized by all requisite corporate action and (b) will not (i) violate (A)
any provision of law, any governmental rule or regulation, any order of any
court or other agency of government or the articles of incorporation or bylaws
of the Applicant or (B) any provision of any indenture, agreement or other
instrument to which the
7
<PAGE> 8
Applicant is a party or by which the Applicant or any of their properties or
assets are bound, (ii) be in conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or (iii) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Applicant other than as permitted by the terms
hereof.
(c) Conflicting Agreements and Other Matters. The Applicant is not a
party to any contract or agreement or subject to any corporate restriction which
materially and adversely affects their business, property or assets, or
financial condition. Neither the execution nor delivery of this Agreement or the
other Facility Documents, nor fulfillment of nor compliance with the terms and
provisions hereof or the other Facility Documents will conflict with, or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, or result in any violation of, or result in the creation of any lien upon
any of the properties or assets of the Applicant, any award of any arbitrator or
any agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Applicant is
subject. The Applicant is not a party to, or otherwise subject to any provision
contained in, any instrument evidencing indebtedness of the Applicant, any
agreement relating thereto or any other contract or agreement (including its
partnership agreement) which restricts or otherwise limits the incurring of the
debt to be evidenced by this Agreement and the other Facility Documents.
(d) Financial Statements. The Applicant has furnished, or caused to be
furnished, the Bank with its unaudited consolidated financial statements through
the period ended December 31, 1995, including its audited consolidated financial
statements for the fiscal year ended March 31, 1995. Such financial statements
(including any related schedules and/or notes) are true and fairly presented in
all material respects (subject, as to interim statements, to changes resulting
from audits and year-end adjustments) and have been prepared in accordance with
generally accepted practices and show all liabilities, direct and contingent, of
the Applicant required to be shown in accordance with such practices. There has
been no material adverse change in the business, condition or operations
(financial or otherwise) of the Applicant taken as a whole since December 31,
1995.
(e) Changes in Financial Conditions; Adverse Developments. From the
date of the financial statements referenced in subparagraph 7(d) hereof, to the
date of this Agreement, there has been no change in the properties, assets,
liabilities, financial condition, business, operations, affairs
8
<PAGE> 9
or prospects of the Applicant from that set forth or reflected in the fiscal
year-end financial statements referred to in subparagraph 7(d) hereof, other
than changes in the ordinary course of business, including acquisitions, none of
which have been, either in any case or in the aggregate, materially adverse.
(f) Tax Returns and Payments. All federal, state and local tax returns
and reports of the Applicant required to be filed have been filed, and all
taxes, assessments, fees and other governmental charges upon the Applicant, or
upon any of its properties, assets, incomes or franchises, which are due and
payable in accordance with such returns and reports, have been paid, other than
those presently (a) payable without penalty or interest, or (b) contested in
good faith and by appropriate and lawful proceedings prosecuted diligently. The
aggregate amount of the taxes, assessments, charges and levies so contested is
not material to the condition (financial or otherwise) and operations of the
Applicant. The charges, accruals, and reserves on the books of the Applicant in
respect of federal, state and local taxes for all fiscal periods to date are
adequate and the Applicant knows of no other liabilities with regard to unpaid
assessments for additional federal, state or local taxes for any such fiscal
period or of any basis therefor. The Applicant has and will establish all
reserves which it reasonably believes to be necessary and make all payments
required of them to be set aside or made in regard to all F.I.C.A., withholding,
sales or excise, and all other similar federal, state and local taxes.
(g) Agreements.
(i) The Applicant is not a party to any agreement, indenture, lease
or instrument or subject to any partnership restriction or any
judgment, order, writ, injunction, decree, rule or regulation
materially and adversely affecting its business, properties,
assets, operations or condition (financial or otherwise). There are
no material unrealized losses with respect to any such agreement,
indenture, lease or instrument.
(ii) The Applicant is not in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party
which would have a material impact on its financial condition or
ability to perform its obligations hereunder.
(h) Litigation, Etc. There are no actions, proceedings or
investigations, however described or denominated, pending or, to the knowledge
of the Applicant, threatened, against the Applicant, or affecting the Applicant
(or any basis therefor known to the Applicant) which, either in any case or in
the aggregate, might result in any material adverse change in the
9
<PAGE> 10
financial condition, business, prospects, affairs or operations of the Applicant
or in any of its properties or assets, or in any material impairment of the
right or ability of the Applicant to carry on its operations as now conducted or
proposed to be conducted, or in any material liability on the part of the
Applicant, or which questions the validity of this Agreement or any of the other
Facility Documents or of any action taken or to be taken in connection with the
transactions contemplated hereby or thereby.
(i) Governmental Consent. Neither the nature of the Applicant nor of
its business or properties nor any relationship between the Applicant and any
other Person, nor any circumstance in connection with the Facility or the
issuance and delivery of the Facility Documents is such as to require any
consent, approval or other action by or any notice to or filing with any court
or administrative or governmental body in connection with the execution and
delivery of this Agreement, or the other Facility Documents or the fulfillment
of or compliance with the terms and provisions hereof or of the other Facility
Documents.
(j) Consents and Approvals. No authorization, license, consent,
approval, or undertaking is required under any applicable law in connection with
the execution, delivery and performance by the Applicant of this Agreement or
any of the other Facility Documents.
7. Events of Default. The following each and all are Events of
Default hereunder:
(a) Monetary Default. If the Applicant shall default in any payment of
any Obligations, including any amount due to the Bank hereunder or under any of
the Letter of Credit Documents, when and as the same shall become due and
payable, whether on demand, at maturity, by acceleration or otherwise; or
(b) Non-Monetary Default. If the Applicant shall default in the
performance of or compliance with any term or covenant contained in one or more
of the Facility Documents other than a term or covenant a default in the
performance of which or non-compliance with which is elsewhere specifically
dealt with under this paragraph 7.; or
(c) Third Party Default. If the Applicant shall be declared in default
by a third party in the performance of any agreement with any person other than
the Bank with respect to any material indebtedness of the Applicant if the
effect of such default is to accelerate the maturity of such indebtedness or at
maturity (giving effect to any applicable grace periods) such indebtedness shall
not be paid as and when due and payable unless
10
<PAGE> 11
such default is being contested in good faith by the Applicant; or
(d) False Representation. If any representation or warranty made in
writing by or on behalf of the Applicant herein, or in any other Facility
Document shall prove to have been false or incorrect in any material respect on
the date as of which made or reaffirmed; or
(e) Bankruptcy or Insolvency. If the Applicant shall admit in writing
its inability, or be generally unable, to pay its debts as they become due or
shall make an assignment for the benefit of creditors, file a petition in
bankruptcy, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for the Applicant or a substantial part of its
assets, or shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or if there shall have
been filed any such petition or application, or any such proceeding shall have
been commenced against the Applicant, in which an order for relief is entered or
which remains undismissed for a period of sixty (60) Days or more, or the
Applicant by any act or omission shall indicate its consent to, approval of or
acquiescence in any such petition, application, or proceeding or order for
relief or the appointment of a custodian, receiver or any trustee for the
Applicant or any substantial part of any of its properties, or shall suffer any
such custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) Days or more; or
(f) Dissolution. If any order, judgment, or decree is entered in any
proceedings against the Applicant decreeing the dissolution or liquidation of
the Applicant and such order, judgment, or decree remains unstayed and in effect
for more than sixty (60) Days; or
(g) Default under Leasehold Mortgage and Security Agreement. If the
Applicant shall default in the performance of or compliance with any term or
covenant contained in the Leasehold Mortgage and Security Agreement; or
(h) Fraudulent Conveyance. If the Applicant shall have concealed,
removed, or permitted to be concealed or removed, any part of its properties,
with intent to hinder, delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its properties which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law, or shall have made any
transfer of its properties to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid, or shall have suffered or
permitted, while
11
<PAGE> 12
insolvent, any creditor to obtain a lien upon any of its properties through
legal proceedings or distraint which is not vacated within thirty (30) Days from
the date thereof; or
(i) Final Judgment. If a final judgment for the payment of money shall
be rendered against the Applicant, and the same shall remain undischarged for a
period of thirty (30) consecutive Days during which execution shall not be
effectively stayed.
8. Rights Upon Default. Upon the occurrence and its continuing of any
Event of Default, the Bank shall have and may exercise any or all of the rights
set forth herein provided, however, the Bank shall be under no duty or
obligation to do so:
(a) Acceleration. To declare the Obligations to be forthwith due and
payable, whereupon all such Obligations shall become forthwith due and payable,
both as to principal and interest, if applicable, without presentment, demand,
protest or any other notice or grace period of any kind, all of which are hereby
expressly waived, anything contained herein or in the documents evidencing such
Obligations to the contrary notwithstanding and, upon such acceleration, the
unpaid principal balance and accrued interest, if any, upon the Obligations
shall from and after such date of acceleration bear interest at the Default
Rate; provided, however, that the foregoing shall in no way abrogate or limit
the Bank's right to accelerate and declare the Facility immediately due and
payable upon demand at any time.
(b) Setoff. To exercise its right of setoff as set forth in
subparagraph 2(d) hereof.
(c) Other Rights. To exercise such other rights as may be permitted
under any of the Facility Documents.
9. Miscellaneous.
(a) No Waiver, Cumulative Remedies. No failure or delay on the part of
the Bank in exercising any right, power or remedy hereunder, or under the other
Facility Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder or thereunder. The remedies herein and therein provided are cumulative
and not exclusive of any remedies provided by law or in equity.
(b) Amendments, Etc. No amendment, modification, termination or waiver
of any provision of this Agreement or the other Facility Documents, nor consent
to any departure by the Applicant therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
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<PAGE> 13
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(c) Addresses for Notices, Etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
telex, telecopy or telegraphic communications) and shall be deemed to have been
duly and sufficiently given by the next Banking Day in the place to which sent
if sent by telex, telecopy or telegraphic communications, or after three (3)
Banking Days after being mailed (postage prepaid) to the Applicant or the Bank
at the address given in the preamble to this Agreement, or, as to each party, at
such other address as shall be designated by such party in a written notice to
the other party complying as to the delivery with the terms of this
subparagraph.
(d) Applicable Law. This Agreement, and each of the Facility Documents
and transactions contemplated herein (unless specifically stipulated to the
contrary in such document) shall be governed by and interpreted in accordance
with the laws of the State of Florida.
(e) Survival of Representations and Warranties. All representations,
warranties, covenants and agreements contained herein or made in writing by the
Applicant in connection herewith shall survive the execution and delivery of
this Agreement and the other Facility Documents and be true and correct during
the term of the Facility.
(f) Time of the Essence. Time is of the essence of this Agreement and
the other Facility Documents.
(g) Headings. The headings in this Agreement are intended to be for
convenience of reference only, and shall not define or limit the scope, extent
or intent or otherwise affect the meaning of any portion hereof.
(h) Severability. In case any one or more of the provisions contained
in this Agreement or the other Facility Documents shall for any reason be held
to be invalid, illegal or unenforceable in any respect, the same shall not
affect any other provision of this Agreement or the other Facility Documents,
but this Agreement and the other Facility Documents shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
therein. Provided, however, in the event said matter would adversely affect the
rights of the Bank under any or all of the Facility Documents, the same shall be
an Event of Default.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall
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<PAGE> 14
constitute one and the same instrument and any of the parties hereto may execute
this Agreement by signing any such counterpart.
(j) Conflict. In the event any conflict or inconsistency arises between
the terms of this Agreement and the terms of any other Facility Document, the
terms of this Agreement shall govern in all instances of such conflict or
inconsistency, EXCEPT WITH RESPECT TO ANY LETTER OF CREDIT DOCUMENT, WHICH SHALL
GOVERN AS TO THE TERMS OF THE LETTER OF CREDIT TO WHICH IT APPLIES.
(k) Term. The term of this Agreement shall be for such period of time
until the Obligations have been repaid in full and/or performed, all Letters of
Credit have been terminated and all of the other obligations hereunder have been
paid to the Bank in full.
(l) Expenses. The Applicant agrees, whether or not the transactions
hereby contemplated shall be consummated, to pay, and save the Bank harmless
against liability for the payment of, all reasonable out-of-pocket expenses
arising in connection with this transaction, all taxes, together in each case
with interest and penalties, if any, which may be payable in respect of the
execution, delivery and performance of this Agreement or the execution,
delivery, and performance of the other Facility Documents issued under or
pursuant to this Agreement (excepting only any tax on or measured by net income
of the Bank determined substantially in the same manner, other than the rate of
tax, as net income is presently determined under the IRS Code), the reasonable
legal fees and expenses (whether incurred at trial, in any bankruptcy or
appellate proceeding or otherwise) of counsel to the Bank in connection with
negotiation, preparation and enforcement of this Agreement or any of the other
Facility Documents.
(m) Successors. All covenants and agreements in this Agreement
contained by or on behalf of either of the parties hereto shall bind and inure
to the benefit of the respective successors of the parties hereto whether so
expressed or not provided, however, this clause shall not by itself authorize
any delegation of duties by the Applicant.
(n) No Third Party Beneficiaries. The parties intend that this
Agreement is solely for their benefit and no person not a party hereto shall
have any rights or privileges under this Agreement whatsoever either as the
third party beneficiary or otherwise.
(o) WAIVER OF JURY TRIAL. BANK, THE APPLICANT HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY
IN RESPECT TO ANY LITIGATION BASED
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<PAGE> 15
ON, ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THIS AGREEMENT AND ANY FACILITY
DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR THEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK
MAKING THE FACILITY EVIDENCED HEREBY AVAILABLE TO THE APPLICANT.
(p) Entire Agreement. Except as otherwise expressly provided, this
Agreement and the other Facility Documents embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the Applicant and the Bank have caused these
presents to be executed by their proper officers under due corporate authority,
and their corporate seals to be affixed, this the day and year first above
written.
"APPLICANT":
Signed, sealed and delivered
in the presence of: AIRTRAN AIRWAYS, INC.
/s/ Peter J. Fides, II By: /s/ John F. Horn
- ----------------------- --------------------
(Signature of Witness) John F. Horn
President and Chief Executive
Peter J. Fides, II Officer
----------------------
(Print Name of Witness)
(CORPORATE SEAL)
/s/ Maria L. Velez
- ----------------------
(Signature of Witness)
Maria L. Velez
---------------------
Print Name of Witness)
As to "Applicant"
15
<PAGE> 16
AIRWAYS CORPORATION
/s/ Peter J. Fides, II By: /s/ John F. Horn
- ---------------------- --------------------
(Signature of Witness) John F. Horn
President
Peter J. Fides, II
-----------------------
(Print Name of Witness)
(CORPORATE SEAL)
/s/ Maria L. Velez
-----------------------
(Signature of Witness)
Maria L. Velez
-----------------------
(Print Name of Witness)
As to Applicant
"BANK":
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ William C. Barr, III
----------------------------
William C. Barr, III
First Vice President
16
<PAGE> 1
EXHIBIT 10.20
TERM NOTE
DATE OF NOTE: March 7, 1996
PRINCIPAL AMOUNT: $2,000,000.00
MATURITY DATE: October 7, 2002, unless accelerated earlier pursuant to
paragraph 2 hereof.
INTEREST RATE: One percent (1%) in excess of the Prime Rate of Payee,
which rate shall be the interest rate announced by SunTrust
Banks of Florida, Inc. from time to time, as its prime rate
(which interest rate is only a bench mark, is purely
discretionary and is not necessarily the best or lowest
interest rate charged borrowing customers or any subsidiary
bank of SunTrust Banks of Florida, Inc.) with any change in
the Interest Rate to be effective on the date any such change
in the Prime Rate is announced by SunTrust Banks of Florida,
Inc. from time to time.
INSTALLMENT
PAYMENT: The principal payment of $25,000.00, plus accrued interest.
MAKER: AirTran Airways, Inc. and
Airways Corporation
MAKER'S ADDRESS: 6280 Hazeltine National Drive
Orlando, Florida 32822
PAYEE: SunTrust Bank, Central Florida, National
Association
PAYEE'S ADDRESS: 200 South Orange Avenue
Orlando, Florida 32801
FOR VALUE RECEIVED, the undersigned corporations (collectively, the
"Maker") do hereby jointly and severally covenant and promise to pay to the
order of the Payee or to its successors and assigns, at the Payee's Address or
at such other place as the Payee may designate to the Maker in writing from time
to time, in legal tender of the United States, the Principal Amount with
interest from the date hereof computed at the Interest Rate on the unpaid
balance of the Principal Amount at the times and in the amounts set forth
herein.
<PAGE> 2
1. REQUIRED PAYMENTS. During the term hereof, payments will be made as follows:
(a) INTEREST PAYMENTS. During the term of this Note, the Maker
shall pay interest monthly in arrears at the Interest Rate, on the
first day of each month (the "Due Date") commencing on April 1, 1996
until the Maturity Date, at which time the entire remaining unpaid
principal balance and all accrued but unpaid interest shall be due and
payable in full.
(b) PAYMENTS OF PRINCIPAL AND INTEREST. During the term of
this Note, the Maker shall pay, in addition to interest, monthly
principal payments in the amount of $25,000.00 on the first day of each
month (the "Due Date") commencing April 1, 1996 until the Maturity
Date, at which time the entire remaining unpaid principal balance and
all accrued but unpaid interest shall be due and payable in full.
(c) REQUIRED PREPAYMENTS. In addition to the above-scheduled
principal payments, during the term of this Note, the Maker shall pay
to the Payee as a prepayment on this Note, twenty-five percent (25%) of
Maker's Excess Cash Flow (as hereinafter defined), determined as of the
end of each fiscal year of the Maker commencing with the fiscal year
ending March 31, 1997, but not to exceed $500,000.00 each fiscal year
(the "Required Annual Prepayment"). Excess Cash Flow shall mean Maker's
consolidated after tax net income plus non-cash charges less principal
payments made during the preceding fiscal year and less cash capital
expenditures of up to $500,000.00 made during the preceding fiscal
year. The Maker's Excess Cash Flow shall be determined on a
consolidated basis by the Bank from the Maker's year end financial
statements, which shall be delivered to the Payee pursuant to the
Leasehold Mortgage (as hereinafter defined) but in no event later than
ninety (90) days after the end of Maker's fiscal year. Promptly, after
receipt of such annual financial statements, the Bank shall determine
the amount of the Required Annual Prepayment and shall provide notice
of such amount to the Maker. The Maker shall pay each Required Annual
Prepayment to Payee within ten (10) days of the date on which the Payee
provides written notice of the amount thereof to Maker. Each Required
Annual Prepayment shall be applied to this Note in the manner
determined by the Payee.
(d) MATURITY DATE. On the Maturity Date, the entire remaining
unpaid principal balance together with
2
<PAGE> 3
accrued but unpaid interest shall be due and payable in full.
2. PAYEE'S EARLY ACCELERATION OPTION. Commencing April 30, 1997 and on
the same date of each year thereafter during the term of this Note, (the "Early
Acceleration Date"), Payee shall have the option to declare the entire
outstanding principal balance and all accrued but unpaid interest due on this
Note due and payable in full, which option the Payee must exercise by written
notice to the Maker within sixty (60) days after the Early Acceleration Date. In
the event that the Payee so gives the Maker said written notice of its intention
to exercise its annual put option as provided herein, the Maker shall have
forty-five (45) days from the date of said written notice to pay the entire
outstanding principal balance and all accrued and unpaid interest due on this
Note.
3. DEFAULT. The occurrence of any one or more of the following
conditions shall each and all constitute a condition of default under this Note:
(a) If any payment as set forth herein is not made on this
Note when due (i.e. the Due Date).
(b) If any condition of default whatsoever occurs under the
Leasehold Mortgage (as hereinafter defined) or Security Agreement (as
hereinafter defined) or any other agreement whatsoever relating to any
collateral that may have been given for the payment of this Note and
such default remains uncured after any applicable cure periods.
(c) The Payee deems itself insecure.
(d) Any application or petition is filed by or against any
Maker in connection with any bankruptcy or similar proceeding or if any
Maker acknowledges or otherwise fails to pay their debts as and when
they become due.
(e) A default occurs under the terms and conditions of any
other agreement relating to the obligation evidenced by this Note and
such default remains uncured after any applicable cure periods.
If any one or more of the foregoing conditions should occur, then the
entire principal balance and accrued and unpaid interest thereon shall become
due and payable at once or thereafter, at the option of the Payee, without
notice to or demand upon the Maker, or the Payee may exercise any and all other
rights
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available to it under applicable law or any other loan document, each of which
remedy shall be cumulative. Failure to exercise these options shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
4. LATE PAYMENT FEE, ETC. If any payment is not made within five (5)
days after the Due Date, then, in that event, there shall also be paid to the
Bank, a late charge equal to five percent (5%) of the payment that is due on the
Due Date and not paid. The purpose of such late charge shall be to reimburse the
Bank for its costs and expenses in connection with servicing a delinquent
account. A payment which is not received on the due date shall be deemed late.
Further, if any payment shall not be paid when due, then the entire principal
balance and accrued and unpaid interest thereon shall become due and payable at
once or thereafter, at the option of the holder of this Note, without notice to
or demand upon the Maker. Failure to exercise these options shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default.
5. COSTS OF COLLECTION. The Maker agrees that they shall, jointly and
severally, pay all costs, expenses and reasonable attorneys' fees, incurred by
the Payee in connection with any aspect of this Note, including any default as
well as any proceedings which may involve this Note or any other loan document
relating hereto including, but not limited to, arbitration, litigation,
bankruptcy proceedings, etc. The undersigned specifically agree that in the
event of any bankruptcy of the Maker, the Payee shall be entitled to recover all
its expenses and reasonable attorneys' fees incurred by the Payee in regard to
any bankruptcy proceeding.
6. INTEREST/DEFAULT INTEREST, ETC. Interest under this Note is computed
on the basis of a 360 day year period, based on the actual number of days
elapsed. This Note and all sums due hereunder shall bear interest at the lesser
of (a) twenty-five percent (25%) per annum or (b) the highest lawful rate of
interest per annum permitted under the laws of the State of Florida from the
date of a default hereunder. Notwithstanding any term, condition, obligation or
provision herein to the contrary, it is the expressed intent of the Payee that
no interest, consideration or charge in excess of that permitted in the State of
Florida may be accrued, charged or taken or become payable hereunder. In the
event it is hereafter determined that the Payee of this Note has taken, charged
or reserved interest in excess of that permitted under Florida law, whether due
to prepayment, acceleration or otherwise, such excess shall be refunded to the
Maker or credited against the sums due the Payee hereunder.
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<PAGE> 5
7. COLLATERAL. This Note is secured, inter alia, by a Leasehold
Mortgage and Security Agreement (the "Leasehold Mortgage") dated of even date
herewith from the Maker to the Payee, encumbering the Maker's leasehold interest
in certain real property situated in the State of Florida, and to which
reference is hereby made for a description of said real property, the nature and
extent of the security, the rights of the Payee in respect thereof and the terms
and conditions upon which this Note is issued. This Note is also secured by the
personal property described in the Security Agreement (the "Security Agreement")
dated of even date herewith by and between the Maker and Payee. The Maker agrees
that it shall be bound by any agreement extending the time or modifying the
above terms of payment made by the Payee and the owner of the real property
interest affected by the Leasehold Mortgage, whether with or without notice to
the Maker, and the Maker shall continue to be liable to pay the amount due
hereunder, but with interest at a rate no greater than the Interest Rate
according to the terms of any such agreement of extension or modification. The
unpaid balance of the Principal Amount, plus accrued interest, shall become due
and payable at the option of the Payee under the happening of an event by which
said balance shall or may become due and payable under the terms of the
Leasehold Mortgage or the Security Agreement or any other loan document relating
to the Note, the Leasehold Mortgage or the Security Agreement and the expiration
of any applicable cure periods.
8. AMENDMENTS TO NOTE. This Note may not be changed orally, but only by
an agreement in writing, signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
9. WAIVER OF PRESENTMENT, ETC. All parties to this Note, whether Maker,
endorser, surety, or guarantor, hereby waive presentment for payment, demand,
protest, notice of protest and notice of dishonor, and expressly agree jointly
and severally to remain and continue bound for the payment of the principal and
interest provided for by the terms of this Note, notwithstanding any extension
or extensions of the time of, or for the payment of said principal or interest,
or any change or the changes in the amount or amounts agreed to be paid under or
by virtue of the obligation to pay provided for in this Note, or any changes or
changes by way of release or surrender or substitution of any real property and
collateral or either, held as security for this Note, and waive all and every
kind of notice of such extension or extensions, change or changes, and agree
that the same may be made without the joinder of the Maker.
10. NOTICE. Written notices provided herein shall be sent by registered
or certified mail, postage pre-paid, return receipt
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<PAGE> 6
requested, by pre-paid telex or telecopier, reputable overnight courier, freight
pre-paid, or delivered by hand.
11. LAW GOVERNING. The provisions of this Note shall be construed and
interpreted in accordance with, and all rights and obligations of the parties
hereunder governed by, the laws of the State of Florida.
12. RESOLUTION OF DISPUTES/VENUE/ETC. The exclusive venue for any
proceeding shall be in the county where the Payee is located provided, however,
the Payee may waive the foregoing requirement and, further, in regard to any
judicial proceeding, each party expressly waives any right to a jury trial.
13. PREPAYMENT. This Note may be prepaid in whole or in part at any
time without penalty.
AIRTRAN AIRWAYS, INC.
By:/s/ John F. Horn
--------------------------------
John F. Horn
President and Chief Executive
Officer
AIRWAYS CORPORATION
By: /s/ John F. Horn
--------------------------------
John F. Horn
President
Documentary stamp taxes in the amount of $7,000.00 have been affixed to the
Leasehold Mortgage and Security Agreement securing this Note.
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<PAGE> 1
EXHIBIT 10.21
THIS INSTRUMENT PREPARED BY:
ROBERT L. MANLY, ESQUIRE
AKERMAN, SENTERFITT & EIDSON, P.A.
POST OFFICE BOX 231
ORLANDO, FLORIDA 32802-0231
Return to:
Peter J. Fides, II, Esquire
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
111 North Orange Avenue, Suite 875
Orlando, Florida 32801
LEASEHOLD MORTGAGE AND SECURITY AGREEMENT
THIS LEASEHOLD MORTGAGE AND SECURITY AGREEMENT (the "Mortgage" or the
"Leasehold Mortgage") executed and delivered as of the 7th day of March, 1996,
by:
AIRTRAN AIRWAYS, INC., a Delaware corporation, 6280 Hazeltine National
Drive, Orlando, Florida 32822 (hereinafter referred to as the
"Mortgagor"),
to
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, a national banking
association, 200 South Orange Avenue, Orlando, Florida 32801
(hereinafter referred to as the "Mortgagee");
W I T N E S S E T H:
That in consideration of the premises and in order to secure
(collectively, the "Obligations"):
A. The payment of:
(i) The principal, interest and any other sums
whatsoever payable at any time on that certain Term Note dated
of even date herewith from the Mortgagor and Airways
Corporation, a Delaware corporation (hereinafter individually,
the "Borrower" and collectively, the "Borrowers") to the
Mortgagee in the face amount of $2,000,000.00, as said note
may be amended, changed, modified, renewed or substituted for
from time to time (the "Note"),
This Leasehold Mortgage Deed and Security Agreement is exempt from the
incurrence of intangible tax because it is a leasehold mortgage and not
a fee mortgage.
<PAGE> 2
(ii) All of the other obligations due the Mortgagee
under this Leasehold Mortgage,
(iii) All of the obligations due the Mortgagee under
that certain Security Agreement from the Mortgagor to the
Mortgagee of even date herewith (the "Security Agreement"),
(iv) All other obligations due the Mortgagee under
any other document or agreement executed in connection with
the Note or the loan evidenced thereby and secured hereby (the
"Loan Documents"); and
B. The performance and observance of:
(i) All the provisions of this Leasehold Mortgage,
(ii) All the provisions of the Note,
(iii) All the provisions of the Security Agreement
and each other Loan Document, and
the Mortgagor hereby grants, sells, warrants, conveys, assigns, transfers,
mortgages and sets over and confirms unto the Mortgagee, all of the Mortgagor's
estate, right, title and interest in and to:
A. The Mortgagor's leasehold estate (the "Leasehold Interest") in the
real property (the "Real Property") situate in Orange County, Florida, and more
particularly described on Exhibit "A" attached hereto pursuant to and by virtue
of that certain Orlando Tradeport Maintenance Hangar Lease Agreement dated
December 11, 1989 by and between the Greater Orlando Aviation Authority ("GOAA")
and Page Avjet Corporation ("PAC"), as amended by Amendment No. 1 dated June 22,
1990 by and between GOAA and PAC and as assigned to Owner by instrument dated
February 29, 1996 by and among Owner, PAC and Page Avjet Holding Corporation,
and as amended by Agreement and Second Amendment dated January 25, 1996 by and
between GOAA and Owner (collectively, the "Lease")
B. TOGETHER WITH the following (collectively, the "Additional
Property")
(i) The Mortgagor's leasehold interest in all buildings,
structures and improvements now or
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<PAGE> 3
hereafter located on said Real Property and all fixtures, equipment
(excluding aircraft), machinery, electrical and plumbing fixtures and
lines, air conditioning and heating equipment, now or hereafter located
and situate therein and leased to the Mortgagor by virtue of the Lease,
and any replacements thereof; and
(ii) All furnishings, furniture, goods, machinery, apparatus,
equipment, fittings, dies, motors, parts (including spare parts and
repair parts) and tools, together with all fittings, accessories,
accessions, additions, modifications, improvements, equipment and
special tools now or hereafter affixed to any or any part of the
foregoing or used in connection with any part of the foregoing and all
replacements of any part thereof, and any tangible personal property
(excluding aircraft) of every kind and nature whatsoever of the
Mortgagor now or hereafter located or situate on the Real Property or in
any buildings or improvements located upon the Real Property, or any
part thereof, or used or usable or intended to be used in connection
therewith, or with the operation of the Real Property, all additions,
improvements and betterments thereto or thereof, all substitutions and
replacements therefor and all products and Proceeds of any of the
foregoing, and any and all tenements, hereditaments, easements, and
appurtenances thereunto belonging or in any way appertaining, and all
claims and demands, in law or in equity, of the Mortgagor in and to any
of the foregoing; and
(iii) All deposits made with, or other security given to,
utility companies by the Mortgagor or any other person on behalf of the
Mortgagor with respect to the Real Property, all of the Mortgagor's
rights relating to the Real Property or the operation thereof, or used
in connection therewith, including without limitation, all rights to
any permits, licenses, authorizations and approvals granted to or
otherwise held by the Mortgagor in regard to the Real Property, all
rights of the Mortgagor to any contracts relating to the Real Property
and all engineering, architectural and other plans, drawings and
specifications in connection therewith, and all other intangible rights
of the Mortgagor relating to the Real Property or used or usable in
connection therewith,
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<PAGE> 4
(the foregoing Leasehold Interest and Additional Property hereinafter referred
to collectively as the "Mortgaged Property"). To the extent any of the Mortgaged
Property is deemed to be personal property or fixtures under the Florida Uniform
Commercial Code, the Mortgagor does hereby grant to the Mortgagee a security
interest in all of said personal property and fixtures.
TO HAVE AND TO HOLD the Mortgaged Property, together with all and
singular the tenements, hereditaments and appurtenances thereunto belonging or
in anywise appertaining, with the reversion and reversions thereof, and all the
estate, right, title, interest, homestead, possession, claim and demand
whatsoever, as well in law as in equity, of the Mortgagor and unto the same, and
every part thereof, with the appurtenances of the Mortgagor in and to the same,
and every part and parcel thereof unto the Mortgagee.
The Mortgagor warrants that the Mortgagor has a good and marketable
title to and indefeasible fee estate in the Mortgaged Property subject to no
lien, mortgage, security interest or any other encumbrance of any nature
whatsoever except for the permitted encumbrances (the "Permitted Encumbrances")
defined below, and the Mortgagor covenants that this Mortgage is and will remain
a valid and enforceable mortgage on the Mortgaged Property subject only to the
Permitted Encumbrances. The Mortgagor has full power and lawful authority to
mortgage the Mortgaged Property in the manner and form herein done or intended
hereafter to be done. The Mortgagor will preserve such title and will forever
warrant and defend the same to Mortgagee and will forever warrant and defend the
validity and priority of the lien hereof against the claims of all persons
whomsoever.
The Mortgagor will, at the cost of the Mortgagor, and without expense
to the Mortgagee, do, execute, acknowledge and deliver all and every one of such
further acts, deeds, conveyances, mortgages, assignments, notices of assignment,
transfers and assurances as the Mortgagee shall from time to time require in
order to preserve the priority of the lien of this Mortgage or to facilitate the
performance of the terms hereof.
PROVIDED, HOWEVER, that if the Mortgagor shall pay or cause to be paid
to Mortgagee the indebtedness in the principal sum of $2,000,000.00 as evidenced
by the Note, from which the Mortgagor has directly benefitted, executed by the
Mortgagor and payable to the order of the Mortgagee, with interest and upon the
terms as provided therein, together with all other sums advanced by the
Mortgagee to or on behalf of the Mortgagor pursuant to the Note, any other Loan
Documents or this Mortgage, or otherwise due and owing by the Mortgagor to the
Mortgagee at any time, and all of the other Obligations as set forth above and
secured hereby,
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<PAGE> 5
and shall perform all other covenants and conditions of the Note, all of the
terms of which Note are incorporated herein by reference as though set forth
fully herein, and of any renewal, extension or modification thereof, and of this
Mortgage, the other Loan Documents and such other Obligations, then this
Mortgage and the estate hereby created shall cease and terminate. The Mortgagor
further covenants and agrees with the Mortgagee as follows:
1. PAYMENT OF NOTE. The Mortgagor shall pay all sums, including
interest secured hereby, when due as provided for in the Note and any renewal,
extension or modification thereof and in this Mortgage, all such sums to be
payable in lawful money of the United States of America at the Mortgagee's
aforesaid principal office or at such other place as the Mortgagee may designate
from time to time in writing. As set forth above, the term "Note" means and
includes any and all amendments, changes, modifications, renewals, replacements
and substitutions of or to said Note.
2. PAYMENT OF TAXES AND FEES ON OR RELATED TO MORTGAGED PROPERTY. The
Mortgagor shall pay when due, and before any delinquency or default shall occur,
and without requiring any notice from the Mortgagee, all taxes, assessments,
dues, charges (including utility charge), fees, levies, fines, impositions,
liabilities, obligations and encumbrances of any type or nature and other
charges levied or assessed against the Mortgaged Property or any part thereof or
this Mortgage or the indebtedness or other sums secured hereby, or upon or
against the interest of Mortgagee in the Mortgaged Property and, in each case
shall produce receipts therefor upon demand.
3. PAYMENT OF ENCUMBRANCES. The Mortgagor shall immediately pay and
discharge (or transfer in full to a bond) any lien (except for Permitted
Encumbrances) against the Mortgaged Property which may be or become superior to
this Mortgage and shall not permit any default or delinquency on any other lien,
against the Mortgaged Property (including Permitted Encumbrances). In regard to
any Permitted Encumbrances, the Mortgagor shall at all times keep current and
not default under any Permitted Encumbrance.
4. MONTHLY DEPOSITS FOR TAXES AND INSURANCE. If required by the
Mortgagee, the Mortgagor shall make monthly deposits with the Mortgagee, in a
non-interest bearing account, together with and in addition to payments of
interest and principal due under the Note, of a sum equal to one-twelfth of the
yearly taxes and assessments which may be levied against the Mortgaged Property
and for which the Mortgagor is or may be liable, if any, and (if so required)
one-twelfth of the yearly
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<PAGE> 6
premiums for insurance thereon. The amount of such taxes, assessments and
premiums, when unknown, shall be estimated by Mortgagee. Such deposits shall be
used by the Mortgagee to pay such taxes, assessments and premiums when due. Any
insufficiency of such account to pay such charges when due shall be paid by the
Mortgagor to the Mortgagee on demand. If, by reason of any default by the
Mortgagor under any provision of this Mortgage, the Mortgagee declares all sums
secured hereby to be due and payable, the Mortgagee may then apply any funds in
said account against the entire indebtedness secured hereby. The enforceability
of the covenants relating to taxes, assessments and insurance premiums herein
otherwise provided shall not be affected except insofar as those obligations
have been met by compliance with this paragraph. The Mortgagee may from time to
time at its option waive, and after any such waiver reinstate, any or all
provisions hereof requiring such deposits, by notice to the Mortgagor in
writing. While any such waiver is in effect, the Mortgagor shall pay taxes,
assessments and insurance premiums as herein elsewhere provided.
5. PAYMENT OF TAXES AND ASSESSMENTS ON MORTGAGE. The Mortgagor shall
promptly pay all taxes and assessments assessed or levied under and by virtue of
any state, federal or municipal law or regulation hereafter passed against the
Mortgagee upon this Mortgage or the debt hereby secured, or upon its interest
under this Mortgage, provided however, that in the event of the passage of any
such law or regulation imposing a tax or assessment against the Mortgagee upon
this Mortgage or the debt secured hereby, that the entire indebtedness secured
by this Mortgage shall thereupon become immediately due and payable at the
option of the Mortgagee.
6. INSURANCE. The Mortgagor shall keep the Mortgaged Property insured
against loss or damage by fire, and all perils insured against by an extended
coverage endorsement, and such other risks and perils as the Mortgagee in its
discretion may require, and shall comply, at all times, with all insurance
requirements. The policy or policies of such insurance shall be in the form in
general use from time to time in the locality in which the Mortgaged Property is
situated, shall be in such amount as the Mortgagee may reasonably require, shall
be issued by a company or companies licensed in the State of Florida and rated
"A" or better according to the current Best's Key Rating Guide, shall contain a
standard mortgagee clause with loss payable to the Mortgagee by New York
Standard or Union Standard long form endorsements and shall specifically provide
that the same shall not be canceled or modified adversely to the interest of the
Mortgagee without thirty (30) days prior written notice to the Mortgagee by the
insurer. Whenever required by the Mortgagee, such policies shall be delivered
immediately to and held by the Mortgagee. Any and all amounts received by
Mortgagee under any
6
<PAGE> 7
of such policies may be applied by the Mortgagee on the indebtedness secured
hereby in such manner as the Mortgagee may, in its sole discretion, elect or, at
the option of the Mortgagee, the entire amount so received or any part thereof
may be released. Neither the application nor the release of any such amounts
shall cure or waive any default under this Mortgage. Upon exercise of the power
of sale given in this Mortgage or other acquisition of the Mortgaged Property or
any part thereof by the Mortgagee, such policies shall become the absolute
property of the Mortgagee.
7. ZONING. The Mortgagor hereby represents, covenants and warrants that
all applicable zoning laws, ordinances and regulations affecting the Real
Property and the buildings, structures and improvements located thereto permit
the use and occupancy thereof as an aircraft maintenance hangar facility.
8. CONSENT TO CHANGES IN MORTGAGED PROPERTY AND THE LEASE. The
Mortgagor shall first obtain the written consent of the Mortgagee, which consent
shall not be unreasonably withheld before: (a) removing or demolishing any
building now or hereafter erected on the Mortgaged Property; (b) altering the
arrangement, design or structural character thereof; (c) making any repairs
which involve the removal of structural parts or the exposure of the interior of
such building to the elements; (d) removing or exchanging any tangible personal
property which is part of the Mortgaged Property; or (e) entering into any
amendments, modifications, supplements, renewals or replacements of the Lease.
9. MAINTENANCE OF MORTGAGED PROPERTY. The Mortgagor shall maintain the
Mortgaged Property in good condition and repair, including but not limited, to
the making of such repairs as the Mortgagee may from time to time determine to
be necessary for the preservation of the Mortgaged Property, and shall not
commit or permit any waste thereof. The Mortgagee shall have the right to
inspect the Mortgaged Property on reasonable notice to the Mortgagor.
10. COMPLIANCE WITH LAWS, THE LEASE, ETC. The Mortgagor shall comply
with all laws, statutes, ordinances, regulations, covenants, conditions and
restrictions affecting the Mortgaged Property, including, without limitation, to
the extent applicable, The Americans With Disabilities Act of 1990 (42 U.S.C.
Section 12101 et seq) and the Florida Americans With Disabilities Accessibility
Implementation Act, and all rules and regulations promulgated thereunder, as
such laws, rules and regulations may from time to time be amended or modified,
all Environmental Laws (as defined in the Environmental Indemnification
Agreement (the "Environmental Agreement") by and between the Mortgagor and the
Mortgagee of even date herewith)
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<PAGE> 8
and all easements, restrictive covenants and conditions that may be applicable
to the Mortgaged Property and shall not cause or permit any violation thereof.
The Mortgagor shall comply with all of the terms and conditions of the Lease and
timely perform its obligations thereunder, including payment of all lease
payments required thereby and shall promptly provide Mortgagee with notice of
any default or claim of default under the Lease on the part of either party
thereto.
11. FAILURE TO PAY ENCUMBRANCES/MAINTAIN PROPERTY. If the Mortgagor
fails (i) to pay any claim, lien or encumbrance on the Mortgaged Property,
regardless of whether it is superior or junior to this Mortgage, (provided,
however, this clause shall not by itself authorize or permit any placement of a
junior encumbrance on the Mortgaged Property), (ii) to pay when due, any tax or
assessment or insurance premium, (iii) to keep and maintain the Mortgaged
Property in repair, or shall commit or permit waste, then the Mortgagee, may at
its option, may, but is not required to, pay said claim, lien, encumbrance, tax,
assessment or premium, with right of subrogation thereunder, may make such
repairs and take such steps as it deems advisable to prevent or cure such waste,
and take such action therein as the Mortgagee deems advisable, and for any of
such purposes the Mortgagee may advance such sums of money, including all costs,
reasonable attorneys' fees and other items of expense as it deems necessary and
all of such sums of money shall be secured by the lien of this Mortgage. The
Mortgagee shall be the sole judge of the legality, validity and priority of any
such claim, lien, encumbrance, tax, assessment and premium and of the amount
necessary to be paid in satisfaction thereof. The Mortgagee shall not be held
accountable for any delay in making any such payment, which delay may result in
any additional interest, costs, charges, expenses or otherwise.
12. PAYMENT OF ADVANCES. The Mortgagor will pay to the Mortgagee,
immediately and without demand, all sums of money advanced by the Mortgagee to
protect the security hereof pursuant to this Mortgage, including without
limitation all costs reasonably incurred by the Mortgagee in evaluating or
correcting dangerous, harmful or unlawful conditions found to exist on or about
the Mortgaged Property, reasonable attorneys' fees and other items of expense,
together with interest on each such advance at the rate of interest otherwise
provided herein, and all such sums and interest thereon shall be secured hereby.
13. AMOUNTS ABSOLUTELY DUE. The Mortgagor shall pay all sums of money
secured hereby without any relief whatever from any valuation or appraisement
laws.
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<PAGE> 9
14. SPECIAL CONDITIONS. During the term of this Mortgage and the
obligations secured hereby, the Mortgagor shall comply with the following
additional special conditions:
(a) The Mortgagor shall not incur any other indebtedness or
contingent liabilities and will not enter into any operating leases, or
create, suffer or permit any other lien or security interest against
any of its assets now or hereafter in existence, if the cumulative
effect of the foregoing will cause Mortgagor to violate any of the
special conditions set forth in this paragraph 14 without the
Mortgagee's prior written consent.
(b) In the event of default or an Event of Default hereunder
or under any of the Obligations secured hereby, the Mortgagee shall
have the option, in its sole discretion, of requiring the Borrowers to
provide cash collateral in the amount of the outstanding balance from
time to time of the Note. In the event the Mortgagee elects to require
such additional cash collateral, the Borrowers shall provide such
additional collateral to the Mortgagee within five (5) days of the
request therefor by the Mortgagee and shall execute any documents
considered necessary by Mortgagee or its counsel in connection
therewith.
(c) The Borrowers shall establish and maintain at the
Mortgagee a cash collateral account and shall assign said account to
the Mortgagee as additional security for the Obligations secured
hereby. Such account shall at all times have a balance in the amount of
at least the equivalent of twenty-four (24) then current monthly lease
payments under the Lease from time to time.
(d) The Borrowers shall comply with the following financial
covenants and ratios on a consolidated basis, which shall be determined
by the Mortgagee from the Borrowers' financial statements provided to
the Mortgagee in accordance with this Mortgage, and all terms not
defined in this subparagraph (d) shall be defined and determined in
accordance with generally accepted accounting principles, consistently
applied:
(i) Funded Debt to Tangible Net Worth Ratio. The ratio of
the Borrowers' funded debt to tangible net worth shall not
exceed 1.0:1, tested quarterly. Funded debt shall be defined as
interest-bearing debt plus capitalized lease obligations.
(ii) Current Ratio. The Borrowers' current ratio tested
quarterly shall equal or exceed 1.0:1
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<PAGE> 10
on the last day of each calendar quarter through December 31,
1996 and 1.2:1 on March 31, 1997 and on the last day of each
calendar quarter thereafter .
(iii) Debt Service Coverage Ratio. The Borrowers' debt
service coverage ratio shall be equal to or greater than 1.5:1,
tested quarterly, at the end of each calendar quarter, beginning
March 31, 1997. Debt Service Coverage Ratio for any given time
period shall be defined as the ratio of the sum of Borrowers'
net income plus non-cash charges divided by the current
maturities of long term debt.
(iv) Minimum Net Worth. The Borrowers' net worth as at
fiscal year end March 31, 1996 shall equal or exceed
$22,000,000.00, and as at the end of each fiscal year thereafter
Borrowers' minimum net worth shall increase by (i) seventy-five
percent (75%) of after tax net income for such fiscal year
commencing with the fiscal year ending March 31, 1997; and (ii)
one hundred percent (100%) of the net proceeds of any equity
offering. For example, assuming no equity offering, if the
actual net worth on March 31, 1996 is $25,000,000.00 and the
preceding year's after tax net income is $1,000,000.00, then the
new minimum net worth requirement for March 31, 1997 would be
$22,750,000.00.
(v) Minimum Unencumbered Cash. The Borrowers'
unencumbered cash shall equal or exceed $5,000,000.00, tested
quarterly.
(e) The Borrowers shall maintain their primary bank accounts
and banking relationships with the Mortgagee.
15. EVENTS OF DEFAULT. Each and all of the following shall each
constitute an event of default (an "Event of Default") hereunder:
(a) A default occurs under the Note.
(b) A default occurs under paragraphs 6, 12 or 14 of this
Mortgage.
(c) A default occurs under any other term or condition of this
Mortgage and, if capable of being remedied, such default shall remain
unremedied for 30 days after the earlier of (i) Borrowers' obtaining
knowledge thereof, or (ii) written notice thereof shall have been given
to Borrowers by Mortgagee.
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<PAGE> 11
(d) A default occurs under the terms and conditions of the
Security Agreement or any other Loan Document.
(e) A default occurs under the terms and conditions of that
certain Letter of Credit Facility Agreement of even date herewith by
and among the Mortgagee, the Mortgagor and AIRWAYS CORPORATION, a
Delaware corporation, and an affiliate of the Mortgagor.
(f) The occurrence of a default under the Lease which is not
cured within any applicable cure period.
(g) The Lease is terminated or not renewed for any reason
whatsoever.
(h) If the Federal Aviation Administration shall at any time
during the term of this Mortgage restrict the ability of the Mortgagor
to fly its regularly scheduled routes on a regular basis or otherwise
restrict the Mortgagor's ability to operate its business as presently
conducted.
16. REMEDIES UPON DEFAULT. Upon the happening and during the
continuance of any Event of Default, the Mortgagor may exercise to any one or
more of the following remedies, each of which shall be cumulative:
(a) All of the indebtedness secured hereby shall become and be
immediately due and payable at the option of the Mortgagee, without
notice or demand which are hereby expressly waived, in which event the
Mortgagee may (but shall be under no duty or obligation to) avail
itself of all rights and remedies, at law or in equity, including
without limitation, those available to a secured party upon default
under the Florida Uniform Commercial Code;
(b) This Mortgage may be foreclosed with all rights and
remedies afforded by the laws of the State of Florida and the failure
to make any landlords party defendant to any such foreclosure
proceedings and to foreclose their rights will not be, nor be asserted
by Mortgagor to be, a defense to any proceedings instituted by
Mortgagee to collect the sums secured hereby;
(c) Any other remedies provided by law or under any other loan
document including the Note or any other Loan Documents.
In connection with the exercise of any such remedies, the Mortgagor shall pay
all costs and expenses incurred by the
11
<PAGE> 12
Mortgagee in (i) enforcing this Mortgage, (ii) preserving, securing or
protecting the Mortgaged Property, (iii) evaluating any conditions on or about
the Mortgaged Property, including environmental assessments, surveys or studies,
(iv) realizing upon the Mortgaged Property or any part thereof, and (v)
collecting any of the indebtedness secured hereby, including without limitation
reasonable attorneys' fees whether suit is brought or not and whether incurred
in connection with collection, at trial, on rehearing, retrial or appeal, in
bankruptcy or otherwise.
17. DEFAULT INTEREST/LATE CHARGES/INTEREST ON ADVANCES. The Mortgagor
further agrees to pay as follows:
(a) Upon the occurrence of any default, the indebtedness
secured hereby shall bear interest without notice or demand at the
default rate of interest set forth in the Note, from and after the date
of any such default of the Mortgagor.
(b) If the Note provides for installment payments, the
Mortgagee may, at its option, collect a late charge as may be provided
for in the Note, to reimburse the Mortgagee for expenses in collecting
and servicing such installment payments.
(c) If the Mortgagee should extend any advances for or in
behalf of the Mortgagor, the Mortgaged Property, or otherwise as
permitted under this Mortgage.
18. RIGHT TO RECEIVER ON DEFAULT. Upon the happening and during the
continuance of any Event of Default:
(a) The Mortgagee is authorized at any time, without notice,
in its sole discretion to enter upon and take possession of the
Mortgaged Property or any part thereof, subject to the Lease, and to
exclude Mortgagor and its agents and employees wholly therefrom and may
have joint access with Mortgagor to the books, papers, records and
accounts of Mortgagor and to perform any acts the Mortgagee deems
necessary or proper to conserve the security; and
(b) Upon such entering upon or taking of possession, Mortgagee
may hold, store, use, operate, manage and control the Mortgaged
Property and conduct the business thereof, and from time to time, make
all necessary and proper maintenance, repairs, renewals, replacements,
additions, betterments and improvements thereto and thereon and
purchase or otherwise acquire additional fixtures, personalty and other
property, insure or keep the Mortgaged Property insured, manage and
operate the Mortgaged Property
12
<PAGE> 13
and exercise all rights and powers of Mortgagor in its name or
otherwise with respect to the same and enter into agreements with
others to exercise the powers herein granted Mortgagee, all as
Mortgagee in its reasonable judgment from time to time may determine;
and Mortgagee may collect and receive all the income, revenues, rents,
issues and profits of the same, including those past due as well as
those accruing thereafter; and
(c) The Mortgagee shall be entitled, as a matter of strict
right, without notice and ex parte, and without regard to the value
or occupancy of the security, or the solvency of the Mortgagor, or
the adequacy of the Mortgaged Property as security for the Note, to
have a receiver appointed to enter upon and take possession of and
operate the Mortgaged Property, collect the income, revenues, rents,
issues and profits therefrom and apply the same as the court may
direct, such receiver to have all the rights and powers permitted
under the laws of Florida.
In either such case, the Mortgagee or the receiver may also take possession of,
and for these purposes use, any and all personal property which is a part of the
Mortgaged Property and used by the Mortgagor in or arising from the sale, rental
or leasing thereof or any part thereof. The expense (including receiver's fees,
counsel fees, costs and agent's compensation) incurred pursuant to the powers
herein contained shall be secured hereby. The Mortgagee shall (after payment of
all costs and expenses incurred) apply such income, revenues, rents, issues,
proceeds and profits received by it on the indebtedness secured hereby in such
order as the Mortgagee determines. The right to enter and take possession of the
Mortgaged Property, to manage and operate the same, and to collect the income,
revenues, rents, issues, proceeds and profits thereof, whether by a receiver or
otherwise, shall be cumulative to any other right or remedy hereunder or
afforded by law, and may be exercised concurrently therewith or independently
thereof. The Mortgagee shall be liable to account only for such income,
revenues, rents, issues, proceeds and profits actually received by the
Mortgagee.
19. CUMULATIVE RIGHTS ON DEFAULT. If the indebtedness secured hereby is
now or hereafter further secured by mortgages, security interests, financing
statements, pledges, contracts of guaranty, assignments of leases or other
securities, or if the Mortgaged Property hereby encumbered consists of more than
one parcel of real property, the Mortgagee may, at its option, exhaust any one
or more of said securities and security hereunder, or such parcels of the
security hereunder, either concurrently or independently, and in such order as
it may determine. All such remedies may be exercised by the Mortgagee
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<PAGE> 14
without any marshalling of assets, which marshalling of assets the Mortgagor
does hereby expressly waive.
20. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or to be made at the option of the Mortgagee or otherwise, as are
made within twenty (20) years from the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage,
but such secured indebtedness shall not exceed at any time the maximum principal
amount of two times the amount of the Note, plus interest thereon, and any
disbursements made for the payment of taxes, levies or insurance on the
Mortgaged Property with interest on such disbursements. Any such future
advances, whether obligatory or to be made at the option of the Mortgagee or
otherwise, may be made either prior to or after the due date of the Note or any
other Obligations secured by this Mortgage. This Mortgage is given for the
specific purpose of securing any and all indebtedness by the Mortgagor to the
Mortgagee (but in no event shall the secured indebtedness exceed at any time the
maximum principal amount set forth in this paragraph) in whatever manner this
indebtedness may be evidenced or represented until this Mortgage is satisfied of
record. All covenants and agreements contained in this Mortgage shall be
applicable to all further advances made by the Mortgagee to the Mortgagor under
this future advance clause. The Mortgagor agrees that it will not, without the
consent of the Mortgagee, execute and record any notice limiting the right of
the Mortgagee to make or the Mortgagor to accept future advances hereunder.
21. NO WAIVER. No delay by the Mortgagee in exercising any right or
remedy hereunder, or otherwise afforded by law, shall operate as a waiver
thereof or preclude the exercise thereof during the continuance of any Event of
Default hereunder. No waiver by the Mortgagee of any Event of Default shall
constitute a waiver of or consent to subsequent Events of Default. No failure of
the Mortgagee to exercise any option herein given to accelerate maturity of the
debt hereby secured; no forbearance by the Mortgagee before or after the
exercise of such option and no withdrawal or abandonment of foreclosure
proceedings by the Mortgagee shall be taken or construed as a waiver of its
right to exercise such option or to accelerate the maturity of the debt hereby
secured by reason of any past, present or future default on the part of the
Mortgagor; and, in like manner, the procurement of insurance or the payment of
taxes or other liens or encumbrances by the Mortgagee shall not be taken or
construed as a waiver of its right to accelerate the maturity of the debt hereby
secured.
22. RELEASE RIGHTS OF MORTGAGEE. Without affecting the liability of the
Mortgagor or any other person (except any person
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<PAGE> 15
expressly released in writing) for payment of any indebtedness secured hereby or
for performance of any obligation contained herein, and without affecting the
rights of the Mortgagee with respect to any security not expressly released in
writing, the Mortgagee may, at any time and from time to time, either before or
after the maturity of the Note, and without notice or consent:
(a) Release any person liable for payment of all or any part
of the indebtedness evidenced by the Note or for performance of any of
the other Obligations;
(b) Make any agreement extending the time or otherwise
altering the terms of payment of all or any part of the indebtedness
evidenced by the Note, or modifying or waiving any of the other
Obligations, or subordinating, modifying or otherwise dealing with the
lien or charge hereof;
(c) Exercise or refrain from exercising or waive any right the
Mortgagee may have;
(d) Accept additional security of any kind; and
(e) Release or otherwise deal with any property, real or
personal, securing the indebtedness, including all or any part of the
Mortgaged Property.
23. NO FURTHER LIENS OR ENCUMBRANCES. The Mortgagor shall not, without
the Mortgagee's consent, which consent shall not be unreasonably withheld, grant
to any other person whatsoever any lien, mortgage or any other encumbrance
whatsoever on any of the Mortgaged Property. Any attempt by the Mortgagor to do
so shall constitute a default hereunder. Further, any such mortgage or
encumbrance shall be invalid and shall not constitute any lien on the Mortgaged
Property. Included within the term "Mortgaged Property" is the express right of
the Mortgagor to grant to any third party any further interest or right in the
Mortgaged Property, whether by virtue of any junior encumbrance, easement, etc.
24. PRIORITY OVER FUTURE LIENS OR ENCUMBRANCES. Any amendment or
modification of this Mortgage hereafter made by the Mortgagor and the Mortgagee
pursuant to this Mortgage shall be superior to the rights of the holder of any
Lien on the Mortgaged Property arising subsequent to the date of this Mortgage
(provided, however, that this clause shall not by itself authorize or permit any
subsequent liens or encumbrances on the Mortgaged Property which are otherwise
prohibited under the terms of this Mortgage).
15
<PAGE> 16
25. CONDEMNATION. In the event of condemnation proceedings of the
Mortgaged Property or any part thereof, the award or compensation payable
thereunder is hereby assigned to and shall be paid to the Mortgagee. The
Mortgagee shall be under no obligation to question the amount of any such award
or compensation and may accept the same in the amount in which the same shall be
paid. In any such condemnation proceedings, the Mortgagee may be represented by
counsel selected by the Mortgagee. The proceeds of any award or compensation so
received shall, at the option of the Mortgagee, either be applied to the
prepayment of the Note and at the rate of interest provided therein, regardless
of the rate of interest payable on the award by the condemning authority, or at
the option of the Mortgagee, such award shall be paid over to the Mortgagor for
restoration of the Mortgaged Property.
26. DUE ON SALE. The loan evidenced by the Note and secured by this
Mortgage is personal to the Mortgagor and the Mortgagee made the loan to the
Mortgagor based upon the credit of the Mortgagor and the Mortgagee's judgment of
the ability of the Mortgagor to repay all sums due under this Mortgage, and
therefore this Mortgage may not be assumed by any subsequent holder of an
interest in the Mortgaged Property. If all or any part of the Mortgaged Property
or any interest therein, is sold, conveyed, transferred (including a transfer by
agreement for deed or land contract), abandoned or further encumbered by the
Mortgagor or if the Mortgagor shall cease operating an aircraft maintenance
hangar facility on the Real Property, without the Mortgagee's prior written
consent, excluding partial releases of portions of the Mortgaged Property as
provided herein, then in that event the Mortgagee may declare all sums secured
by this Mortgage immediately due and payable.
27. SEVERABILITY. In the event any one or more of the provisions
contained in this Mortgage or in the Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall, at the option of the Mortgagee, not affect any other
provisions of this Mortgage, and this Mortgage shall then be construed as if
such invalid, illegal or unenforceable provision had never been contained herein
or therein. The total interest payable pursuant to the Note or this Mortgage
shall not in any one year exceed the highest lawful rate of interest allowed by
the law of the State of Florida.
28. SUCCESSORS AND ASSIGNS. The covenants and agreements herein
contained shall bind, and the benefits and advantages shall inure to the
respective heirs, executors, administrators, successors and assigns of the
parties hereto; provided, however, that this paragraph shall not of itself
16
<PAGE> 17
authorize the Mortgagor to sell or transfer the Mortgaged Property.
29. MISCELLANEOUS. Wherever used, the singular number shall include the
plural, the plural the singular and the use of any gender shall be applicable to
all genders. If more than one Mortgagor executes this Mortgage, the term
"Mortgagor" includes each of the mortgagors, and all covenants, agreements and
undertakings hereunder shall be joint and several. Time is of the essence of
this Mortgage. The captions set forth to the paragraphs in this Mortgage are for
convenience only and do not limit, expand or define the terms and conditions of
this Mortgage.
30. FINANCIAL STATEMENTS OF THE MORTGAGOR. During the term of this
Mortgage, each Borrower shall furnish the Mortgagee (a) annually, (i) within
ninety (90) days of the expiration of its fiscal year, an audited financial
statement of such Borrower, containing the unqualified opinion of a Certified
Public Accountant acceptable to the Mortgagee, together with (A) a certification
of the Chief Financial Officer of the Borrowers that no default exists under the
loan documents or any other obligations of such Borrower to the Mortgagee and
(B) a certificate confirming the Borrowers' compliance with all financial
covenants and ratios, in form and substance acceptable to the Mortgagee and
certified to the Mortgagee by an authorized financial officer of such Borrower,
(ii) promptly upon receipt thereof, a copy of any management letters submitted
to either Borrower by its independent Certified Public Accountant, and (iii)
within thirty (30) days after their filing, copies of such Borrower's Federal
Income Tax Return; (b) on a quarterly basis, an internally prepared Form 10Q
filed with the Securities and Exchange Commission within forty-five (45) days of
the end of each calendar quarter, certified to the Mortgagee by an authorized
financial officer of such Borrower; and (c) with reasonable promptness, such
other financial information as the Mortgagee may request.
31. GOOD STANDING OF THE MORTGAGOR. The Mortgagor represents and
warrants that it is now and will be during the term of this Mortgage a duly
formed and validly existing corporation in the state of its incorporation, and
is fully qualified to do business in the State of Florida, with full power and
authority to consummate the loan secured hereby.
32. PERMITTED ENCUMBRANCES. The Mortgage granted hereby is not subject
to any encumbrance, mortgage, security interest or any other lien of any nature
whatsoever on the Mortgaged Property except for the following Permitted
Encumbrances;
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<PAGE> 18
(a) Taxes and assessments occurring subsequent to December 31,
1995 (provided, however, this shall not relieve the Mortgagor of its
obligation to pay said taxes and assessments as set forth herein).
(b) Matters as set forth in that certain First American Title
Insurance Company title commitment issued on February 7, 1996 under
Commitment No. FA-CC-95.03899(B).
33. ADDITIONAL AMOUNTS SECURED BY MORTGAGE. This Mortgage secures, in
addition to amounts due under the Note and as otherwise set forth in this
Mortgage, any and all amounts which may be expended or incurred by the Mortgagee
in connection with the Mortgaged Property including, but not limited to, the
costs for any appraisals, title updates or searches, environmental audits or
reviews including, but not limited to, any matters under the Environmental
Agreement, all regardless of whether or not any default has occurred.
34. WAIVER OF JURY TRIAL. THE MORTGAGOR HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY, AFTER CAREFUL CONSIDERATION AND AN OPPORTUNITY TO SEEK LEGAL
ADVICE, WAIVES ITS RIGHT TO HAVE A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF OR IN ANY WAY CONNECTED WITH ANY OF THE PROVISIONS OF THIS
MORTGAGE, THE NOTE, THE LOAN DOCUMENTS, OR ANY OTHER DOCUMENTS EXECUTED IN
CONJUNCTION WITH THE LOAN SECURED BY THIS MORTGAGE.
35. COMPLETE AGREEMENT. This Mortgage constitutes the complete
agreement between the parties hereto and it may not be amended, changed or
modified except by a writing signed by the party to be charged by said
amendment, change or modification.
18
<PAGE> 19
IN WITNESS WHEREOF, the Mortgagor has duly executed this Mortgage as
of the day and year first above written.
Signed, sealed and delivered
in the presence of: AIRTRAN AIRWAYS, INC.
/s/ Peter J. Fides, II By: /s/ John F. Horn
- ----------------------- --------------------
(Signature of Witness) John F. Horn
President and Chief
Peter J. Fides, II Executive Officer
----------------------
(Print Name of Witness)
(CORPORATE SEAL)
/s/ Maria L. Velez
----------------------
(Signature of Witness)
Maria L. Velez
----------------------
(Print Name of Witness)
As to the "Mortgagor"
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this 7th day of
March, 1996, by John F. Horn, as President and Chief Executive Officer of
AIRTRAN AIRWAYS, INC., a Delaware corporation, on behalf of the corporation.
/s/ Peter J. Fides, II
-----------------------------------------
Signature of Notary Public - State of Florida
[SEAL]
Peter J. Fides, II _
Print, type or stamp commissioned name of Notary
Personally known [X] OR
Produced Identification [ ]
Type of Identification Produced:________________
(NOTARIAL SEAL)
19
<PAGE> 20
JOINDER BY CO-BORROWER
The undersigned, being the co-borrower under the loan secured hereby
and co-Maker of the Note, does hereby absolutely and unconditionally agree to be
bound by and to comply with the terms, conditions and obligations of the
foregoing Leasehold Mortgage and Security Agreement applicable to it. The
obligation of the undersigned Co-Borrower shall, as set forth above, survive any
repayment of the Loan, and this obligation may not be canceled in any way
whatsoever by the Co-Borrower.
Dated this 7th day of March, 1996.
Signed, sealed and delivered AIRWAYS CORPORATION
in the presence of:
/s/ Peter J. Fides, II By /s/ John F. Horn
---------------------- -------------------------
(Signature of Witness) John F. Horn
President
Peter J. Fides, II
----------------------
(Print Name of Witness)
(CORPORATE SEAL)
/s/ Maria L. Velez
----------------------
(Signature of Witness)
Maria L. Velez
----------------------
(Print Name of Witness)
As to the Co-Borrower
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this 7th day of
March, 1996, by John F. Horn, as President of Airways Corporation, a Delaware
corporation, on behalf of the corporation.
/s/ Peter J. Fides, II
------------------------------------
Signature of Notary Public, State of
Florida
Peter J. Fides, II
[SEAL] -----------------------------------
(Print/Typed/Stamped Name of Notary
Public)
Personally known [X]; or, Produced
Identification: [ ]; Type of
Identification
Produced:_________________________________
(NOTARIAL SEAL)
20
<PAGE> 21
EXHIBIT "A"
LEGAL DESCRIPTION OF REAL PROPERTY
A part of Section 8, Township 24 South, Range 30 East, Orange County,
Florida, being more particularly described as follows:
Commence at the Southeast corner of said Section 8, Township 24 South,
Range 30 East, (Bearings are based on the Florida Coordinate System, East Zone);
thence North 89 degrees 22'42" West along the South line of said Section 8 for
986.48 feet; thence North 00 degrees 25'23" West for 1108.89 feet to a line
being 150.00 feet Southeasterly of and parallel with the centerline of Taxiway
No. 2; thence South 54 degrees 38'04" West along said line for 121.99 feet to
the Point of Beginning; thence continue South 54 degrees 38'04" West along said
line for 774.06 feet; thence South 35 degrees 21'56" East for 660.00 feet;
thence North 54 degrees 38'04" East for 312.91 feet; thence North 00 degrees
25'23" West for 805.14 feet to the Point of Beginning.
AND that certain parcel more particulary described as follows:
Commence at the Southeast corner of said Section 8, Township 24 South,
Range 30 East, Orange County Florida, (bearings are based on the Florida
Coordinate System, East Zone); thence North 89 degrees 22'42" West along the
South line of said Section 8 for 986.48 feet; thence North 00 degrees 25'23"
West for 1108.89 feet to a line being 150.00 feet Southeasterly of and parallel
with the centerline of Taxiway No. 2; thence South 54 degrees 38'04" West for
121.99 feet; thence South 00 degrees 25'23" East along said line for 686.73 feet
to the Point of Beginning; thence continue North 55 degrees 00'19" East along
said line for 91.00 feet; thence North 34 degrees 59'41" West for 19 feet;
thence North 55 degrees 00'19" East for 85 feet; thence South 34 degrees 59'41"
East for 25 feet; thence North 55 degrees 00'19" East for 55 feet; thence South
34 degrees 59'41" East for 42 feet; thence South 55 degrees 00'19" West for 55
feet; thence South 34 degrees 59'41" East for 25 feet; thence South 55 degrees
00'19" West for 45 feet; thence North 88 degrees 07'29" West for 50 feet; thence
North 34 degrees 59'41" West for 23 feet; thence South 55 degrees 00'19" West
for 104.78 feet; thence North 00 degrees 25'23" West for 24.29 feet to the Point
of Beginning.
<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
SECURITY AGREEMENT
By and Between
AIRTRAN AIRWAYS, INC. AND AIRWAYS CORPORATION
(collectively, the Debtor)
And
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
(the Secured Creditor)
March 7, 1996
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
(The Table of Contents for this Security Agreement is for convenience of
reference only and is not intended to define, limit or describe the scope or
intent of any provisions of this Security Agreement.)
<TABLE>
<CAPTION>
Paragraph Caption Page
------- ----
Number
------
<S> <C> <C>
1. DEFINITIONS.......................................................... 1
-----------
2. COLLATERAL........................................................... 5
----------
3. GRANT OF SECURITY INTEREST........................................... 5
--------------------------
4. REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 5
-----------------------------------------
5. DEFAULT.............................................................. 8
-------
6. RIGHTS UPON DEFAULT.................................................. 9
-------------------
7. PERFECTION........................................................... 11
----------
8. OTHER DOCUMENTS...................................................... 12
---------------
9. NOTICE............................................................... 12
------
10. POWER OF ATTORNEY.................................................... 12
-----------------
11. TERM................................................................. 12
----
12. TIME................................................................. 13
----
13. WAIVER............................................................... 13
------
14. MISCELLANEOUS........................................................ 13
-------------
15. GOVERNING LAW........................................................ 14
-------------
16. SEVERABILITY......................................................... 14
------------
17. DOCUMENTARY STAMPS................................................... 14
------------------
18. NO THIRD PARTY BENEFICIARIES......................................... 14
----------------------------
19. COSTS AND ATTORNEYS FEES............................................. 14
------------------------
20. COMPLETE AGREEMENT................................................... 14
------------------
21. WAIVER OF JURY TRIAL................................................. 15
--------------------
</TABLE>
EXHIBIT A DESCRIPTION OF PERMITTED ENCUMBRANCES
EXHIBIT B PLACES OF BUSINESS
<PAGE> 3
EXHIBIT 10.22
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") made and entered
into this ___ day of March, 1996 by and between:
AIRTRAN AIRWAYS, INC., a Delaware corporation, and AIRWAYS
CORPORATION, a Delaware corporation, 6280 Hazeltine National Drive,
Orlando, Florida 32822 (hereinafter collectively referred to as the
"Debtor"),
and
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, a national
banking association, 200 South Orange Avenue, Orlando, Florida 32801
(hereinafter referred to as the "Secured Creditor").
W I T N E S S E T H:
WHEREAS, the Debtor has requested the Secured Creditor to advance or
loan to it certain money as hereinafter set forth and the Secured Creditor is
unwilling to make such advance or loan unless and until the Debtor has granted
to the Secured Creditor an enforceable and perfected security interest in
certain collateral as hereinafter set forth;
NOW, THEREFORE, the Debtor agrees with the Secured Creditor as
follows:
1. DEFINITIONS. As used in this Security Agreement, the following
terms and conditions shall have the meanings set forth below:
"Cash Collateral Account" shall mean an account of the Debtor
maintained at the Secured Party which shall at all times have a balance equal to
twenty-four (24) then current monthly payments under the Lease from time to
time.
"Chattel Paper" shall mean a writing or writings which evidence both
a monetary obligation and a security interest in or a lease of specific goods.
"Collateral" shall mean the goods and other property described in
paragraph 2 of this Agreement.
<PAGE> 4
"Copyrights" shall mean the rights to all copyrighted material and
all rights under the copyright laws of the United States belonging or ascribed
to the Debtor.
"Document" shall mean any now owned or hereafter acquired bill of
lading, dock warrant, dock receipt, warehouse receipt or order for the delivery
of goods, and also any other document, whether negotiable or non-negotiable,
which in the regular course of business of financing is treated as adequately
evidencing that the person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers.
"Equipment" shall mean all now existing and hereafter acquired goods
(other than inventory and aircraft) located on, or used or usable in connection
with, the real property encumbered by the Leasehold Mortgage, including, but not
limited to, machinery, furniture, furnishings, fixtures, textures, dies, parts
(including spare parts and repair parts) and tools, together with all fittings,
accessories, accessions, additions, modifications, improvements, equipment and
special tools now or hereafter affixed to any or any part of the foregoing or
used in connection with any part of the foregoing and all replacements of any
part thereof and all products and Proceeds of any of the foregoing.
"Fixtures" shall mean goods incorporated into or permanently
attached to a structure.
"Instrument" shall mean a negotiable instrument or any other writing
which evidences a right to payment of money and is not itself a security
agreement or lease and is of a type which is in ordinary course of business
transferred by delivery with any necessary endorsement or assignment.
"Intangible Assets" shall mean any personal property (including
things in action) other than goods, accounts, Chattel Paper, Documents,
Instruments and money and including, but not limited to all of the Debtor's now
owned or hereafter acquired (i) deferred assets, other than prepaid insurance
and prepaid taxes, (ii) goodwill, manufacturing and processing rights, Patents,
Licenses, franchises, permits, Copyrights, trade secrets, customer lists, tax
refund claims, incentive payments, insurance proceeds, experimental expenses and
other similar assets which would be classified as "intangible assets" under
GAAP, (iii) treasury stock and any write-up of the value of any assets after the
date hereof unless in accordance with GAAP, and (iv) all Proceeds of any and all
of the foregoing.
"Lease" shall mean that certain Orlando Tradeport Maintenance Hangar
Lease Agreement dated December 11, 1989 by and
2
<PAGE> 5
and between the Greater Orlando Aviation Authority ("GOAA") and Page Avjet
Corporation ("PAC"), as amended by Amendment No. 1 dated June 22, 1990 by and
between GOAA and PAC, as assigned to Debtor by instrument dated February 29,
1996 by and among Debtor, PAC and Page Avjet Holding Corporation, and as amended
by Agreement and Second Amendment dated January 25, 1996 by and between GOAA and
Debtor.
"Leasehold Mortgage" shall mean that certain Leasehold Mortgage and
Security Agreement of even date herewith executed by the Debtor in favor of the
Secured Creditor and any and all modifications, amendments, restatements or
replacements thereof.
"Letter of Credit Agreement" shall mean that Letter of Credit and
Facility Agreement of even date herewith entered into by and between the Debtor
and the Secured Creditor and any and all amendments, modifications, supplements
or restatements thereof.
"Liabilities" shall mean any and all of the following:
(a) Principal and interest and all other monies due or to
become due under the Promissory Note, including any extensions or renewals
thereof.
(b) Any and all other liabilities or obligations, primary,
secondary, direct, contingent, sole, joint or several, due or to become due, or
which may be hereafter contracted or acquired of the Debtor to the Secured
Creditor including, but not limited to, any and all loans or other advances,
whether obligatory or otherwise, which the Secured Creditor may, but is not
obligated to, make to the Debtor at any time in the future.
(c) All other monies (in addition to principal and interest)
due or to become due the Secured Creditor from the Debtor including, but not
limited to, all costs and expenses including attorney's fees which the Secured
Creditor is entitled or permitted for any reason whatsoever to recover under any
statute, promissory note or agreement, including but not limited to, this
Security Agreement, the Promissory Note and the Leasehold Mortgage. As used
herein and elsewhere in this Security Agreement, costs and expenses, including
attorney's fees, shall include costs and expenses incurred by the Secured
Creditor in proceeding against the Collateral or against the Debtor and shall
include costs and expenses, including attorney's fees, which the Secured
Creditor may incur or become liable for as a result of enforcing any of its
rights and privileges under this Security Agreement, whether in any initial suit
or an appeal therefrom.
3
<PAGE> 6
(d) Any future advances that the Secured Creditor may make to
the Debtor, whether discretionary or obligatory, provided, however, that Secured
Creditor shall be under no duty whatsoever by virtue of this Security Agreement
to make any such future advances whatsoever to the Debtor. In the event the
Secured Creditor subsequent to the date of this Security Agreement makes any
advances to the Debtor, said advances shall conclusively be deemed to be and
shall be future advances under this subparagraph and within the definition of
Liabilities as defined herein.
"Licenses" shall mean any license agreement under which the Debtor
is or becomes licensed to use a patent or trademark and any license agreement
under which the Debtor shall license any third party to use any Patent or
Trademark of the Debtor.
"Patents" shall mean any U.S. patents and U.S. patent
applications, including, without limitation, the inventions and improvements
described and claimed therein, and the reissues and renewals thereof and all
income, royalties, damages and payments now and hereafter due and/or payable
under and with respect to all U.S. patents and U.S. patent applications,
including, without limitation, damages and payments for past or future
infringements thereof.
"Permitted Encumbrances" shall mean those encumbrances, liens or
security interests set forth in Exhibit "A" attached hereto.
"Places of Business" shall mean any location at which the Debtor or
any Subsidiary conducts its business, including, but not limiting to, the
storage of inventory, all of which are set forth in Exhibit "B" attached hereto.
"Proceeds" shall mean all cash and non-cash proceeds received upon
the sale, exchange, collection or other disposition of the Collateral, including
but not limited to insurance payable by reason of loss or damage to Collateral;
provided, however, that nothing in this definition shall in and of itself be
construed to grant the Debtor any authority whatsoever to sell or otherwise
dispose of the Collateral.
"Promissory Note" shall mean that certain Promissory Note executed
by the Debtor in favor of the Secured Creditor dated the date hereof in the face
amount of $2,000,000.00, and all amendments, supplements, renewals and
replacements thereof.
"UCC" shall mean the Florida Uniform Commercial Code as set forth in
Chapters 671 through 680, Florida Statutes, as the same may be amended from time
to time.
4
<PAGE> 7
2. COLLATERAL. As used in this Security Agreement, the term
"Collateral" shall mean and include any and all of the following:
(a) all Chattel Paper, Documents, Equipment, Fixtures,
Instruments, Intangible Assets and the Proceeds thereof, of the Debtor whether
now owned or hereafter existing or acquired;
(b) to the extent not encumbered above, all of the right,
title and interest of the Debtor, whether now owned or hereinafter acquired, in
and to the goods or other property represented by or securing the Chattel Paper
and Instruments;
(c) all rights of the Debtor as an unpaid lienor,
including stoppage in transit, replevin and reclamation;
(d) all monies, bank accounts (including the Cash Collateral
Account), balances, credits, deposits, collections, drafts, bills, notes,
securities, and other property of every kind and nature (whether tangible or
intangible) now owned or hereafter acquired by the Debtor and at any time in the
actual or constructive possession of (or in transit to) the Secured Creditor or
its correspondents or agents in any capacity or for any purpose;
(e) all books, records, ledger cards and other property
relating to (a) through (d) above, including computer programs, tapes and
related software; and
(f) all Proceeds and products of (a) through (e) above.
3. GRANT OF SECURITY INTEREST. To secure the payment of all
Liabilities to the Secured Creditor, the Debtor does hereby grant to the Secured
Creditor a security interest in each and all of the Collateral.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Debtor does hereby
represent and warrant to and covenant with the Secured Creditor as follows:
(a) That the Debtor is the absolute owner of the Collateral
free and clear of all liens and security interests whatsoever except for (i) the
security interest granted the Secured Creditor by this Security Agreement and
(ii) the Permitted Encumbrances.
(b) That the Collateral will be used solely for business
purposes.
5
<PAGE> 8
(c) That the Collateral will be kept at the Places of Business
and the Debtor shall not remove the Collateral from said location(s) without the
prior written consent of Secured Creditor.
(d) That the Debtor will defend the Collateral against the
claims and demands of all persons at any time claiming the same or any interest
therein.
(e) That by virtue of this Security Agreement and the
perfection of said security interest in accordance with the provisions of
paragraph 7 hereof, except for the Permitted Encumbrances the Secured Creditor
has a valid, enforceable, perfected and first priority security interest in the
Collateral.
(f) That except for the Permitted Encumbrances, as they
presently exist as of the date of this Security Agreement, the Debtor has not
and shall not grant to any person other than the Secured Creditor a security
interest or any other interest or claim in the Collateral.
(g) That except for financing statements to perfect the
Permitted Encumbrances as filed as of the date of this Security Agreement, there
is not now and will not be filed in the future in any jurisdiction any financing
statement listing any person other than the Secured Creditor as a secured party
covering any or all of the Collateral.
(h) That the Debtor will not permit any liens or security
interests other than (i) the Permitted Encumbrances and (ii) the Secured
Creditor's security interest, to attach to any of the Collateral, permit any of
the Collateral to be levied upon under legal process, permit anything to be done
that may impair the value of any of the Collateral or the security intended to
be afforded by this Security Agreement, or permit the Collateral to be or to
become a fixture (and it is expressly covenanted, warranted and agreed that the
Collateral, and any part thereof, whether affixed to any realty or not, shall be
and remain personal property), or to become an accession to other goods or
property.
(i) That the Debtor will not sell, transfer, lease or
otherwise dispose of any of the Collateral or any interest therein or offer to
do so without the prior written consent of the Secured Creditor provided,
however, that as long as the Debtor is not in default under this Security
Agreement, it may replace its Equipment due to depreciation, repair and
obsolescence.
(j) That the Debtor will not use the Collateral or permit the
Collateral to be used in violation of any statute or
6
<PAGE> 9
ordinance and the Debtor shall further comply with all statutes, regulations and
ordinances applicable to the use or its ownership of the Collateral and to its
business.
(k) That the Debtor will pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation or upon any note or
notes or other writing evidencing the Liabilities, or any of them.
(l) That during the term of this Security Agreement, the
Debtor shall cause to be maintained on the Collateral insurance in an amount at
least equal to the amount of the Liabilities and shall cause the Secured
Creditor to be noted as a loss payee on said policies. At the request of the
Secured Creditor, the Debtor shall promptly deliver to the Secured Creditor said
policies of insurance along with certificates reflecting the Secured Creditor as
a loss payee and providing for not less than thirty (30) days notice to the
Secured Creditor prior to expiration or cancellation of same, and the Secured
Creditor shall be entitled to retain in its possession said policies or
certificates.
(m) That at its option, the Secured Creditor may discharge
taxes, liens or security interests or encumbrances at any time levied upon or
placed on the Collateral, including, but not limited to, any Permitted
Encumbrances, may pay for insurance on the Collateral, and may pay for the
maintenance and preservation of the Collateral provided, however, the Secured
Creditor shall be under no duty or obligation to do so. The Debtor agrees to
immediately reimburse the Secured Creditor on demand for any such payments made
or any expenses incurred by the Secured Creditor together with interest at the
highest rate permitted by law, pursuant to the foregoing authorization.
(n) That the Debtor's principal place of business is the
address specified in the preamble to this Security Agreement and it will
promptly give the Secured Creditor written notice of any change, provided,
however, that said principal place of business may not be removed from the
County where the Debtor is now located without the prior written consent of the
Secured Creditor. The Debtor further represents and warrants that all of its
business records, including those pertaining to all its accounts, shall be kept
at the above stated address. The Secured Creditor shall have the right at all
times to review, examine and make abstracts from said business records.
(o) That the Secured Creditor shall have the right at all
times to inspect and examine the Collateral and to make schedules and listings
thereof.
7
<PAGE> 10
(p) That the Debtor shall not be dissolved or be consolidated
or merged with any other entity without the prior written consent of the Secured
Creditor nor shall the Debtor transfer (other than in the ordinary course of its
business as permitted herein) a substantial part of its assets.
(q) That the Debtor will immediately notify the Secured
Creditor if the Debtor suffers or permits any substantial or material changes in
management or suffers or experiences any adverse financial change.
(r) That the Debtor will maintain the Collateral in good
condition and repair and shall undertake and perform such other functions as may
be necessary to keep and maintain the Collateral in good condition and repair.
(s) That the Debtor, at the request of the Secured Creditor,
shall furnish to the Secured Creditor such financial statements of and financial
information relating to the Debtor and its business and the Collateral, as the
Secured Creditor may request and in such form as the Secured Creditor may
request from time to time.
(t) That the Debtor shall at all times pay and keep current
all Permitted Encumbrances and shall not default thereunder, but shall not make
any prepayments thereunder.
All of the foregoing representations, warranties and covenants shall
be true and correct throughout the term of this Security Agreement and shall be
fulfilled and maintained by the Debtor throughout the term hereof.
5. DEFAULT. The occurrence of one or more of the following events
shall constitute a default in this Security Agreement:
(a) The failure or omission of the Debtor to pay when due any
Liability, including but not limited to, the failure to pay when due any payment
of interest and/or principal of the Promissory Notes.
(b) The failure of the Debtor to keep, observe or perform any
term or condition of this Security Agreement required hereunder to be kept,
observed or performed by the Debtor and, if capable of being remedied, such
failure shall remain unremedied for 30 days after the earlier of (i) Debtor's
obtaining knowledge thereof, or (ii) written notice thereof shall have been
given to Debtor by Secured Creditor.
(c) The failure of the Debtor or to keep, observe or perform
any term or condition of any loan document, including the
8
<PAGE> 11
Promissory Note, the Leasehold Mortgage, and this Security Agreement, and any
other loan agreement or other loan document evidencing or relating to the
Liabilities required thereunder to be kept, observed or performed by the Debtor.
(d) The making or furnishing by the Debtor to the Secured
Creditor of any representation, warranty or covenant in connection with this
Security Agreement which is false.
(e) The making of an assignment by the Debtor for the benefit
of its creditors.
(f) The commencement of proceedings in bankruptcy for
reorganization of the Debtor or for the adjustment of any of its debts under the
Bankruptcy Code or under any law, whether state or federal, now or hereafter
existing for the relief of debtors.
(g) The appointment of a receiver or trustee for the Debtor or
for any substantial part of its assets, or the institution of any proceedings
for the dissolution, or the full or partial liquidation of the Debtor.
(h) The Debtor becomes insolvent or unable to pay debts as
they mature.
(i) The occurrence of a default or an Event of Default under
the Letter of Credit Agreement or any document executed in connection therewith.
A default under this Security Agreement shall constitute a default
under the terms and conditions of all promissory notes then existing and
executed by the Debtor in favor of the Secured Creditor and shall also be and
constitute a default under all promissory notes and other agreements then
existing and which evidence in any way any Liability to the Secured Creditor
including, but not limited to, any other loan documents or loan agreement
between the Debtor and the Secured Creditor.
6 RIGHTS UPON DEFAULT. Upon the occurrence of any default under this
Security Agreement and the expiration of any applicable cure period, or whenever
the Secured Creditor deems itself insecure, the Secured Creditor shall have and
may exercise any or all of the following rights:
(a) To declare the Liabilities, or any of them
(notwithstanding any provision thereof), immediately due and payable without
demand or notice of any kind and the same thereupon shall immediately become due
and payable without demand or notice, and from and after the date of default the
amount due on the Liabilities shall from and thereafter bear interest at the
9
<PAGE> 12
maximum rate of interest permitted from time to time under Florida law.
(b) To exercise from time to time any and all rights and
remedies of a secured party under the UCC and any and all rights and remedies
available to it under any other applicable law.
(c) To request the Debtor to assemble at its expense the
Collateral and make it available to the Secured Creditor at a convenient place
acceptable to the Secured Creditor and, upon the making of said request, the
Debtor shall promptly comply with said request.
(d) To seize and take possession of the Collateral and dispose
of same under the UCC and, in such case, if any notice is required under
applicable law the giving of five (5) days written notice to the Debtor at its
address set forth herein shall constitute reasonable notice to the Debtor
provided, however, the Secured Creditor shall not by virtue of this Security
Agreement be obligated to give any such notice to the Debtor. If the Debtor
wishes to change its address at which said notice is to be given, the burden
shall be upon the Debtor to so notify the Secured Party in writing and unless or
until said notice is given, all notices sent to the Debtor at the address set
forth herein shall be effective and valid notice to the Debtor. In the event of
default, the Debtor expressly authorizes the Secured Creditor to enter upon all
property owned by the Debtor for the purpose of taking into custody and seizing
any and all of the Collateral. In the event of repossession of any or all of the
Collateral, the Debtor authorizes the Secured Creditor to take into his
possession any personal property found in or on the Collateral and to hold the
same until claimed by the Debtor and in the event such personal property is not
claimed within a reasonable time (not greater than ten (10) days) by the Debtor,
the Secured Creditor is authorized to dispose of same in the same manner as the
Collateral is disposed of and to apply the proceeds resulting therefrom to the
Liabilities.
(e) To immediately offset against the Liabilities all other
monies due or to become due the Debtor from the Secured Creditor, whether said
monies are due or are to become due under this Security Agreement, or any other
relationship whatsoever between the Debtor and the Secured Creditor.
All proceeds resulting from the disposition of any of the Collateral
or the exercise by the Secured Creditor of any of its rights under this Security
Agreement shall be applied without any marshalling of assets first to the
expenses of retaking and preparing the Collateral for sale including expenses of
sale, next to other costs and attorneys' fees incurred by the Secured
10
<PAGE> 13
Creditor in exercising its rights under this Security Agreement, next to the
payment of interest and/or principal due on the Liabilities, as the Secured
Creditor may determine, and finally to any other moneys due the Secured Creditor
from the Debtor. Should any deficiency result after disposition of the
Collateral, the Debtor shall remain liable for any deficiency.
7. PERFECTION. In order to perfect the security interest in the
Collateral granted to the Secured Creditor by the Debtor hereunder, the Debtor
agrees to execute and deliver to the Secured Creditor any and all documents
which are, in the opinion of the Secured Creditor or its counsel, necessary so
as to perfect said security interest including, but not limited to, execution of
appropriate UCC-1 financing statements to be filed with the Florida Secretary of
State and with the appropriate filing officer in such other jurisdictions where
any of the Collateral is or may be located.
The Debtor further authorizes the Secured Party to file, in
jurisdictions where this authorization will be given effect, financing
statements signed only by the Secured Creditor describing the Collateral in the
same manner as it is described herein, and, from time to time, at the request of
the Secured Creditor, the Debtor will execute one or more financing statements
and such other documents (and pay the cost of filing and recording same in all
public offices deemed necessary or desirable by the Secured Creditor) and do
such other acts and things, all as the Secured Creditor may request to establish
and maintain a valid, enforceable and perfected security interest in the
Collateral (free of all other liens and claims whatsoever except for the
Permitted Encumbrances) to secure payment of the Liabilities including, without
limitation, the deposit with the Secured Creditor of any certificate of title
applicable to any of the Collateral and notation thereon of the security
interest hereunder along with any necessary documents including notices of
liens. At the request of the Secured Creditor, this Security Agreement executed
by the Debtor, or a photocopy thereof, shall be deemed to be a financing
statement authorized to be filed in such jurisdictions where such filing will be
given effect.
The Debtor shall pay all costs of filing any financing statement and
all other costs of perfecting the security interest granted hereunder.
8. OTHER DOCUMENTS. During the term of this Security Agreement, the
Debtor agrees to execute any and all other documents which are, in the opinion
of the Secured Creditor or its counsel, necessary to carry out the terms and
conditions of this Security Agreement including the granting of a perfected,
valid and enforceable security interest in the Collateral to the Secured
Creditor.
11
<PAGE> 14
9. NOTICE. All notices under this Security Agreement shall be in
writing and along with all other documents permitted or required to be given
under this Security Agreement shall be deemed to have been given, (i) in the
case of delivery, when delivered to the address set forth in the preamble to
this Security Agreement and addressed to the party involved, (ii) in the case of
mailing, on the third (3rd) business day after said document has been deposited
in the United States Mails, postage prepaid, and sent by certified or registered
mail and addressed to the other party at the address as set forth in the
preamble to this Security Agreement, and (iii) in all other cases when the same
has been actually received by the other party. Either party hereto may change
the address at which said notices are to be sent by the giving of notice of such
change to the other party as set forth herein. In the event the Secured Creditor
is a corporation, all notices sent to the Secured Creditor shall not be deemed
to have been given unless they are given or sent to the attention of the loan
officer in charge of the account of the Debtor and in the event there is no such
loan officer then to the President of the Secured Creditor.
10. POWER OF ATTORNEY. The Debtor does hereby appoint the Secured
Creditor as its attorney-in-fact to execute any and all documents which the
Debtor is required to execute under the Security Agreement including, but not
limited to, all financing statements and other documents which the Debtor is
obligated to execute and deliver under the provisions of paragraph 7 hereof, and
the Debtor further appoints the Secured Creditor as its attorney-in-fact to
endorse in the Debtor's name all checks, drafts and other instruments
representing or constituting payments made on the Collateral in which are made
or delivered to the Secured Creditor in accordance with this Security Agreement.
The power of attorney granted herein shall be irrevocable and be deemed coupled
with an interest.
11. TERM. This Security Agreement and the rights and privileges
granted hereunder to the Secured Creditor shall continue and remain in full
force and effect until all Liabilities have been paid in full to the Secured
Creditor, and the Debtor has no further right to obtain any advances or other
disbursements from the Secured Creditor. At such time, this Security Agreement
shall be marked "Cancelled" and returned to the Debtor and the Secured Creditor
shall further execute a termination statement in regard to any financing
statement that solely relates to the Collateral. Until this Security Agreement
has been so marked "Cancelled" and returned to the Debtor, this Security
Agreement shall continue to secure all Liabilities and, at its option, the
Secured Creditor may retain this Security Agreement and maintain the validity of
any security interest granted hereunder and financing statements relating
thereto for a period not to exceed one hundred twenty (120) days after all
12
<PAGE> 15
Liabilities have been paid in full and, in such event, if the Debtor has not
filed and there has not been filed against it any bankruptcy proceeding under
the Bankruptcy Code during said period, the Secured Creditor shall then cancel
this Security Agreement and terminate any financing statements as set forth
herein.
12. TIME. Time is of the essence for the purposes of this Security
Agreement.
13. WAIVER. No waiver by the Secured Creditor of any default shall
operate as a waiver of any other default or of the same default on a future
occasion. No delay or omission on the part of the Secured Creditor in exercising
any right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Secured Creditor of any right or remedy shall include any other
or further exercise thereof or the exercise of any other right or remedy. The
Debtor further waives all notices whatsoever that the Debtor may be entitled to
under any contract or statute including presentment, notice of dishonor, protest
or notice of protest.
14. MISCELLANEOUS. The provisions of this Security Agreement are
cumulative and are in addition to the provisions of any note secured by this
Security Agreement and the Secured Creditor shall have all the benefits, rights
and remedies on any note secured hereby. If more than one party shall execute
this Security Agreement, the term "Debtor" will mean all parties signing this
Security Agreement and each of them, and all such parties shall be jointly and
severally obligated and liable hereunder. The singular pronoun, when used
herein, shall include masculine and feminine. All rights of Secured Creditor
hereunder shall inure to the benefits of its successors and assigns and all
duties of benefits of its successors and assigns and all duties of obligations
of the Debtor hereunder shall bind the heirs, executors, administrators,
successors and assigns of each Debtor.
15. GOVERNING LAW. This Security Agreement has been delivered in the
State of Florida and shall be construed in accordance with and governed by the
laws of Florida.
16. SEVERABILITY. Whenever possible, each provision of this Security
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement provided, however, if such invalidity adversely affects the
substantial rights of the
13
<PAGE> 16
Secured Creditor under this Security Agreement, all the Liability shall
immediately become due and payable in full.
17. DOCUMENTARY STAMPS. The Debtor shall pay all documentary stamps,
intangible tax, as well as all other taxes and penalties due on any notes
evidencing any of the Liabilities and the Debtor further agrees to indemnify and
hold Secured Creditor harmless from and against any and all such documentary
stamps, intangible taxes and penalties.
18. NO THIRD PARTY BENEFICIARIES. It is the intent and understanding
of the Debtor and the Secured Creditor that this Security Agreement is solely
between them and for their benefit and, accordingly, no party other than the
Debtor and the Secured Creditor shall have any rights or privileges under this
Security Agreement either as third party beneficiaries or otherwise.
19. COSTS AND ATTORNEYS FEES. In the event of any default under this
Security Agreement or the exercise by the Secured Creditor of any of its rights
hereunder, the Debtor shall promptly pay to the Secured Creditor all such costs
and expenses, including attorney's fees. All such costs and expenses, including
attorney's fees, shall further be deemed to be within the term "Liability" and
secured by the Collateral. As used in this Security Agreement, costs and
attorney's fees, shall mean costs and attorney's fees incurred in any suit,
including any appeal therefrom.
20. COMPLETE AGREEMENT. This Security Agreement constitutes the
complete agreement between the parties in regard to the matters set forth herein
and this Security Agreement may not be altered, amended or otherwise modified
except by a writing signed by the person to be charged by said alteration,
amendment or modification. This requirement that this Security Agreement may not
be altered, amended or modified except by a writing, may not itself be waived
except by a writing.
21. WAIVER OF JURY TRIAL. THE DEBTOR AND THE SECURED CREDITOR HEREBY
EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AFTER CAREFUL CONSIDERATION AND
AN OPPORTUNITY TO SEEK LEGAL ADVICE, WAIVE THEIR RESPECTIVE RIGHTS TO HAVE A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF OR IN ANY WAY
CONNECTED WITH ANY OF THE PROVISIONS OF THIS SECURITY AGREEMENT, THE LOAN
AGREEMENT, THE PROMISSORY NOTES, OR ANY OTHER LOAN DOCUMENTS EXECUTED IN
CONJUNCTION WITH THE LOAN.
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<PAGE> 17
IN WITNESS WHEREOF, the Debtor has executed this Security Agreement
as of the date and year first above written.
Signed, sealed and delivered in the presence of:
AIRTRAN AIRWAYS, INC.
/s/ Peter J. Fides, II By:/s/ John F. Horn
- ------------------------- -------------------
(Signature of Witness) John F. Horn
President and Chief
Peter J. Fides, II Executive Officer
-----------------------
(Print Name of Witness)
(CORPORATE SEAL)
/s/ Maria L. Velez
-----------------------
(Signature of Witness)
Maria L. Velez
-----------------------
(Print Name of Witness)
As to Debtor
AIRWAYS CORPORATION
/s/ Peter J. Fides, II By: /s/ John F. Horn
----------------------- --------------------
(Signature of Witness) John F. Horn
President
Peter J. Fides, II
-----------------------
(Print Name of Witness)
(CORPORATE SEAL)
/s/ Maria L. Velez
-----------------------
(Signature of Witness)
Maria L. Velez
-----------------------
(Print Name of Witness)
As to Debtor
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL
ASSOCIATION
By: /s/ William C. Barr, III
---------------------------------
William C. Barr, III,
First Vice President
15
<PAGE> 18
EXHIBIT A
DESCRIPTION OF PERMITTED ENCUMBRANCES
1. Lease of the following aircraft from Polaris Holding Company:
a. Boeing 737-219, U.S. registration No. N460AC,
together with engine and related equipment.
b. Boeing 737-200, U.S. registration No. N461AC, together with
engines and related equipment.
2. Lease of the following aircraft from CIT Leasing Corporation:
a. Boeing 737-297, U.S. registration No. N730AL, together with
engines and related equipment.
b. Boeing 737-214, U.S. registration No. N467AT, together with
engines and related equipment.
c. Boeing 737-222, U.S. registration No. N144AW, together with
engines and related equipment.
3. Dell Computer system, Karouvas Weatherlink FileServer and
Karouvas Satellite Recovery System leased from Leasetec
Corporation.
4. Lease with Interlease Aviation.
5. Lease of rotable equipment from Baron International.
6. Lease with Polaris Aircraft Leasing AB.
7. Notes secured by Aircraft.
8. Lease of office equipment, furnishings and computer equipment.
<PAGE> 19
EXHIBIT B
PLACES OF BUSINESS
<TABLE>
<CAPTION>
Address Owned or Leased
- ------- ---------------
<S> <C>
6280 Hazeltine National Drive Leased
Orlando, Florida 32822
4170 Wiley Drive Leased
Orlando, Florida 32827
</TABLE>
<PAGE> 1
EXHIBIT 11
AIRWAYS CORPORATION
COMPUTATION OF WEIGHTED AVERAGE SHARES AND PER SHARE EARNINGS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
---------------------------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Weighted average number of common shares outstanding 9,029 5,041 -
Pro-forma impact of:
shares issued upon incorporation in 1995 - 3,899 22
shares issued in conjunction with spin-off in 1995 - - 8,905
Net effect of assumed exercise of stock options based on
treasury stock method using average market price - 290 -
-------------------------------------------
Weighted average shares outstanding
(pro-forma in 1996 and 1995) 9,029 9,230 8,927
===========================================
Net (loss) income $ (6,991) $ 1,187 $ (3,496)
===========================================
Net (loss) income per common share (pro-forma in
1996 and 1995) $ (.77) $ .13 $ (.39)
===========================================
</TABLE>
<PAGE> 1
EXHIBIT 18
June 6, 1997
Airways Corporation
Orlando, Florida
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Airways Corporation and
subsidiary (the "Company") as of March 31, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' equity and
group equity, and cash flows for each of the years then ended and have reported
thereon under date of June 6, 1997. The aforementioned consolidated financial
statements and our audit report thereon are included in the Company's annual
report on Form 10-K for the year ended March 31, 1997. As stated in Note (11)
to those financial statements, the Company changed its method of accounting for
Computer Reservation System ("CRS") fee expense and states that the newly
adopted accounting principle is preferable in the circumstances because CRS fee
expense is more appropriately matched with the related revenue and the
treatment of such costs is consistent with the Company's standard revenue
recognition policies. In accordance with your request, we have reviewed and
discussed with Company officials the circumstances and business judgment and
planning upon which the decision to make this change in the method of
accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes of
Airways Corporation and subsidiary's compliance with the requirements of the
Securities and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG PEAT MARWICK LLP
<PAGE> 1
EXHIBIT 21
AIRWAYS CORPORATION AND SUBSIDIARY
SUBSIDIARY OF THE REGISTRANT
The only operating subsidiary of Airways Corporation, a Delaware corporation,
is listed below and is included in the consolidated financial statements:
<TABLE>
<CAPTION>
<S> <C>
STATE IN WHICH
LEGAL NAME OF SUBSIDIARY INCORPORATED
- ------------------------ ------------
AirTran Airways, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report on the combined statements of operations, changes in group equity
and cash flows of The Airways Group for the year ended March 31, 1995 included
in this form 10-K, into the Company's previously filed registration Statement
File No. 33-98566.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 28, 1997 Filing Date
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Airways Corporation and Subsidiary:
We consent to incorporation by reference in the registration statement (No. 33 -
98566) on Form S-8 of Airways Corporation and subsidiary of our report dated
June 6, 1997, relating to the consolidated balance sheets of Airways Corporation
and subsidiary as of March 31, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity and group equity and
cash flows for the years then ended, which report appears in the March 31, 1997
annual report on Form 10-K of Airways Corporation and subsidiary.
KPMG PEAT MARWICK LLP
Orlando, Florida
June 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,354
<SECURITIES> 0
<RECEIVABLES> 4,212
<ALLOWANCES> 0
<INVENTORY> 1,034
<CURRENT-ASSETS> 32,666
<PP&E> 43,890
<DEPRECIATION> (6,192)
<TOTAL-ASSETS> 73,948
<CURRENT-LIABILITIES> 39,810
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 17,550
<TOTAL-LIABILITY-AND-EQUITY> 73,948
<SALES> 102,623
<TOTAL-REVENUES> 102,623
<CGS> 0
<TOTAL-COSTS> 114,745
<OTHER-EXPENSES> (984)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,507
<INCOME-PRETAX> (12,645)
<INCOME-TAX> (5,654)
<INCOME-CONTINUING> (6,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,991)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> 0
</TABLE>
