<PAGE>
Registration No. 333-_______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
VALUJET, INC.
VALUJET AIRLINES, INC. VALUJET INVESTMENT CORP.
VALUJET MANAGEMENT CORP. VALUJET CAPITAL CORP.
VALUJET CORPORATE PARTNERS, L.P. VALUJET I, LTD.
VALUJET RESERVATION PARTNERS, L.P. VALUJET II, LTD.
(Exact name of registrant as specified in its charter)
______________
<TABLE>
<S> <C> <C>
ValuJet, Inc. - Nevada 4512 ValuJet, Inc. - 58-2189551
Other Registrants - * (Primary Standard Industrial Other Registrants - *
(State or other Jurisdiction of Classification Code Number (I.R.S. Employer Identification No.)
incorporation or organization)
ValuJet, Inc. * See Chart Michael D. Acks
1800 Phoenix Boulevard, Suite 126 on following page 1800 Phoenix Boulevard, Suite 126
Atlanta, Georgia 30349 Atlanta, Georgia 30349
(770) 907-2580 (770) 907-2580
Other Registrants - * (Address, including zip code, and
(Address, including zip code, and telephone number including area code,
telephone number including area code, of agent for service)
of registrant's principal executive offices)
</TABLE>
--------------
Copies to:
Robert B. Goldberg, Esq.
Ellis, Funk, Goldberg & Labovitz, P.C.
3490 Piedmont Road, N.E., Suite 400
Atlanta, Georgia 30305
(404) 233-2800
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to be Registered Amount to be Offering Price Aggregate Offering Registration
Registered Per Security (1) Price Fee
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
10 1/4% Senior Notes due 2001 $150,000,000 100% $150,000,000 $51,724.14
- ------------------------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees (2) (2) (2) (2) (2)
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The Company's wholly-owned subsidiaries (the "Guarantors") have guaranteed
on an unsecured, senior basis, jointly and severally, the payment of the
principal of, premium, if any, and interest on the 10 1/4% Senior Notes
being registered hereby (the "Subsidiary Guarantees"). The Guarantors are
registering the Subsidiary Guarantees. Pursuant to Rule 457(n) under the
Securities Act of 1933, as amended, no separate fee is payable for the
registration of the Subsidiary Guarantees.
___________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
Cover Page - Page 2
Information on Registrants Guaranteeing Notes
<TABLE>
<CAPTION>
=============================================================================================================
Address, Including Zip
State or Other I.R.S. Code, and Telephone
Jurisdiction of Employer Number Including
Incorporation or Identification Area Code, of
Name Organization No. Principal Executive
Offices
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ValuJet Airlines, Inc. Nevada 88-0290707 (1)
- -------------------------------------------------------------------------------------------------------------
ValuJet Investment Corp. Nevada 88-0339721 (2)
- -------------------------------------------------------------------------------------------------------------
ValuJet Capital Corp. Nevada 88-0339719 (2)
- -------------------------------------------------------------------------------------------------------------
ValuJet Corporate Partners, L.P. Georgia 58-2179372 (1)
- -------------------------------------------------------------------------------------------------------------
ValuJet Reservation Partners, L.P. Georgia 58-2179373 (1)
- -------------------------------------------------------------------------------------------------------------
ValuJet Management Corp. Nevada 58-2179370 (1)
- -------------------------------------------------------------------------------------------------------------
ValuJet I, Ltd. Nevada 88-0339723 (2)
- -------------------------------------------------------------------------------------------------------------
ValuJet II, Ltd. Nevada 88-0339725 (2)
=============================================================================================================
</TABLE>
(1) 1800 Phoenix Boulevard, Suite 126, Atlanta, Georgia 30349; telephone (770)
907-2580
(2) 6900 Westcliff Drive, Suite 505, Las Vegas, Nevada 89128; telephone (702)
256-4332
<PAGE>
VALUJET, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K, SHOWING THE LOCATION IN THE
PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4.
<TABLE>
<CAPTION>
Item Number and Caption in Form S-4 Location or Caption in Prospectus
- ----------------------------------- ---------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION.
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus....................... Cover Page of Registration Statement; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front Cover Page; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information................................ Prospectus Summary; Risk Factors; Business; Selected Consolidated
Financial Data
4. Terms of the Transaction............................. Prospectus Summary; The Exchange Offer, Description of the Exchange
Notes; Certain United States Federal Income Tax Consequences
5. Pro Forma Financial Information...................... Prospectus Summary; Selected Consolidated Financial and Operating
Data
6. Material Contacts with the Company being Acquired.... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters........ Not Applicable
8. Interests of Named Experts and Counsel............... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT.
10. Information With Respect to S-3 Registrants.......... Prospectus Summary; Risk Factors; Capitalization; Management's
Discussion and Analysis of Financial Condition and Results of
Operations; Selected Consolidated Financial and Operating Data;
Business; Management; Principal Stockholders; Description of the
Exchange Notes; Financial Statements
11. Incorporation of Certain Information by Reference.... Incorporation of Certain Information by Reference
12. Information With Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants.......................... Supplemental Guarantor Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
15. Information With Respect to S-3 Companies............ Not Applicable
16. Information With Respect to S-2 or S-3 Companies..... Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies............................ Not Applicable
D. VOTING AND MANAGEMENT INFORMATION.
18. Information if Proxies, Consents or Other
Authorizations are to be Solicited................... Not Applicable
19. Information if Proxies, Consents or Other
Authorizations are not to be Solicited or
in an Exchange Offer................................. Management
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 14, 1996
PROSPECTUS
VALUJET, INC.
[LOGO]
OFFER TO EXCHANGE
10 1/4% Senior Notes Due 2001
for
All Outstanding 10 1/4% Senior Notes Due 2001
The Exchange Offer will expire at 12:00 midnight, New York Time
on __________________, 1996, unless extended.
ValuJet, Inc., a Nevada corporation (the "Company") , hereby offers, upon
the terms and subject to conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $150,000,000 of its registered 10 1/4%
Senior Notes Due 2001 (the "Exchange Notes") for up to an aggregate principal
amount of $150,000,000 of its outstanding unregistered 10 1/4% Senior Notes Due
2001 (the "Outstanding Notes"). The terms of the Exchange Notes are identical in
all material respects to those of the Outstanding Notes, except for certain
transfer restrictions and registration rights relating to the Outstanding Notes
and except for certain interest provisions related to such registration rights.
The Exchange Notes will be issued pursuant to, and entitled to the benefits of,
the Indenture (as defined herein) governing the Outstanding Notes. The Exchange
Notes and the Outstanding Notes are sometimes referred to collectively as the
"Notes".
The Exchange Notes will be senior unsecured obligations of the Company and
will be unconditionally guaranteed on a senior basis initially by ValuJet
Airlines, Inc., a wholly owned subsidiary of the Company, and its subsidiaries.
The Exchange Notes and the Guarantees will rank pari passu in right of payment
with all senior unsecured indebtedness of the Company and the Guarantors,
respectively, and will rank senior in right of payment to any future
indebtedness of the Company and the Guarantors, respectively, that may be
subordinated thereto. The Exchange Notes and the Guarantees will be effectively
subordinated in right of payment to all existing and future secured indebtedness
of the Company and the Guarantors, respectively, to the extent of the collateral
securing such indebtedness. As of March 31, 1996, after giving effect to this
Offering, the Company had no outstanding indebtedness other than the Notes
offered hereby, and the Guarantors had outstanding indebtedness other than the
Guarantees of $128 million, all of which was senior secured indebtedness. The
Company expects to establish a new bank credit facility. See "Capitalization"
and "Description of the Exchange Notes". The Notes will be effectively
subordinated to all existing and future indebtedness of the Company's
subsidiaries (if any) that are not Guarantors, and would be so subordinated to
all existing and future indebtedness of the Guarantors if the Guarantees were
avoided or subordinated in favor of the Guarantors' other creditors. The ranking
and effectiveness of the Guarantees are subject to certain legal considerations
and are therefore uncertain. See "Risk Factors--Risks Related to the Offering--
Fraudulent Conveyance".
The Company will accept for exchange any and all Outstanding Notes which
are properly tendered in the Exchange Offer prior to 12:00 midnight, New York
time, on __________________, 1996, unless extended by the Company in its sole
discretion (the "Expiration Date"). The Exchange Offer will not in any event be
extended to a date beyond ____________, 1996. Tenders of Outstanding Notes may
be withdrawn at any time prior to 12:00 midnight, New York time, on the
Expiration Date. If the Company terminates the Exchange Offer and does not
accept for exchange any Outstanding Notes with respect to the Exchange Offer,
the Company will promptly return the Outstanding Notes to the holders thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions. The Outstanding Notes may be tendered only in
integral multiples of $1,000.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________________________________
The date of this Prospectus is _________________, 1996.
<PAGE>
(cover page continued)
Interest on the Exchange Notes will be payable semi-annually on April 15
and October 15 of each year, commencing October 15, 1996. Holders of the
Exchange Notes will receive interest on October 15, 1996, from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Outstanding Notes from the later of (i) the most recent date to
which interest has been paid thereon and (ii) the date of issuance of the
Outstanding Notes, to the date of exchange thereof. The Exchange Notes will
mature on April 15, 2001 and will not be subject to redemption at the option of
the Company except as follows. Up to 33% in aggregate principal amount of the
Exchange Notes are redeemable at the option of the Company at any time or times
prior to April 15, 1999, from the net proceeds of one or more public offerings
of Capital Stock of the Company, at a redemption price of 110.25% of the
principal amount thereof, plus accrued and unpaid interest (if any) to the date
of redemption. Upon a Change of Control (as defined), holders of the Exchange
Notes may require the Company to purchase all or a portion of the Exchange Notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest (if any) to the date of purchase. In addition, in the event
of certain asset sales, the Company may be required to make an offer to purchase
Exchange Notes at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest (if any) to the date of purchase, with the net
proceeds of such asset sales. See "Description of the Exchange Notes."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated April 17, 1996 (the "Registration Rights Agreement") by and
among the Company, the Guarantors and Goldman, Sachs & Co., as the initial
purchasers (the "Initial Purchasers") with respect to the initial sale of the
Outstanding Notes. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by the respective holders thereof (other than
any such holder which is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act of 1933, as amended (the
"Securities Act"), provided that the Exchange Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement with any
person to participate in the distribution of such Exchange Notes and is not
engaged in and does not intend to engage in a distribution of the Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Exchange Notes received in exchange for Outstanding Notes if
such Exchange Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed that, for
a period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution".
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
national securities exchange or over-the-counter market system. Future trading
prices of the Exchange Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes offered hereby. However, the Initial Purchasers are not
obligated to do so and any market making may be discontinued at any time without
notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay certain expenses incident to the Exchange Offer.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................................. 3
Incorporation of Certain Information by Reference...................................... 4
Prospectus Summary..................................................................... 5
Risk Factors........................................................................... 16
Use of Proceeds........................................................................ 24
Capitalization......................................................................... 25
The Exchange Offer..................................................................... 26
Selected Consolidated Financial and Operating Data..................................... 33
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 37
Business............................................................................... 44
Management............................................................................. 61
Principal Stockholders................................................................. 63
Description of the Exchange Notes...................................................... 65
Certain United States Federal Income Tax Consequences.................................. 86
Plan of Distribution................................................................... 88
Legal Matters.......................................................................... 89
Experts................................................................................ 89
Supplemental Guarantor Financial Statements............................................ 90
Index to Financial Statements.......................................................... F-1
</TABLE>
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement", which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the Exchange Notes being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to in
the Registration Statement are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Company is subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10007. Copies of such material can be obtained from the Company upon request.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the Exchange Notes reports, information
and documents specified in Section 13 and 15(d) of the Exchange Act, so long as
the Exchange Notes are outstanding, whether or not the Company is subject to
such informational requirements of the Exchange Act. While any Exchange Notes
remain outstanding, the Company will make available, upon request, to any holder
of the Exchange Notes, the information required pursuant to Rule 144A(d)(4)
under the Securities Act during any period in which the Company is not subject
to Section 13 or 15(d) of the Exchange Act. Any such request should be directed
to the Vice President - Controller of the Company at 1800 Phoenix Boulevard,
Suite 126, Atlanta, Georgia 30349, telephone number (770) 907-2580.
-3-
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are hereby incorporated herein by reference: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995; (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; and (iii)
all reports filed by the Registrant pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the quarter covered by the Registrant's Quarterly
Report on Form 10-Q for its quarter ended March 31, 1996. All documents filed by
the Company pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the date which is 90 days after
the termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
-4-
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the information and financial statements (including
the notes thereto) included elsewhere in this Prospectus. Holders of the Notes
should carefully consider the factors set forth in "Risk Factors". Unless
otherwise specified or unless the context otherwise requires, all references to
the "Company" or "ValuJet" shall include its subsidiaries.
THE FOLLOWING SECTION REFLECTS A SUMMARY BASED ON THE COMPANY'S
BUSINESS DURING NORMAL OPERATIONS. AS OF THE DATE OF THIS PROSPECTUS, THE
COMPANY'S NORMAL OPERATIONS HAVE BEEN INTERRUPTED BY THE CRASH OF FLIGHT 592 ON
MAY 11, 1996, AND THE ENSUING EXTENSIVE MEDIA AND FEDERAL AVIATION
ADMINISTRATION (FAA) SCRUTINY. ALTHOUGH THE COMPANY SEEKS TO RESTORE NORMAL
OPERATIONS AS SOON AS REASONABLY PRUDENT, THERE CAN BE NO ASSURANCE AS TO WHEN
THE COMPANY WILL BE ABLE TO REESTABLISH ITS PROFITABLE OPERATIONS, IF AT ALL, OR
TO RESUME ITS PREVIOUSLY PLANNED GROWTH STRATEGY. SEE "PROSPECTUS SUMMARY -
RECENT DEVELOPMENTS" AND "RISK FACTORS - RISKS RELATED TO THE COMPANY - CRASH OF
FLIGHT 592".
THE COMPANY
ValuJet, Inc., through its wholly owned subsidiary, ValuJet Airlines,
Inc., operates a low fare, low cost, no frills, limited frequency, scheduled
airline serving short haul markets primarily in the eastern United States. As of
May 31, 1996, with its fleet of low cost DC-9 and MD-80 aircraft, the Company
offers service to 31 cities from its four "focus cities," Atlanta, Washington
DC, Boston and Orlando. The Company believes that its low cost, no frills
philosophy allows it to offer among the lowest fares in its markets and generate
its own traffic by stimulating incremental demand with price-conscious
travelers.
The Company's principal offices are located at 1800 Phoenix Boulevard,
Suite 126, Atlanta, Georgia 30349 and its telephone number is (770) 907-2580.
RECENT DEVELOPMENTS
On May 11, 1996, ValuJet Flight 592 from Miami to Atlanta crashed in
the Florida Everglades. There were no survivors among the 110 people aboard,
including 105 customers and five flight crew members. The crash, following a
number of incidents and heightened FAA scrutiny, resulted in extensive media
coverage calling into question the safety of low-fare airlines in general and
the Company in particular, despite the fact that the cause of the crash has not
yet been determined. In response to the accident, the FAA announced an
extraordinary review of the Company's operations, including an FAA inspection of
each aircraft before departure, the review of the maintenance history of each
aircraft and the presence of an FAA inspector onboard each Company aircraft at
least once per week. The intensive inspection process and the redoubling of the
Company's focus on safety has resulted in many flight delays and cancellations,
which has created further customer concern about booking or flying the Company's
flights. In response to these circumstances, the Company reduced its schedule
by more than 40% effective May 19, 1996, by reducing service to its markets
without eliminating service to any market. The Company may enact further
reductions in its flight schedule and may eliminate some city destinations in
order to stabilize its operations as a result of further FAA scrutiny. In order
to respond to safety concerns, the Company has retained The Spectrum Group and
has named James B. Davis (USAF-Ret.) as its "safety czar" to conduct a thorough
inspection of the Company's maintenance and safety policies and procedures.
Although the Company expects the extensive FAA inspections to be completed by
mid to late June 1996, the Company is not able to accurately predict when it
will be able to resume its previous level of service, but it is not likely to
occur prior to the end of 1996.
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
Other consequences of the accident and ensuing media coverage and FAA
inspections include:
1. The Company has refunded fares paid by customers affected by the Company's
changing schedules and by those who otherwise chose to change their travel
plans.
2. The Company's load factors and bookings have decreased significantly. The
Company's load factor for May 1996 was 52.7% compared to 71.5% for May 1995,
which takes into account normal loads carried by the Company prior to May
11, 1996. The Company is unable to predict how significantly the accident
will affect future load factors or the length of time load factors will be
impacted.
3. The Company's available seat miles (ASMs) will be less than previously
anticipated due to the reduction in scheduled flights. The Company's revenue
passenger miles (RPMs) will be similarly affected by the decrease in
capacity and load factors.
4. The Company's costs per ASM will likely increase to some extent to reflect
the cost of the additional maintenance inspections and lower aircraft
utilization levels.
5. The Company has sought to defer acceptance of certain aircraft presently
under contract and the Company may lease out or sell some of its aircraft
during the period of reduced operations.
6. The expansion of the Company's operations will likely be subject to FAA
approval for an indefinite period of time.
7. The Company has discontinued its print and radio advertisements on a
temporary basis following the accident. The Company intends to resume such
advertising in the near future.
8. The Company may reduce its workforce if safety concerns or lack of customer
acceptance extends the period prior to the Company reestablishing its
previous level of service.
9. The aircraft destroyed was insured for $4.0 million which is in excess of
its book value. The Company carries $750 million of liability insurance.
Although the Company believes that such insurance will be sufficient to
cover all claims arising from the accident, there can be no assurance that
the aggregate of all claims will not exceed such insurance limits.
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
STRATEGY
The Company's operating strategy is based on its commitment to offer
everyday low fares that stimulate demand from leisure and fare conscious
business travelers. The following summarizes the key elements in this strategy:
. Low Cost Structure. The Company believes it enjoys a substantial
cost advantage over its competitors through its: (i) well
defined, low cost aircraft acquisition strategy; (ii) aggressive
approach to minimizing operating costs including selectively
outsourcing services such as reservation agents, training and
airport operations; (iii) highly motivated and generally non-
union workforce with a flexible wage structure based upon Company
profitability and performance; and (iv) utilization of
proprietary technology, such as its customer-direct ticketless
reservation system, to minimize operating and administrative
costs.
. Labor Advantage. The Company has defined a corporate culture
which is productivity oriented. The Company employs a motivated
and productive workforce at a relatively low base wage but with
financial incentives, including bonuses and stock options, tied
to Company profitability and performance. The Company believes it
has benefited from the substantial pools of veteran airline
industry employees as well as inexpensive entry level applicants
that are available to it in Atlanta and the southeastern United
States.
. Fleet Acquisition. The Company has targeted acquisition of low
cost and complementary aircraft as the basis for its fleet. As of
May 31, 1996, the Company owns and operates 51 DC-9 and MD-80
aircraft, all of which have seats in a single class
configuration. Fixed aircraft ownership costs (depreciation plus
interest expense) represented less than 5% of revenues during the
year ended December 31, 1995. This relatively low percentage of
fixed costs allows the Company to tailor capacity to demand,
permitting the Company to schedule fewer flights during off-peak
demand periods. Future plans for aircraft acquisition call for
the acquisition of both new and used aircraft with low operating
costs, favorable acquisition cost and commonality of parts and
training.
ValuJet intends to acquire additional DC-9-30 series aircraft in
the future because they are inexpensive to acquire and can be
modified to meet Stage 3 noise requirements.
In addition, the Company has entered into a contract with
McDonnell Douglas Corporation ("McDonnell Douglas") to purchase
50 new MD-95 aircraft, to be delivered from 1999 through 2002,
with options to purchase an additional 50 aircraft. The MD-95
aircraft will have 129 seats in a single-class configuration. The
Company estimates that the MD-95 aircraft, with a slightly larger
capacity, increased fuel efficiency and lower maintenance costs,
will provide a cost per ASM lower than its existing DC-9 fleet,
even after including its higher acquisition cost. The Company is
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
the "launch" customer of the MD-95 aircraft. The Company believes
that it will realize substantial savings in training and parts,
as the MD-95 aircraft to be acquired are extensions of the
original DC-9 family of aircraft from McDonnell Douglas. In light
of the foregoing aircraft acquisition program, the Company
expects to seek substantial financing from third party sources.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
. Simplified Product and Distribution. The Company's single class,
no-frills, ticketless service is designed to reduce traditional
distribution costs and maintain the Company's high productivity.
The ticketless, non-refundable aspect of the ValuJet system
results in substantial administrative cost savings. The Company
utilizes a fully integrated, proprietary computer reservation
system to manage productivity. The system: (i) reduces
administrative costs; (ii) provides management with information
on performance in a "real time" basis; and (iii) allows the
Company to maintain a substantial database containing customer
information. The ValuJet system also allows the Company to
emphasize direct marketing through its toll-free 1-800-VALUJET
reservations line, enabling it to reduce the substantial cost of
travel agents, which are typically paid a 10% sales commission
and fees based on segments sold. In addition, the Company
eliminates the cost of participation in computerized reservation
systems and the Airline Reporting Corporation. During the year
ended December 31, 1995, the Company sold approximately 75% of
its seats directly to its customers, which the Company believes
is a substantially greater percentage than industry averages.
. Low Fare Structure. The Company's pricing structure and low
fares are intended to stimulate new demand for air travel by
leisure customers and fare conscious business travelers who would
have otherwise used ground transportation or not have traveled,
as well as to allow it to compete for existing demand. The
Company's simple fare system incorporates a predictable,
"everyday low pricing" fare structure designed to provide its
passengers with substantial savings over its competitors based on
walk up fares and further savings can be realized by purchasing
seats in advance or by flying off peak. In the first quarter of
1996, the Company's average fare in its markets was $72.01,
substantially less than the average fare in those markets prior
to the Company's commencement of operations.
The Company generates its own traffic through low fare market
stimulation rather than pursuing the more traditional airline
approach of competing for market share with existing carriers. By
generating its own traffic, the Company can be successful in
markets that might otherwise be viewed as highly competitive. For
example, since the arrival of ValuJet, travel between Atlanta and
the markets served by the Company increased approximately 89%
based on a comparison of Atlanta traffic volume in the nine month
periods ended September 30, 1994 and September 30, 1993. The
Company believes that its entry into these markets was
responsible, in large part, for such increase in traffic volume.
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER
The Exchange Notes...... The form and terms of the Exchange Notes are identical
in all material respects to the terms of the
Outstanding Notes for which they may be exchanged
pursuant to the Exchange Offer, except for certain
transfer restrictions and registration rights relating
to the Outstanding Notes and except for certain
interest provisions relating to such registration
rights described below under "Description of the
Exchange Notes".
The Exchange Offer...... The Company is offering to exchange up to $150,000,000
aggregate principal amount of registered 10 1/4%
Senior Notes due 2001 (the "Exchange Notes") for up to
$150,000,000 aggregate principal amount of its
outstanding unregistered 10 1/4% Senior Notes due 2001
(the "Outstanding Notes"). Outstanding Notes may be
exchanged only in integral multiples of $1,000.
Expiration Date;
Withdrawal of Tender... The Exchange Offer will expire at 12:00 midnight, New
York time, on _______________________, 1996, or such
later date and time to which it is extended by the
Company. The Exchange Offer will not in any event be
extended to a date beyond _____________, 1996. The
tender of Outstanding Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Outstanding Notes not accepted
for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
Certain Conditions to the
Exchange Offer......... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer - Certain Conditions to the
Exchange Offer".
Procedures for Tendering
Outstanding Notes...... Each holder of Outstanding Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Outstanding Notes and any other required documentation
to the Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of Transmittal,
each holder will represent to the Company that, among
other things, (i) any Exchange Notes to be received by
it will be acquired in the ordinary course of its
business, (ii) it has no arrangement with any person
to participate in the distribution of the
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
Exchange Notes and (iii) it is not an "affiliate", as
defined in Rule 405 of the Securities Act, of the
Company or, if it is an affiliate, it will comply with
the registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
Interest on the Exchange
Notes.................. The Exchange Notes will bear interest at the rate of
10 1/4% per annum, payable semi-annually on April 15
and October 15, commencing October 15, 1996, to
holders of record on the immediately preceding April 1
and October 1, respectively. Holders of the Exchange
Notes will receive interest on October 15, 1996 from
the date of initial issuance of the Exchange Notes,
plus an amount equal to the accrued interest on the
Outstanding Notes from the later of (i) the most
recent date to which interest has been paid thereon
and (ii) the date of initial issuance of the
Outstanding Notes, to the date of exchange thereof.
Interest on the Outstanding Notes accepted for
exchange will cease to accrue upon issuance of the
Exchange Notes.
Special Procedures for
Beneficial Owners...... Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to
tender such Outstanding Notes in the Exchange Offer
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Outstanding
Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in such
owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Guaranteed Delivery
Procedures............. Holders of Notes who wish to tender their Outstanding
Notes and whose Outstanding Notes are not immediately
available or who cannot deliver their Outstanding
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, must
tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer - Guaranteed Delivery Procedures".
Registration Requirements The Company has agreed to use its best efforts to
consummate the Exchange Offer to offer holders of the
Outstanding Notes an opportunity to exchange their
Outstanding Notes for the Exchange Notes which will be
issued without legends restricting the transfer
thereof. If applicable interpretations of the staff of
the Commission do not permit the Company to effect the
Exchange Offer, or in certain other circumstances, the
Company has agreed to file a shelf registration
statement (the "Shelf Registration Statement")
covering resales of the Outstanding Notes and to
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
use its best efforts to cause the Shelf Registration
Statement to be declared effective under the
Securities Act and, subject to certain exceptions,
keep the Shelf Registration Statement effective until
three years after the effective date thereof.
Certain Federal Income
Tax Considerations..... For a discussion of certain federal income tax
considerations relating to the Exchange Notes, see
"Certain United States Federal Income Tax
Consequences".
Use of Proceeds......... There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Exchange Agent.......... Bank of Montreal Trust Company is the Exchange Agent.
The address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer - Exchange
Agent".
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
Securities.............. $150,000,000 principal amount of 10 1/4% Senior Notes
due 2001 issued pursuant to that certain Indenture
(the "Indenture") dated April 17, 1996 between the
Company, its subsidiaries and Bank of Montreal Trust
Company.
Maturity................ April 15, 2001.
Interest Payment Dates.. April 15 and October 15 of each year, commencing
October 15, 1996.
Optional Redemption..... The Exchange Notes will not be subject to redemption
at the option of the Company except as follows. Up to
33% in aggregate principal amount of Exchange Notes
are redeemable at the option of the Company at any
time or from time to time prior to April 15, 1999,
from the net proceeds of one or more public offerings
of Capital Stock of the Company, at a redemption price
of 110.25% of the principal amount thereof, plus
accrued and unpaid interest (if any) to the date of
redemption.
Sinking Fund............ None.
Change of Control....... Upon the occurrence of a Change of Control, each
Holder of Exchange Notes will have the right to
require the Company to purchase all or a portion of
such holder's Exchange Notes at 101% of the principal
amount thereof, together with accrued and unpaid
interest (if any) to the date of purchase. See
"Description of the Exchange Notes - Change of
Control".
Guarantors and
Guarantees............. ValuJet Airlines, Inc. and its existing subsidiaries,
in each case until it ceases to be a Restricted
Subsidiary (as defined in the Indenture governing the
Exchange Notes). The Company will cause any
- --------------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
future Restricted Subsidiary to be a Guarantor while
it remains a Restricted Subsidiary. The Guarantors
will unconditionally guarantee jointly and severally
on a senior basis the due and punctual payment of all
amounts due under the Exchange Notes.
Ranking................. The Exchange Notes and the Guarantees will rank pari
passu in right of payment with all senior unsecured
indebtedness of the Company and the Guarantors,
respectively, and will rank senior in right of payment
to any future indebtedness of the Company and the
Guarantors, respectively, that may be subordinated
thereto. The Exchange Notes and the Guarantees will be
effectively subordinated in right of payment to all
existing and future secured indebtedness of the
Company and the Guarantors, respectively, to the
extent of the collateral securing such indebtedness.
See "Capitalization" and "Description of the Exchange
Notes". In addition, the Exchange Notes will be
effectively subordinated to all existing and future
indebtedness of the Company's subsidiaries (if any)
that are not Guarantors, and would be so subordinated
to all existing and future indebtedness of the
Guarantors if the Guarantees were avoided or
subordinated in favor of the Guarantors' other
creditors. The ranking and effectiveness of the
Guarantees are subject to certain legal considerations
and are therefore uncertain. See "Risk Factors - Risks
Related to the Offering - Fraudulent Conveyance".
Certain Restrictions.... The Indenture governing the Exchange Notes restricts,
among other things, the ability of the Company and its
Restricted Subsidiaries (i) to incur additional
indebtedness, (ii) to pledge or dispose of assets and
(iii) to engage in transactions with affiliates. The
Indenture restricts the ability of the Company (i) to
make distributions on and repurchases of its Common
Stock, (ii) to have restrictions on the ability of
Restricted Subsidiaries to make dividend or other
payments to the Company and (iii) to merge or
consolidate with or transfer all or substantially all
its assets to another entity. The restrictions
referred to above are subject to certain significant
exceptions. In addition, the Company will be entitled
to designate certain subsidiaries as Unrestricted
Subsidiaries which will generally not be subject to
such restrictions and will not be Guarantors. See
"Description of the Exchange Notes".
For additional information regarding the Exchange Notes, see "Description
of the Exchange Notes" and "Certain United States Federal Income Tax
Consequences".
RISK FACTORS
See "Risk Factors", below, for a discussion of certain factors that should
be considered by holders of Outstanding Notes prior to tendering Outstanding
Notes in the Exchange Offer.
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY FINANCIAL AND OPERATING DATA
The following summary financial and operating data for the period from July
10, 1992 (date of inception) to December 31, 1992 and for the years ended
December 31, 1993, 1994, and 1995, are derived from the audited consolidated
financial statements of the Company. The financial and operating data for the
quarters ended March 31, 1995 and 1996, are derived from unaudited consolidated
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals which the Company considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Period from
Inception
(July 10, 1992) Year ended Quarter ended
to December 31, March 31,
----------------------------------- -------------------
December 31, 1992(a) 1993(a) 1994 1995 1995 1996
-------------------- ------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues................. -- $ 5,811 $133,901 $367,757 $ 60,747 $109,995
Operating expenses:
Flight operations.............. -- 474 6,967 16,273 2,707 7,518
Aircraft fuel.................. -- 977 21,775 55,813 10,129 22,076
Maintenance.................... -- 732 14,862 47,330 8,178 15,612
Station operations............. -- 1,199 20,198 49,931 8,990 17,893
Passenger services............. -- 228 3,942 10,363 1,525 3,992
Marketing and advertising...... -- 1,097 6,546 8,989 2,863 4,283
Sales and reservations......... -- 967 11,325 31,156 5,034 8,895
General and administrative..... $ 23 866 5,039 10,617 1,810 3,890
Employee bonus................. -- --- 5,146 14,382 2,432 1,795
Depreciation................... -- 138 3,555 15,147 2,498 6,516
---- ----- ------- ------- ------- -------
Total operating expenses........... 23 6,678 99,355 260,001 46,166 92,470
---- ----- ------- ------- ------- -------
Operating income (loss)............ (23) (867) 34,546 107,756 14,581 17,525
Interest expense............... -- 112 2,388 6,579 1,430 2,403
Interest income................ -- (85) (1,423) (5,555) (1,516) (1,847)
Gain on disposal of fixed
asset......................... -- --- --- (1,094) --- ---
--- ------ ------ ------- ------- -------
Income (loss) before income taxes... (23) (894) 33,581 107,826 14,667 16,969
Provision for income taxes......... -- --- 12,849 40,063 5,596 6,302
--- ------ ------ ------- ------- -------
Net income (loss).................. $(23) $ (894) $ 20,732 $ 67,763 $ 9,071 $ 10,667
=== ====== ====== ======= ======= =======
Ratio of earnings to fixed
charges (b)....................... -- (c) --- (c) 9.5x 11.0x 7.8x 5.2x
---- ------ ------ ------- ------- -------
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.......... $495 $13,247 $ 85,078 $127,947 $107,397 $119,601
Working capital.................... 482 10,284 58,585 63,523 62,710 53,090
Property and equipment, net........ -- 13,458 71,880 196,954 96,034 236,196
Total assets....................... 495 30,264 173,039 346,741 225,762 385,028
Total debt (d)..................... -- 10,397 46,965 109,038 63,873 127,989
Stockholders' equity............... 482 15,143 93,117 162,065 102,397 174,810
OTHER FINANCIAL DATA:
EBITDAR (e)........................ $(23) $(594) $42,827 $135,419 $19,303 $28,920
EBITDA (e)......................... (23) (729) 38,101 122,903 17,079 24,041
EBITDAR margin (f)................. -- (10.2%) 32.0% 36.8% 31.8% 26.3%
EBITDA margin (f).................. -- (12.5%) 28.5% 33.4% 28.1% 21.9%
Operating margin................... -- (14.9%) 25.8% 29.3% 24.0% 15.9%
</TABLE>
See footnotes beginning on page 15
- --------------------------------------------------------------------------------
-13-
<PAGE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Quarter ended
December 31, March 31,
------------------------------------ --------------------
1993(a) 1994 1995 1995 1996
--------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (G):
Revenue passengers enplaned............................ 105,957 2,040,892 5,177,629 900,314 1,466,129
Revenue passenger miles (RPM) (thousands).............. 44,062 940,546 2,624,298 450,028 766,637
Available seat miles (ASM) (thousands)................. 63,265 1,470,614 3,812,696 709,164 1,321,617
Load factor............................................ 69.7% 64.0% 68.8% 63.5% 58.0%
Break-even load factor................................. 72.8% 44.6% 45.8% 45.8% 47.9%
Average fare........................................... $54.62 $63.48 $68.10 $64.67 $72.01
Passenger yield........................................ 13.13c 13.77c 13.44c 12.94c 13.77c
Total revenue per ASM.................................. 9.19c 9.05c 9.62c 8.56c 8.22c
Total cost per ASM
Before employee bonuses............................ 9.75c 6.43c 6.42c 6.15c 6.81c
After employee bonuses............................. 9.75c 6.78c 6.80c 6.50c 6.95c
Completion factor...................................... 98.8% 99.5% 99.0% 99.3% 94.7%
Aircraft in service (end of period).................... 6 22 42 27 47
Cities served (end of period).......................... 8 17 26 23 28
Average passenger trip length (miles).................. 416 461 507 500 523
Average stage length (miles)........................... 393 444 497 499 513
</TABLE>
FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended Quarter ended
December 31, 1995 March 31, 1996
-------------------------- -------------------------
Actual As Adjusted (h) Actual As Adjusted (h)
------ --------------- ------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.............................. $127,947 $274,010 $119,601 $265,664
Working capital........................................ 63,523 209,586 53,090 199,153
Total assets........................................... 346,741 496,741 385,028 535,028
Total debt............................................. 109,038 259,038 127,989 277,989
Stockholders' equity................................... 162,065 162,065 174,810 174,810
OTHER DATA:
EBITDAR (e)............................................ $135,419 $135,419 $ 28,920 $ 28,920
EBITDA (e)............................................. 122,903 122,903 24,041 24,041
Rental expense......................................... 12,516 12,516 4,879 4,879
Interest expense....................................... 6,579 22,742 2,403 6,445
Interest income........................................ 5,555 5,555 1,847 1,847
Net interest expense................................... 1,024 17,187 556 4,598
SELECTED FINANCIAL RATIOS:
EBITDAR to interest expense plus rental expense (i).... 7.09x 3.84x 3.97x 2.55x
EBITDA to interest expense (i)......................... 18.68x 5.40x 10.00x 3.73x
Total debt to EBITDA (j)............................... 0.89x 2.11x 1.33x 2.89x
Net debt to EBITDA (j)(k).............................. (0.15x) (0.12x) .09x .13x
</TABLE>
See footnotes beginning on next page
- --------------------------------------------------------------------------------
-14-
<PAGE>
- --------------------------------------------------------------------------------
_____________________
(a) The Company's flight operations commenced October 26, 1993. Prior to that
time, the Company was in the development stage.
(b) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings consist of income (loss) before income taxes, plus fixed charges
and (ii) fixed charges consist of interest expense incurred, plus the
portion of rent expense under operating leases deemed by the Company to be
representative of the interest factor.
(c) For the period ended December 31, 1992, and for the year ended December 31,
1993, the Company's earnings were insufficient to cover fixed charges by
$23,000 and $894,000, respectively.
(d) The Company owns all of its current aircraft and has had no obligations
under aircraft leases, other than on a short-term, contingency basis. The
Company's rental expense has consisted primarily of airport lease costs.
(e) EBITDAR represents operating income plus depreciation, amortization and
rental expense. EBITDA represents operating income plus depreciation and
amortization. EBITDAR and EBITDA are included as supplemental disclosure
because they are generally accepted as providing useful information
regarding a company's ability to service and incur debt. EBITDAR and EBITDA
should not, however, be considered in isolation as a substitute for net
income, cash flow provided by operating activities or other income or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(f) EBITDAR margin is EBITDAR as a percentage of operating revenues. EBITDA
margin is EBITDA as a percentage of operating revenues.
(g) All operating data other than total revenue per ASM and total cost per ASM
refers to scheduled service. The terms included in operating data have the
meanings indicated below:
"REVENUE PASSENGERS ENPLANED" represents the number of paid passengers
boarded.
"REVENUE PASSENGER MILES" or "RPMS" represents the number of miles flown by
revenue passengers on scheduled flights.
"AVAILABLE SEAT MILES" or "ASMS" represents the number of seats available
for passengers on scheduled flights multiplied by the number of miles those
seats are flown.
"LOAD FACTOR" represents revenue passenger miles divided by scheduled
service ASMs.
"BREAK-EVEN LOAD FACTOR" represents the percentage of revenue passenger
miles which must be flown for the airline to break even after operating and
interest expenses but without regard to amounts payable under the employee
bonus program which will be paid at the discretion of the Company only if
the Company is profitable. Break-even load factor is calculated by taking
total expenses less employee bonuses and other revenue, divided by total
service ASMs, divided by passenger yield.
"AVERAGE FARE" represents passenger revenue divided by revenue passengers
enplaned.
"PASSENGER YIELD" represents the total passenger revenue divided by RPMs.
"TOTAL REVENUE PER ASM" represents total revenues divided by total
available seat miles (including charter service ASMs).
"TOTAL COST PER ASM" represents total expenses (before or after employee
bonuses, as indicated) divided by total available seat miles (including
charter service ASMs).
"COMPLETION FACTOR" represents the percentage of scheduled flights actually
flown by the Company.
"AVERAGE PASSENGER TRIP LENGTH" represents the distance computed by
dividing revenue passenger miles by revenue passengers enplaned.
"AVERAGE STAGE LENGTH" represents the scheduled aircraft miles flown
divided by the total number of departures.
(h) As adjusted to give effect to the sale of the Notes by the Company, after
payment of underwriting discount of $3,937,500, as though the Company had
issued the Notes as of the beginning of the period for statement of
operations purposes and as of the end of the period for balance sheet
purposes.
(i) The Indenture refers to a Consolidated Cash Flow Ratio which differs from
the EBITDAR and EBITDA ratios set forth above. The Consolidated Cash Flow
Ratio for the year ended December 31, 1995 and for the quarter ended March
31, 1996, as adjusted, would have been 5.70x and 4.02x, respectively. See
"Description of the Exchange Notes."
(j) Total debt and net debt to EBITDA for the quarter ended March 31, 1996,
actual and as adjusted, were calculated using an annualized EBITDA.
(k) Net debt represents total debt less cash and cash equivalents.
- --------------------------------------------------------------------------------
-15-
<PAGE>
RISK FACTORS
Prior to tendering Outstanding Notes in the Exchange Offer, holders of
Outstanding Notes should read this entire Prospectus carefully and should
consider, among other things, the risks and the speculative factors inherent in
and affecting the Company's business described below and throughout this
Prospectus.
RISKS RELATED TO THE COMPANY
Crash of Flight 592
As a result of the crash of Flight 592 and the ensuing media and FAA
scrutiny, the following additional risk factors are faced by the Company:
1. There can be no assurance that the Company will be able to recover
sufficient customer acceptance in order to regain profitability.
2. Even if the Company regains profitability, the Company may have
permanently lost a certain amount of customer support which could decrease the
Company's profitability indefinitely.
3. The expansion of the Company's operations will likely be subject to
FAA approval for an indefinite period of time.
4. If the FAA determines that there is a problem in the Company's
aircraft fleet or operations such that the Company's aircraft are grounded or
the Company's operations are shut down, even if for a limited time, the Company
will likely face further losses of customer support in addition to the costs
incurred during the period affected.
5. If the National Transportation Safety Board (NTSB) were to determine
that the Company's maintenance procedures or aging aircraft contributed to the
cause of the accident, such determination could have a substantial adverse
effect on the Company's future operations.
6. The occurrence of one or more subsequent incidents or accidents by
ValuJet's aircraft could have a substantial adverse effect on the Company's
future operations.
See "Prospectus Summary - Recent Developments".
Limited Operating History
The Company began flight operations on October 26, 1993, and has been
profitable during its limited operating history. There can be no assurance that
the Company will continue to be profitable based on its limited period of
operations. The Company's success in the future will depend on the Company's
ability to continue to stimulate air traffic in existing and new markets and to
maintain a low cost structure that will allow the Company to operate profitably
its low fare, no frills, limited frequency service.
Atlanta Market Dominance by Delta Air Lines, Inc.
The Atlanta market is currently dominated by Delta Air Lines, Inc.
("Delta"), which presently offers more than 550 flights per day from Atlanta.
There can be no assurance that the Company will continue to be successful in
light of Delta's Atlanta market dominance.
In April 1994, Delta announced its intention to reduce its system unit
costs per ASM by 20% to 7.5 cents per ASM over a three year period. Delta stated
that it is likely that its restructuring will result in a higher frequency, low
cost operation in certain short haul markets as its costs are reduced. Delta
announced that it was successful in meeting the first threshold of its three
year plan as it achieved costs per ASM of 8.4 cents during its June 1995 quarter
compared to its target goal of 8.5 cents for such quarter. If Delta is
successful in lowering its costs, it would be able to compete more effectively
with the
-16-
<PAGE>
Company on a low fare basis over a prolonged period of time. In such event, the
Company would need to rely to a greater degree on stimulation of traffic, its
marketing efforts and its low cost structure in order to continue to be
successful.
In September 1995, Delta announced that it is considering starting a low
cost, no frills operation that would compete with carriers such as the Company.
In December 1995, it was reported that Delta is seeking to launch a low fare,
short haul operation as early as the first quarter of 1996. The new service,
which would initially include 18 aircraft, would be flown by pilots who would be
paid less, fly longer hours and operate under more efficient work rules than
other Delta pilots. In February 1996, Delta announced that it has reached a
tentative accord with its pilots union, which could enable Delta to implement
this service. The Company is unable at this time to ascertain the impact on its
operations of such low fare service that may be implemented by Delta.
Dependence on Executive Officers
The Company is dependent on the services of Robert L. Priddy (Chairman of
the Board and Chief Executive Officer) and Lewis H. Jordan (President and Chief
Operating Officer). The loss of services of these officers could materially and
adversely affect the business of the Company and its future prospects. The
Company has employment agreements with each of these officers, each of which are
terminable at any time by either party. The Company does not, and does not
presently intend to, maintain key man life insurance on any of the Company's
officers.
Management of Growth
The Company has experienced rapid growth in the number of aircraft,
employees, the scope of its operating and financial systems and the geographic
area of its operations. This growth has increased the operating complexity of
the Company, as well as increased the level of responsibility for both existing
and new management personnel. The Company intends to continue increasing the
number of its aircraft in service and to add new routes to its operations after
it has resumed normal operations and subject to FAA approval. See "Business--
Aircraft." In managing this growth, the Company will be required to continue to
improve its operating and financial systems to expand, train and manage its
employee base. There can be no assurance that the Company will be able to
attract and retain qualified employees to meet the Company's needs during its
growth or to manage expanding operations in a manner sufficient to remain
competitive.
Risks of Expansion
The Company intends to expand its operations into new markets after it has
resumed normal operations and subject to FAA approval. Although the Company's
low fare service has been readily accepted in the Company's existing markets,
there can be no assurance that its service will be accepted in new markets. For
example, the Company introduced service to Montreal in March 1995 and, in
response to unfavorable results in this market, discontinued service in
September 1995. Furthermore, the Company's continued expansion will require
substantial additional capital expenditures, thereby increasing the risks
associated with an expanding operation.
Nontraditional Distribution System and Reliance on Automation
The Company employs a computerized airline reservation system designed to
meet its specifications. Under this system, the Company does not issue
traditional airline tickets; instead at the time of sale/reservation, the
Company provides its customers with a confirmation number similar to the systems
used by hotels and car rental agencies. Furthermore, the Company does not
participate in the Airline Reporting Corporation ("ARC"), the airline industry
collection agent for travel agency sales. The Company bills and collects
directly from travel agents based on sales information generated through its
automation system at the time of the travel agent reservation. The Company
relies on its computerized information and reservation system as an important
factor in its business strategy. The Company's information systems have not
previously been used with the volume of traffic experienced and anticipated by
the Company. Unanticipated problems may be encountered with higher volumes or
with additional automation features, in which case the Company might experience
system breakdowns, delays and additional, unbudgeted expense to remedy the
defect or to replace the defective system with an alternative system. Any
material failure of such system could materially adversely affect the Company's
business.
-17-
<PAGE>
The DOT has requested comments on the application of air carrier passenger
notice requirements to ticketless air travel. Any new requirement that
ticketless passengers receive notice documentation could increase the cost and
adversely affect the operational effectiveness of the Company's ticketless
travel approach. See "Business--Government Regulation."
Airport Access
As of May 31, 1996, the Company provides air service to 31 markets,
including its focus cities of Atlanta, Washington DC (Dulles), Boston and
Orlando. The Company's markets are located primarily in the eastern United
States. In late 1995, the Company attempted to acquire slots at New York's
LaGuardia Airport from TWA. When the slots were ultimately sold to Delta, the
Company filed suit to enjoin the transaction. Although injunctive relief was
denied, the Company has amended the lawsuit seeking antitrust damages. See
"Business--Litigation." More recently, the Company was able to lease other slots
at LaGuardia from Continental Airlines for a period of time that has enabled the
Company to commence service to New York City in May 1996. The Company continues
to seek additional and longer term slots at LaGuardia. Access to certain "slot"
controlled airports (such as Washington's National, New York's Kennedy and
LaGuardia and Chicago's O'Hare) is limited and there can be no assurance that
the Company would be able to obtain or maintain access to such airports at an
acceptable cost. Any condition which would deny or limit the Company's access to
the airports it serves, or which diminishes the desire or ability of potential
customers to travel between any of the cities it serves, may have a material
adverse effect on the Company's business.
Aging Aircraft; Maintenance and Reliability
As of May 31, 1996, 47 of the 51 aircraft in the Company's fleet were DC-9
aircraft manufactured between 1967 and 1976 and having an average number of
take-off and landing cycles per aircraft of approximately 67,000, which is
substantially higher than the industry average. Because many aircraft components
are required to be replaced after specified numbers of flight hours or take-off
and landing cycles and because new aviation technology may be required to be
retrofitted, in general, the cost to maintain aging aircraft will exceed the
cost to maintain newer aircraft. The Company believes that its cost to maintain
these aircraft is and will continue to be consistent with industry experience
for this aircraft type and age used by comparable airlines. Included in these
maintenance expense assumptions are current requirements to comply with existing
Aging Aircraft Airworthiness Directives ("ADs") promulgated by the United States
Federal Aviation Administration ("FAA"). Amendments to FAA regulations have been
proposed and are currently pending administrative approval which would require
certain heavy maintenance checks and other maintenance requirements for aircraft
operating beyond certain operational limits. It is likely that these maintenance
requirements will apply to the aircraft operated by the Company, although it is
uncertain whether the proposed amendments will require any changes to the heavy
maintenance procedures already utilized by the Company. In addition, the Company
may be required to comply with any other future aging aircraft issues,
regulations or ADs. There can be no assurance that the Company's costs of
maintenance (including costs to comply with aging aircraft requirements) will
not materially increase in the future.
The Company believes that its aircraft are and will be mechanically
reliable based on the percentage of scheduled flights completed during its
initial operations. There can be no assurance that the Company's aircraft will
continue to be sufficiently reliable over longer periods of time. Furthermore,
given the age of the Company's fleet, any public perception that the Company's
aircraft are less than completely reliable could have a material adverse effect
on the Company's business. The crash of Flight 592 has further contributed to a
negative public perception as to the safety of the Company's aircraft and
operations. See "Prospectus Summary - Recent Developments" and "Risk Factors -
Risks Related to the Company - Crash of Flight 592".
In June 1995, the failure of a high compressor disk in an engine caused a
fire onboard an aircraft prior to takeoff, causing substantial damage and
rendering the aircraft economically unrepairable. Several customers sustained
minor injuries and one flight attendant sustained injuries requiring
hospitalization. Although the final National Transportation Safety Board report
on this matter has not yet been issued, the FAA has issued an airworthiness
directive requiring the early inspection of certain engines acquired by the
Company from Turkish Airlines. Although the Company is in the process of
complying with this airworthiness directive and does not have any reason to
believe that its aircraft or engines are more susceptible to any future such
incidents than any other airline, there can be no assurance that the Company's
operations will be free from such incidents in the future.
-18-
<PAGE>
The Company's aircraft have suffered other incidents which have resulted in
damage to the aircraft but no personal injuries. Such incidents could cause a
public perception that some of the Company's aircraft are less safe or reliable
than other aircraft, as well as increased regulatory scrutiny of the Company,
which could have a material adverse effect on the Company's business. See "--
Risks Related to the Industry and the Company--Federal Regulation."
Stage 3 Compliance
To satisfy FAA rules regarding allowable noise levels, before January 1,
1997, each new entrant airline must have at least 50% of its fleet in compliance
with Stage 3 noise level requirements. The balance of each airline's fleet must
be brought into compliance with Stage 3 noise requirements in phases, with 75%
compliance required by December 31, 1998, and full compliance by December 31,
1999. As of May 31, 1996, 26 of the Company's 51 aircraft meet the Stage 3
requirements. The Company intends to meet its Stage 3 noise requirement
obligations by installing hush kits on Stage 2 aircraft and acquiring Stage 3
aircraft. For a discussion of the cost of Stage 3 hush kits, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." Although the Company does not believe that
there will be a problem in installing the hush kits or acquiring Stage 3
aircraft on a timely basis, there can be no assurance that the Company will be
able to do so or that failure to do so will not have a material adverse effect
on the Company's business.
Fuel Efficiency
The Company's DC-9-32 aircraft are relatively fuel inefficient compared to
newer aircraft and industry averages. A significant increase in the price of jet
fuel would therefore result in a disproportionately higher increase in the
Company's average total costs than that of its competitors using more fuel
efficient aircraft. In August 1993, the federal taxes on domestic fuel were
increased by 4.3 cents per gallon. Aviation fuel was exempt from this tax
increase until October 1, 1995. Although the exemption no longer applies, the
aviation industry has proposed an extension of this exemption. The Company
cannot predict whether the proposed extension will be approved. If the 4.3 cents
per gallon charge was retroactively applied to the Company's fuel purchases for
the year ended December 31, 1995, the Company's cost per ASM would have
increased by less than one-tenth of one cent.
The cost and availability of fuel are subject to many economic and
political factors and events occurring throughout the world. The Company has no
agreement with any fuel suppliers assuring the availability and price stability
of fuel. Consequently, the future cost and availability of fuel to the Company
cannot be predicted, and substantial price or tax increases or the
unavailability of adequate supplies could have a material adverse effect on the
Company's business.
Aircraft Acquisition and Capital Expenditures
The Company intends to acquire additional aircraft to meet future expansion
needs. The Company has contracted with McDonnell Douglas to provide the majority
of these aircraft. See "Business--Aircraft." In the event that McDonnell Douglas
fails to perform its obligations in a timely manner, aircraft may not be
available at prices and terms satisfactory to the Company.
The total cost of the MD-95 aircraft to be provided by McDonnell Douglas
will exceed $1.0 billion. While McDonnell Douglas has committed to provide
assistance with respect to the financing of the aircraft to be acquired, the
Company will be required to obtain the financing from other sources. While the
Company believes that financing for these aircraft is currently available, there
can be no assurances that such additional financing will remain available or be
available on attractive terms.
For a summary of some of the Company's capital requirements under its
aircraft acquisition program, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Expansion may be delayed by the crash of Flight 592 and the resulting
heightened FAA scrutiny and customer acceptance problems. See "Prospectus
Summary - Recent Developments" and "Risk Factors - Risks Related to the Company-
Crash of Flight 592".
-19-
<PAGE>
Employee Relations
The Company believes it operates with lower labor costs than many
established airlines, principally due to lower base salaries and greater
flexibility in the utilization of personnel. The Company's profitability may
make it more difficult to maintain lower base salary levels. Consequently, there
can be no assurance that the Company will be able to maintain these advantages
for any extended period of time. Many airline industry employees are represented
by labor unions. The Company's employees are non-union other than the Company's
flight attendants who have recently voted to be represented by the Association
of Flight Attendants ("AFA"). The AFA has filed a lawsuit against the Company
regarding the termination of employment of certain former flight attendants. See
"Business--Litigation." There can be no assurance that the unionization of the
Company's employees will not materially increase the Company's costs.
Reliance on Others
The Company has entered into agreements with contractors, including other
airlines, to provide certain facilities and services required for its
operations, including aircraft maintenance, ground facilities, reservation
agents, baggage handling and personnel training. The Company will likely need to
enter into similar agreements in any new markets it decides to serve. All of
these agreements are subject to termination after notice. The Company's reliance
upon others to provide essential services on behalf of the Company may result in
relative inflexibility in controlling the efficiency, timeliness and quality of
contract services. Management expects that the Company will be required to rely
on such contractors for some time in the future.
Risk of Loss
As evidenced by the crash of Flight 592 on May 11, 1996, the Company is
exposed to potential catastrophic losses that may be incurred in the event of an
aircraft accident. Any such accident could involve not only repair or
replacement of a damaged aircraft and its consequent temporary or permanent loss
from service, but also significant potential claims of injured passengers and
others. The Company is required by the Department of Transportation ("DOT") to
carry liability insurance on each of its aircraft. The Company currently
maintains liability insurance in the amount of $750 million per occurrence.
Although the Company currently believes its insurance coverage is adequate,
there can be no assurance that the amount of such coverage will not be changed
or that the Company will not be forced to bear substantial losses from
accidents. Substantial claims resulting from an accident in excess of related
insurance coverage could have a material adverse effect on the Company.
Moreover, any aircraft accident, even if fully insured, could cause and has
caused a public perception that some of the Company's aircraft are less safe or
reliable than other aircraft, which could have and has had a material adverse
effect on the Company's business.
Control by Management Group
The Company's Executive Officers and Directors (seven persons) currently
own approximately 37% of the Company's outstanding voting stock, without taking
into account the exercise of any of the outstanding employee stock options to
purchase Common Stock. These stockholders, acting together, would be able to
exercise significant control over all matters requiring stockholder approval,
including election of directors and approval of significant corporate
transactions. See "Principal Stockholders."
RISKS RELATED TO THE INDUSTRY AND THE COMPANY
Competition and Competitive Reaction
The airline industry is highly competitive, primarily due to the effects of
the Airline Deregulation Act of 1978 (the "Deregulation Act"), which has
substantially eliminated government authority to regulate domestic routes and
fares, and has increased the ability of airlines to compete with respect to
destination, flight frequencies and fares. The Company competes with airlines
which presently serve the Company's current and proposed routes and which are
larger and have greater name recognition and greater resources than the Company.
The Company may also face competition from airlines which may begin serving any
of the markets the Company serves, from an expansion of existing low fare
service offered by current competitors,
-20-
<PAGE>
from new low cost airlines that may be formed to compete in the low fare market
(including any that may be formed by Delta or other major airlines) and from
ground transportation alternatives.
Other airlines may meet or price their fares below the Company's fares or
introduce new non-stop service between cities served by the Company on a one-
stop basis, and prevent the Company from attaining a share of the passenger
traffic necessary to maintain profitable operations. The Company's ability to
meet price competition depends on its ability to operate at costs equal to or
lower than its competitors or potential competitors. In addition, competitors
with greater financial resources than the Company may price their fares below
the Company's fares or increase their service which could have a material
adverse effect on the Company's business.
Unlike most of its competitors, the Company does not offer or plan to offer
a frequent flyer program or participate in the airline industry's computerized
reservation systems ("CRSs") used extensively by travel agents. Lack of such
frequent flyer program and participation in the CRSs could become a competitive
disadvantage.
Cyclical Nature of Airline Industry
The airline industry is highly sensitive to general economic conditions.
Because a substantial portion of airline travel (both business and personal) is
leisure travel, the industry tends to experience severe adverse financial
results during general economic downturns. Any prolonged general reduction in
airline passenger traffic may adversely affect the Company, particularly since
the Company is substantially dependent on the stimulation of additional
discretionary air travel.
Federal Regulation
The Company has the necessary authority to conduct flight operations,
including a Certificate of Public Convenience and Necessity from the DOT and an
operating certificate from the FAA; however, the continuation of such authority
is subject to continued compliance with applicable statutes, rules and
regulations pertaining to the airline industry, including any new rules and
regulations that may be adopted in the future. The FAA has the authority to
bring proceedings to enforce the safety laws and regulations under the Federal
Aviation Act of 1958, as amended (the "Aviation Act"), including the assessment
of civil penalties, suspension or revocation of the Company's authority to
operate and the pursuit of criminal sanctions. The DOT has similar authority
with regard to enforcement of the economic laws and regulations under the
Aviation Act. No assurance can be given with respect to the cost of compliance
with all present and future rules and regulations and the effect on the business
of the Company, particularly its expansion plans and aircraft acquisition
program.
As a result of certain recent incidents involving the Company's aircraft,
including five in January and February, 1996, as well as the Company's rapid
growth, the FAA conducted a special review of the Company's operations in
February 1996. The FAA raised concerns about pilot training and the quality of
maintenance provided by outside contractors and indicated that it intends to
maintain an increased level of scrutiny of the Company for a period of time. The
Company has a policy of promptly and affirmatively responding to all comments
from the FAA regarding the Company's operations. The Company elected to take a
hiatus from rapid growth during the spring and summer of 1996 in order to
concentrate on its product integrity prior to the commencement of the Olympic
Games. This decision was made, in part, in response to increased FAA scrutiny
and requirements relating to the Company that resulted from the recent incidents
involving the Company's aircraft.
Extraordinary regulatory review of the Company's operations by the FAA
followed the crash of Flight 592 on May 11, 1996, and the additional scrutiny
has adversely affected the Company's operations during that time. See
"Prospectus Summary - Recent Developments" and "Risk Factors - Risks Related to
the Company - Crash of Flight 592". The increased and continuing regulatory
scrutiny could affect the Company's operations and expansion plans beyond 1996.
-21-
<PAGE>
RISKS RELATED TO THE OFFERING
Ranking of Exchange Notes and Guarantees as Unsecured Obligations; Holding
Company Structure
The Exchange Notes and the Guarantees will rank pari passu in the right of
payment as to all existing and future unsecured indebtedness of the Company and
the Guarantors, respectively, and senior in right of payment as to any future
unsecured indebtedness that may be expressly subordinated to the Exchange Notes
or the Guarantees, as the case may be. The Exchange Notes are not secured by any
of the assets of the Company and are general unsecured obligations of the
Company. The Exchange Notes and the Guarantees will be effectively subordinated
to all existing and future secured indebtedness of the Company and the
Guarantors, respectively, to the extent of assets of the Company or the
Guarantors pledged as collateral. The Company and its subsidiaries, including
the Guarantors, are permitted to incur a substantial amount of secured
indebtedness and expect to do so. See "Description of the Exchange Notes--
Covenants--Limitation on Company Debt" and "--Limitation on Subsidiary Debt and
Preferred Stock." In the event of any distribution or payment of the assets of
the Company or the Guarantors in any foreclosure, dissolution, winding-up,
liquidation or reorganization, holders of secured indebtedness will have a
secured prior claim to the assets of the Company or the Guarantors which
constitute their collateral. In the event of bankruptcy, liquidation or
reorganization of the Company or the Guarantors, holders of the Exchange Notes
and Guarantees will participate ratably with all holders of indebtedness of the
Company and the Guarantors which is unsecured and all other general creditors of
the Company and the Guarantors, based upon the respective amounts owed to each
holder or creditor in the remaining assets of the Company and the Guarantors,
and there may not be sufficient assets to pay amounts due on the Exchange Notes.
Because the Company is a holding company that conducts its operations
through subsidiaries, it has few assets of its own; substantially all the assets
and all of the indebtedness (other than the Notes) reflected in the Company's
consolidated balance sheet included herein are assets and indebtedness of the
Company's subsidiaries. Although the Exchange Notes are senior obligations of
the Company, they are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries that are not Guarantors and to all
existing and future liabilities of the Guarantors in the event the Guarantees
were avoided or subordinated in favor of the Guarantors' other creditors. See
"--Fraudulent Conveyance" below. In the event the Guarantees were so avoided or
subordinated, the Exchange Notes would be effectively subordinated to all
existing and future liabilities of all of the Company's subsidiaries with
respect to substantially all the Company's assets on a consolidated basis.
Moreover, the Indenture permits assets to be held and indebtedness to be
incurred by the Company's subsidiaries. See "Description of the Exchange Notes."
As of March 31, 1996, after giving effect to the sale of the Notes, the
Company's consolidated indebtedness totaled $278 million, of which $150 million
was indebtedness of the Company, $128 million was indebtedness of the Guarantors
(other than the Guarantees) and $128 million was secured indebtedness.
As a holding company, the Company will depend on the receipt of dividends
and other amounts from its subsidiaries from time to time to fund the payment of
its debt service, including payments of all interest and principal on the
Exchange Notes. Although the Indenture generally prohibits the Company from
permitting its Restricted Subsidiaries to allow restrictions on their ability to
pay dividends and other amounts to the Company, any such restrictions could
materially adversely affect the Company's ability to service and repay its
debts, including the Exchange Notes.
Substantial Indebtedness of the Company
As of March 31, 1996, after giving effect to the sale of the Notes, the
Company had approximately $278 million of indebtedness on a consolidated basis.
During any period when the Notes are not rated Investment Grade (as defined),
the Indenture limits, but does not prohibit, the incurrence of additional
indebtedness, secured or unsecured, by the Company. Moreover, the Indenture
limits, but does not prohibit, the incurrence of additional indebtedness,
secured or unsecured, by the Company's subsidiaries. For example, there is
generally no limit on the ability of the Company and its subsidiaries to incur
indebtedness to pay or finance up to 80% of the purchase price of aircraft
(including on a secured basis with such aircraft as collateral) or to incur
lease obligations with respect to aircraft, in each case as long as the Company
maintains Consolidated Net Worth (as defined) of at least $162 million. In
addition, the Company is permitted to incur up to $100 million of indebtedness
under one or more bank credit agreements. The Company expects that it and its
subsidiaries will incur substantial additional indebtedness, which is likely to
be secured, in the future in connection with the acquisition of
-22-
<PAGE>
additional aircraft and for other purposes. The Company also expects to
establish a new bank credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." As a result, a substantial portion of the Company's cash flow will
be devoted to debt service. The debt service requirements of any additional
indebtedness could make it more difficult for the Company to make principal and
interest payments on the Exchange Notes. The ability of the Company to make
payments of principal and interest will be largely dependent upon its future
performance. Many factors, some of which will be beyond the Company's control
(such as prevailing economic conditions), may affect its performance. Over the
term of the Exchange Notes, there can be no assurance that the Company will be
able to generate sufficient cash flow to cover required interest and principal
payments when due. If the Company is unable to meet interest and principal
payments in the future, it may, depending upon the circumstances which then
exist, seek additional equity or debt financing or attempt to refinance its
existing indebtedness. There can be no assurance that sufficient equity or debt
financing will be available, or, if available, that it will be on terms
acceptable to the Company, or that the Company will be able to refinance its
existing indebtedness. If no such refinancing or additional financing were
available, the Company could be forced to default on its debt obligations and,
as an ultimate remedy, seek protection under the Federal bankruptcy laws.
Fraudulent Conveyance
The Guarantees may be subject to review under federal or state fraudulent
transfer law. To the extent that a court were to find that (x) the Guarantees
were incurred by any Guarantor with intent to hinder, delay or defraud any
present or future creditor, or a Guarantor contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others,
or (y) any Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its Guarantees and any Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of the Guarantees, (iii) was
engaged or about to engage in a business or transaction for which the remaining
assets of a Guarantor constituted unreasonably small capital to carry on its
business or (iv) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, a court could avoid or
subordinate the Guarantees in favor of a Guarantor's creditors. If the
Guarantees are subordinated, payments of principal and interest on the Exchange
Notes generally would be subject to the prior payment in full of all
indebtedness of the Guarantors. Among other things, a legal challenge of the
Guarantees on fraudulent conveyance grounds may focus on the benefits, if any,
realized by a Guarantor as a result of the issuance by the Company of the
Exchange Notes. The extent (if any) to which a particular Guarantor may be
deemed to have received such benefits may depend on the Company's use of the
proceeds of the Outstanding Notes, including the extent (if any) to which such
proceeds or benefits therefrom are contributed to the Guarantor. The measure of
insolvency for purposes of the foregoing will vary depending on the law of the
applicable jurisdiction. Generally, however, an entity would be considered
insolvent if the sum of its debts (including contingent or unliquidated debts)
is greater than all of its property at a fair valuation or if the present fair
saleable value of its assets is less than the amount that will be required to
pay its probable liability under its existing debts as such debts become
absolute and matured. Based upon financial and other information currently
available to it, the Company presently believes that the Guarantees are being
incurred for proper purposes and in good faith, and that the Guarantors (i) are
solvent and will continue to be solvent after issuing the Guarantees, (ii) will
have sufficient capital for carrying on their business after such issuance and
(iii) will be able to pay their debts as they mature. There can be no assurance,
however, that a court would necessarily agree with these conclusions, or
determine that any particular Guarantor received fair consideration or
reasonably equivalent value for issuing its Guarantee.
Absence of Public Market
There is no existing market for the Notes and there can be no assurance as
to the liquidity of any market that may develop for the Notes, the ability of
holders to sell the Notes, or the price at which holders would be able to sell
the Notes. Future trading prices of the Notes will depend on many factors,
including among other things, prevailing interest rates, the Company's operating
results and the market for similar securities. Historically, the market for
securities similar to the Notes has been subject to disruptions that have caused
substantial volatility in the prices of such securities. There can be no
assurance that any market for the Notes, if such market develops, will not be
subject to similar disruptions. The Initial Purchasers of the Outstanding Notes
have advised the Company that they currently intend to make a market in the
Notes offered hereby; however, they are not obligated to do so and any market
making may be discontinued at any time without notice. The Outstanding Notes are
eligible for trading in the Private Offerings, Resale and Trading through
Automated Linkages (PORTAL) market. The Exchange Notes will constitute a new
issue of securities with no established trading
-23-
<PAGE>
market. The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek approval for quotation through any automated
quotation system. Accordingly, no assurance can be given that an active public
or other market will develop for the Exchange Notes or as to the liquidity of
the trading market for the Exchange Notes. If a trading market does not
develop, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them.
Consequences of Failure to Exchange; Possible Adverse Effect on Trading
Market for Outstanding Notes
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Notes as set forth in the legend thereon as
a consequence of the issuance of the Outstanding Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Outstanding
Notes may not be offered or sold unless registered under the Securities Act and
applicable state laws, or pursuant to an exemption therefrom. Subject to the
obligation by the Company to file a Shelf Registration Statement covering
resales of Outstanding Notes in certain circumstances, the Company does not
intend to register the Outstanding Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be obligated to do so. In addition,
any holders of Outstanding Notes who tender in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Additionally, as a result of the
Exchange Offer, it is expected that a substantial decrease in the aggregate
principal amount of Outstanding Notes outstanding will occur. As a result, it is
unlikely that a liquid trading market will exist for the Outstanding Notes at
any time. This lack of liquidity will make transactions more difficult and may
reduce the trading price of the Outstanding Notes. See "The Exchange Offer" and
"Description of the Exchange Notes - Registration Covenant; Exchange Offer".
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive, in exchange, Outstanding Notes in like principal
amount. The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Outstanding Notes, except as otherwise
described herein under "The Exchange Offer - Terms of the Exchange Offer". The
Outstanding Notes surrendered in exchange for the Exchange Notes will be retired
and cancelled and cannot be reissued. Accordingly, issuance of the Exchange
Notes will not result in any increase in the outstanding debt of the Company.
-24-
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and cash and
cash equivalents of the Company as of March 31, 1996, (i) on an historical basis
and (ii) as adjusted to give effect to the sale by the Company of the Notes on
April 17, 1996. This table should be read in conjunction with the financial
statements and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
March 31, 1996
----------------------------
As
Actual Adjusted
---------- -----------
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents.................. $119,601 $265,664
======= =======
Long-term debt (1)
Current maturities of long-term debt.... $ 24,318 $ 24,318
Secured debt............................ 103,671 103,671
The Notes............................... -0- 150,000
------ -------
Total debt.............................. 127,989 277,989
------- -------
Stockholders' equity....................... 174,810 174,810
------- -------
Total capitalization.................... $302,799 $452,799
======= =======
</TABLE>
_________________________
(1) The Company has incurred additional long-term debt during second quarter
1996. For further discussion of the Company's long-term debt, as well as
its financing needs, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
note 4 to the Company's consolidated financial statements included herein.
-25-
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on April 17, 1996 to the
Initial Purchasers, who sold the Outstanding Notes to certain institutional
investors in reliance on Rule 144A and Regulation D promulgated by the
Commission under the Securities Act. In connection with the sale of the
Outstanding Notes, the Company and the Initial Purchasers entered into the
Registration Rights Agreement, pursuant to which the Company agreed (i) to file
a registration statement with respect to an offer to exchange the Outstanding
Notes for senior debt securities of the Company with terms substantially
identical to the Outstanding Notes (except that the Exchange Notes will not
contain terms with respect to transfer restrictions) within 60 days after the
date of original issuance of the Outstanding Notes and (ii) to use best efforts
to cause such registration statement to become effective under the Securities
Act within 180 days after such issue date. If applicable law or interpretations
of the staff of the Commission do not permit the Company to file the
registration statement containing this Prospectus or to effect the Exchange
Offer, the Company will use its best efforts to cause to become effective the
Shelf Registration Statement with respect to the resale of the Outstanding Notes
and to keep the Shelf Registration Statement effective until three years after
the effective date thereof. The interest rate on the Outstanding Notes is
subject to increase under certain circumstances if the Company is not in
compliance with its obligations under the Registration Rights Agreement. See
"Description of the Exchange Notes - Registration Covenant; Exchange Offer".
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means the registered holder of the Outstanding Notes or any other
person who has obtained a properly completed bond power from the registered
holder.
Each holder of the Outstanding Notes who wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) it has no arrangement with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate", as
defined in Rule 405 of the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. See "Description of
the Exchange Notes -Registration Covenant; Exchange Offer".
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention or for the purpose of participating in a distribution
of the Exchange Notes cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K under the Securities Act.
This Prospectus may be used for an offer to resell, resale or other
retransfer of Exchange Notes only as specifically set forth herein. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution".
-26-
<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof. The Exchange Notes will evidence the same debt as the
Outstanding Notes. The Exchange Notes will be issued under and entitled to the
benefits of the Indenture, which also authorized the issuance of the Outstanding
Notes, such that both series will be treated as a single class of debt
securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the applicable provisions of the
Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "- Certain Conditions to the Exchange Offer".
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "The Exchange Offer - Fees and
Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, New York time on
____________________, 1996, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. The Exchange Offer
will not in any event be extended beyond _____________, 1996.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York time, on the next business day after the then Expiration Date.
-27-
<PAGE>
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "- Certain
Conditions to the Exchange Offer" shall not have been satisfied, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders of
Outstanding Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company will extend the Exchange Offer,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 10 1/4% per annum,
payable semi-annually, on each April 15 and October 15, commencing October 15,
1996. Holders of Exchange Notes will receive interest on October 15, 1996 from
the date of initial issuance of the Exchange Notes, plus an amount equal to the
accrued and unpaid interest on the Outstanding Notes from the date of initial
issuance to the date of exchange thereof for Exchange Notes. Interest on the
Outstanding Notes accepted for exchange will cease to accrue upon issuance of
the Exchange Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above. The Company will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
Outstanding Notes as promptly as practicable, such notice in the case of any
extension to be issued no later than 9:00 a.m., New York time, on the next
business day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
-28-
<PAGE>
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York time, on the Expiration Date. In addition,
either (i) Outstanding Notes must be received by the Exchange Agent along with
the Letter of Transmittal, or (ii) a timely confirmation of book-entry transfer
(a "Book-Entry Confirmation") of such Outstanding Notes, if such procedure is
available, into the Exchange Agent's account at the Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "The Exchange Offer - Exchange Agent" prior
to 5:00 p.m., New York time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such owner's name or obtain a
properly completed bond power from the registered holder of Outstanding Notes.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. If signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
-29-
<PAGE>
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Outstanding Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer or if Outstanding Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Outstanding Notes will be returned without expense to the
tendering holder thereof (or, in the case of Outstanding Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Notes will be credited to an account maintained with such Book-
Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "The Exchange Offer - Exchange Agent" on or prior to the
Expiration Date or, if the guaranteed delivery procedures described below are to
be complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
-30-
<PAGE>
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three (3) New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the Outstanding Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 12:00 midnight, New York time, on the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent". Any such notice of withdrawal must specify the name of the person having
tendered the Outstanding Notes to be withdrawn, identify the Outstanding Notes
to be withdrawn (including the principal amount of such Outstanding Notes), and
(where certificates for Outstanding Notes have been transmitted) specify the
name in which such Outstanding Notes were registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Outstanding Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Outstanding Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any
Outstanding Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Outstanding
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Outstanding Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures described
under "- Procedures for Tendering" above at any time on or prior to the
Expiration Date.
EXCHANGE AGENT
Bank of Montreal Trust Company has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
-31-
<PAGE>
Bank of Montreal Trust Company
77 Water Street
New York, New York 10005
Attn: Corporate Trust Department
By Facsimile:
(212) 701-7684
(For Eligible Institutions Only)
Confirm by Telephone:
(212) 701-7653
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$___________________. Such expenses include registration fees, fees and expenses
of the Exchange Agent and Trustee, accounting and legal fees, printing costs and
related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Outstanding Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of Notes tendered, or if tendered Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes, as set forth in the
legend thereon, as a consequence of the issuance of the Outstanding Notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act.
-32-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data for the
period from July 10, 1992 (date of inception) to December 31, 1992 and for the
years ended December 31, 1993, 1994 and 1995, are derived from the audited
consolidated financial statements of the Company. The financial and operating
data for the quarters ended March 31, 1995 and 1996, are derived from unaudited
consolidated financial statements. The unaudited financial statements indicate
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. The data should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
Period from
Inception
(July 10, 1992) Year ended Quarter ended
to December 31, March 31,
-------------------------------- --------------------
December 31, 1992(a) 1993(a) 1994 1995 1995 1996
-------------------- ---------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues.................... -- $ 5,811 $133,901 $367,757 $ 60,747 $109,995
Operating expenses:
Flight operations.................... -- 474 6,967 16,273 2,707 7,518
Aircraft fuel........................ -- 977 21,775 55,813 10,129 22,076
Maintenance.......................... -- 732 14,862 47,330 8,178 15,612
Station operations................... -- 1,199 20,198 49,931 8,990 17,893
Passenger services................... -- 228 3,942 10,363 1,525 3,992
Marketing and advertising............ -- 1,097 6,546 8,989 2,863 4,283
Sales and reservations............... -- 967 11,325 31,156 5,034 8,895
General and administrative........... $ 23 866 5,039 10,617 1,810 3,890
Employee bonus....................... -- --- 5,146 14,382 2,432 1,795
Depreciation......................... -- 138 3,555 15,147 2,498 6,516
---- ------- -------- ------- ------ ------
Total operating expenses.............. 23 6,678 99,355 260,001 46,166 92,470
---- ------- -------- ------- ------ ------
Operating income (loss)............... (23) (867) 34,546 107,756 14,581 17,525
Interest expense..................... -- 112 2,388 6,579 1,430 2,403
Interest income...................... -- (85) (1,423) (5,555) (1,516) (1,847)
Gain on disposal of fixed asset...... -- --- --- (1,094) --- ---
---- ------- ----- -------- --------
Income (loss) before income taxes..... (23) (894) 33,581 107,826 14,667 16,969
Provision for income taxes............ -- --- 12,849 40,063 5,596 6,302
---- ------- -------- -------- -------- --------
Net income (loss)..................... $(23) $ (894) $ 20,732 $ 67,763 $ 9,071 $ 10,667
==== ======= ======== ======== ======== ========
Ratio of earnings to fixed charges (b) --(c) --- (c) 9.5x 11.0x 7.8x 5.2x
---- ------- -------- -------- -------- --------
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............. $495 $13,247 $ 85,078 $127,947 $107,397 $119,601
Working capital....................... 482 10,284 58,585 63,523 62,710 53,090
Property and equipment, net........... -- 13,458 71,880 196,954 96,034 236,196
Total assets.......................... 495 30,264 173,039 346,741 225,762 385,028
Total debt (d)........................ -- 10,397 46,965 109,038 63,873 127,989
Stockholders' equity.................. 482 15,143 93,117 162,065 102,397 174,810
OTHER FINANCIAL DATA:
EBITDAR (e)........................... $(23) $ (594) $ 42,827 $135,419 $ 19,303 $ 28,920
EBITDA (e)............................ (23) (729) 38,101 122,903 17,079 24,041
EBITDAR margin (f).................... -- (10.2%) 32.0% 36.8% 31.8% 26.3%
EBITDA margin (f)..................... -- (12.5%) 28.5% 33.4% 28.1% 21.9%
Operating margin...................... -- (14.9%) 25.8% 29.3% 24.0% 15.9%
</TABLE>
See footnotes beginning on page 35
-33-
<PAGE>
<TABLE>
<CAPTION>
Year ended Quarter ended
December 31, March 31,
------------------------ ----------------------
1993(a) 1994 1995 1995 1996
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (G):
Revenue passengers enplaned................ 105,957 2,040,892 5,177,629 900,314 1,466,129
Revenue passenger miles (RPM) (thousands) 44,062 940,546 2,624,298 450,028 766,637
Available seat miles (ASM) (thousands) 63,265 1,470,614 3,812,696 709,164 1,321,617
Load factor................................ 69.7% 64.0% 68.8% 63.5% 58.0%
Break-even load factor..................... 72.8% 44.6% 45.8% 45.8% 47.9%
Average fare............................... $ 54.62 $ 63.48 $ 68.10 $ 64.67 $ 72.01
Passenger yield............................ 13.13c 13.77c 13.44c 12.94c 13.77c
Total revenue per ASM...................... 9.19c 9.05c 9.62c 8.56c 8.22c
Total cost per ASM
Before employee bonuses................... 9.75c 6.43c 6.42c 6.15c 6.81c
After employee bonuses.................... 9.75c 6.78c 6.80c 6.50c 6.95c
Completion factor.......................... 98.8% 99.5% 99.0% 99.3% 94.7%
Aircraft in service (end of period)........ 6 22 42 27 47
Cities served (end of period).............. 8 17 26 23 28
Average passenger trip length (miles)...... 416 461 507 500 523
Average stage length (miles)............... 393 444 497 499 513
</TABLE>
FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended Quarter ended
December 31, 1995 March 31, 1996
----------------------- ----------------------
Actual As Adjusted (h) Actual As Adjusted (h)
--------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............................ $127,947 $274,010 $119,601 $265,664
Working capital...................................... 63,523 209,586 53,090 199,153
Total assets......................................... 346,741 496,741 385,028 535,028
Total debt........................................... 109,038 259,038 127,989 277,989
Stockholders' equity................................. 162,065 162,065 174,810 174,810
OTHER DATA:
EBITDAR (e).......................................... $135,419 $135,419 $ 28,920 $ 28,920
EBITDA (e)........................................... 122,903 122,903 24,041 24,041
Rental expense....................................... 12,516 12,516 4,879 4,879
Interest expense..................................... 6,579 22,742 2,403 6,445
Interest income...................................... 5,555 5,555 1,847 1,847
Net interest expense................................. 1,024 17,187 556 4,598
SELECTED FINANCIAL RATIOS:
EBITDAR to interest expense plus rental expense (i).. 7.09x 3.84x 3.97x 2.55x
EBITDA to interest expense (i)....................... 18.68x 5.40x 10.00x 3.73x
Total debt to EBITDA (j)............................. 0.89x 2.11x 1.33x 2.89x
Net debt to EBITDA (j)(k)............................ (0.15x) (0.12x) .09x .13x
</TABLE>
See footnotes beginning on next page
-34-
<PAGE>
______________
(a) The Company's flight operations commenced October 26, 1993. Prior to that
time, the Company was in the development stage.
(b) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings consist of income (loss) before income taxes, plus fixed charges
and (ii) fixed charges consist of interest expense incurred, plus the
portion of rent expense under operating leases deemed by the Company to be
representative of the interest factor.
(c) For the period ended December 31, 1992, and for the year ended December 31,
1993, the Company's earnings were insufficient to cover fixed charges by
$23,000 and $894,000, respectively.
(d) The Company owns all of its current aircraft and has had no obligations
under aircraft leases, other than on a short-term, contingency basis. The
Company's rental expense has consisted primarily of airport lease costs.
(e) EBITDAR represents operating income plus depreciation, amortization and
rental expense. EBITDA represents operating income plus depreciation and
amortization. EBITDAR and EBITDA are included as supplemental disclosure
because they are generally accepted as providing useful information
regarding a company's ability to service and incur debt. EBITDAR and EBITDA
should not, however, be considered in isolation as a substitute for net
income, cash flow provided by operating activities or other income or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(f) EBITDAR margin is EBITDAR as a percentage of operating revenues. EBITDA
margin is EBITDA as a percentage of operating revenues.
(g) All operating data other than total revenue per ASM and total cost per ASM
refers to scheduled service. The terms included in operating data have the
meanings indicated below:
"REVENUE PASSENGERS ENPLANED" represents the number of paid passengers boarded.
"REVENUE PASSENGER MILES" or "RPMS" represents the number of miles flown by
revenue passengers on scheduled flights.
"AVAILABLE SEAT MILES" or "ASMS" represents the number of seats available for
passengers on scheduled flights multiplied by the number of miles those seats
are flown.
"LOAD FACTOR" represents revenue passenger miles divided by scheduled service
ASMs.
"BREAK-EVEN LOAD FACTOR" represents the percentage of revenue passenger miles
which must be flown for the airline to break even after operating and interest
expenses but without regard to amounts payable under the employee bonus program
which will be paid at the discretion of the Company only if the Company is
profitable. Break-even load factor is calculated by taking total expenses less
employee bonuses and other revenue, divided by total service ASMs, divided by
passenger yield.
"AVERAGE FARE" represents passenger revenue divided by revenue passengers
enplaned.
"PASSENGER YIELD" represents the total passenger revenue divided by RPMs.
"TOTAL REVENUE PER ASM" represents total revenues divided by total available
seat miles (including charter service ASMs).
"TOTAL COST PER ASM" represents total expenses (before or after employee
bonuses, as indicated) divided by total available seat miles (including charter
service ASMs).
"COMPLETION FACTOR" represents the percentage of scheduled flights actually
flown by the Company.
-35-
<PAGE>
"AVERAGE PASSENGER TRIP LENGTH" represents the distance computed by dividing
revenue passenger miles by revenue passengers enplaned.
"AVERAGE STAGE LENGTH" represents the scheduled aircraft miles flown divided by
the total number of departures.
(h) As adjusted to give effect to the sale of the Notes by the Company, after
payment of underwriting discount of $3,937,500, as though the Company had
issued the Notes as of the beginning of the period for statement of
operations purposes and as of the end of the period for balance sheet
purposes.
(i) The Indenture refers to a Consolidated Cash Flow Ratio which differs from
the EBITDAR and EBITDA ratios set forth above. The Consolidated Cash Flow
Ratio for the year ended December 31, 1995 and for the quarter ended March
31, 1996, as adjusted, would have been 5.70x and 4.02x, respectively. See
"Description of the Exchange Notes."
(j) Total debt and net debt to EBITDA for the quarter ended March 31, 1996,
actual and as adjusted, were calculated using an annualized EBITDA.
(k) Net debt represents total debt less cash and cash equivalents.
-36-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company began flight operations on October 26, 1993, with two DC-9-32
aircraft operating eight daily flights between Atlanta and Jacksonville, Orlando
and Tampa. Since that time, the Company has increased the number of markets
served and number of flights offered as the Company has placed in service
additional aircraft. The following chart indicates the expansion of service
through March 1996:
<TABLE>
<CAPTION>
AS OF TOTAL NUMBER NUMBER OF PEAK
QUARTER END OF AIRCRAFT DAY FLIGHTS NEW CITIES ADDED
----------- ------------ -------------- ----------------
<S> <C> <C> <C>
December 1993................... 6 34 Atlanta, Jacksonville, Orlando, Tampa,
FortLauderdale, Louisville,Memphis, New Orleans
March 1994...................... 10 70 Nashville, Washington DC (Dulles), West Palm Beach,
Fort Myers, Savannah
June 1994....................... 14 92 Chicago (Midway), Philadelphia
September 1994.................. 16 114 Dallas/Fort Worth, Indianapolis
December 1994................... 22 124 None
March 1995...................... 27 184 Detroit, Hartford/Springfield, Miami,
Raleigh/Durham, Columbus, Montreal
June 1995....................... 28 208 Boston
September 1995.................. 34 228 Kansas City, Newport News, Jackson
(Montreal discontinued)
December 1995................... 42 268 None
March 1996...................... 47 286 Charlotte, Pittsburgh
</TABLE>
The Company's operations prior to October 26, 1993, were limited to start-up
activities and, as a result, the Company's revenues prior to October 26, 1993
(limited to interest earned on cash deposits) and expenditures for such period
are not indicative of anticipated revenues which may be attained or expenditures
which may be incurred by the Company in future periods. The Company did not
begin incurring significant start-up expenses until the second quarter of 1993.
As a result, any comparison of 1994 with 1993 would not be meaningful.
Consequently, the following is a comparison of the results of operations for the
year ended December 31, 1994 with the year ended December 31, 1995 and a
comparison of the results of operations for first quarter 1995 with first
quarter 1996.
As a result of the crash of Flight 592, the ensuing extraordinary review of the
Company's operations by the FAA and the reduction in the level of service by the
Company for an indefinite period of time, the Company's results for periods
prior to May 1996 are not necessarily reflective of the results to be expected
in future periods.
-37-
<PAGE>
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The following table sets forth certain operating data of the Company for
the years ended December 31, 1994, and December 31, 1995.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------
December 31, 1994 December 31, 1995
------------------------------ -----------------------------
Percentage Per Percentage Per
Amount of Revenues ASM Amount of Revenues ASM
------ ----------- --- ------ ----------- -----
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................. $133,901 100.0% 9.05c $367,757 100.0% 9.62c
======== ====== ===== ======== ====== =====
Expense category:
Flight operations.................. $ 6,967 5.2% 0.47c $ 16,273 4.4% 0.42c
Aircraft fuel...................... 21,775 16.3 1.47 55,813 15.2 1.46
Maintenance........................ 14,862 11.1 1.00 47,330 12.9 1.24
Station operations................. 20,198 15.1 1.37 49,931 13.6 1.31
Passenger services................. 3,942 2.9 0.27 10,363 2.8 0.27
Marketing and advertising.......... 6,546 4.9 0.44 8,989 2.4 0.23
Sales and reservations............. 11,325 8.5 0.77 31,156 8.5 0.81
General and administrative......... 5,039 3.8 0.34 10,617 2.9 0.28
Employee bonuses................... 5,146 3.8 0.35 14,382 3.9 0.38
Depreciation....................... 3,555 2.7 0.24 15,147 4.1 0.40
Other expenses (income), net....... 965 0.7 0.07 (70) (0.0) (0.00)
-------- ----- ---- -------- ----- ------
Total expenses..................... $100,320 75.0 6.78c $259,931 70.7% 6.80c
======== ===== ==== ========= ===== ======
</TABLE>
Operating revenues
Total operating revenues increased approximately 175% ($233.9 million) from
1994 to 1995. This increase was due to several factors. The average number of
flights increased from 80 flights per day during 1994 to 186 flights per day
during 1995 as the Company placed into service additional aircraft and commenced
service to additional markets. Total available seat miles ("ASMs") increased
158% and revenue passenger miles ("RPMs") increased 179% during this period.
RPMs increased during the same period at a greater rate than ASMs due to an
increase in the load factor from approximately 64.0% to approximately 68.8%.
Additionally, the average fare increased from $63.48 to $68.10 primarily due to
a 12.0% increase in average stage length.
Expenses
Flight operations expense includes all expenses related directly to the
operation of the aircraft other than aircraft fuel, maintenance expenses and
passenger services expenses. Expenses for hull insurance and compensation of
pilots (exclusive of bonuses) are included in flight operations. Also included
are expenses related to flight dispatch and flight operations administration.
Expenses for flight operations per ASM decreased from approximately 0.47c per
ASM in 1994 to 0.42c per ASM in 1995 as the Company achieved efficiencies in
flight operations administration and flight dispatch.
Aircraft fuel expense includes both the direct cost of the fuel as well as
the costs of delivering fuel into the aircraft. Aircraft fuel cost increased
approximately 156% from 1994 to 1995 primarily due to a 158% increase in ASMs.
On a per ASM basis, fuel expense was virtually unchanged (1.47c per ASM during
1994 compared to 1.46c per ASM during 1995). The Company's average fuel cost
increased from approximately $0.58 per gallon for 1994 to approximately $0.60
per gallon for 1995 while fuel burn per block hour decreased from 890 gallons to
870 gallons.
-38-
<PAGE>
Maintenance expense includes all expenses related to the upkeep of the
aircraft and ground equipment. Such expenses include maintenance labor, parts
and supplies. The cost of engine overhauls and routine maintenance costs for
aircraft and engine maintenance are charged to maintenance expense as incurred.
Maintenance expense increased 218% from 1994 to 1995. Maintenance expense in
prior periods was significantly lower since each aircraft acquired by the
Company entered service immediately following a scheduled maintenance check and,
as a result, no scheduled maintenance was required during the first few months
of each aircraft's operations. Due to the Company's use of a continuous overhaul
program, the Company's aircraft are generally scheduled for some level of
overhaul procedures within twelve months of the purchase date. The Company also
recorded a $2.0 million charge to maintenance expense as a result of an
airworthiness directive issued by the FAA in response to an engine failure that
occurred on June 8, 1995. This airworthiness directive requires the Company to
remove certain engines before their normally scheduled service dates.
Maintenance expenses, exclusive of this charge, increased during 1995 by 205% as
a result of routine and heavy maintenance procedures performed during this
period.
Station operations expense includes all expenses incurred at the airports,
as well as station operations administration. Station operations expense
includes landing fees, facilities rental, station labor, passenger liability
insurance and ground handling expenses. Station operations expense increased
approximately 147% ($29.7 million) from 1994 to 1995, primarily due to an
increase in the number of cities served and an increase in the number of
departures. The Company served 8 cities as of the beginning of 1994 and
increased that number to 17 as of December 31, 1994 and 26 as of December 31,
1995. In addition, departures increased from approximately 29,280 during 1994 to
67,861 during 1995 and the average cost per departure increased from
approximately $690 to approximately $735. This increase in cost per departure
was due to higher load factors during 1995. As a percentage of revenue, station
operations expense decreased from 15.1% of 1994 revenue to 13.6% of 1995 revenue
due to the spreading of the fixed costs over a larger revenue base.
Passenger services expense includes flight attendant wages and benefits and
catering expenses. Also included are the costs for flight attendant training and
flight attendant overnight expenses. Passenger services expense for 1995
increased approximately 163% over the 1994 level as the number of departures
rose approximately 132% and the number of passengers increased approximately
154%.
Marketing and advertising expense includes all advertising expenses and
wages and benefits for the marketing department. Marketing and advertising
expense, as a percentage of revenues, decreased from 4.9% in 1994 to 2.4% in
1995 due to the Company's increased revenue base over which to spread these
costs. The Company also tends to advertise more during periods with lower load
factors.
Sales and reservations expense includes all of the costs related to
recording a sale or reservation. These expenses include wages and benefits for
reservationists, rent, telecommunication charges, credit card fees and travel
agency commissions. Sales and reservations expense increased 175% from 1994 to
1995 as the number of bookings increased approximately 89%. This increase was
primarily due to an increase in commissions expense (travel agent commissions
and credit card fees) due to the increase in load factor to approximately 68.8%.
General and administrative expense includes the wages and benefits for the
Company's executive officers and various other administrative personnel. Also
included are costs for office supplies, legal expenses, accounting and other
miscellaneous expenses. General and administrative expenses increased 111% from
1994 to 1995 despite a 158% increase in ASMs over the same period. This
increase in expense was primarily due to the Company's continuing expansion.
Employee bonuses for 1994 and 1995 were accrued at 13% and 12%,
respectively, of pre-tax, pre-bonus income. The actual amount to be paid out and
the form of employee bonuses are at the sole discretion of the Company's Board
of Directors.
Depreciation expense includes depreciation on aircraft and ground
equipment, but does not include any amortization of start-up and route
development costs as all of these costs are expensed as incurred. Depreciation
expense increased 326% from $3.6 million for 1994 to $15.1 million for 1995, as
additional aircraft and other property have been acquired.
-39-
<PAGE>
Other expenses (income), net consists primarily of interest income and
interest expense. Interest income increased as a result of higher cash balances
and interest expense increased due to debt incurrences in connection with
aircraft acquisitions. During 1995 the Company also recognized a gain of $1.1
million relating to the insurance recovery resulting from the destruction of one
of its aircraft. During 1995 interest income and the gain on disposal exceeded
interest expense by approximately $70,000.
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
The following table sets forth certain operating data of the Company for
the three months ended March 31, 1995, and March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
March 31, 1995 March 31, 1996
----------------------------- -----------------------------
Percentage Per Percentage Per
Amount of Revenues ASM Amount of Revenues ASM
------ ----------- --- ------ ----------- -----
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................. $60,747 100.0% 8.56c $109,995 100.0% 8.22c
======= ====== ===== ======== ====== =====
Expense category:
Flight operations.................. $ 2,707 4.4% 0.38c 7,518 6.8% 0.56c
Aircraft fuel...................... 10,129 16.7 1.43 22,076 20.1 1.65
Maintenance........................ 8,178 13.5 1.15 15,611 14.2 1.17
Station operations................. 8,990 14.8 1.27 17,893 16.3 1.34
Passenger services................. 1,525 2.5 0.22 3,992 3.6 0.30
Marketing and advertising.......... 2,863 4.7 0.40 4,283 3.9 0.32
Sales and reservations............. 5,034 8.3 0.71 8,895 8.1 0.66
General and administrative......... 1,810 3.0 0.26 3,890 3.5 0.29
Employee bonuses................... 2,432 4.0 0.34 1,795 1.6 0.13
Depreciation....................... 2,498 4.1 0.35 6,516 5.9 0.49
Other expenses (income), net....... (86) (0.1) (0.01) 557 0.5 0.04
------- ----- ------ ------ ---- ----
Total expenses..................... $46,080 75.9% 6.50c $ 93,026 84.5% 6.95c
======= ===== ====== ======== ===== =====
</TABLE>
Operating revenues
Total operating revenues increased approximately 81% ($49,248,000) from the
first quarter 1995 to the first quarter 1996. This increase was due to several
factors. The average number of flights increased from 140 flights per day during
the first quarter 1995 to 251 flights per day during the first quarter 1996 as
the Company placed into service additional aircraft and commenced service to
additional markets. ASMs increased 89% from the three months ending March 31,
1995 to the three months ending March 31, 1996 and RPMs increased 70% during
this period. The increases in ASMs and RPMs were attributable to increasing
service levels.
The load factor for the first quarter 1996 was approximately 58% compared
to approximately 63.5% for the first quarter 1995 due to a 63% increase in
passengers and an 89% increase in ASMs over the same period. The load factor was
also negatively impacted by severe weather and increased price competition
throughout the quarter. Meanwhile, the average fare increased to $72.01 for the
three months ending March 31, 1996 from $64.67 for the three months ended March
31, 1995 primarily due to a 3% increase in stage length and the Company's
decision not to reduce gross fares upon the expiration of the 10% federal excise
tax on air transportation as of January 1, 1996.
-40-
<PAGE>
The Company did, however, match the lower fares of the industry in February, but
in March returned fares to near their previous levels.
Expenses
Expenses for flight operations per ASM increased from approximately .38c
per ASM in the first quarter of 1995 to .56c per ASM in the first quarter of
1996 as the Company spent approximately $1.7 million to subcontract replacement
aircraft due to two of the Company's aircraft requiring substantial unplanned
repairs. Both of these aircraft will be put back into scheduled service by the
middle of the second quarter 1996.
Aircraft fuel cost increased approximately 118% from the first quarter 1996
to the first quarter 1996 primarily due to an 89% increase in ASMs. On a per ASM
basis, fuel expense increased from 1.43c per ASM during the first quarter 1995
to 1.65c per ASM during the first quarter 1996. The Company's average fuel cost
increased from approximately $.59 per gallon for the first quarter 1995 to
approximately $.69 per gallon for the first quarter 1996 while fuel burn per
block hour decreased from 889 gallons to 838 gallons over the same period.
Approximately $.04 per gallon of this increase was due to the expiration as of
October 1, 1995 of the airlines' exemption to a certain excise tax applied to
fuel.
Maintenance expenses increased 91% from the first quarter 1995 to the first
quarter 1996. Maintenance expenses in prior periods were lower as a result of
the Company having a fewer number of aircraft and since each aircraft acquired
by the Company entered service immediately following a scheduled maintenance
check and, as a result, no scheduled maintenance was required during the first
several months of each aircraft's operations. Due to the Company's use of a
continuous overhaul program, the Company's aircraft are generally scheduled for
some level of overhaul procedures within twelve months of the purchase date.
Station operations expenses increased approximately 99% ($8,903,000) from
the first quarter 1995 to the first quarter 1996, primarily due to an increase
in the number of cities served and an increase in the number of departures. The
Company served 23 cities as of the end of the first quarter 1995 and increased
that number to 28 as of March 31, 1996. In addition, departures increased from
approximately 12,581 during the first quarter 1995 to 22,815 during the first
quarter 1996, and the average cost per departure increased from approximately
$715 to approximately $784 over the same period primarily as a result of weather
related irregular operations. As a percentage of revenue, station operations
expense increased from 14.8% of first quarter 1995 revenue to 16.3% of first
quarter 1996 revenue.
Passenger services expenses for the first quarter 1996 increased
approximately 162% over the first quarter 1995 level as the number of departures
rose approximately 81% and the number of passengers increased approximately 63%.
The Company also spent more on hotel costs and training. Hotel expenditures
increased due to the Company operating a schedule which required more overnight
stays by flight crew and the impact of severe weather which caused unplanned
overnight stays. Additional training expenses were incurred to train flight
crews to operate the MD-80 series aircraft which were placed into service at the
end of the quarter.
Marketing and advertising expenses, as a percentage of revenues, decreased
from 4.7% in the first quarter 1995 to 3.9% in the first quarter 1996 due to the
Company's increased revenue base of existing markets in proportion to new
markets over which to spread these costs. The Company initiated service to two
cities (an 8% increase in cities served from December 31, 1995) during the first
quarter 1996 as compared to six cities (a 35% increase in cities served from
December 31, 1994) during the first quarter 1995.
Sales and reservations expenses increased 77% from the first quarter 1995
to the first quarter 1996 as the number of bookings increased approximately 49%.
Sales and reservations expenses were also impacted by the severe weather during
the first quarter 1996 as additional agents were utilized to answer flight
information calls. Commission expenses also increased as revenue increased.
General and administrative expenses increased 115% from the first quarter
1995 to the first quarter 1996. This increase in expense was primarily due to
the Company's continuing expansion as evidenced by an 89% increase in ASMs over
the same period. The Company also experienced an increase in costs related to
litigation expenses.
-41-
<PAGE>
Employee bonuses for the first quarter 1995 and the first quarter 1996 were
accrued at 14% and 10%, respectively, of pre-tax, pre-bonus income. The actual
amount to be paid out and the form of employee bonuses are at the sole
discretion of the Company's Board of Directors.
Depreciation expense increased 161% from $2,498,000 in the first quarter
1995 to $6,516,000 in the first quarter 1996 as additional aircraft and other
property have been acquired. The Company operated 27 aircraft with an average
acquisition price of approximately $3.2 million at the end of the first quarter
1995 as compared to 47 aircraft with an average acquisition price of
approximately $3.9 million at the end of the first quarter 1996.
During the first quarter of 1996 interest expense exceeded interest income
by approximately $557,000 due to increasing debt levels attributable to the
acquisition of aircraft.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company generated cash flow from
operations of approximately $113.8 million and used cash of approximately $142.1
million to acquire property and equipment (of which approximately $73.7 million
was funded through the issuance of long-term debt).
For the three months ended March 31, 1996, the Company generated cash flow
from operations of approximately $16.4 million and used cash of approximately
$45.8 million to acquire property and equipment (of which approximately $24.2
million was funded through the issuance of long-term debt). As of March 31,
1996, the Company had cash and cash equivalents of approximately $119.6 million
and working capital of approximately $53.5 million.
On April 17, 1996, the Company closed a private offering of $150,000,000
principal amount of 10 1/4% Senior Unsecured Notes due April 15, 2001. Interest
is payable on the Notes semi-annually. The Indenture under which the Notes have
been issued provides for certain limitations on the ability of the Company and
its subsidiaries to incur additional indebtedness, pay dividends and make
certain investments.
As of May 31, 1996, the Company has taken delivery of nine aircraft in 1996
and has seven aircraft under contract for delivery during the remainder of 1996.
See "Business--Aircraft." The Company's expansion will be delayed by the crash
of Flight 592 and the resulting heightened FAA scrutiny and customer acceptance
problems. See "Prospectus Summary - Recent Developments" and "Risk Factors -
Risks Related to the Company - Crash of Flight 592". The Company expects to
finance at least 70% to 80% of the cost of each aircraft to be acquired and
believes that such financing will be available to the Company on acceptable
terms. The Company intends to make the 20% to 30% downpayments on such aircraft
purchases from its cash balances and to make debt service payments from cash
generated from operations. The Company may also consider leasing some of its
aircraft in the future as a financing alternative.
The Company has contracted with McDonnell Douglas for the purchase of 50
MD-95 aircraft, at a cost of approximately $1.0 billion (subject to adjustments
for inflation), for delivery in 1999 to 2002. Approximately $60 million of this
amount will be paid in progress payments during 1996 to 1998. The balance of the
purchase price after all progress payments will need to be paid or financed upon
delivery of each aircraft. If the Company exercises its option to acquire up to
an additional 50 MD-95 aircraft, additional payments could be required beginning
in this period. The Company expects to finance at least 80% of the cost of each
of these aircraft. Although McDonnell Douglas has agreed to provide assistance
with respect to the financing of aircraft to be acquired, the Company will be
required to obtain the financing from other sources. The Company believes that
aircraft related debt financing, coupled with the assistance to be provided by
McDonnell Douglas, should be available on attractive terms.
There is no assurance that the Company will be able to obtain sufficient
financing on attractive terms. If it is unable to do so, the Company could be
required to modify its expansion plans or to incur higher than anticipated
financing costs, which could have a material adverse effect on the Company's
results of operations and cash flows.
-42-
<PAGE>
The Company's compliance with Stage 3 noise requirements will require
substantial additional capital expenditures over the next several years. By
December 31, 1999, all of the Company's aircraft must be brought into compliance
with Stage 3 requirements. The Company intends to meet its Stage 3 noise
requirement obligations by installing hush kits on Stage 2 aircraft and
acquiring Stage 3 aircraft. The Company expects that FAA certified hush kits
will cost approximately $1.8 million per aircraft or approximately $45.0 million
for a fleet of 25 non-hushed DC-9-32 aircraft as of May 31, 1996. The Company
expects to finance a portion of the cost of these hush kits and to make the
balance of payments on these hush kits out of its working capital. The Company
expects to pay the debt service on such loans out of cash flow generated from
operations. The phase in period for full compliance with Stage 3 (until December
31, 1999) and the term of financing will allow the Company to spread the
payments for Stage 3 compliance over a number of years.
As of March 31, 1996, the Company's long-term debt related to promissory
notes for aircraft and engines and certain financings for computer and telephone
equipment and totaled $128.0 million, with respect to which the Company's
aircraft, engines and computer and telephone equipment are pledged as security.
Some of these notes bear interest at fixed rates ranging from 6.8% to 11.5% per
annum and are repayable in consecutive monthly or quarterly installments over a
four- to eight-year period. Subsequent to the end of the first quarter 1996, the
Company prepaid $5.8 million of fixed rate debt without penalty. The notes
prepaid had interest rates ranging from 9.93% to 11.5%. Certain other notes have
a variable rate of interest based on the London interbank offered rate (LIBOR)
plus 1.85% to 3% (1.85% at March 31, 1996 and December 31, 1995) based on the
Company's compliance with specific financial ratios. Certain other notes have a
variable rate of interest based on LIBOR plus 1.15% to 1.50%%. All such debt has
final maturities ranging from 1998 to 2004 with scheduled debt amortization as
follows: 1996--$17.8 million, 1997--$27.1 million, 1998--$29.4 million, 1999--
$25.4 million, 2000 and after --$28.3 million. At March 31, 1996, the principal
amount outstanding under each of these notes was less than $10 million. These
notes provide for acceleration of their maturities upon certain defaults,
including a payment default under or an acceleration of other debt of the
Company and its subsidiaries. Some of these notes require the Company to satisfy
certain financial ratio tests. The Company has purchased all of its aircraft
and, consequently, has no lease commitments relating to its aircraft fleet.
Under the Indenture, the Company is permitted to incur indebtedness under
certain Bank Credit Agreements (as defined below) which the Company may enter
into from time to time, subject only to the limitation that the aggregate amount
of such indebtedness outstanding at any one time shall not exceed the Bank Debt
Limit (as defined below), which may be an amount up to $100 million. See
"Description of the Exchange Notes--Limitation on Company Debt."
Proposed Bank Credit Facility
The Company recently received a proposal from a bank for a new $50 million
unsecured revolving credit facility (the "Facility") which the Company expected
to have become available soon after the completion of the Exchange Offer. The
Company has postponed its pursuit of this Facility in light of the crash of
Flight 592 and the ensuing media and FAA scrutiny. See "Prospectus Summary -
Recent Developments" and "Risk Factors - Risks Related to the Company - Crash of
Flight 592". There can be no assurance that the Company will seek to or will be
able to finalize such an arrangement at this time.
-43-
<PAGE>
BUSINESS
THE FOLLOWING SECTION REFLECTS THE COMPANY'S BUSINESS DURING NORMAL
OPERATIONS. AS OF THE DATE OF THIS PROSPECTUS, THE COMPANY'S NORMAL OPERATIONS
HAVE BEEN INTERRUPTED BY THE CRASH OF FLIGHT 592 ON MAY 11, 1996, AND THE
ENSUING EXTENSIVE MEDIA AND FAA SCRUTINY. ALTHOUGH THE COMPANY SEEKS TO RESTORE
NORMAL OPERATIONS AS SOON AS REASONABLY PRUDENT, THERE CAN BE NO ASSURANCE AS TO
WHEN THE COMPANY WILL BE ABLE TO REESTABLISH ITS PROFITABLE OPERATIONS, IF AT
ALL, OR TO RESUME ITS PREVIOUSLY PLANNED GROWTH STRATEGY. SEE "PROSPECTUS
SUMMARY -RECENT DEVELOPMENTS" AND "RISK FACTORS - RISKS RELATED TO THE COMPANY -
CRASH OF FLIGHT 592".
HISTORY
The Company was organized as a Nevada corporation in July 1992 by Robert L.
Priddy, Maurice J. Gallagher, Jr. and Timothy P. Flynn. Lewis H. Jordan joined
the Company as President and Chief Operating Officer in June 1993. The Company
began flight operations on October 26, 1993 with two DC-9-32 aircraft serving
three Florida markets with eight daily departures.
THE COMPANY
ValuJet, Inc., through its wholly owned subsidiary, ValuJet Airlines, Inc.,
operates a low fare, low cost, no frills, limited frequency, scheduled airline
serving short haul markets primarily in the eastern United States. As of May 31,
1996, with its fleet of low cost DC-9 and MD-80 aircraft, the Company offers
service to 31 cities from its four "focus cities," Atlanta, Washington DC
(Dulles Airport), Boston and Orlando. The Company believes that its low cost, no
frills philosophy allows it to offer among the lowest fares in its markets and
generate its own traffic by stimulating incremental demand with price-conscious
travelers.
STRATEGY
The Company's low cost structure is important to the success of its low
fare marketing strategy. The Company's operating strategy is based on its
commitment to offer everyday low fares that stimulate demand from leisure and
fare conscious business travelers. The key elements in this strategy are a
simple low fare structure and a low overall cost structure which is achieved
through highly productive and low cost labor, a ticketless distribution
technology and a fleet of low cost and complementary aircraft.
For the customer, "simple" means the service is easy to understand and use,
including a simplified fare structure, with everyday low prices, simplified
reservations and check-in procedures and a ticketless process. In contrast,
today's airline industry is characterized by complex fares, schedules,
reservations, check-in procedures and ticketing.
The Company's service is intended to satisfy most of the basic air
transportation needs of the Company's targeted customers who are short haul
travelers visiting friends and relatives, vacationing or involved with small
businesses. The Company believes that the basic air transportation needs of its
targeted customers can be satisfied by providing a limited number of flights per
day (currently up to 6 frequencies), baggage service, in-flight beverages and
the ability to make advance reservations. The Company avoids what it believes to
be unnecessary and nonproductive costs such as meals, a frequent flyer program,
advance seat assignment, airport clubs or other amenities offered by many of its
competitors.
The following summarizes the key elements of the Company's operating
strategy:
. Low Cost Structure. The Company believes it enjoys a substantial cost
advantage over its competitors through its: (i) well defined, low cost
aircraft acquisition strategy; (ii) aggressive approach to minimizing
operating costs including selectively outsourcing services such as
reservation
-44-
<PAGE>
agents, training and airport operations; (iii) highly motivated and
generally non-union workforce with a flexible wage structure based
upon Company profitability and performance; and (iv) utilization of
proprietary technology, such as its customer-direct ticketless
reservation system, to minimize operating and administrative costs.
. Labor Advantage. The Company has defined a corporate culture which is
productivity oriented. The Company employs a motivated and productive
workforce at a relatively low base wage but with financial incentives,
including bonuses and stock options, tied to Company profitability and
performance. The Company believes it has benefited from the
substantial pools of veteran airline industry employees as well as
inexpensive entry level applicants that are available to it in Atlanta
and the southeastern United States.
Employees are recruited into temporary or probationary status and
invited to become "team members" when they have demonstrated for more
than 90 days both performance and attitude determined by peers and
management to be exemplary for the Company's unique culture. All
Company employees participate in the Company's employee bonus plan
once they achieve team member status. Management seeks to rely on
bonus payments tied to the Company's profitability in order to augment
relatively low base salary levels. The Company expects to maintain a
motivated workforce through its selection process, the financial
incentives of the bonus program and a casual, friendly and fun working
environment. The Company compensates its pilots based on the number of
segments flown. While fixed pilot costs per segment are low relative
to major airlines, the Company believes that pilots' total
compensation (including discretionary profit sharing bonuses and stock
option awards) is competitive with industry norms.
Productivity is also enhanced by the Company's proprietary computer
system which records and displays information from all departments
including aircraft dispatch, reservation, accounting and passenger
check-in. This system is designed to capture information at its source
and reduce paper records. The system hardware has sufficient capacity
to facilitate future growth.
. Fleet Acquisition. The Company has targeted acquisition of low cost
aircraft as the basis for its fleet. As of May 31, 1996, the Company
operates 51 DC-9 and MD-80 aircraft. All of these aircraft are owned,
and fixed aircraft ownership costs (depreciation plus interest
expense) represented less than 5% of revenues during the year ended
December 31, 1995. This relatively low percentage of fixed costs
allows the Company to tailor capacity to demand, permitting the
Company to schedule fewer flights during off-peak demand periods.
Future plans for aircraft acquisition call for a combination of new
and used aircraft with low operating costs, favorable acquisition
cost, and commonality of parts and training.
ValuJet intends to acquire additional DC-9-30 series aircraft in the
future because they are inexpensive to acquire and can be modified to
meet Stage 3 noise requirements. Expansion may be delayed by the crash
of Flight 592 and the resulting heightened FAA scrutiny and customer
acceptance problems. See "Prospectus Summary- Recent Developments" and
"Risk Factors - Risks Related to the Company - Crash of Flight 592".
The Company has entered into a contract with McDonnell Douglas to
purchase 50 new MD-95 aircraft, to be delivered in 1999 to 2002, with
options to purchase another 50 aircraft. To accommodate the Company's
growth from 1997 through 1999, the agreement also requires McDonnell
Douglas to provide up to 15 used DC-9 and MD-80 aircraft each year.
The MD-95 aircraft will have 129 seats in a single class
configuration. The Company estimates that the MD-95 aircraft, with a
slightly larger capacity, increased fuel efficiency and lower
maintenance costs, will provide a cost per ASM lower than its existing
DC-9 fleet, even after including its higher acquisition cost. The
Company is the "launch" customer of the MD-95 aircraft. The Company
became the launch customer for the MD-95 aircraft because (i) the
availability of DC-9s in large numbers was becoming increasingly
uncertain, and (ii) the MD-95 purchase terms presented ValuJet with
the most
-45-
<PAGE>
attractive DC-9 replacement alternative in comparison with other
manufacturers' products. Further, as the MD-95 aircraft is an
extension of the original DC-9 family of aircraft, the Company
believes it will realize substantial savings in training and parts.
. Simplified Product and Distribution. The Company's single class, no-
frills, ticketless service is designed to reduce traditional
distribution costs and maintain high productivity. The ticketless,
non-refundable aspect of the ValuJet system results in substantial
administrative cost savings. The Company utilizes a fully integrated,
proprietary computer reservation system to manage productivity. The
system (i) reduces administrative costs, (ii) provides management with
information on performance in a "real time" basis and (iii) allows the
Company to maintain a substantial database containing customer
information. The ValuJet system also allows the Company to emphasize
direct marketing through its toll-free 1-800-VALUJET reservations
line, enabling it to reduce the substantial cost of travel agents,
which are typically paid a 10% sales commission and fees based on
segments sold. In addition, the Company eliminates the cost of
participation in the computerized reservation systems and the Airline
Reporting Corporation. During the year ended December 31, 1995, the
Company sold approximately 75% of its seats directly to its customers,
which the Company believes is a substantially greater percentage than
industry averages. The Company seeks to reach its potential customers
through advertising (principally print and radio) and through
selective promotions. Management believes that as the Company grows
and enters new markets, many potential customers are reached through
word of mouth.
. Low Fare Structure. The Company's pricing structure and low fares are
intended to stimulate new demand for air travel by leisure customers
and fare conscious business travelers who would have otherwise used
ground transportation or not have traveled, as well as to allow it to
compete for existing demand. The Company's simple fare system
incorporates a predictable, "everyday low pricing" fare structure
designed to provide its passengers with substantial savings over its
competitors based on walk up fares and further savings can be realized
by purchasing seats in advance or by flying off peak. In the first
quarter of 1996, the Company's average fare in its markets was $72.01,
substantially less than the average fare in those markets prior to the
Company's commencement of operations. The Company generates its own
traffic through low fare market stimulation rather than pursuing the
more traditional airline approach of competing for market share with
existing carriers. By generating its own traffic, the Company can be
successful in markets that might otherwise be viewed as highly
competitive. In addition, since the arrival of ValuJet, travel between
Atlanta and the markets served by the Company increased approximately
89% based on a comparison of Atlanta traffic volume in the nine month
periods ended September 30, 1994 and September 30, 1993. The Company
believes that its entry into these markets was responsible, in large
part, for such increase in traffic volume.
FOCUS CITIES
The Company currently operates out of four focus cities: Atlanta,
Washington DC (Dulles Airport), Boston and Orlando. Unlike traditional airline
hubs, in which an airline moves connecting passengers into and out of an airport
in a short period of time, focus city airports enjoy a more even distribution of
the Company's traffic. Staffing of focus city facilities with employees
sufficient to serve this more even flow of traffic, rather than at levels
required to service peak capacity as at a traditional hub, and the Company's
outsourcing practices are factors in the Company's low cost structure.
GEOGRAPHIC MARKET
The Company's current markets are located predominantly in the eastern
United States. These markets are attractive to the Company due to the
concentration of major population centers within relatively short distances from
the Company's focus cities in Atlanta, Washington DC, Boston and Orlando,
historically high air fares and the potential for attracting leisure customers
who would otherwise use ground transportation.
-46-
<PAGE>
More than half of the Company's passengers fly to, from or through Atlanta.
During 1994, the Atlanta Airport was the second busiest airport in the United
States, enplaning over 27 million passengers. The City of Atlanta will be the
host of the 1996 Olympic Games, and expects 2.0 million tourists in the summer
of 1996. Additionally, the Company offers extensive service to Florida markets
as the Company believes that more than 20 million people visit the Florida
markets by automobile every year from Atlanta and other points in the eastern
United States.
In January 1995, the Company began service from Washington DC's Dulles
International Airport as a focus city with flights to major Florida
destinations. Subsequently, the Company has added service between Washington DC
and Raleigh/Durham, New Orleans, Hartford, Chicago's Midway Airport, Columbus,
and Boston. The Washington DC metropolitan area (which includes the Baltimore
area) is the fourth largest in the nation with a population of approximately
seven million.
In December 1995, the Company began service from Boston and Orlando as
additional focus cities, with nonstop service beginning in December 1995 and
January 1996 from Boston to Fort Lauderdale, Orlando, Tampa, West Palm Beach and
Raleigh/Durham and from Orlando to Boston, Memphis, Philadelphia and
Raleigh/Durham.
In the Company's city selection process, the Company considers the amount
of airport charges, incentives offered by communities to be served, the ability
to stimulate air travel and competitive factors.
FARES, ROUTE SYSTEM AND SCHEDULING
As of May 1, 1996, the Company serves short haul markets (up to 1,000
miles) from its focus cities in Atlanta, Washington DC, Boston and Orlando with
a limited number of flights (currently up to 6 round trips per destination per
day) offering basic air transportation at low fares.
The Company offers three basic types of fares: 21 day advance purchase, 7
day advance purchase and "walk-up" fares. Within these fare types, the Company
offers off-peak and peak fares which are $10 to $30 higher based on day of week
and time of day traveled. Peak travel times are generally portions of the day or
all day on Thursdays, Fridays, Saturdays and Sundays. All the Company's fares
are nonrefundable, but can be changed prior to departure for a $25 fee. The
Company's fares are always purchased on a one-way basis. The Company's fares do
not require any minimum, maximum or day of week (e.g., Saturday night) stay. The
Company's simplified fare offerings, all for a single class of service, are in
direct contrast to prevalent pricing policies in the industry where there are
typically many different price offerings for seats on any one flight.
The Company's published Atlanta fares for non-stop service range from $39
to $89 for off-peak one-way travel on a 21 day advance purchase basis and $89 to
$149 for peak one-way travel on a "walk-up" basis. Fares for non-stop service
from Washington DC are similarly priced: $39 to $89 for off-peak one-way travel
on a 21 day advance purchase basis and $89 to $159 for peak one-way travel on a
"walk-up" basis.
As of May 1, 1996, the Company's route system included non-stop service
between the Atlanta Airport and 30 other cities, between Washington DC's Dulles
Airport and 13 other cities, between Boston and four cities and between Orlando
and four cities. Service is provided on all routes every day although more
frequent service may be provided on peak travel days.
A majority of the Company's customers originate or terminate their travel
on the Company's non-stop service. One-stop connecting service is provided
through Atlanta or Washington DC between most of the other cities served by the
Company.
The following table sets forth certain information with respect to the
Company's route system based on the Company's schedule that was in effect on May
1, 1996. The Company has significantly reduced its service after the crash of
Flight 592 and in light of the intensive inspection process by the FAA. There
can be no certainty as to when the Company will be able to resume its May 1
schedule and there can be no assurance that the Company will not make
significant changes to the May 1 schedule when it restores its service to its
previous levels. See "Prospectus Summary - Recent Developments" and "Risk
Factors - Risks Related to the Company - Crash of Flight 592".
-47-
<PAGE>
<TABLE>
<CAPTION>
Round Trip
Service Flights
Commencement Scheduled
Airport Served Date On Peak Day (a)
-------------- ------------ ---------------
<S> <C> <C>
Atlanta-
Boston, MA............... June 1995 4
Charlotte, NC............ March 1996 4
Chicago, IL (Midway)..... May 1994 5
Columbus, OH............. March 1995 5
Dallas/Fort Worth, TX.... July 1994 6
Detroit, MI.............. January 1995 3
Fort Lauderdale, FL...... November 1993 5
Fort Myers, FL........... February 1994 3
Fort Walton Beach, FL.... May 1996 2
Hartford, CT............. March 1995 2
Indianapolis, IN......... September 1994 3
Jackson, MS.............. July 1995 3
Jacksonville, FL......... October 1993 5
Kansas City, MO.......... July 1995 3
Louisville, KY........... November 1993 4
Memphis, TN.............. December 1993 5
Miami, FL................ January 1995 5
Mobile, AL............... May 1996 3
Nashville, TN............ January 1994 4
New Orleans, LA.......... December 1993 6
Newport News, VA......... July 1995 4
New York, NY............. May 1996 5
Orlando, FL.............. October 1993 5
Philadelphia, PA......... May 1994 4
Pittsburgh, PA........... March 1996 3
Raleigh/Durham, NC....... March 1995 5
Savannah, GA............. February 1994 4
Tampa, FL................ October 1993 5
Washington DC (Dulles)... January 1994 6
West Palm Beach, FL...... January 1994 3
Washington, DC (Dulles)-
Atlanta, GA.............. January 1994 6
Boston, MA............... June 1995 5
Chicago, IL (Midway)..... April 1995 3
Columbus, OH............. October 1995 2
Fort Lauderdale, FL...... January 1995 1
Hartford, CT............. February 1995 3
Jacksonville, FL......... May 1996 1
Miami, FL................ January 1995 1
New Orleans, LA.......... March 1996 1
Orlando, FL.............. January 1995 2
Raleigh/Durham, NC....... March 1995 2
Tampa, FL................ January 1995 2
West Palm Beach, FL...... January 1995 1
</TABLE>
-48-
<PAGE>
<TABLE>
<CAPTION>
Round Trip
Service Flights
Commencement Scheduled
Airport Served Date On Peak Day (a)
-------------- ------------ ---------------
<S> <C> <C>
Boston-
Atlanta, GA............. June 1995 4
Philadelphia, PA........ May 1996 3
Raleigh/Durham, NC...... January 1996 2
Washington DC (Dulles).. June 1995 5
Orlando-
Atlanta, GA............. October 1993 5
Philadelphia, PA........ January 1996 1
Raleigh/Durham, NC...... January 1996 2
Washington DC (Dulles).. January 1995 2
</TABLE>
___________________________
(a) Peak day refers to the days of the week on which the Company provides the
greatest number of flights for the route shown.
In addition, the Company has commenced the following service effective May
1, 1996, between its markets that do not involve travel to or from its focus
cities:
Philadelphia, PA--Tampa, FL
Philadelphia, PA--Raleigh/Durham, NC
Raleigh/Durham, NC--Tampa, FL
Raleigh/Durham, NC--Fort Lauderdale, FL
The Company's aircraft scheduling strategy is directly related to the
perceived needs of its target market segments and the low fixed ownership costs
of its aircraft fleet. The Company's target customers are travelers visiting
friends and relatives, vacationers and small business travelers who are more
price sensitive than schedule or frequency sensitive. As a result, the Company's
schedule provides one to six frequencies per peak travel day in any given
market.
The Company's low fixed aircraft ownership costs (depreciation plus
interest expense), which represented less than 5% of revenues during the year
ended December 31, 1995, provide the Company with flexibility to tailor capacity
to demand. As a result, on low demand travel days such as Tuesday and Wednesday,
the Company reduces total costs by operating a reduced schedule with fewer
frequencies per market. Conversely on peak days, the Company may add more
frequency to accommodate higher demand. The Company generally keeps at least
four of its aircraft out of scheduled service in order to provide spares and to
rotate aircraft into scheduled maintenance.
AIRCRAFT
As of May 31, 1996, the Company owned and operated 43 DC-9-30 series
aircraft with 113 to 115 seats, four DC-9-21 aircraft with 89 seats and four MD-
80 aircraft with 164 seats. All of the Company's aircraft are configured with a
single class of service. The Company intends to sublease or sell its DC-9-21
aircraft since it has found that the introduction into the Company's fleet of
the DC-9-21 aircraft, with their smaller size, is not as operationally effective
as had been anticipated.
-49-
<PAGE>
The Company has entered into purchase agreements to acquire the following
additional aircraft for scheduled delivery between May 1, 1996 and the end of
first quarter 1998:
<TABLE>
<CAPTION>
AIRCRAFT NUMBER OF YEARS OF NUMBER OF
TYPE AIRCRAFT MANUFACTURE SEATS
-------- ------------ ----------- ---------
<S> <C> <C> <C>
DC-9-30 Series................. 4(a) 1968-1970 115
MD-80 Series................... 6(b) 1981-1988 164
</TABLE>
_______
(a) Scheduled for delivery as follows: one in second quarter 1996, one in third
quarter 1996 and two in fourth quarter 1996. The Company has entered into
an arrangement to defer the DC-9 aircraft scheduled for delivery in second
quarter 1996.
(b) Scheduled for delivery as follows: One in third quarter 1996, one in fourth
quarter 1996, three in first quarter 1997 and one in first quarter 1998.
All of the aircraft under contract will comply with the FAA's Stage 3
requirements upon delivery to the Company.
The Company may from time to time defer delivery or lease out acquired
aircraft for periods of time in order to better manage the Company's growth. In
addition, the Company may lease out or sell some of its aircraft during the
period of reduced operations. The Company's expansion may be delayed by the
crash of Flight 592 and the resulting heightened FAA scrutiny and customer
acceptance problems. See "Prospectus Summary - Recent Developments" and "Risk
Factors - Risks Related to the Company - Crash of Flight 592".
As a result of certain recent incidents involving the Company's aircraft,
including five in January and February, 1996, as well as the Company's rapid
growth, the FAA conducted a special review of the Company's operations in
February 1996. The FAA raised concerns about pilot training and the quality of
maintenance by outside contractors and indicated that it intends to maintain an
increased level of scrutiny of the Company for a period of time. The Company has
a policy of promptly and affirmatively responding to all comments from the FAA
regarding the Company's operations. Extraordinary regulatory review of the
Company's operations by the FAA followed the crash of Flight 592 on May 11,
1996, and the additional scrutiny has adversely affected the Company's
operations during that time. See "Prospectus Summary - Recent Developments" and
"Risk Factors - Risks Related to the Company - Crash of Flight 592". This
increased and continuing regulatory scrutiny could affect the Company's
operations, acquisition program and expansion plans beyond 1996. See "Risk
Factors--Risks Related to the Industry and the Company--Federal Regulation."
The Company has entered into a contract with McDonnell Douglas to purchase
50 new MD-95 aircraft, to be delivered from 1999 through 2002, with options to
purchase an additional 50 aircraft. To accommodate the Company's growth from
1997 through 1999, the agreement also requires McDonnell Douglas to provide up
to 15 used DC-9 or MD-80 aircraft per year. The MD-95 will have 129 seats in a
single class configuration. The Company estimates that the MD-95 aircraft, with
a slightly larger capacity, increased fuel efficiency and lower maintenance
costs, will provide a cost per ASM lower than its existing DC-9 fleet, even
after including its higher acquisition cost. The Company is the "launch"
customer of the MD-95 aircraft. The Company became the launch customer for the
MD-95 aircraft because (i) the availability of DC-9's in large numbers was
becoming increasingly uncertain, and (ii) the MD-95 purchase terms presented
ValuJet with the most attractive DC-9 replacement alternative in comparison with
other manufacturers' products. Further, as the MD-95 aircraft is an extension of
the original DC-9 family of aircraft,
-50-
<PAGE>
the Company believes it will realize substantial savings in training and parts
as well as having the advantage of being able to carry a greater number of
customers.
According to FAA rules, before January 1, 1997, each new entrant airline
must have at least 50% of its fleet in compliance with the FAA's Stage 3 noise
level requirements. The balance of such airlines' fleets must be brought into
compliance with Stage 3 noise level requirements in phases: 75% by December 31,
1998 and full compliance required by December 31, 1999. As of May 31, 1996, 26
of the Company's 51 aircraft complied with these requirements. The Company
intends to meet the Stage 3 requirements by installing hush kits on its Stage 2
aircraft and by acquiring Stage 3 aircraft. The Company has entered into a
contract with a hush kit manufacturer under which the Company will be able to
purchase up to 25 FAA certified hush kits at a cost of approximately $1.8
million each. As of May 31, 1996, the Company has taken delivery of 21 of these
hush kits.
MAINTENANCE AND REPAIRS
Since the Company's existing DC-9 aircraft were manufactured between 1967
and 1976 it is likely that they will require greater maintenance expenses than
newer aircraft. The Company believes that its aircraft are mechanically reliable
and that the estimated cost of maintenance to fly such aircraft is and will
continue to be within industry norms. Included in these maintenance expense
estimates are current requirements to comply with existing FAA Aging Aircraft
Airworthiness Directives ("ADs"). Amendments to FAA regulations have been
proposed and are currently pending administrative approval which would require
certain heavy maintenance checks and other maintenance requirements for aircraft
operating beyond certain operational limits. The Company will be required to
comply with such proposals, if adopted, and with any other aging aircraft
issues, regulations or ADs, that may be promulgated in the future. There can be
no assurance that the Company's costs of maintenance (including costs to comply
with aging aircraft requirements) will fall within industry norms.
The crash of Flight 592 has contributed to a negative public perception as
to the safety of the Company's aircraft and operations. See "Prospectus Summary
- Recent Developments" and "Risk Factors - Risks Related to the Company -
Crash of Flight 592".
Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta by the Company's employees or contract employees and by contractors at
the other cities served by the Company. Major overhauls or heavy checks are
performed by a contractor at the contractor's own maintenance base. The
maintenance contractors are either other airlines which operate DC-9-30 series
aircraft or other maintenance companies approved by the FAA, who in either case
have employees qualified in DC-9-30 series aircraft maintenance. The Company has
entered into a contract with a maintenance company for the performance of
certain scheduled inspections.
The Company does not maintain a large inventory of spare parts in relation
to the number of aircraft in its fleet. Instead, the Company has relied on
vendors and manufacturers to make these parts available when needed. Management
believes that replacement DC-9 aircraft, engines and spare or replacement parts
in reasonable quantities and at reasonable prices are generally available under
current industry conditions. So long as these conditions continue, the Company
may be able to reduce its maintenance costs by replacing rather than repairing
engines or parts. There can be no assurance that these favorable conditions will
continue indefinitely, particularly since the purchase of DC-9 aircraft by the
Company will reduce the available supply of DC-9 aircraft, engines and parts.
The addition of MD-80 and MD-95 aircraft will require greater inventories
of spare parts and associated costs. The additional costs may be reduced,
however, due to the interchangeability of certain parts in the DC-9, MD-80 and
MD-95 aircraft, all of which are manufactured by McDonnell Douglas Corporation.
FUEL
The cost of jet fuel is an important expense for the Company. Jet fuel
costs are subject to wide fluctuations as a result of sudden disruptions in
supply, such as the effect of the invasion of Kuwait by Iraq in August 1990.
Since
-51-
<PAGE>
the conclusion of the Persian Gulf War, prices have remained relatively stable.
Due to the effect of such events on the price and availability of oil, the
future availability and cost of jet fuel cannot be predicted with any degree of
certainty. Increases in fuel prices or a shortage of supply could have a
material adverse effect on the Company's operations and operating results. The
Company has not entered into any agreement which fixes the price of fuel over
any period of time.
The Company's fleet of DC-9-32 aircraft are relatively fuel inefficient
compared to newer aircraft and industry averages. The primary reasons for this
inefficiency are the aircraft size, engine technology and short trip length
operations. In management's opinion, the lower ownership costs of the DC-9-32
aircraft more than compensate for this relative fuel inefficiency.
A fuel tax of 4.3 cents per gallon became effective as of October 1, 1995,
with respect to the Company's fuel purchases. If this tax was retroactively
applied to the Company's fuel purchases for the year ended December 31, 1995,
the Company's cost per ASM would have increased by less than one-tenth of one
cent.
A significant increase in the price of jet fuel would result in a
disproportionately higher increase in the Company's average total costs than its
competitors using more fuel efficient aircraft and whose fuel costs represent a
smaller portion of total costs. The Company may seek to pass this cost increase
to the Company's customers through a fare increase. There can be no assurance
that any such fare increase would not reduce the competitive advantage the
Company seeks by offering low fares.
The MD-95 aircraft to be acquired by the Company are expected to be more
fuel efficient and will make the Company less susceptible to adverse effects
attributable to fuel price changes.
DISTRIBUTION AND MARKETING
The Company's marketing efforts are vital to its success as it seeks to
stimulate new customer demand, sell outside of the conventional distribution
systems and forego traditional amenities such as a frequent flyer program. The
Company has targeted short haul travelers visiting friends and relatives,
vacationing or involved with small businesses. These are market segments which
the Company believes offer the greatest opportunity for stimulating new demand,
selling direct and not requiring traditional amenities. Based on a survey
conducted by the Company in 1994, a substantial majority of the Company's
customers were traveling for pleasure.
The primary objectives of the Company's marketing activities are to develop
a brand identity or personality which is visibly unique and easily contrasted
with its competitors and to communicate its service directly to potential
customers. When initiating service to a new market, the Company typically makes
extensive use of billboard, radio and newspaper advertising and focuses on the
low fares to be offered on an everyday basis.
Company Personality
The Company has sought to establish consumer recognition of the Company as
a small vibrant company, where customers receive low priced airline
transportation which exceeds their expectations. The Company attempts to portray
a fun and friendly personality in contrast to the image portrayed by many other
airlines.
To achieve this personality, the Company has developed a color scheme for
its aircraft and Atlanta station facilities designed to be striking and bold,
the "Critter" cartoon airplane logo and tag lines designed to be friendly and
fun, informal attire for employees (including leather jackets for pilots,
varsity jackets for flight attendants and casual sportswear) and extensive
promotional materials such as ValuJet shirts, sweaters, bumper stickers and
license plates. Additionally, the Company's Atlanta gate areas are furnished
with brightly colored plastic playground equipment reinforcing the Company's
family orientation.
-52-
<PAGE>
Customer Communication
The Company communicates regularly and frequently with potential customers
through the use of extensive advertisements in newspapers, on radio and on
billboards. These communications feature the Company's destinations, everyday
low fares, ease of use (including its simplified fare structure and ticketless
travel process) and the Company's reservations phone number. The Company uses
tag lines such as "Good Times, Great Fares", "Wherever We Fly, You Win" and "Low
Fares Everyday, Everywhere We Fly" to reinforce its identity. The Company offers
a toll-free telephone number (1-800-VALUJET) for reservations. The Company's
radio spots feature "Captain Valu" in humorous episodes which reinforce the
advertised message that the Company has brought affordable air travel to the
Company's markets.
The Company seeks to sell seats directly to the customer whenever possible.
The Company also sells a smaller portion of seats through travel agents and pays
customary sales commissions, but sales are not as of the date of this Prospectus
made through the conventional CRSs. Management believes that although travel
agents have become accustomed to making reservations through the CRSs, the cost
savings and direct communication with customers that the Company achieves by not
participating in such systems justifies the Company's decision not to
participate in the CRSs. The Company reviews this decision from time to time.
Information on its customers' needs, travel patterns and identity is collected,
organized and stored by the Company's automated reservation system and can be
used at a future time for direct marketing efforts.
The Company performs advertising, public relations and promotional
activities in house. Company sales representatives also market directly to
groups, businesses, government and travel agencies.
Since June 1994, the Company and The Hertz Corporation have operated a
joint program under which the Company's customers are able to reserve a Hertz
rental car at discounted rates when making a reservation for the Company's
flights.
Air travel in the Company's markets is seasonal, with the highest levels
occurring during the winter months to Florida and the summer months to the
midwest/northeastern U.S. Advertising expenses may be greater in lower traffic
periods, as well as when entering a new market, in an attempt to stimulate
further air travel.
AUTOMATION
Automation is a key component of the Company's strategy. The Company's UNIX
based computer system has been specifically designed to implement the Company's
simplified, ticketless service and is an important component of the Company's
attempt to maintain its low cost structure, particularly as the Company grows.
The Company has designed its computer system to capture information in the
computer at its source, eliminating paper records whenever possible. These
entries are made by the reservation agents, eliminating subsequent data
processing entries. Once the initial data has been entered into the system, the
system updates various affected files and reports. The Company's software
supports all of the Company's operational areas (e.g., flight operations,
maintenance, accounting, marketing and personnel).
A key component of this system and the Company's low cost structure is the
"ticketless" environment. At the time of a sale/reservation, the Company
provides its customers with a confirmation number, similar to the systems used
by hotels and car rental agencies. At the airport, this information is available
for customer check-in, which typically requires only two to three key strokes by
the gate agent and helps to alleviate long lines and achieve a quicker
turnaround of aircraft. After the flight has departed, the computer posts
passenger revenue from the passenger manifest information. Unlike most of the
Company's competitors, the Company has no tickets to be accounted for and
processed.
Furthermore, the Company does not participate in the ARC, the airline
industry collection agent for travel agency sales. At the time of the
reservation, the Company identifies the travel agency making the booking, either
-53-
<PAGE>
taking credit card information or charging the travel agency's account for
future payment. Each agency then receives an invoice summarizing these
transactions. Although management believes that travel agencies are accustomed
to doing business through ARC, management believes that the cost savings
realized by avoiding the fees and revenue accounting costs inherent in the ARC
system justify not participating in ARC.
Because of its ticketless system and its non-participation in ARC, the
Company's customers are not able to transfer their reservations from ValuJet to
other airlines, for example in the event of a cancellation or delay of a ValuJet
flight or a last minute change in their travel plans. For a discussion of a
pending DOT proposal regarding the application of notification requirements to
ticketless systems, see "--Government Regulation."
EMPLOYEES
As of May 1, 1996, the Company directly employed approximately 2,113
employees. The Company hires check-in, gate and ramp agents initially as
temporary employees. Each quarter, the Company invites some of its employees to
become "team members," provided that the employee has worked with the Company at
least 90 days and has met certain performance criteria. Team member status
converts a temporary employee to a Company employee and results in various other
benefits such as days off and participation in the Company's bonus and insurance
programs. If the employee was originally a Company employee, team member status
allows the employee to participate in the bonus program. Only team members
participate in the bonus program.
Of the approximately 2,113 people directly employed by the Company,
approximately 1,600 employees had achieved the team member status as of May 1,
1996. The following table approximates the number of direct Company employees as
of May 1, 1996.
<TABLE>
<CAPTION>
<S> <C>
Pilots....................... 481
Flight attendants............ 714
Maintenance.................. 160
Reservation.................. 40
Station personnel............ 589
Management & administration.. 129
-----
Total........................ 2,113
=====
</TABLE>
As a result of the reduction of the Company's level of service in response
to the crash of Flight 592 and the intensive regulatory scrutiny, the Company is
considering furloughs or layoffs until the Company is able to restore its
operations to previous levels.
The Company has contracts with various third party vendors under which
reservationists and station personnel are provided to the Company on an
outsourced basis. Such personnel are provided under contracts with a term up to
three years, subject to termination upon notice by either party. As of May 1,
1996, the Company estimates that approximately 2,000 employees were employed in
the Company's operations by contract vendors.
Training, both initial and recurring, is required for almost all employees.
The average training period for all new employees is approximately two weeks.
Both pilot training and mechanic training are provided by contractors, which may
include other airlines. New hire pilots pay for their own initial training which
includes an airline transport pilot rating. The Company generally pays for
recurrent training.
FAA regulations require pilots to be licensed as commercial pilots, with
specific ratings for aircraft to be flown, and to be medically certified as
physically fit. Licenses and medical certification are subject to periodic
continuation requirements including recurrent training and recent flying
experience. Mechanics, quality-control inspectors and flight dispatchers must be
licensed and qualified for specific aircraft. Flight attendants must have
initial and periodic competency fitness training and certification. Training
programs are subject to approval and monitoring by the FAA. Management personnel
directly involved in the supervision of flight operations, training, maintenance
-54-
<PAGE>
and aircraft inspection must meet experience standards prescribed by FAA
regulations. All of these employees are subject to pre-employment and subsequent
drug testing.
The Company believes that current conditions in the airline industry have
created a sufficient pool of qualified, licensed pilots, dispatchers and
mechanics to fill the Company's needs in the flight operations, maintenance and
quality control areas, and that the Company will have little difficulty in
hiring and continuing to employ the required personnel.
Generally, the Company's employees are non-union; however, the flight
attendants have elected the Association of Flight Attendants ("AFA") to
represent them in negotiating a contract with the Company. As of May 1, 1996, no
other group of employees has voted for union representation. The Company does
not expect that the unionization of flight attendants will have a material
effect on its operating costs. However, until a union contract is negotiated,
there can be no assurance that this will be the case. The Company is unable to
predict whether any of its other employees will elect to be represented by a
labor union or other collective bargaining unit. The election by the Company's
employees for representation in such an organization could result in employee
compensation and working condition demands that may increase operating expenses.
The AFA has filed a lawsuit against the Company relating to the termination
of certain former flight attendants. See "--Litigation."
The Company has implemented an employee bonus plan for team members. The
Company has accrued employee bonuses at a rate of 10%-15% of pretax, pre-bonus
income. The actual amount of employee bonuses is determined at the discretion of
the Board of Directors. An amount up to 5% of pretax, pre-bonus income will be
allocable to Robert Priddy, Lewis Jordan and Maurice Gallagher under this bonus
plan. The remaining amount will be allocated among management and other
employees. Management employees are defined as those employees who are salaried
and not eligible for overtime pay, as well as pilots with the rank of captain.
Bonuses for management will be determined and paid on an annual basis. Bonuses
for other employees, including first-officers, are determined on a quarterly
basis and are distributed to team members at the discretion of management.
The Company from time to time considers alternative means of providing
compensation to its employees and the Company's method of determining
compensation is subject to possible change in the future.
AIRPORT OPERATIONS
Ground handling services typically can be placed in three categories--
public contact, underwing and complete. Public contact services involve meeting,
greeting and serving the Company's customers at the check-in counter, gate and
baggage claim area. Underwing ground handling services include, but are not
limited to, marshalling the aircraft into and out of the gate, baggage and mail
loading and unloading, as well as lavatory and water servicing, anti-icing and
deicing and certain services provided to the aircraft overnight. Complete ground
handling consists of public contact and underwing services combined.
As of May 1, 1996, all of the Company's ground handling services in
Atlanta, Boston, Chicago (Midway), Columbus, Dallas/Fort Worth, Fort Lauderdale,
Jacksonville, Louisville, Memphis, Miami, New Orleans, Orlando, Raleigh/Durham
and Tampa are conducted by the Company's employees and temporary employees. The
Company's employees also provide public contact services in Nashville and
underwing services in Detroit. At other airports, Company operations are
contracted to other air carriers, ground handling companies or fixed base
operators. All of these agreements can be cancelled by either party by giving 30
to 60 days notice.
INSURANCE
The Company carries customary levels of passenger liability insurance,
aircraft insurance for aircraft loss or damage and other business insurance.
Such insurance is in excess of DOT requirements. While the Company believes such
insurance will be adequate, there can be no assurance that such coverage will
fully protect it against all losses which it might sustain.
-55-
<PAGE>
SEASONALITY AND CYCLICALITY
The Company's operations are primarily dependent upon passenger travel
demand and, as such, may be subject to seasonal variations. Management believes
that the weakest travel periods will generally be during the months of January,
May and September. Leisure travel generally increases during the summer months
and at holiday periods.
The airline industry is highly volatile. General economic conditions
directly affect the level of passenger travel. Leisure travel is highly
discretionary and varies depending on economic conditions. While business travel
is not as discretionary, business travel generally diminishes during unfavorable
economic times as businesses tend to tighten cost controls.
COMPETITION
The following table identifies airlines which provide non-stop service to
and from Atlanta and the cities indicated, and the approximate number of daily
round trip flights scheduled to be flown by those other airlines in March 1996.
The information relating to the Company's service is based on its schedule in
effect as of May 1, 1996.
<TABLE>
<CAPTION>
DAILY NON-STOP ROUND TRIPS
-----------------------------------------------------
American/Northwest/
ATLANTA TO/FROM ValuJet (a) Delta USAir Others(b)
- --------------- ----------- -------- ------- ---------
<S> <C> <C> <C> <C>
Boston, MA................... 4 8 -- --
Charlotte, NC................ 4 9 5 --
Chicago, IL (Midway)(c)...... 5 -- -- 4
Columbus, OH................. 5 5.5 -- --
Dallas/Fort Worth, TX........ 6 18 16 --
Detroit, MI.................. 3 7 8 --
Fort Lauderdale, FL.......... 5 8 -- --
Fort Myers, FL............... 3 6 -- --
Fort Walton Beach, FL........ 2 -- -- 6
Hartford, CT................. 2 5.5 -- --
Indianapolis, IN............. 3 4 -- --
Jackson, MS.................. 3 5.5 -- 1
Jacksonville, FL............. 5 11 -- 4
Kansas City, MO.............. 3 7 -- --
Louisville, KY............... 4 6.5 -- 1
Memphis, TN.................. 5 9.5 6 --
Miami, FL.................... 5 10.5 4 --
Mobile, AL................... 3 6 -- --
Nashville, TN................ 4 8.5 -- 3
New Orleans, LA.............. 6 9 -- --
Newport News, VA............. 4 5.5(d) -- --
New York, NY (LaGuardia)(e).. 5 16 -- --
Orlando, FL.................. 5 11 -- 6
Philadelphia, PA............. 4 8.5 5 --
Pittsburgh, PA............... 3 6 5 --
Raleigh/Durham, NC........... 5 10 -- 3
Savannah, GA................. 4 8.5 -- 1
Tampa, FL.................... 5 9 -- 6
Washington DC (Dulles)(f).... 6 5 -- --
West Palm Beach, FL.......... 3 8.5 -- 2
--- ----- -- --
Total................... 124 232.5 49 37
=== ===== == ==
</TABLE>
-56-
<PAGE>
________________
(a) Reflects the Company's schedule on its peak service days as of May 1, 1996.
(b) Includes AirSouth and Kiwi. Also includes commuter affiliates of major
airlines which generally provide service with turboprop aircraft.
(c) Several major airlines operate daily flights to Chicago's O'Hare Airport
which are not reflected in the table above.
(d) Service provided by Delta to Norfolk, VA.
(e) Several major airlines operate daily flights to other airports in the New
York metropolitan area which are not reflected in the table above.
(f) Several major airlines operate daily flights to Washington DC's National
Airport which are not reflected in the table above.
The following table identifies airlines which provide non-stop service to
and from Washington DC's Dulles Airport and the cities indicated, and the
approximate number of daily round trip flights scheduled to be flown by those
other airlines in March 1996. The information relating to the Company's service
is based on its schedule in effect as of May 1, 1996:
<TABLE>
<CAPTION>
DAILY NON-STOP ROUND TRIPS
-------------------------------------------
Commuter
Affiliates
American/ of Major
WASHINGTON TO/FROM ValuJet(b) Delta United USAir Others(b)
- ------------------ ---------- ----- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Atlanta, GA..................... 6 5 -- -- --
Boston, MA...................... 5 -- -- 6 --
Chicago, IL (Midway)............ 3 -- 5.5(d) -- --
Columbus, OH.................... 2 -- -- 1 1
Fort Lauderdale, FL............. 1 -- -- 1 --
Hartford, CT.................... 3 -- -- 1 2
Jacksonville, FL................ 1 -- -- -- --
Miami, FL....................... 1 -- 1 1 --
New Orleans, LA................. 1 -- -- --
Orlando, FL..................... 2 -- 2 2(e) --
Raleigh/Durham, NC.............. 2 -- -- -- 7
Tampa, FL....................... 2 -- -- 1 --
West Palm Beach, FL............. 1 -- -- 1 --
-- -- -- -- --
Total................. 30 5 9.5 14 10
== = === == ==
</TABLE>
____________________
(a) Several major airlines operate daily flights to and from Washington DC's
National Airport which are not reflected in the table above.
(b) Reflects the Company's schedule on its peak service days as of May 1, 1996.
(c) Generally, service is provided with turboprop aircraft.
(d) United's service reflected is between Washington's Dulles Airport and
Chicago's O'Hare Airport.
(e) USAir operates an additional three flights per week which are not reflected
in the table above.
The Company's service from Boston and Orlando has brought the Company into
competition with other airlines, including USAir, Northwest, Delta, Midway,
American TransAir and Spirit, which also have nonstop services in some of the
markets to be served from Boston and Orlando. In addition to the competition
reflected above on the Company's service to Atlanta and Washington DC, the
Company's service from Orlando competes with USAir and
-57-
<PAGE>
Spirit to Philadelphia. The Company's service from Boston competes with USAir
and Midway Airlines to Raleigh/Durham and with NationsAir to Philadelphia.
The Company's new nonstop service between Philadelphia and Tampa and
Raleigh/Durham competes with USAir. The Company's new nonstop service between
Raleigh/Durham and Tampa and Fort Lauderdale competes with Midway Airlines.
The Company currently intends to provide service between Atlanta,
Washington DC, Boston and Orlando and other markets within a 1,000 mile radius.
In the future, the Company may add additional service between cities already
served by the Company, new markets and new focus cities. The Company's selection
of markets depends on a number of factors existing at the time service to such
market is being considered. Consequently, there can be no assurance that the
Company will continue to provide service to all of the markets listed above or
that the Company will not provide service to any other particular market.
With respect to the Company's one-stop service provided between markets
served on a connecting basis through Atlanta or Washington Dulles, the Company
faces competition from numerous airlines with varying degrees of service quality
and frequencies. In addition, the Company competes with numerous nonstop flights
to many of its cities from other airports in the same metropolitan areas as
served by the Company (such as Washington's National Airport and Chicago's
O'Hare Airport).
The identity of competing airlines and the number and character of the
flights flown changes from month to month, and while management believes
published schedules for the month of March 1996, upon which the foregoing
information was based, are representative of the competition the Company may
face, competing airlines and their flight schedules are subject to frequent
change.
The Company may also face competition from other airlines which may begin
serving any of the markets it serves or plans to serve, from new low cost
airlines that may be formed to compete in the low fare market (including any
that may be formed by Delta or other major airlines) and from ground
transportation alternatives.
The most significant competitive factors among airlines are price (fare
levels), convenient departure times and the availability of a frequent flyer
program. The Company currently does not offer a frequent flyer program and
typically offers limited flight frequencies. There can be no assurances that the
Company will not have to develop a frequent flyer program or join an existing
program for competitive reasons. Additionally, competitive factors include
access to computerized reservation and ticketing systems used by travel agents,
dependability of service, name recognition, airports served and the
availability, quality and convenience of other passenger services.
GOVERNMENT REGULATION
U.S. Department of Transportation
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 subsequent to enactment of the Deregulation
Act. As a result of that change in the regulatory structure, any company's entry
into the domestic air transportation business has been greatly simplified, and
the level of post-entry regulation to which an airline is subject has been
greatly reduced.
The Company has obtained 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
-58-
<PAGE>
and at least two-thirds of its Board of Directors and other managing officers
must be comprised of United States citizens, that not more than 25% of its
voting stock may be owned by foreign nationals, and that the carrier not be
otherwise subject to foreign control.
On January 5, 1996, the Department of Transportation requested comments, to
be submitted by March 19, 1996, on the application of air carrier passenger
notice requirements to ticketless air travel. Comments were sought on whether
passengers who do not receive a ticket should nonetheless receive a document
containing various notices, including oversales and denied boarding
compensation, domestic and international baggage liability, contract of carriage
terms, refund penalties and international death/injury liability limitations,
that are currently provided with, and most commonly printed on the back of,
passengers' tickets. If adopted, such a requirement could increase the cost and
adversely affect the operational efficiency of the Company's ticketless travel
approach.
U.S. Federal Aviation Administration
The Company has also obtained an operating certificate issued by the FAA
pursuant to Part 121 of the Federal Aviation Regulations. The FAA has
jurisdiction over the regulation of flight operations generally, including the
licensing of pilots and maintenance personnel, the establishment of minimum
standards for training and maintenance and technical standards for flight,
communications and ground equipment. As required, the Company has effective FAA
certificates of airworthiness for all of its aircraft. The Company's flight
personnel, flight and emergency procedures, aircraft and maintenance facilities
are subject to periodic inspections and tests by the FAA. The Company's director
of safety and regulatory compliance acts as a liaison between the Company and
the FAA, implementing any changes requested by the FAA with respect to operating
procedures or training programs and generally ensuring proper compliance with
aviation regulations applicable to the Company.
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 to monitor and regulate aircraft engine noise and exhaust
emissions. To the Company's knowledge, the Company's aircraft comply with all
applicable FAA noise control regulations (except as indicated below) and with
current emissions standards.
ANCA requires the phase-out of Stage 2 airplanes (which meet less stringent
noise emission standards than later Stage 3 airplanes) 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, 1998 for phasing out Stage 2 aircraft. The Company's fleet as
of May 31, 1996, consisted of 51 aircraft, 26 of which comply with Stage 3. See
"--Aircraft." Therefore, the Company must take action to continually assure that
its fleet will be in compliance with ANCA.
Miscellaneous
All international service is subject to the regulatory requirements of the
appropriate authorities of the other country involved. The Company does not
currently provide any international service.
All air carriers are 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 an aeronautical radio
license from the Federal Communications Commission ("FCC"). To the extent the
Company is subject to FCC requirements, it has taken and will continue to take
all necessary steps to comply with those requirements.
The Company's operations may become subject to additional federal
regulatory requirements in the future under certain circumstances. The Company'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 past fuel scarcity, air carrier access to jet fuel was
subject to allocation regulations promulgated by the Department of Energy. To
the extent the Company seeks to provide international air transportation in the
future, it will be required to obtain additional authority from the DOT and
become subject to regulatory requirements imposed by affected foreign
-59-
<PAGE>
jurisdictions. The Company 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.
PROPERTY
The Company leases approximately 38,000 square feet of office space at its
principal address for general corporate and operational use (including
reservations) at a current monthly rent of approximately $29,000 under a lease
which expires September 30, 1996. The Company also maintains a separate
reservations center in leased premises in Savannah, Georgia.
The check-in counters, gates and airport office facilities at each of the
airports the Company serves are leased from the appropriate airport authority or
subleased from other airlines. Such arrangements may include baggage handling,
station operations, cleaning and other services. If such facilities at any
additional cities to be served by the Company are not available to the Company
at acceptable rates, or if facilities currently in use are no longer available
to the Company at acceptable rates, then the Company may choose not to service
such markets.
LITIGATION
On October 21, 1995, the AFA filed suit in federal court alleging that the
Company had violated the Railway Labor Act by terminating the employment of
between 20 and 40 flight attendants for engaging in protected union activities
associated with the AFA's organizing drive. The Company believes that it has not
wrongfully terminated any of these flight attendants. By order dated January 30,
1996, the court struck AFA's demands for jury trial, punitive damages and
attorneys' fees. The only justiciable issues remaining are reinstatement and
back pay.
In November 1995, the Company filed suit against Delta and TWA in federal
district court regarding the defendants' actions in connection with the
Company's attempt to obtain from TWA slots at New York's LaGuardia airport. The
lawsuit sought injunctive relief, but such relief was denied. The Company's
lawsuit was subsequently amended to seek damages as a result of the defendants'
actions which, the Company alleges, constitute antitrust violations, breach of
contract or tortious interference with the Company's business. The defendants
have filed motions seeking summary judgment in their favor.
Several lawsuits have been filed against the Company seeking damages
attributable to the deaths of those on Flight 592 and additional lawsuits are
expected. The Company's insurance carrier has assumed defense of these suits.
The Company maintains $750 million of liability insurance per occurrence.
Although the Company believes that such coverage will be sufficient to cover all
claims arising out of the crash of Flight 592, there can be no assurance that
the total amount of judgments and settlements will not exceed the Company's
insurance limit.
In May and June, 1996, two stockholder suits were filed against the Company
and certain of its executive officers in the United States District Court for
the Northern District of Georgia. The lawsuits seek class certification for all
purchasers of stock in the Company from June 9, 1995 until May 13, 1996 and are
based on allegedly misleading public statements made by the Company in violation
of federal securities laws. Although the Company denies that it has violated any
of its obligations under the federal securities laws and believes that the
lawsuits do not have any merit, there can be no assurance that the Company will
not sustain material liability under such or related lawsuits.
From time to time, the Company is engaged in litigation arising in the
ordinary course of its business. The Company does not believe that any such
ordinary course litigation will have a material adverse effect on its results of
operations or financial condition.
-60-
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table contains the name, age and position with the Company of
each Executive Officer and Director of the Company. Their respective backgrounds
are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert L. Priddy............... 49 Chairman of the Board of Directors, Chief Executive Officer
Maurice J. Gallagher, Jr....... 47 Vice Chairman of the Board of Directors, Treasurer, Secretary
Lewis H. Jordan................ 51 President, Chief Operating Officer and Director
Stephen C. Nevin............... 46 Senior Vice President - Finance and Chief Financial Officer
Thomas Kalil................... 59 Senior Vice President - Customer Service
Don L. Chapman................. 57 Director
Timothy P. Flynn............... 45 Director
</TABLE>
Robert L. Priddy has been actively employed by the Company since June 1993.
He has served as a Director and Chairman of the Board of the Company since he
participated in its founding in July 1992. Prior to his involvement with the
Company, Mr. Priddy founded Florida Gulf Airlines as a subsidiary of Mesa
Airlines, for which he served as president from December 1991 to April 1993.
From July 1991 to January 1993, he also served as a director of Mesa Airlines,
Inc. From January 1988 to November 1991, he served as President and Chief
Executive Officer of Air Midwest, Inc., a regional airline headquartered in
Wichita, Kansas, for which he also served as a director from November 1987 to
November 1991. From 1979 to 1987, he served as Vice President and Chief
Financial Officer of Atlantic Southeast Airlines, Inc. ("ASA"), a regional
airline headquartered in Atlanta, Georgia, for which he also served as a
director from 1981 to 1987. He was one of three founding shareholders of ASA.
From 1966 to 1979, he worked for Southern Airways in various capacities, his
last responsibilities being manager of scheduling, pricing and market analysis.
He also serves as a director of Lukens Medical Corporation, a medical supplies
company.
Maurice J. Gallagher, Jr. has been a Director of the Company since he
participated in its founding in July 1992. He was designated Vice Chairman of
the Board of the Company in June 1993, prior to which he served as the Company's
President. Prior to May 1994, he also served as Chief Financial Officer of the
Company. From May 1992 until March 1993, he served as a director of Mesa
Airlines, Inc. From 1983 to August 1992, he served as an executive officer and
director of WestAir Holding, Inc. (the parent company of a regional airline
headquartered in Fresno, California). He was one of the two founding
stockholders of WestAir Holding, Inc. WestAir Holding, Inc. was acquired by Mesa
Airlines in May 1992. He served as Vice President--Finance of Pacific Express
Holding, Inc., the parent company of WestAir Commuter Airlines, Inc., from 1979
to 1982.
Lewis H. Jordan has served as President, Chief Operating Officer and a
Director of the Company since June 1993. He served as President and Chief
Operating Officer and as a director of Continental Airlines from August 1991 to
March 1993 and served as Executive Vice President of that company from 1986 to
August 1991. While he was Executive Vice President but before becoming a
director, Continental Airlines filed for reorganization under Chapter 11 of the
federal bankruptcy laws in December 1990. From 1985 to 1986, he served as
President and Chief Operating Officer of Flying Tigers, an air cargo carrier,
and was previously employed by Flying Tigers as Executive Vice President and
Chief Operating Officer from 1984 to 1985, as Senior Vice President--Operations
from 1980 to 1982 and as Vice President--Maintenance and Engineering from 1979
to 1980. From 1982 to 1984, he served as Executive Vice President and Chief
Operating Officer of Air Treads, Inc., an aviation tire retreading, wheel and
brake company. From 1962 to 1979, he held various positions with Southern
Airways, his last position being Assistant Vice President in charge of technical
operations. Mr. Jordan has been elected as a Director of the Company pursuant to
an agreement with Messrs. Priddy, Gallagher and Flynn under which Messrs.
Priddy, Gallagher and Flynn have agreed to vote their stock in the Company so as
to elect Mr. Jordan as a Director so long as he is employed by the Company.
-61-
<PAGE>
Stephen C. Nevin joined the Company in May 1994 as its Senior Vice
President--Finance and Chief Financial Officer. From 1982 to April 1994, he
served as Vice President of the Aircraft Financing Group for McDonnell Douglas
Finance Corporation. From 1981 to 1982, he was Western Regional Manager,
Equipment Leasing for Integrated Resources, Inc., a real estate and equipment
financing company. From 1977 to 1980, he was Senior Account Officer for Citicorp
Industrial Credit, a finance company. He was District Sales Manager of Cessna
Aircraft Company, an aircraft manufacturer, from 1975 to 1977.
Thomas Kalil was elected as the Company's Senior Vice President--Customer
Service in May 1995. Prior to joining the Company, Mr. Kalil was employed by
Continental Airlines from May 1987 until May 1995, in various positions
including Senior Vice President Airport Services and Senior Vice President
Customer Services. Continental Airlines filed for reorganization under Chapter
11 of the federal bankruptcy laws in 1990. Prior to that, he served in various
customer service positions at Northwest, Republic and Southern Airways during
the period from 1960 to 1987.
Don L. Chapman was elected as a Director of the Company in April 1994. He
has served as Chief Executive Officer of Tug Manufacturing Company, a company
that manufactures ground support equipment for the airline industry, since he
acquired that company in 1977. He also served as Chief Executive Officer of Opti
World, Inc., an optical superstore chain from 1983 (when he founded that
Company) until 1995. From July 1991 to November 1992, he served as Chairman of
Winkler Products, a plastic cutlery manufacturer. He also serves as a director
of Rhodes Furniture (since 1992), Longhorn Steaks (since 1992) and Omni
Insurance Company (since 1993).
Timothy P. Flynn has served as a Director of the Company since he
participated in its founding in July 1992. Since May 1992, he has been involved
as an investor in various aviation related companies. From 1982 to May 1992, he
served as an executive officer and director of WestAir Holding, Inc. He was one
of the two founding stockholders of WestAir Holding, Inc. Prior to 1982, he
served as an executive officer of Pacific Express Holding, Inc., the parent
company of WestAir Commuter Airlines, Inc., from 1979 to 1982. He worked in
marketing and operations for Eureka Aero, an airline company, from 1975 to 1979.
-62-
<PAGE>
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of May 31, 1996 (unless otherwise
indicated in the footnotes), certain information with respect to the Company's
Common Stock owned beneficially by each Director, by all Executive Officers and
Directors as a group and by each person known by the Company to be a beneficial
owner of more than 5% of the outstanding Common Stock of the Company. Except as
noted in the footnotes, each of the persons listed has sole investment and
voting power with respect to the shares of Common Stock included in the table.
<TABLE>
<S> <C> <C>
Gilder, Gagnon, Howe & Co. (c)................... 8,203,636 15.0%
Robert L. Priddy (d)............................. 6,488,000 11.8%
Maurice J. Gallagher, Jr. (e).................... 5,986,000 10.9%
Lewis H. Jordan (f).............................. 5,317,480 9.4%
Timothy P. Flynn (g)............................. 4,480,000 8.2%
Don L. Chapman (h)............................... 77,500 *
All Executive Officers and Directors as a group
(7 persons) (b)(d)(e)(f)(g)(h)(i)................ 22,486,180 39.4%
</TABLE>
_________________________
* Less than 1%
(a) Information with respect to beneficial ownership is based upon information
furnished by each owner.
(b) The percent of outstanding Common Stock owned is determined by assuming
that in each case the person only, or group only, exercised his or its
rights to purchase all shares of Common Stock underlying outstanding stock
options.
(c) The number of shares indicated is based on a Schedule 13G filed by Gilder,
Gagnon, Howe & Co. reflecting its ownership as of December 31, 1995.
Gilder, Gagnon, Howe & Co., a broker or dealer under Section 15 of the
Securities Exchange Act of 1934, disclaims beneficial ownership of Common
Stock in customer accounts over which its partners or employees may have
discretion to purchase or dispose of securities but over which Gilder,
Gagnon, Howe & Co. does not have discretion (6,604,211 shares as of
December 31, 1995), or in accounts owned by its partners and by its
partners' families in accounts controlled by partners (1,491,125 shares as
of December 31, 1995), or in the account of its profit sharing plan which
is controlled by certain of its partners (108,300 shares as of December 31,
1995). The address of Gilder, Gagnon, Howe & Co. is 1775 Broadway, New
York, New York 10019.
(d) Includes options to purchase 488,000 shares of Common Stock which are
presently exercisable. Excludes 300,000 shares of Common Stock owned by Mr.
Priddy's daughter and son-in-law, with respect to which Mr. Priddy
disclaims any beneficial ownership. Mr. Priddy's address is 1800 Phoenix
Boulevard, Suite 126, Atlanta, Georgia 30349.
(e) Includes options to purchase 150,000 shares of Common Stock which are
presently exercisable, 5,516,000 shares of Common Stock owned by the
Gallagher/Moritz Family Trust under which Mr. Gallagher is a trustee and
beneficiary, and 200,000 shares of Common Stock owned by the
Gallagher/Moritz 1992 Trust under which Mr. Gallagher's children are
beneficiaries. Also includes 120,000 shares of Common Stock owned by a
trust for the benefit of Mr. Gallagher's sisters with respect to which Mr.
Gallagher is a trustee. Mr. Gallagher's address is 6900 Westcliff Drive,
Suite 505, Las Vegas, Nevada 89128.
(f) Includes options to purchase 1,688,000 shares of Common Stock which are
presently exercisable. Mr. Jordan's address is 1800 Phoenix Boulevard,
Suite 126, Atlanta, Georgia 30349.
(g) Includes 160,000 shares of Common Stock owned by Mr. Flynn's wife and
children. Mr. Flynn's address is 6900 Westcliff Drive, Suite 505, Las
Vegas, Nevada 89128.
(h) Includes 77,500 shares of Common Stock owned by a corporation in which Mr.
Chapman is an officer and sole stockholder.
(i) Includes options to purchase a total of 44,000 shares of Common Stock by
Stephen C. Nevin and Thomas Kalil which are presently exercisable.
-63-
<PAGE>
CERTAIN TRANSACTIONS
The Company has contracted with Jordan Temporaries, Inc. for temporary
personnel and certain recruiting services. Lewis Jordan's daughter is president
and sole owner of Jordan Temporaries, Inc. The contract may be terminated by
either party on 30 days notice. The Company relies on Jordan Temporaries to
screen and provide personnel who will be considered for full-time employment
after an orientation period with the Company as a temporary employee. Jordan
Temporaries provides the Company with flight attendants and ticket and gate
agents. The Company's expense to Jordan Temporaries for the services of
temporary personnel and recruiting services provided was approximately $5.1
million for 1994, and approximately $12.7 million for 1995. As of January 31,
1996, approximately 471 people working for the Company were employed by Jordan
Temporaries under this arrangement. In connection with services by Jordan
Temporaries in the ordinary course of business, the Company owed Jordan
Temporaries approximately $196,000 as of December 31, 1994 and approximately
$371,000 as of December 31, 1995. The amounts owed by the Company to Jordan
Temporaries are accounts payable generated in the ordinary course of business
which are generally due the week after the date of invoice. Such amounts do not
bear interest. Management believes that the rates paid to Jordan Temporaries
are competitive with alternative agencies which provide similar services and
that the terms of payment are at least as favorable as available from similar
agencies.
In June and July 1993, Lewis H. Jordan paid $375,010 for 2,400,000 shares
of the Company's Common Stock ($.16 per share) of which $200,010 was paid by the
delivery of a promissory note payable in 1998 with interest at 5% per annum
payable annually. The promissory note was secured by the pledge of 1,200,000
shares of Mr. Jordan's Common Stock in the Company. The promissory note
provided for interest only payments until the principal was due. The largest
amount outstanding under the promissory note during 1995 was approximately
$207,260 (including accrued interest). Mr. Jordan prepaid this promissory note
in full in February 1995.
The Company purchases ground support equipment from Tug Manufacturing
Corporation ("Tug") in which Don L. Chapman is an officer and 100% stockholder.
The amount of ground support equipment purchased by the Company from Tug was
approximately $1.1 million during 1994 and $594,000 during 1995. The Company
intends to continue purchasing such equipment from Tug so long as Tug's
equipment meets the Company's quality, price and time of delivery requirements.
The Company began to purchase equipment from Tug prior to Mr. Chapman being
elected to the Company's Board of Directors and management believes that its
purchases from Tug are at competitive prices and terms.
The Company's policy is to have all related party transactions approved by
the disinterested members of the Board of Directors. In addition, the Indenture
for the Notes requires that certain significant transactions between the Company
and its affiliates must be approved by disinterested members of the Board of
Directors. See "Description of the Exchange Notes."
-64-
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Outstanding Notes were issued under an indenture dated as of April 17,
1996 (the "Indenture") among the Company, the Guarantors (as defined herein) and
Bank of Montreal Trust Company, as trustee (the "Trustee"). The Exchange Notes
will also be issued under the Indenture, and the Indenture will be qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act")
upon the effectiveness of the Registration Statement of which this Prospectus is
a part. The form and terms of the Exchange Notes will be the same as the
Outstanding Notes, except that the issuance of the Exchange Notes has been
registered under the Securities Act and thus the Exchange Notes will not bear
legends restricting their transferability. The Exchange Notes will evidence the
same indebtedness as the Outstanding Notes, will be entitled to the benefits of
the Indenture, and will be treated as a single class under the Indenture with
any Outstanding Notes that remain outstanding after the Exchange Offer. The
Outstanding Notes and the Exchange Notes will be considered collectively to be a
single class for all purposes under the Indenture, including waivers,
amendments, redemptions and Offers to Purchase, and for purposes of this
Description of the Exchange Notes (except under this caption "--Registration
Covenant; Exchange Offer"), all references herein to "Notes" shall be deemed to
refer collectively to the Outstanding Notes and any Exchange Notes, unless the
context otherwise requires.
The statements under this caption relating to the Notes and the Indenture
are summaries and do not purport to be complete, and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms. Wherever defined
terms or particular sections of the Indenture are referred to, such defined
terms and sections are incorporated herein by reference. A copy of the
Indenture has been filed with the Commission as an exhibit to the Registration
Statement of which this Prospectus is a part. All references in this section,
"Description of the Exchange Notes," to the "Company" refer solely to ValuJet,
Inc. and not to its subsidiaries.
GENERAL
The Notes are unsecured senior obligations of the Company, be limited to
$150 million aggregate principal amount and will mature on April 15, 2001.
(Section 301)
The Notes are unconditionally guaranteed by the existing Restricted
Subsidiaries of the Company, and the Company has agreed to cause any future
Restricted Subsidiaries to unconditionally guarantee the Notes, in each case
jointly and severally on a senior basis (such guarantees, the "Guarantees" and
such guarantors, the "Guarantors"), provided that each such Restricted
Subsidiary will cease to be a Guarantor when it ceases to be a Restricted
Subsidiary. The ranking and effectiveness of the Guarantees are subject to
certain legal considerations and are therefore uncertain. See "Risk Factors--
Risks Related to the Offering--Ranking of Notes and Guarantees as Unsecured
Obligations; Holding Company Structure" and "--Fraudulent Conveyance," above.
The Company is a holding company that operates through subsidiaries.
Although the Notes are senior obligations of the Company, they are effectively
subordinated to all existing and future indebtedness of the Company's
subsidiaries (if any) that are not Guarantors, and would be so subordinated to
all existing and future indebtedness of the Guarantors if the Guarantees were
avoided or subordinated in favor of the Guarantors' other creditors. The
Company's subsidiaries, including the Guarantors, are permitted to incur a
substantial amount of indebtedness. See "--Limitation on Subsidiary Debt and
Preferred Stock." Because the Company is a holding company, the Company's
ability to service its indebtedness is dependent on dividends and other payments
made to it on its investments in its subsidiaries.
The Outstanding Notes bear interest at the rate of 10 1/4% per annum from
April 17, 1996, the date of initial issuance. The Exchange Notes will bear
interest at the rate of 10 1/4% per annum from their date of issuance, except
that holders of Exchange Notes will also receive interest on October 15, 1996
from the date of initial issuance of the Outstanding Notes to the date of
surrender of such Outstanding Notes in exchange for Exchange Notes. Subject to
the preceding sentence, interest on the Notes will be payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1996, until the
principal thereof is paid or made available for payment, to the Person in
-65-
<PAGE>
whose name the Note (or any Predecessor Note) is registered at the close of
business on the preceding April 1 or October 1, as the case may be. Interest on
the Notes at such rate will be computed on the basis of a 360-day year of twelve
30-day months. The principal of (and premium, if any) and interest on the Notes
will be payable, and the transfer of Notes will be registrable, at the office or
agency of the Company in The Borough of Manhattan, The City of New York. In
addition, payment of interest may, at the option of the Company, be made by
check mailed to the address of the Person entitled thereto as it appears in the
Security Register. (Section 301)
No service charge will be made for any registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. (Sections 203
and 305)
FORM, DENOMINATION
Notes will be issued only in fully registered form, without interest
coupons, in minimum denominations of $1,000 and integral multiples thereof.
REDEMPTION
The Notes will not be subject to any redemption at the option of the
Company except as follows. At any time, or from time to time, prior to April
15, 1999, up to 33% in aggregate principal amount of Notes originally issued
under the Indenture will be redeemable, at the option of the Company, from the
net proceeds of one or more public offerings of Capital Stock (other than
Disqualified Stock) of the Company, at a Redemption Price equal to 110.25% of
the principal amount thereof, together with accrued interest to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date that is on or prior to
the Redemption Date); provided that the notice of redemption with respect to any
such redemption is mailed within 30 days following the closing of the
corresponding public offering. (Sections 203, 301 and 1101)
If less than all the Notes are to be redeemed, the Trustee will select not
more than 60 days prior to the Redemption Date, in such manner as it shall deem
fair and appropriate, the particular Notes to be redeemed or any portion thereof
that is an integral multiple of $1,000. (Section 1104)
The Notes will not have the benefit of any sinking fund obligations.
REGISTRATION COVENANT; EXCHANGE OFFER
The Company has entered into an Exchange and Registration Rights Agreement
(the "Registration Rights Agreement") pursuant to which the Company agreed, for
the benefit of the holders of the Notes, (i) to file with the Commission, within
60 days following the Closing, a registration statement (the "Exchange Offer
Registration Statement") under the Securities Act relating to an exchange offer
pursuant to which securities substantially identical to the Notes (except that
such securities will not contain terms with respect to the special interest
payments described below or transfer restrictions) would be offered in exchange
for the then outstanding Notes tendered at the option of the holders thereof and
(ii) to use its best efforts to cause the Exchange Offer Registration Statement
to become effective by October 14, 1996. The registration statement of which
this Prospectus is a part has been filed to satisfy such obligation. The
Company has further agreed to hold the Exchange Offer open for at least 30 days,
and to issue Exchange Notes for all Outstanding Notes validly tendered and not
withdrawn before the expiration of the Exchange Offer.
Under existing Commission interpretations, the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act, except that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resale of
those Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of any unsold allotment from the
original sale of the Notes) by delivery of the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company is required to allow Participating
-66-
<PAGE>
Broker-Dealers to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes. The
Exchange Offer Registration Statement will be kept effective for a period of 90
days after the Exchange Offer has been consummated in order to permit resales of
Exchange Notes acquired by broker-dealers in the Exchange Offer for Notes
acquired in after-market transactions. Each holder of the Outstanding Notes
(other than certain specified holders) who wishes to exchange such Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to represent
that any Exchange Notes to be received by it will be acquired in the ordinary
course of its business, that at the time of the commencement of the Exchange
Offer it has no arrangement with any Person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes and that it is
not an Affiliate of the Company.
However, if on or before the date of consummation of the Exchange Offer the
existing Commission interpretations are changed such that the Exchange Notes
would not in general be freely transferable on such date, the Company has
agreed, in lieu of effecting registration of Exchange Notes, to use its best
efforts to cause a registration statement under the Securities Act relating to a
shelf registration of the Notes for resale by holders (the "Resale
Registration") to become effective and to remain effective for a period of up to
three years after the effective date of the Resale Registration. The Company
will, in the event of the Resale Registration, provide to the holders of the
Notes copies of the prospectus that is a part of the registration statement
filed in connection with the Resale Registration, notify such holders when the
Resale Registration for the Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Notes. A holder
of Notes that sells such Notes pursuant to the Resale Registration generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such a holder (including certain
indemnification obligations).
In the event (i) the Exchange Offer has not been consummated within 45 days
after the effective date of the Exchange Offer Registration Statement or (ii)
any registration statement required by the Registration Rights Agreement is
filed and declared effective but shall thereafter cease to be effective (except
as specifically permitted therein) without being succeeded promptly by an
additional registration statement filed and declared effective (any such event
referred to in clauses (i) and (ii), a "Registration Default"), then the per
annum interest rate on the Outstanding Notes will increase by adding 0.5%
thereto for the period from the first day on which the Registration Default
occurs to the first day on which no Registration Default is in effect (at which
time the interest rate will be reduced by such additional amount). If the
Company has not consummated the Exchange Offer (or, if applicable, the Resale
Registration has not become effective) by November 28, 1996, then the per annum
interest rate on the Outstanding Notes will increase by adding an additional
0.5% thereto for the period from November 28, 1996, to the day on which the
Company consummates the Exchange Offer or a Resale Registration becomes
effective (at which time the interest rate will be reduced by such additional
amount).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the registration
statement of which this Prospectus is a part. See "Available Information"
below.
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Company Debt
The Company may not Incur any Debt unless either (A) at the time of the
Incurrence of such Debt, the Notes have been rated Investment Grade or (B)
immediately after giving effect to the Incurrence of such Debt and the receipt
and application of the proceeds thereof, the Consolidated Cash Flow Ratio for
the four full fiscal quarters next preceding the Incurrence of such Debt,
calculated on a pro forma basis as if such Debt had been Incurred and the
-67-
<PAGE>
proceeds thereof had been received and so applied at the beginning of such four
full fiscal quarters, would be greater than 2.50 to 1. (Section 1008)
Without regard to the foregoing limitation, the Company may Incur the
following Debt:
(i) Debt under Bank Credit Agreements in an aggregate principal
amount at any one time outstanding not in excess of the Bank Debt Limit;
(ii) Debt represented by the Notes;
(iii) Debt outstanding on the date of the Indenture;
(iv) Debt owed by the Company to any Wholly Owned Restricted
Subsidiary of the Company; provided, however, that upon either (A) the
transfer or other disposition by such Wholly Owned Restricted Subsidiary of
any Debt so permitted to a Person other than the Company or another Wholly
Owned Restricted Subsidiary of the Company or (B) such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary,
the provisions described in this Clause (iv) will no longer be applicable
to such Debt and such Debt will be deemed to have been incurred at the time
of such transfer or other disposition or such cessation;
(v) Aircraft Acquisition Debt;
(vi) Debt Incurred in connection with an acquisition of property
which Debt (a) constitutes a part of the purchase price of such property or
(b) is Incurred prior to, at the time of or within 180 days after the
acquisition of such property for the purpose of financing any part of the
purchase price thereof and which property was not owned by the Company or a
Restricted Subsidiary of the Company prior to such purchase; provided,
however, the principal amount of such Debt does not exceed 80% of the
purchase price of such property and provided, further, that the aggregate
principal amount of all Debt Incurred pursuant to the provisions described
under this Clause (vi) and Clause (v) under "Limitation on Subsidiary Debt
and Preferred Stock" below does not exceed $10 million at any one time
outstanding;
(vii) Debt Incurred to renew, extend, refund or otherwise refinance
any Debt referred to in Clauses (i) through (vi) above; provided, however,
that in each case the principal amount of the Debt so Incurred does not
exceed the principal amount of the Debt so renewed, extended, refunded or
otherwise refinanced thereby plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the Debt
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the expenses of the Company
incurred in connection with such refinancing; provided, further, that (A)
in the case of any refinancing of Debt which is pari passu to the Notes,
the refinancing Debt is made pari passu to the Notes or is subordinated in
right of payment to the Notes and, in the case of any refinancing of Debt
which is subordinated in right of payment to the Notes, the refinancing
Debt is subordinated in right of payment to the Notes to substantially the
same or a greater extent than the Debt being refinanced is so subordinated
and (B) the refinancing Debt (x) does not provide for any payments of
principal of such Debt to be made by the Company or any Restricted
Subsidiary of the Company, for as long as any of the Notes are Outstanding,
at the stated maturity thereof, by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement or repurchase
thereof (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Debt upon an event of default
thereunder) (collectively, "Mandatory Payments"), in each case prior to the
final stated maturity of the Debt being refinanced or of the Notes,
whichever is earlier (unless the Debt being refinanced by its terms
requires, without being subject to any contingency, that payments of the
principal thereof be made on one or more specified dates prior to the final
stated maturity thereof ("Scheduled Payments") and, on every date on which
a Mandatory Payment would be due, the total amount of all Mandatory
Payments that would be due on or before such date would
-68-
<PAGE>
not exceed the total amount of all Scheduled Payments that (absent such
refinancing) would be due on or before such date and after the refinancing
Debt is Incurred), and (y) does not permit, for as long as any Notes are
outstanding, redemption or other retirement of such Debt at the option of
the holder thereof prior to the final stated maturity of the Debt being
refinanced or of the Notes, whichever is earlier, other than a redemption
or other retirement at the option of the holder of such Debt on terms and
in circumstances that are substantially similar to those on and in which
the Debt being refinanced may be redeemed or otherwise retired;
(viii) Debt consisting of Permitted Interest Rate, Currency and Fuel
Protection Agreements; and
(ix) Debt not otherwise permitted to be Incurred pursuant to Clauses
(i) through (viii) above, which, together with any other outstanding Debt
Incurred pursuant to this Clause (ix), has an aggregate principal amount
not in excess of $45 million at any one time outstanding. (Section 1008)
Limitation on Subsidiary Debt and Preferred Stock
The Company may not permit any Restricted Subsidiary of the Company to
Incur, issue or suffer to exist any Debt or any Preferred Stock except:
(i) Debt or Preferred Stock issued to and held by the Company or a
Wholly Owned Restricted Subsidiary of the Company; provided, however, that
upon either (x) the transfer or other disposition by the Company or such
Wholly Owned Restricted Subsidiary of any Debt or Preferred Stock so
permitted to a Person other than the Company or another Wholly Owned
Restricted Subsidiary of the Company or (y) such Wholly Owned Restricted
Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary, the
provisions of this Clause (i) will no longer be applicable to such Debt or
Preferred Stock and such Debt or Preferred Stock will be deemed to have
been Incurred or issued at the time of such transfer or other disposition
or such cessation;
(ii) Debt Incurred or Preferred Stock issued by a Person prior to
the time such Person becomes a Restricted Subsidiary of the Company
(including by way of a merger or consolidation with another Restricted
Subsidiary of the Company), which Debt or Preferred Stock was not Incurred
or issued in anticipation of and was outstanding prior to such transaction;
(iii) Debt or Preferred Stock issued and outstanding on the date of
the Indenture;
(iv) Aircraft Acquisition Debt;
(v) Debt Incurred in connection with an acquisition of property which
Debt (a) constitutes a part of the purchase price of such property or (b)
is Incurred prior to, at the time of or within 180 days after the
acquisition of such property for the purpose of financing any part of the
purchase price thereof and which property was not owned by the Company or a
Restricted Subsidiary of the Company prior to such purchase; provided,
however, the principal amount of the Debt does not exceed 80% of the
purchase price of such property and provided, further, that the aggregate
principal amount of all Debt Incurred pursuant to the provisions described
under this Clause (v) and Clause (vi) of the second paragraph under
"Limitation on Company Debt" above does not exceed $10 million at any one
time outstanding;
(vi) Debt consisting of Permitted Interest Rate, Currency and Fuel
Protection Agreements, provided that any such interest rate or currency
protection agreements are effected with respect to Debt Incurred to finance
the purchase price of aircraft;
(vii) Debt consisting of Guarantees of Debt Incurred by the Company
under Bank Credit Agreements in an aggregate principal amount at any one
time outstanding not in excess of the Bank Debt Limit;
-69-
<PAGE>
(viii) Debt or Preferred Stock which is exchanged for, or the proceeds
of which are used to refund or otherwise refinance, any Debt or Preferred
Stock permitted to be outstanding pursuant to Clauses (ii) through (vii)
above (or any extension or renewal thereof); provided, however, that in
each case the aggregate principal amount, in the case of Debt, or
liquidation preference, in the case of Preferred Stock, does not exceed the
principal amount or liquidation preference of the Debt or Preferred Stock,
as the case may be, so exchanged or refinanced plus the amount of any
premium required to be paid in connection with such exchange or refinancing
pursuant to the terms of the Debt or Preferred Stock being exchanged or
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such exchange or refinancing by means of
a tender offer or privately negotiated repurchase, plus the expenses of the
Company incurred in connection with such exchange or refinancing; provided,
further, that such exchange or refinancing Debt or Preferred Stock by its
terms, or by the terms of any agreement or instrument pursuant to which
such Debt or Preferred Stock is issued, (x) does not provide for payments
of principal or liquidation value to be made by the Company or any
Restricted Subsidiary of the Company, for as long as any of the Notes are
Outstanding, at the stated maturity of such Debt or final redemption date,
if any, of such Preferred Stock, by way of a sinking fund applicable to
such Debt or Preferred Stock or by way of any mandatory redemption,
defeasance, retirement or repurchase of such Debt or Preferred Stock
(including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by
virtue of acceleration of such Debt or Preferred Stock upon an event of
default thereunder) (collectively, "Subsidiary Mandatory Payments"), in
each case prior to the final stated maturity or final redemption date (if
any) of the Debt or Preferred Stock, respectively, being exchanged or
refinanced and the final stated maturity of the Notes, whichever is earlier
(unless the outstanding Debt or Preferred Stock being exchanged or
refinanced by its terms requires, without being subject to any contingency,
that payments of the principal or liquidation value thereof be made on one
or more specified dates prior to the final stated maturity or final
redemption date thereof ("Subsidiary Scheduled Payments") and, on every
date on which a Subsidiary Mandatory Payment would be due, the total amount
of all Subsidiary Mandatory Payments that would be due on or before such
date would not exceed the total amount of all Subsidiary Scheduled Payments
that (absent such exchange or refinancing) would be due on or before such
date and after the exchange or refinancing Debt is Incurred or Preferred
Stock is issued), and (y) does not permit, for as long as any Notes are
Outstanding, redemption or other retirement of such Debt or Preferred Stock
at the option of the holder thereof prior to the final stated maturity or
final redemption date (if any) of the outstanding Debt or Preferred Stock,
respectively, being exchanged or refinanced and the final stated maturity
of the Notes, whichever is earlier, other than a redemption or other
retirement at the option of the holder of such Debt or Preferred Stock on
terms and in circumstances that are substantially similar to those on and
in which the outstanding Debt or Preferred Stock being exchanged or
refinanced may be redeemed or otherwise retired.
Limitation on Liens
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, Incur any Lien on any property of the Company or any of its
Restricted Subsidiaries, now owned or hereafter acquired, to secure any Debt
without making, or causing such Subsidiary to make, effective provision for
securing the Notes (and, if the Company may so determine, any other Debt of the
Company or of such Subsidiary that is not subordinate in right of payment to the
Notes) (x) equally and ratably with (or prior to) such Debt as to such property
for as long as such Debt will be so secured or (y) in the event such Debt is
subordinate in right of payment to the Notes, prior to such Debt as to such
property for as long as such Debt will be so secured. (Section 1012)
The foregoing restrictions will not apply to:
(i) Liens securing only the Notes;
(ii) Liens in favor of only the Company and its Restricted
Subsidiaries; provided, however, that upon either (a) the assignment or
other transfer by any such Restricted Subsidiary of any such permitted Lien
in its favor to a Person other than the Company or another Restricted
Subsidiary of the Company or (b) such Restricted Subsidiary ceasing to be a
Restricted Subsidiary, the provisions
-70-
<PAGE>
described in this Clause (ii) will no longer be applicable to such
Lien and such Lien will be deemed to have been Incurred at the time of such
transfer or other disposition or such cessation;
(iii) Any Lien existing on the date of the Indenture as long as such
Lien does not extend to any property that is not subject to such Lien, and
does not secure any Debt that is not secured by such Lien, on such date;
(iv) Any Lien on aircraft to secure Aircraft Acquisition Debt, which
Lien is Incurred when such Debt is Incurred;
(v) Liens to secure Debt Incurred for the purpose of financing all
or any part of the purchase price of the property subject to such Liens;
provided, however, that (a) the principal amount of any Debt secured by
such a Lien does not exceed 80% of such purchase price, (b) such Lien does
not extend to or cover any other property other than such item of property
and any improvements on such item and (c) the incurrence of such Debt is
permitted by the provisions described under "Limitation on Company Debt" or
"Limitation on Subsidiary Debt and Preferred Stock" above;
(vi) Liens on property existing immediately prior to the acquisition
thereof (and not Incurred in anticipation of the financing of such
acquisition), provided that the Debt secured by such Lien is otherwise
permitted to be Incurred under the Indenture;
(vii) any interest in or title of a lessor to any property subject to
a Capital Lease Obligation which is otherwise permitted under the
Indenture;
(viii) Liens on property of the Company or any of its Restricted
Subsidiaries in favor of the United States of America or any state thereof,
or any instrumentality of either, to secure certain payments pursuant to
any contract or statute;
(ix) Liens for taxes or assessments or other governmental charges or
levies which are being contested in good faith and for which adequate
reserves are being maintained to the extent required by generally accepted
accounting principles;
(x) title exceptions, easements and other similar Liens that are
not consensual and that do not materially impair the use of the property
subject thereto;
(xi) Liens to secure obligations under workmen's compensation laws
or similar legislation, including Liens with respect to judgments which are
not currently dischargeable;
(xii) warehousemen's, materialmen's and other similar Liens for sums
being contested in good faith and with respect to which adequate reserves
are being maintained to the extent required by generally accepted
accounting principles;
(xiii) Liens Incurred to secure the performance of statutory
obligations, surety or appeal bonds, performance or return-of-money bonds
or other obligations of a like nature incurred in the ordinary course of
business; and
(xiv) any Lien to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings), in
whole or in part, Debt secured by any Lien referred to in the foregoing
Clauses (i) through (xiii) as long as such new Lien does not extend to any
property that is not subject to such existing Lien and the Debt so secured
is not increased. (Section 1012)
-71-
<PAGE>
Limitation on Restricted Payments
The Company (i) may not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities) in respect of its Capital Stock or to the holders
thereof (excluding any dividends or distributions payable solely in shares of
its Capital Stock (other than Disqualified Stock) or in options, warrants or
other rights to acquire its Capital Stock (other than Disqualified Stock)); (ii)
may not, and may not permit any Restricted Subsidiary of the Company to,
purchase, redeem or otherwise acquire or retire for value (a) any Capital Stock
of the Company or any Related Person of the Company or (b) any options, warrants
or other rights to acquire, or any securities convertible or exchangeable into,
shares of Capital Stock of the Company or any Related Person of the Company;
(iii) may not make, or permit any Restricted Subsidiary of the Company to make,
any Investment that is not a Permitted Investment; and (iv) may not, and may not
permit any Restricted Subsidiary of the Company to, redeem, defense (whether
legal, covenant or other defeasance), repurchase, retire or otherwise acquire or
retire for value, prior to any scheduled maturity, repayment or sinking fund
payment, Debt of the Company that is subordinate in right of payment to the
Notes (each of the transactions described in Clauses (i) through (iv) being a
"Restricted Payment"), if:
(1) an Event of Default, or an event that with the lapse of time or
the giving of notice, or both, would constitute an Event of Default, shall
have occurred and be continuing,
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the most recently ended four full fiscal
quarter period for which internal financial statements are available
immediately preceding the date of such Restricted Payment, not have been
permitted to Incur at least $1.00 of additional Debt pursuant to the
Consolidated Cash Flow Ratio test described in the first paragraph under
"Limitation on Company Debt" above or
(3) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments (excluding Restricted Payments referred to in
Clause (ii) of the next succeeding paragraph and Recovered Restricted
Payments) from the date of the Indenture (the amount so expended, if other
than in cash, determined in good faith by the Board of Directors) exceeds
the sum of: (a) 50% of the Consolidated Net Income for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing prior to the date of the Indenture through the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (provided
that, if such Consolidated Net Income for such period is negative, 100% of
such deficit for such period will be taken into account for this purpose);
and (b) 100% of the aggregate net proceeds, including the fair value of
property other than cash (determined in good faith by the Board of
Directors), from the issuance or sale (other than to a Restricted
Subsidiary of the Company) of Capital Stock (other than Disqualified Stock)
of the Company and options, warrants or other rights to acquire Capital
Stock (other than Disqualified Stock) of the Company and the principal
amount of Debt of the Company that has been converted into or exchanged for
Capital Stock (other than Disqualified Stock) of the Company after the date
of the Indenture. (Section 1010)
The foregoing covenant will not be violated by reason of (i) the payment of
any dividend within 60 days after declaration thereof if at the declaration date
such payment would have complied with the foregoing covenant; and (ii) any
refinancing of Debt permitted pursuant to Clause (vii) of the second paragraph
under "Limitation on Company Debt" above or any refinancing or exchange of Debt
or Preferred Stock permitted pursuant to Clause (viii) under "Limitation on
Subsidiary Debt and Preferred Stock" above. (Section 1010)
Limitations Concerning Distributions by Subsidiaries, etc.
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, suffer to exist any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company (i) to
-72-
<PAGE>
pay, directly or indirectly, dividends or make any other distributions in
respect of its Capital Stock or pay any Debt or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; (ii) to make loans or
advances to the Company or any Restricted Subsidiary of the Company, or (iii) to
transfer any of its property to the Company or any Restricted Subsidiary of the
Company except, in any such case, any encumbrance or restriction:
(a) pursuant to any agreement in effect on the date of the Indenture,
(b) pursuant to an agreement relating to any Debt Incurred by such
Subsidiary prior to and outstanding on the date on which such Subsidiary
became a Subsidiary of the Company (including by reason of a merger or
consolidation with another Subsidiary of the Company), provided that such
Debt was not Incurred in anticipation of becoming a Subsidiary,
(c) pursuant to an agreement which has been entered into for the
pending sale or disposition of all or substantially all of the Capital
Stock or assets of such Subsidiary, provided that such restriction
terminates if such transaction is consummated or abandoned and if such
agreement is terminated,
(d) pursuant to customary non-assignment provisions in leases or
purchase agreements entered into in the ordinary course of business, or
(e) pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of Debt Incurred pursuant to an agreement referred
to in Clause (a) or (b) above; provided, however, that the provisions
relating to such encumbrance or restriction contained in such renewal,
extension, refinancing or refunding are no more restrictive in any material
respect than the provisions contained in the agreement it replaces, as
determined in good faith by the Board of Directors. (Section 1011)
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, issue, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of or other ownership interests in such or any other Restricted
Subsidiary, or options, warrants or other rights to acquire, or securities
convertible into or exchangeable for, such Capital Stock or other ownership
interests, to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary) unless such transfer, conveyance, sale, lease or other disposition
is of all the Capital Stock of and other ownership interests in such Restricted
Subsidiary and the Net Available Proceeds from such sale, assignment, transfer
or conveyance (including from the sale of any marketable cash equivalents
received therein), less any Reinvested Amounts, are applied in accordance with
Clause (iii) of the covenant described under "Limitation on Certain Asset
Dispositions."
Limitation on Transactions with Affiliates and Related Persons
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, directly or indirectly, enter into any transaction (including the
purchase, sale, lease or exchange of property, the rendering of any service or
the making of any loan or advance) after the date of the Indenture with any
Affiliate or Related Person unless (i) such Affiliate or Related Person is (both
before and after such transaction) a Wholly Owned Restricted Subsidiary of the
Company; or (ii) the terms of the transaction are no less favorable to the
Company or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or a Related
Person and are in the best interests of the Company or such Subsidiary; provided
that, for any transaction (or series of related transactions) in which the total
consideration given or to be provided by the Company or such Subsidiary in or
pursuant to such transaction (or series) (including cash, the fair value of non-
cash property and the assumption of Debt) exceeds or will exceed $5 million, a
majority of the members of the Board of Directors who are disinterested with
respect to such transaction (or series) shall determine that such transaction
(or series) satisfies the criteria set forth in Clause (ii) above and shall
evidence such determination by a Board Resolution filed with the Trustee.
(Section 1013)
-73-
<PAGE>
Limitation on Certain Asset Dispositions
The Company may not make, and may not permit any Restricted Subsidiary of
the Company to make, any Asset Disposition in one or more related transactions
unless: (i) the Company (or such Subsidiary, as the case may be) receives
consideration at the time of such disposition at least equal to the fair market
value of the shares or the assets disposed of, as determined by the Board of
Directors or Chief Financial Officer of the Company in good faith and evidenced
by a resolution of the Board of Directors or a certificate of the Chief
Financial Officer filed with the Trustee; (ii) at least 75% of the consideration
received by the Company (or such Subsidiary) consists of cash or readily
marketable cash equivalents or the assumption of Debt or other obligations of
the Company or any Restricted Subsidiary (other than Debt or any other
obligation subordinate in right of payment to the Notes) relating to such assets
and release of the Company and its Restricted Subsidiaries from all liability on
such Debt or other obligations; and (iii) all Net Available Proceeds from such
disposition (including from the sale of any marketable cash equivalents received
therein), less any Reinvested Amounts, are applied by the Company (or such
Subsidiary as the case may be) within 180 days of such disposition (1) first, to
the repayment (in whole or in part) of Senior Debt then outstanding under any
agreements or instruments which would require such application or which would
prohibit payments pursuant to Clause (2) following; (2) second, to the extent of
any remaining Net Available Proceeds after giving effect to Clause (1), to
purchases of Outstanding Notes pursuant to an Offer to Purchase at a purchase
price equal to 100% of their principal amount plus accrued interest to the date
of purchase (provided, however, that installments of interest whose Stated
Maturity is on or prior to the Purchase Date will be payable to the Holders of
such Notes registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions in the Indenture under the
section titled "Payment of Interest; Interest Rights Preserved"); and (3) third,
to the extent of any remaining Net Available Proceeds following completion of
such Offer to Purchase, to any other use as determined by the Company which is
not otherwise prohibited by the Indenture. (Section 1014)
Notwithstanding the foregoing, the Company will not be required to purchase
Notes pursuant to the requirements described in Clause (iii) (2) of the
preceding paragraph if the Net Available Proceeds (less Reinvested Amounts)
available for use to make an Offer to Purchase Notes, together with all Net
Available Proceeds (less Reinvested Amounts) from prior Asset Dispositions which
were available for use to make an Offer to Purchase, but were not so used
pursuant to the provisions described in this paragraph, are less than $10
million. Notwithstanding the foregoing, if any Restricted Subsidiary in which a
Reinvested Amount is invested becomes an Unrestricted Subsidiary thereafter,
then such change in status will be deemed to be an Asset Disposition with Net
Available Proceeds of cash in an amount equal to such Reinvested Amount, and
such an amount of cash will be applied pursuant to Clause (iii) above (subject
to this paragraph). (Section 1014)
Any Offer to Purchase required by the provisions described above will be
effected by the sending of the written terms and conditions thereof (the "Offer
Document"), by first class mail, to Holders of the Notes within 90 days after
the relevant disposition is completed. The contents of the Offer to Purchase and
the requirements that a Holder must satisfy to tender any Note pursuant to such
Offer to Purchase are substantially the same as those described below under
"Change of Control."
The provisions described in this subsection will not apply to any Asset
Disposition that constitutes a transfer, conveyance, sale, lease or other
disposition of all or substantially all the properties and assets of the Company
and its subsidiaries subject to the provisions described under "Mergers,
Consolidations and Certain Sales and Purchases of Assets."
Provision of Financial Information
Whether or not the Company is required to be subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company will
file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required,
-74-
<PAGE>
such documents to be filed with the Commission on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so required. The Company
will also in any event (a) within 15 days of each Required Filing Date (i)
transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders, and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents (excluding
exhibits) which the Company would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor
provisions thereto if the Company were required to be subject to such Sections
and (b) if filing such documents by the Company with the Commission is not
permitted under the Exchange Act, promptly upon written request supply copies of
such documents to any prospective Holder.
Unrestricted Subsidiaries
The Company at any time may designate any Subsidiary as an "Unrestricted
Subsidiary," whereupon (and until such Person ceases to be an Unrestricted
Subsidiary) such Person and each other Person that is then or thereafter becomes
a Subsidiary of such Person will be deemed to be an Unrestricted Subsidiary. In
addition, the Company may at any time terminate the status of any Subsidiary as
an Unrestricted Subsidiary, whereupon such Subsidiary and each other Subsidiary
of the Company (if any) of which such Subsidiary is a Subsidiary will cease to
be an Unrestricted Subsidiary. (Section 1017)
Notwithstanding the foregoing, no change in the status of a Subsidiary of
the Company from a Restricted Subsidiary to an Unrestricted Subsidiary or vice
versa will be effective, and no Person may otherwise become a Restricted
Subsidiary, if (i) the Consolidated Cash Flow Ratio for the four full fiscal
quarters of the Company next preceding the effective date of such purported
change or other event, calculated on a pro forma basis as if such change or
other event had been effective at the beginning of such period, would be less
than the applicable amount specified under "Limitation on Company Debt," (ii) in
the case of any change in status of such a Subsidiary from a Restricted
Subsidiary to an Unrestricted Subsidiary, the aggregate of all Restricted
Payments on and after the date of the Indenture (excluding Restricted Payments
referred to in Clause (ii) of the last paragraph under "Limitation on Restricted
Payments" and Recovered Restricted Payments), plus the greater of the book value
and the fair market value of all assets of such Restricted Subsidiary prior to
such change, would exceed the amount specified in Clause (3) of the first
paragraph under "Limitation on Restricted Payments" above, (iii) in the case of
any change in status of such a Subsidiary from an Unrestricted Subsidiary to a
Restricted Subsidiary, such Subsidiary could not then Incur or issue, pursuant
to the covenant described under "Limitation on Subsidiary Debt and Preferred
Stock", all Debt and Preferred Stock as to which it is then obligated or the
issuer at such time or (iv) such change or other event would otherwise result
(after the giving of notice or the lapse of time, or both) in an Event of
Default. In addition and notwithstanding the foregoing, no Subsidiary of the
Company may become an Unrestricted Subsidiary, and the status of any Subsidiary
as an Unrestricted Subsidiary will be deemed to have been immediately terminated
(with the effect described in the preceding paragraph) at any time when, (i)
such Subsidiary (A) has outstanding Debt that is Unpermitted Debt or (B) owns or
holds any Capital Stock of or other ownership interests in, or a Lien on any
property of, the Company or any of its Subsidiaries that is not an Unrestricted
Subsidiary or (ii) the Company or any Subsidiary of the Company that is not an
Unrestricted Subsidiary (A) provides credit support for, or a Guaranty of, any
Debt of such Subsidiary (including any undertaking, agreement or instrument
evidencing such Debt) or (B) is directly or indirectly liable for any Debt of
such Subsidiary. Any such termination otherwise prohibited by the restrictions
described in the first sentence of this paragraph will be deemed to result in a
default under the Indenture. "Unpermitted Debt" means any Debt of a Subsidiary
of the Company if (x) a default thereunder (or under any instrument or agreement
pursuant to or by which such Debt is issued, secured or evidenced), or any right
that the holders thereof may have to take enforcement action against such
Subsidiary or its property, would permit (whether or not after the giving of
notice or the lapse of time or both) the holders of any Debt of the Company or a
Subsidiary of the Company that is not an Unrestricted Subsidiary to declare the
same due and payable prior to the date on which it otherwise would have become
due and payable or otherwise to take any enforcement action against the Company
or any such other Subsidiary or (y) such Debt is secured by a Lien on any
property of the Company or any of its Subsidiaries that is not an Unrestricted
Subsidiary. (Section 1017)
-75-
<PAGE>
Upon the designation of any Restricted Subsidiary as an Unrestricted
Subsidiary, an amount equal to the greater of the book value and the fair market
value of all assets of such Restricted Subsidiary prior to such change will be
deemed to be a Restricted Payment for purposes of calculating the aggregate
amount for Restricted Payments under the covenant "Limitation on Restricted
Payments."
Each Person that is or becomes a Subsidiary of the Company will be deemed
to be a Restricted Subsidiary at all times when it is a Subsidiary of the
Company that is not an Unrestricted Subsidiary. Each Person that is or becomes a
Wholly Owned Subsidiary of the Company shall be deemed to be a Wholly Owned
Restricted Subsidiary at all times when it is a Wholly Owned Subsidiary of the
Company that is not an Unrestricted Subsidiary. (Section 1017)
Change of Control
Within 30 days following the date of the consummation of a transaction that
results in a Change of Control (as defined below), the Company will commence an
Offer to Purchase all Outstanding Notes, at a purchase price equal to 101% of
their aggregate principal amount plus accrued interest to the date of purchase.
Such obligation will not continue after a discharge of the Company or defeasance
from its obligations with respect to the Notes. See "--Defeasance."
A "Change of Control" will be deemed to have occurred in the event that,
after the date of the Indenture, (i) any Person, or any Persons acting together
that would constitute a "group" (a "Group"), for purposes of Section 13(d) of
the Exchange Act, together with any Affiliates or Related Persons thereof (other
than any employee stock ownership plan), beneficially owns 50% or more of the
total voting power of all classes of Voting Stock of the Company, (ii) any
Person or Group, together with any Affiliates or Related Persons thereof,
succeeds in having sufficient of its nominees elected to the Board of Directors
of the Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who is an
Affiliate or Related Person of such Person or Group, will constitute a majority
of the Board of Directors of the Company or (iii) there occurs any transaction
or series of related transactions, and the beneficial owners of the Voting Stock
of the Company immediately prior to such transaction (or series) do not,
immediately after such transaction (or series), beneficially own Voting Stock
representing more than 50% of the voting power of all classes of Voting Stock of
the Company (or in the case of a transaction (or series) in which another entity
becomes a successor to the Company, of the successor entity); provided that the
foregoing shall not apply with respect to any such Person or Group referred to
in Clause (i) or (ii) above, which consists exclusively, or to any transaction
(or series) referred to in Clause (iii) above if at least 50% of such voting
power is beneficially owned immediately thereafter by any Person or Group, which
consists exclusively of any one or more Permitted Holders and their Affiliates
(while they are such). (Section 1015)
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes resulting from a Change of Control (or any Asset
Disposition).
On or before the thirtieth day following any Change of Control, an Offer
Document will be sent, by first class mail, to Holders of the Notes, accompanied
by such information regarding the Company and its Subsidiaries as the Company in
good faith believes will enable such Holders to make an informed decision with
respect to the Offer to Purchase, which at a minimum will include (a) the most
recent annual and quarterly financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the "Provision of
Financial Information" covenant (which requirements may be satisfied by delivery
of such documents together with the Offer to Purchase), (b) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in Clause (a) (including a
description of the events requiring the Company to make the Offer to Purchase),
(c) if applicable, appropriate pro forma financial information concerning the
Offer to Purchase and the events requiring the Company to make the Offer to
Purchase and (d) any other information required by applicable law to be included
therein. The Offer Document
-76-
<PAGE>
will contain all instructions and materials necessary to enable Holders of the
Notes to tender Notes pursuant to the Offer to Purchase. The Offer Document will
also state (i) that a Change of Control has occurred (or, if the offer to
purchase is delivered in connection with an Asset Disposition, that an Asset
Disposition has occurred) and that the Company will Offer to purchase the
Holder's Notes, (ii) the Expiration Date of the Offer Document, which will be,
subject to any contrary requirements of applicable law, not less than 30 days or
more than 60 days after the date of such Offer Document, (iii) the Purchase Date
for the purchase of Notes which will be within five Business Days after the
Expiration Date, (iv) the aggregate principal amount of Notes to be purchased
(including, if less than 100%, the manner by which such purchase has been
determined pursuant to the Indenture) and the purchase price, and (v) a
description of the procedure which a Holder must follow to tender all or any
portion of the Notes. (Sections 101 and 1015)
To tender any Note, a Holder must surrender such Note at the place or
places specified in the Offer Document prior to the close of business on the
Expiration Date (such Note being, if the Company or the Trustee so requires,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing). Holders will be entitled to
withdraw all or any portion of Notes tendered if the Company (or its Paying
Agent) receives, not later than the close of business on the Expiration Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder tendered, the certificate
number of the Note the Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender. Any portion of a Note tendered must
be tendered in an integral multiple of $1,000 principal amount. (Section 101)
The Indenture does not contain any other change of control provisions.
Mergers, Consolidations and Certain Sales and Purchases of Assets
The Company (i) may not consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into the Company or any
Restricted Subsidiary (in a transaction in which such Subsidiary remains a
Restricted Subsidiary); (ii) may not, directly or indirectly, in one or a series
of transactions, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of the properties and assets of the Company and its
subsidiaries on a consolidated basis; (iii) may not, and may not permit any
Restricted Subsidiary of the Company to, acquire Capital Stock of or other
ownership interests in any other Person such that such other Person becomes a
Restricted Subsidiary; and (iv) may not, and may not permit any Restricted
Subsidiary of the Company to purchase, lease or otherwise acquire all or
substantially all of the properties and assets of any Person or any existing
business (whether existing as a separate entity, subsidiary, division, unit or
otherwise) of any Person, unless, in each case (i), (ii), (iii) and (iv) above:
(1) immediately before and after giving effect to such transaction (or series)
and treating any Debt Incurred by the Company or a Subsidiary of the Company as
a result of such transaction (or series) as having been Incurred by the Company
or such Subsidiary at the time of the transaction (or series), no Event of
Default or event that with the passing of time or the giving of notice, or both,
will constitute an Event of Default shall have occurred and be continuing, (2)
in a transaction (or series) in which the Company does not survive or in which
the Company transfers, conveys, sells, leases or otherwise disposes of all or
substantially all of its properties and assets, the successor entity is a
corporation, partnership, limited liability company or trust and is organized
and validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and expressly assumes, by a supplemental
indenture executed and delivered to the Trustee in form satisfactory to the
Trustee, all the Company's obligations under the Indenture; (3) immediately
after giving effect to such transaction (or series), the Company or the
successor entity would have a Consolidated Net Worth equal to or greater than
90% of the Consolidated Net Worth of the Company immediately prior to such
transaction (or series); (4) immediately after giving effect to such transaction
(or series) the Consolidated Cash Flow Ratio of the Company or, if applicable,
the successor entity for the four full fiscal quarters immediately preceding
consummation of such transaction (or series), determined on a pro forma basis as
if such transaction (or series) had taken place at the beginning of such four
full fiscal quarters, shall be not less than 2.50 to 1; (5) if, as a result of
any such transaction, property or assets of the Company or any Subsidiary of the
Company would become subject to a Lien prohibited by the "Limitation on Liens"
covenant, the Company or the successor
-77-
<PAGE>
entity will have secured the Notes as required by such covenant; and (6) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel as specified in the Indenture. (Section 801)
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (Section 101)
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aircraft Acquisition Debt" means Debt Incurred by the Company or any of
its Restricted Subsidiaries either (i) in connection with an acquisition of
aircraft which Debt either constitutes part of the purchase price of such
aircraft or is Incurred prior to, at the time of or within 270 days (or 365 days
if such acquisition involves a purchase of an MD-95 aircraft pursuant to the
purchase agreement dated December 6, 1995 (as amended from time to time) between
ValuJet Airlines, Inc. and McDonnell Douglas Corporation) after the acquisition
of such aircraft for the purpose of financing or refinancing part of the
purchase price thereof, and which aircraft was not owned by the Company or a
Restricted Subsidiary of the Company prior to such purchase, provided, however,
that in either case, (A) the proportion (expressed as a percentage) of such Debt
to the purchase price of such aircraft does not exceed 80% (other than on the
date of purchase and any subsequent day prior to the next Business Day) and (B)
after giving effect to the Incurrence of such Debt and the acquisition of such
aircraft, the Company's Consolidated Net Worth is not less than $162 million or
(ii) which is a Restricted Lease Obligation relating solely to an aircraft that
was not owned by the Company or a Restricted Subsidiary of the Company more than
270 days prior to such Incurrence, provided, however, that after giving effect
to the Incurrence of such Debt the Company's Consolidated Net Worth is not less
than $162 million.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person (including as part of a Sale and Lease
Back Transaction and in a consolidation or merger or other sale of any
Restricted Subsidiary with, into or to another Person in a transaction in which
such Subsidiary ceases to be a Subsidiary of such Person, but excluding a
disposition by a Subsidiary of such Person to such Person or a Wholly Owned
Restricted Subsidiary or by such Person to a Wholly Owned Restricted Subsidiary
and excluding a Permitted Aircraft Lease by such Person) of (i) shares of
Capital Stock (other than directors' qualifying shares) or other ownership
interests of a Restricted Subsidiary, (ii) all or substantially all of the
assets of such Person or any Restricted Subsidiary representing a division or
line of business, (iii) aircraft or (iv) other assets or rights of such Person
or any Restricted Subsidiary outside of the ordinary course of business
consistent with past practice.
"Bank Credit Agreements" means one or more credit agreements between the
Company and one or more commercial banks named therein as lenders providing for
term borrowings and/or revolving borrowings, including all related notes,
collateral documents, instruments and agreements executed in connection
therewith, in each case as may be amended, supplemented or restated from time to
time and including any replacement, extension, modification or renewal thereof.
"Bank Debt Limit" means $50 million, provided that if (a) any one or more
Bank Credit Agreements are entered into or amended, supplemented, restated,
replaced, extended, modified or renewed at any time so as to establish the
aggregate amount of term borrowings and/or revolving borrowings permitted under
the Bank Credit Agreements to be outstanding at any one time to be an amount in
excess of $50 million (such amount, the "Adjusted Bank Debt Limit"; such excess
amount, the "Excess Amount"; and such event, a "Bank Debt Limit Adjustment") and
(b) at the time of such Bank Debt Limit Adjustment, and assuming on a pro forma
-78-
<PAGE>
basis that borrowings in an amount equal to the Excess Amount or $50 million,
whichever is less, had been Incurred under the Bank Credit Agreements at the
beginning of, and remained outstanding during, the most recently ended four full
fiscal quarter period for which internal financial statements are available
immediately preceding the date of the Bank Debt Limit Adjustment, the Company
would have been permitted to Incur at least $1.00 of additional Debt pursuant to
the Consolidated Cash Flow Ratio test described in the first paragraph under the
covenant "Limitation on Company Debt", then the Bank Debt Limit shall be the
Adjusted Bank Debt Limit or $100 million, whichever is less.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means
for any period the Consolidated Net Income for such period increased by the sum
of (i) Consolidated Interest Expense of such Person for such period, plus (ii)
Consolidated Income Tax Expense of such Person for such period, plus (iii) the
consolidated depreciation and amortization expense deducted in determining the
Consolidated Net Income of such Person for such period, plus (iv) Consolidated
Rent Expense, plus (v) other non-cash charges of such Person for such period
deducted from consolidated revenues in determining Consolidated Net Income for
such period, minus (vi) non-cash items of such Person for such period increasing
consolidated revenues in determining Consolidated Net Income for such period.
"Consolidated Cash Flow Ratio" of any Person means for any period the ratio
of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for
such period to (ii) the sum of (A) Consolidated Interest Expense of such Person
for such period plus (B) Consolidated Rent Expense of such Person for such
period, plus (C) the annual interest expense (including the amortization of debt
discount) with respect to any Debt proposed to be Incurred by such Person or its
Restricted Subsidiaries, minus (D) Consolidated Interest Expense of such Person
to the extent included in Clause (ii)(A) with respect to any Debt that will no
longer be outstanding as a result of the Incurrence of the Debt proposed to be
Incurred, plus (E) the annual interest expense (including the amortization of
debt discount) with respect to any other Debt Incurred by such Person or its
Restricted Subsidiaries since the end of such period to the extent not included
in Clause (ii)(A) minus (F) Consolidated Interest Expense of such Person to the
extent included in Clause (ii)(A) with respect to any Debt that no longer is
outstanding as a result of the Incurrence of the Debt referred to in Clause
(ii)(E); provided, however, that in making such computation, the Consolidated
Interest Expense of such Person attributable to interest on any Debt bearing a
floating interest rate shall be computed on a pro forma basis as if the rate in
effect on the date of computation had been the applicable rate for the entire
period; and provided further that, in the event such Person or any of its
Restricted Subsidiaries has made acquisitions of assets not in the ordinary
course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) or Asset Dispositions during or
after such period, such computation shall be made on a pro forma basis as if the
acquisitions or Asset Dispositions had taken place on the first day of such
period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles.
-79-
<PAGE>
"Consolidated Interest Expense" of any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the portion of any rental
obligation in respect of any Capital Lease Obligation allocable to interest
expense in accordance with generally accepted accounting principles; (ii) the
amortization of Debt discounts; (iii) any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities; (iv) fees with
respect to interest rate swap or similar agreements, fuel hedging or similar
agreements or foreign currency hedge, exchange or similar agreements; (v)
Preferred Stock dividends declared and paid or payable in cash; and (vi) the
portion of the rental obligation in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such obligation were
a Capital Lease Obligation).
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by such Person or a Subsidiary of
such Person in a pooling-of-interests transaction for any period prior to the
date of such transaction, (b) the net income (but not net loss) of any
Consolidated Subsidiary of such Person that is subject to restrictions that
prevent the payment of dividends or the making of distributions to such Person
to the extent of such restrictions, (c) the net income (or loss) of any Person
that is not a Consolidated Subsidiary of such Person except to the extent of the
amount of dividends or other distributions actually paid to such Person by such
other Person during such period, (d) gains or losses on Asset Dispositions by
such Person or its Consolidated Subsidiaries, (e) all extraordinary gains and
extraordinary losses, (f) the cumulative effect of changes in accounting
principles in the year of adoption of such changes and (g) the tax effect of any
of the items described in Clauses (a) through (f) above.
"Consolidated Net Worth" of any Person means, as of any date, the
consolidated stockholders' equity of such Person and its subsidiaries (or in the
case of the Company, Restricted Subsidiaries) as of such date, as determined on
a consolidated basis in accordance with generally accepted accounting
principles, less amounts attributable to Disqualified Stock of such Person,
provided that calculations of the foregoing will not give effect to, with
respect to the Company and its Restricted Subsidiaries, adjustments following
the date of the Indenture to the accounting books and records of the Company and
its subsidiaries in accordance with Accounting Principles Board Opinions Nos. 16
and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of the Company by another Person.
"Consolidated Rent Expense" of any Person means for any period the
consolidated rent expense attributable to Restricted Lease Obligations and
included in a consolidated income statement (without deduction of any rental
income and without duplication for any amount included in Consolidated Interest
Expense) of such Person and its Consolidated Subsidiaries for such period
determined in accordance with generally accepted accounting principles.
"Consolidated Subsidiaries" of any Person means, as of any date or for any
period, all other Persons that would be accounted for as consolidated Persons in
such Person's financial statements in accordance with generally accepted
accounting principles as of such date or for such period, as the case may be;
provided that, for any particular period (or portion thereof) during which any
Subsidiary was an Unrestricted Subsidiary, "Consolidated Subsidiaries" will
exclude such Subsidiary for such period (or portion thereof) during which it was
an Unrestricted Subsidiary.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued
-80-
<PAGE>
liabilities arising in the ordinary course of business), (v) every Restricted
Lease Obligation of such Person, (vi) the maximum fixed redemption or repurchase
price of Disqualified Stock of such Person at the time of determination, (vii)
every payment obligation of such Person under interest rate swap or similar
agreements, fuel hedging or similar agreements or foreign currency hedge,
exchange or similar agreements at the time of determination and (viii) every
obligation of the type referred to in Clauses (i) through (vii) of another
Person and all dividends of another Person the payment of which, in either case,
such Person has Guaranteed or for which such Person is responsible or liable,
directly or indirectly, jointly or severally, as obligor, Guarantor or
otherwise.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the Notes.
"Guaranty" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Debt of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, and including, without limitation,
any obligation of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Debt (and "Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing), provided, however, that the Guaranty by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing), provided, however, that a
change in generally accepted accounting principles that results in an obligation
of such Person that exists at such time becoming Debt shall not be deemed an
incurrence of such Debt.
"Interest Rate, Currency and Fuel Protection Agreement" of any Person means
any interest rate protection agreement (including interest rate swaps, caps,
floors, collars and other types of interest hedging agreements), any currency
protection agreement (including foreign exchange contracts, currency swap
agreements and other types of currency hedging arrangements) and any aircraft
fuel price protection or similar hedging agreements.
"Investment" by any Person in any other Person means (i) any direct or
indirect loan, advance or other extension of credit or capital contribution to
or for the account of such other Person (by means of any transfer of cash or
other property to any Person or any payment for property or services for the
account or use of any Person, or otherwise), (ii) any direct or indirect
purchase or other acquisition of any Capital Stock, bond, note, debenture or
other debt or equity security or evidence of Debt, or any other ownership
interest, issued by such other Person, whether such acquisition is from such or
any other Person, (iii) any direct or indirect issuance by such Person of a
Guaranty of any obligation of or for the account of such other Person or (iv)
any other investment of cash or other property by such Person in or for the
account of such other Person.
"Investment Grade" means, with respect to any corporate debt securities at
any time, that such securities are rated both Baa3 or higher (or the equivalent
thereof) by Moody's Investors Service, Inc. and BBB- or higher (or the
equivalent thereof) by Standard & Poor's Corporation at such time.
-81-
<PAGE>
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement or title exception, encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Restricted Subsidiaries on any Debt that is
secured by such assets in accordance with the terms of any Lien upon or with
respect to such assets or that must, by the terms of such Lien, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments made to minority interest holders in Restricted Subsidiaries
of such Person or joint ventures as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by such Person or any Restricted Subsidiary
thereof, as the case may be, as a reserve in accordance with generally accepted
accounting principles against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the Board
of Directors, in its good faith judgement evidenced by a resolution of the Board
of Directors filed with the Trustee; provided, however, that any reduction in
such reserve within twelve months following the consummation of such Asset
Disposition will be treated for all purposes of the Indenture and the Notes as a
new Asset Disposition at the time of such reduction with Net Available Proceeds
equal to the amount of such reduction.
"pari passu", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as to
which the other is not so subordinate.
"Permitted Holder" means Robert L. Priddy, Maurice J. Gallagher, Jr., Lewis
H. Jordan, Stephen C. Nevin, Thomas Kalil, Don L. Chapman and Timothy P. Flynn.
"Permitted Interest Rate, Currency and Fuel Protection Agreement" of any
Person means any Interest Rate, Currency and Fuel Protection Agreement entered
into with one or more financial institutions in the ordinary course of business
that is designed to protect such Person (i) against fluctuations in interest
rates or currency exchange rates with respect to Debt permitted to be Incurred
under the Indenture, or in the case of currency protection agreements, against
currency fluctuations with respect to any receivable or liability the amount
payable of which is determined by reference to a foreign currency in the
ordinary course of business; provided that, in any such case, such interest rate
or currency protection agreement shall have a notional amount no greater than
the principal amount of the Debt, receivable or liability being hedged thereby;
and (ii) in the case of fuel hedging agreements, against fluctuations in market
prices of aircraft fuels.
"Permitted Investments" means (i) Investments in (including a Guaranty of
any obligation of) the Company or any Person that is, or as a consequence of
such Investment becomes, a Restricted Subsidiary (provided that any such
Guaranty will cease to be a Permitted Investment and will be deemed to be
Incurred when such Restricted Subsidiary ceases to be a Restricted Subsidiary or
such obligation is assumed by any Person other than a Restricted Subsidiary),
(ii) securities either issued directly or fully guaranteed or insured by the
government of the United States of America or any agency or instrumentality
thereof having maturities of not more than one year from the date of
acquisition, (iii) time deposits and certificates of deposit, having
-82-
<PAGE>
maturities of not more than one year from the date of deposit or issuance, as
the case may be, of any U.S. commercial bank or U.S. branch of a foreign bank,
in each case having capital and surplus in excess of $500 million and having a
peer group rating of C or better (or the equivalent thereof) by Thompson
BankWatch, Inc. or outstanding long-term debt rated A- or better (or the
equivalent thereof) by Standard & Poor's Corporation or A3 or better (or the
equivalent thereof) by Moody's Investors Service, Inc., (iv) commercial paper
rated A-2 or the equivalent thereof by Standard & Poor's Corporation or P-2 or
the equivalent thereof by Moody's Investors Service, Inc., and in each case
maturing within nine months from the date of issuance, (v) corporate debt
securities rated Investment Grade, (vi) any Investment in a Person that is
engaged in the airline or related businesses, in an aggregate amount from the
date of the Indenture not to exceed $35 million and (vii) Permitted Interest
Rate, Currency and Fuel Protection Agreements.
"Permitted Aircraft Lease" by any Person means a lease of aircraft owned by
such Person to a third party on terms which permit the lessor to reacquire
possession of such aircraft, with good and marketable title thereto free and
clear of any adverse claim in favor of the lessee, upon a material breach of
such lease by the lessee.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Reinvested Amounts", with respect to any Asset Disposition, means amounts
invested within 180 days after such Asset Disposition in assets that are related
to the business of the Company and its Restricted Subsidiaries and, upon
consummation of such investment, are owned by the Company or any of its
Restricted Subsidiaries.
"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Stock of such Person.
"Recovered Restricted Payment" means (i) a Guaranty that, when Incurred,
constitutes a Restricted Payment, but only to the extent that the obligations of
the Company and its Restricted Subsidiaries in respect of such Guaranty are
discharged for consideration given by the Company and its Restricted
Subsidiaries in an amount less than the amount of such Restricted Payment and
such discharge is not included in Consolidated Net Income of the Company, or
(ii) a loan that, when made, constitutes a Restricted Payment, but only to the
extent that such loan is repaid to the Company and the Restricted Subsidiaries
in cash without restriction and is not included in Consolidated Net Income of
the Company.
"Restricted Lease Obligation" of any Person means either (i) a Capital
Lease Obligation of such Person or (ii) the obligation to pay rent or other
payment amounts under a lease of (or other Debt arrangements conveying the right
to use) real or personal property of such Person, except, for purposes of this
Clause (ii), for (x) any such lease (or Debt arrangement) relating solely to
property other than aircraft under which such rent or other payment amounts do
not exceed $250,000 on an annualized basis and (y) gate, ticket counter and
other airport facility leases.
"Restricted Subsidiary" means a Subsidiary of the Company that is not an
Unrestricted Subsidiary; and on the date of the Indenture includes all of the
Company's existing Subsidiaries on such date.
"Sale and Leaseback Transaction" means an arrangement with any lender or
investor or to which such lender or investor is a party providing for the
leasing by a Person of any property or asset of such Person which has been or is
being sold or transferred by such Person to such lender or investor or to any
person to whom funds have been or are to be advanced by such lender or investor
on the security of such property or asset. The stated maturity of such
arrangement shall be the date of the last payment of rent or any other amount
due under such arrangement prior to the first date on which such arrangement may
be terminated by the lessee without payment of a penalty.
-83-
<PAGE>
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof, (ii) a partnership of which such Person, or
one or more other Subsidiaries of such Person or such Person and one or more
other Subsidiaries thereof, directly or indirectly, is the general partner and
has the power to direct the policies, management and affairs or (iii) any other
Person (other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership interest and
power to direct the policies, management and affairs thereof.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"Unrestricted Subsidiary" means a Subsidiary of the Company that is deemed
by the Company to be an Unrestricted Subsidiary and is not terminated as an
Unrestricted Subsidiary by the Company, in each case in accordance with the
provisions in the Indenture described under the caption "Covenants--Unrestricted
Subsidiaries."
"Voting Stock" of any Person means Capital Stock of such Person that
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay any interest on any Note when due, continued for 30 days; (b) failure to pay
principal of (or premium, if any, on) any Note when due; (c) failure to purchase
Notes required to be purchased pursuant to an Offer to Purchase as described
under the "Limitation on Certain Asset Dispositions" covenant and under "Change
of Control" when due; (d) failure to perform or comply with the provisions
described under "Mergers, Consolidations and Certain Sales and Purchases of
Assets"; (e) failure to perform any other covenant or warranty of the Company in
the Indenture, continued for 45 days after written notice as provided in the
Indenture; (f) a default or defaults under the terms of any instruments
evidencing or securing, or of any agreements pursuant to which there may be
issued, Debt of the Company or any Restricted Subsidiary of the Company having
an outstanding principal amount of $10 million individually or in the aggregate,
which Debt now exists or is hereafter Incurred, which default or defaults (i)
result in the acceleration of the payment of such indebtedness, (ii) constitute
the failure to pay all or any part of such indebtedness at the final stated
maturity thereof (after expiration of any applicable grace period) or (iii)
constitute the failure to pay when due at any time all or any part of such
indebtedness under a single instrument or agreement that evidences or secures,
or pursuant to which there may be issued, Debt having an outstanding principal
amount of $16 million or more (after expiration of any applicable grace period);
(g) the rendering of a final judgment or judgments (not subject to appeal)
against the Company or any of its Subsidiaries in an aggregate amount in excess
of $15 million which remains unstayed, undischarged or unbonded for a period of
60 days thereafter; and (h) certain events of bankruptcy, insolvency or
reorganization affecting the Company or any Restricted Subsidiary of the
Company. (Section 501)
-84-
<PAGE>
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable indemnity. (Section 603) Subject to such
provisions for the indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the Outstanding Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. (Section 512)
If an Event of Default (other than an Event of Default of the type
described in Clause (h) above) occurs and is continuing, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the outstanding
Notes may accelerate the maturity of all Notes, and if an Event of Default of
the type described in Clause (h) above occurs, the principal of and any accrued
interest on the Notes then outstanding will become immediately due and payable;
provided, however, that after such acceleration, but before a judgment or decree
based on acceleration, the Holders of a majority in aggregate principal amount
of outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. (Section 502)
For information as to waiver of defaults, see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder has
previously given to the Trustee written notice of a continuing Event of Default
and unless also the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as trustee, and the Trustee has not
received from the Holders of a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request and has failed to
institute such proceeding within 60 days. However, such limitations do not apply
to a suit instituted by a Holder of a Note for enforcement of payment of the
principal of (and premium, if any) or interest on such Note on or after the
respective due dates expressed in such Note. (Section 507)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 1019)
DEFEASANCE
The Indenture will provide that (A) if applicable, the Company will be
discharged from any and all obligations in respect of the outstanding Notes or
(B) if applicable, the Company may omit to comply with certain restrictive
covenants, and that such omission will not be deemed to be an Event of Default
under the Indenture and the Notes, in either case (A) or (B) upon irrevocable
deposit with the Trustee, in trust, of money and/or U.S. Government Obligations
that will provide money in an amount sufficient in the opinion of a nationally
recognized firm of independent certified public accountants to pay the principal
of, and premium, if any, and each installment of interest, if any, on the
outstanding Notes. With respect to Clause (B), the obligations under the
Indenture other than with respect to such covenants and the Events of Default
other than the Event of Default relating to such covenants above will remain in
full force and effect. Such trust may only be established if, among other things
(i) with respect to Clause (A), the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a change
in law, which in the Opinion of Counsel provides that Holders of the Notes will
not recognize gain or loss for Federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to Federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred; or, with
respect to Clause (B), the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Notes will not recognize gain or
loss for Federal income tax purposes as a result of such deposit and defeasance
and will be subject to Federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred; (ii) no Event of Default (or event that with the passing of
time or the giving of notice, or both, will constitute an Event of Default)
shall have occurred or be continuing; (iii) the Company
-85-
<PAGE>
has delivered to the Trustee an Opinion of Counsel to the effect that such
deposit shall not cause the Trustee or the trust so created to be subject to the
Investment Company Act of 1940; and (iv) certain other customary conditions
precedent are satisfied. (Sections 1301, 1302, 1303 and 1304)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the outstanding Notes, provided, however, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of (or the premium, if any), or interest on, any Note, (c)
change the place or currency of payment of principal of (or premium, if any), or
interest on, any Note, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note, (e) reduce the above-
stated percentage of outstanding Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults, (g) modify any provisions of
the Indenture relating to the modification and amendment of the Indenture or the
waiver of past defaults or covenants, except as otherwise specified, or (h)
following the mailing of an Offer to Purchase with respect to an Offer, modify
the Indenture with respect to an Offer as described under the "Limitation on
Certain Asset Dispositions" covenant and under "Change of Control" in a manner
adverse to the Holders thereof. (Section 902)
The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (Section 1019) The Holders of a majority in aggregate principal
amount of the outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal (or premium, if any) or interest.
(Section 513)
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income and
estate tax considerations of the purchase, ownership and disposition of the
Notes. This summary is based on laws, regulations, rulings and decisions now in
effect (or, in the case of certain Treasury Regulations, now in proposed form),
all of which are subject to change. This summary deals only with Holders that
will hold Notes as capital assets and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax exempt organizations, insurance companies, dealers in securities or
currencies, persons that will hold Notes as a position in a "straddle" for tax
purposes, persons that hold Notes that are a hedge or that are hedged against
currency risks or that are part of a conversion transaction, or persons that
have a "functional currency" other than the U.S. dollar. This summary discusses
the tax considerations applicable to holders who purchased the Notes at their
principal amount. Holders who purchased the Notes at a price other than their
principal amount should consult their tax advisors as to the possible
applicability to them of the amortizable bond premium or market discount rules.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF
THE FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS
ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner of
a Note that for United States Federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a domestic corporation, or (iii) otherwise
subject to United States federal income taxation on a net income basis in
respect of a Note.
-86-
<PAGE>
Exchange Offer
The exchange of the Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer should not be treated as an "exchange" because the Exchange Notes
should not be considered to differ materially in kind or extent from the
Outstanding Notes. Rather, the Exchange Notes received by a holder of the
Outstanding Notes should be treated as a continuation of the Outstanding Notes
in the hands of such holder. As a result, there should be no federal income tax
consequences to holders exchanging the Outstanding Notes for the Exchange Notes
pursuant to the Exchange Offer.
Payment of Interest
Interest on a Note generally will be taxable to a United States Holder as
ordinary interest income at the time such interest is paid or accrues, in
accordance with such Holder's method of accounting for United States federal
income tax purposes.
Sale, Exchange or Redemption of the Note
Except as provided above under "Exchange Offer," upon the sale, exchange or
redemption of a Note, a United States Holder generally will recognize capital
gain or loss equal to the difference between the amount of cash proceeds and the
fair market value of any property realized on the sale, exchange or redemption
(except to the extent such amount is attributable to accrued interest income
which is taxable as ordinary income) and such Holder's adjusted tax basis in the
Note. Such capital gain or loss will be long-term capital gain or loss if the
United States Holder's holding period in the Note is more than one year at the
time of sale, exchange or redemption.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal and of interest on a Note and to payment of the proceeds of the sale
of a Note to certain non-corporate United States Holders, and a 31% backup
withholding tax may apply to such payments if the United States Holder fails to
provide an accurate taxpayer identification number or to report all interest and
dividends required to be shown on its federal income tax returns.
UNITED STATES ALIEN HOLDERS
As used herein, the term "United States Alien Holder" means a beneficial
owner of a Note that is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust that is not subject to United States
federal income tax on a net income basis in respect of a Note.
Payment of Interest
Payment of interest on a Note by the Company or any Paying Agent to a
United States Alien Holder will not be subject to United States federal income
tax or withholding tax, provided that the United States Alien Holder (i) does
not actually or constructively own 10% or more of the combined voting power of
all classes of stock of the Company entitled to vote, (ii) is not a controlled
foreign corporation related to the Company through stock ownership and (iii)
either (a) certifies to the Company or its agent, under penalties of perjury,
that it is not a United States Holder and provides its name and address or (b) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Note certifies to the Company or its
agent under penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof.
-87-
<PAGE>
Sale, Exchange or Redemption of the Notes
A United States Alien Holder of a Note will generally not be subject to
United States federal income tax or withholding tax on any gain realized on the
sale, exchange or redemption of the Note if (1) the gain is not effectively
connected, or treated as effectively connected, with a United States trade or
business of the United States Alien Holder or (2) in the case of a United States
Alien Holder who is an individual, such Holder is present in the United States
for a period or periods aggregating less than 183 days during the taxable year
of the disposition, or such holder does not have a "tax home" in the United
States and the disposition is not attributable to an office or other fixed place
of business maintained by such Holder in the United States.
Death of a United States Alien Holder
A Note will not be subject to United States federal estate tax as a result
of the death of a United States Alien Holder who is not a citizen or resident of
the United States at the time of death for United States estate tax purposes,
provided that such Holder or beneficial owner did not at the time of death
actually or constructively own 10% or more of the combined voting power of all
classes of stock of the Company entitled to vote, and if at the time of death
payments with respect to such Note would not have been effectively connected
with the conduct by such United States Alien Holder of a trade or business
within the United States.
Information Reporting and Backup Withholding Tax
Information reporting on Internal Revenue Service Form 1099 and backup
withholding will not apply to payment on a Note to a United States Alien Holder
if the statement described in "United States Alien Holders--Payment of Interest"
is duly provided by the beneficial owner and provided further that the payor
does not have actual knowledge that the Holder is a United States person. The
Company or its Paying Agent, however, may report on Internal Revenue Service
Form 1042S payment of interest on Notes.
A United States Alien Holder will not be subject to information reporting
and backup withholding upon the payment of proceeds from the sale of a Note to
or through the United States office of a broker if the Holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. Payment of the
proceeds from the sale of a Note made to or through a foreign office of a broker
generally will not be subject to information reporting or backup withholding,
except that if the broker is a United States person, a controlled foreign
corporation for United States tax purposes, or a foreign person 50% or more of
whose gross income is effectively connected with a United States trade or
business for a specified three year period, information reporting (but not
backup withholding) may apply to such payments.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Outstanding Notes may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any holder which is (i) an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Notes
directly from the Company, or (iii) broker-dealers who acquired Notes as a
result of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions for the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange
-88-
<PAGE>
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Outstanding Notes to the Initial Purchasers thereof) with the
Prospectus contained in the Exchange Offer Registration Statement. Pursuant to
the Registration Rights Agreement, the Company has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes. The Company has agreed that, for a period of 90
days after the Exchange Offer has been consummated, it will make this
Prospectus, and any amendment or supplement to this Prospectus, available to any
broker-dealer that requests such documents in the Letter of Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -Terms and
Conditions of the Letter of Transmittal". In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Outstanding Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that it
will deliver a prospectus in connection with any resale by it of such Exchange
Notes.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Outstanding Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act, as
set forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby will be passed upon for the Company by Ellis, Funk, Goldberg & Labovitz,
P.C., Atlanta, Georgia. Certain shareholders of Ellis, Funk, Goldberg &
Labovitz, P.C. own approximately 44,621 shares of common stock of the Company.
EXPERTS
The consolidated financial statements of ValuJet, Inc. at December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-89-
<PAGE>
SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
The Company is offering to exchange $150,000,000 of registered 10 1/4%
Senior Notes Due 2001 (the "Exchange Notes") for its unregistered notes which
were issued on April 17, 1996 in the same amount and upon substantially the same
terms. As with the unregistered notes, the Exchange Notes will be
unconditionally guaranteed on a senior basis by ValuJet Airlines, Inc., a wholly
owned subsidiary of the Company, and all of its subsidiaries (the "Guarantors").
All operations of the Company are conducted by ValuJet Airlines, Inc., a wholly
owned subsidiary of the Company, and all of its subsidairies. The Exchange Notes
and the guarantees will rank pari passu in right of payment with all senior
unsecured indebtedness of the Company and the Guarantors, respectively, and will
rank senior in right of payment to any future indebtedness of the Company and
the Guarantors, respectively, that may be subordinated thereto. Separate
financial statements of the Guarantors are not presented because all of the
Company's subsidiaries will guarantee the Exchange Notes on a full,
unconditional and joint and several basis.
-90-
<PAGE>
VALUJET, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
ValuJet, Inc.
We have audited the accompanying consolidated balance sheets of ValuJet,
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ValuJet, Inc.
at December 31, 1995 and 1994 and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
Atlanta, Georgia
February 8, 1996
/s/ ERNST & YOUNG LLP
--------------------------
F-2
<PAGE>
VALUJET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $127,947,096 $ 85,077,542
Accounts receivable, less allowance of $405,000
and $950,000 at December 31, 1995 and 1994,
respectively.................................... 12,074,394 7,528,931
Inventories of parts and supplies................ 4,016,266 460,163
Prepaid expenses................................. 4,758,205 2,077,713
Current maturities of note receivable............ -- 521,678
Deferred tax asset............................... 401,621 333,046
Other current assets............................. 589,986 182,579
------------ ------------
Total current assets............................... 149,787,568 96,181,652
Property and equipment:
Flight equipment................................. 153,513,693 62,977,959
Other property and equipment..................... 40,472,604 11,513,129
Deposits on flight equipment purchase contracts.. 21,801,525 1,075,000
------------ ------------
215,787,822 75,566,088
Less accumulated depreciation.................... (18,834,231) (3,686,583)
------------ ------------
196,953,591 71,879,505
Note receivable, less current maturities........... -- 4,978,322
------------ ------------
$346,741,159 $173,039,479
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 6,721,754 $ 2,599,978
Accrued liabilities.............................. 35,866,095 16,799,471
Air traffic liability............................ 22,221,133 9,606,881
Income taxes payable............................. 24,957 606,516
Current maturities of long-term debt............. 21,430,984 7,983,995
------------ ------------
Total current liabilities.......................... 86,264,923 37,596,841
Long-term debt less current maturities............. 87,607,149 38,980,680
Deferred income taxes payable...................... 10,803,856 3,345,211
Stockholders' equity:
Convertible preferred stock, $.01 par value:
Authorized shares--5,000,000................... -- --
Issued and outstanding shares--none at December
31, 1995 and 1994.............................
Common stock, $.001 and $.01 par value at
December 31, 1995 and 1994, respectively:
Authorized shares--1,000,000,000 and 50,000,000
at December 31, 1995 and 1994, respectively...
Issued and outstanding--54,556,020 and
13,304,275 at December 31, 1995 and 1994,
respectively.................................. 54,556 133,043
Additional paid-in capital....................... 74,433,062 73,368,699
Notes receivable from common stock sale.......... -- (200,010)
Retained earnings................................ 87,577,613 19,815,015
------------ ------------
Total stockholders' equity......................... 162,065,231 93,116,747
------------ ------------
Total liabilities and stockholders' equity......... $346,741,159 $173,039,479
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
Operating revenues:
Passenger............................ $352,574,954 $129,551,344 $5,781,306
Cargo................................ 4,874,449 -- --
Other................................ 10,307,975 4,349,966 29,485
------------ ------------ ----------
Total operating revenues............... 367,757,378 133,901,310 5,810,791
Operating expenses:
Flight operations.................... 16,272,833 6,967,015 474,017
Aircraft fuel........................ 55,812,838 21,774,936 976,958
Maintenance.......................... 47,330,009 14,862,239 732,092
Station operations................... 49,931,088 20,197,983 1,198,641
Passenger services................... 10,363,538 3,941,749 228,165
Marketing and advertising............ 8,988,656 6,546,043 1,096,938
Sales and reservations............... 31,155,592 11,325,162 966,798
General and administrative........... 10,617,312 5,038,897 866,427
Employee bonus....................... 14,382,000 5,146,039 --
Depreciation......................... 15,147,647 3,555,426 138,155
------------ ------------ ----------
Total operating expenses............... 260,001,513 99,355,489 6,678,191
------------ ------------ ----------
Operating income (loss)................ 107,755,865 34,545,821 (867,400)
Other expenses (income):
Interest expense..................... 6,579,020 2,388,240 112,086
Interest income...................... (5,555,160) (1,422,955) (85,395)
Gain on disposal of property and
equipment........................... (1,093,527) -- --
------------ ------------ ----------
Total other expenses (income), net..... (69,667) 965,285 26,691
------------ ------------ ----------
Income (loss) before income taxes...... 107,825,532 33,580,536 (894,091)
Provision for income taxes............. 40,062,934 12,848,556 --
------------ ------------ ----------
Net income (loss)...................... $ 67,762,598 $ 20,731,980 $ (894,091)
============ ============ ==========
Net income (loss) per share............ $ 1.13 $ 0.44 $ (0.03)
============ ============ ==========
Weighted average shares outstanding.... 59,793,000 47,620,000 33,564,000
============ ============ ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK NOTES
---------------------------------- -------------------- RECEIVABLE
ADDITIONAL ADDITIONAL FROM RETAINED TOTAL
PAID-IN- PAID-IN COMMON EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STOCK SALE (DEFICIT) EQUITY
---------- -------- ------------ ---------- --------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Decem-
ber 31, 1992.... -- $ -- $ -- 757,500 $ 7,575 $ 497,425 $ -- $ (22,874) $ 482,126
Issuance of com-
mon stock...... -- -- -- 4,817,500 48,175 3,971,853 (324,010) -- 3,696,018
Issuance of pre-
ferred stock... 3,250,000 32,500 11,826,244 -- -- -- -- -- 11,858,744
Net loss........ -- -- -- -- -- -- -- (894,091) (894,091)
---------- -------- ------------ ---------- --------- ----------- --------- ----------- ------------
Balance at Decem-
ber 31, 1993.... 3,250,000 32,500 11,826,244 5,575,000 55,750 4,469,278 (324,010) (916,965) 15,142,797
Payments on
notes receiv-
able from com-
mon stock sale
and offering
expenses re-
lated to issu-
ance of common
stock.......... -- -- -- -- -- (8,858) 124,000 -- 115,142
Conversion of
preferred
stock.......... (3,250,000) (32,500) (11,826,244) 3,250,000 32,500 11,826,244 -- -- --
Issuance of com-
mon stock to
employees...... -- -- -- 9,920 99 (99) -- -- --
Issuance of com-
mon stock, net
of issuance
costs.......... -- -- -- 1,500,000 15,000 16,949,743 -- -- 16,964,743
Exercise of war-
rants for com-
mon stock...... -- -- -- 250,000 2,500 1,197,500 -- -- 1,200,000
Issuance of com-
mon stock for
exercise of op-
tions.......... -- -- -- 2,000 20 1,313 -- -- 1,333
Exercise of war-
rants for com-
mon stock...... -- -- -- 2,605,575 26,056 38,934,696 -- -- 38,960,752
Exchange of war-
rants for com-
mon stock...... -- -- -- 111,790 1,118 (1,118) -- -- --
Net income...... -- -- -- -- -- -- -- 20,731,980 20,731,980
---------- -------- ------------ ---------- --------- ----------- --------- ----------- ------------
Balance at Decem-
ber 31, 1994.... -- -- -- 13,304,285 133,043 73,368,699 (200,010) 19,815,015 93,116,747
Issuance of com-
mon stock for
exercise of op-
tions.......... -- -- -- 7,000 70 10,381 -- -- 10,451
Two-for-one
stock split.... -- -- -- 13,311,285 133,113 (133,113) -- -- --
Issuance of com-
mon stock for
exercise of op-
tions.......... -- -- -- 654,500 6,545 379,656 -- -- 386,201
Issuance of com-
mon stock under
stock purchase
plan........... -- -- -- 940 9 39,215 -- -- 39,224
Two-for-one
stock split.... -- -- -- 27,278,010 272,780 (272,780) -- -- --
Change in par
value.......... -- -- -- -- (491,004) 491,004 -- -- --
Accrued compen-
sation related
to stock op-
tions.......... -- -- -- -- -- 550,000 -- -- 550,000
Payments on
notes receiv-
able from com-
mon stock
sale........... -- -- -- -- -- -- 200,010 -- 200,010
Net income...... -- -- -- -- -- -- -- 67,762,598 67,762,598
---------- -------- ------------ ---------- --------- ----------- --------- ----------- ------------
Balance at Decem-
ber 31, 1995.... -- $ -- $ -- 54,556,020 $ 54,556 $74,433,062 $ -- $87,577,613 $162,065,231
========== ======== ============ ========== ========= =========== ========= =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................. $ 67,762,598 $ 20,731,980 $ (894,091)
Adjustments to reconcile net income
(loss) to cash provided by operat-
ing activities:
Depreciation..................... 15,147,647 3,548,426 138,155
Provision for uncollectible ac-
counts.......................... 3,159,935 1,043,902 45,000
Deferred income taxes............ 7,390,070 3,012,165 --
Gain on disposal of flight equip-
ment............................ (1,093,527) -- --
Changes in operating assets and
liabilities:
Accounts receivable............ (7,705,398) (6,285,616) (2,332,217)
Other current assets........... (6,644,002) (1,218,142) (1,271,888)
Accounts payable and accrued
liabilities................... 23,738,400 16,921,695 2,464,873
Air traffic liability.......... 12,614,252 7,361,035 2,245,846
Income taxes payable........... (581,559) 606,516 --
------------- ------------ ------------
Net cash provided by operating ac-
tivities.......................... 113,788,416 45,721,961 395,678
INVESTING ACTIVITIES
Purchases of property and equip-
ment.............................. (142,128,206) (61,969,880) (13,596,208)
Proceeds from disposal of equip-
ment.............................. 3,000,000 -- --
------------- ------------ ------------
Net cash used in investing activi-
ties.............................. (139,128,206) (61,969,880) (13,596,208)
FINANCING ACTIVITIES
Notes receivable................... 5,500,000 (5,500,000) --
Payment received on notes receiv-
able from common stock sale....... 200,010 50,000 --
Issuance of long-term debt......... 73,707,688 40,612,884 10,540,000
Proceeds from sale of common
stock............................. 396,652 56,961,546 3,696,018
Proceeds from common stock issuance
in stock purchase plan............ 39,224 -- --
Proceeds from sale of preferred
stock............................. -- -- 11,858,744
Payment of long-term debt.......... (11,634,230) (4,045,580) (142,629)
------------- ------------ ------------
Net cash provided by financing ac-
tivities.......................... 68,209,344 88,078,850 25,952,133
------------- ------------ ------------
Net increase in cash and cash
equivalents....................... 42,869,554 71,830,931 12,751,603
Cash and cash equivalents at begin-
ning of period.................... 85,077,542 13,246,611 495,008
------------- ------------ ------------
Cash and cash equivalents at end of
period............................ $ 127,947,096 $ 85,077,542 $ 13,246,611
============= ============ ============
Cash paid for income taxes......... $ 32,770,000 $ 9,215,600 $ --
============= ============ ============
Cash paid for interest............. $ 6,592,000 $ 2,155,000 $ 69,000
============= ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION AND PRINCIPLES OF CONSOLIDATION
ValuJet Airlines, Inc. was originally incorporated on July 10, 1992 under
the name of Charter Way, Inc. In May 1993, the Company changed its name to
ValuJet Airlines, Inc. As a result of a merger between ValuJet Airlines, Inc.
and VJET Acquisition, Inc. on October 19, 1995, ValuJet Airlines, Inc. has
become a wholly-owned subsidiary of ValuJet, Inc. ValuJet, Inc. was
incorporated on July 17, 1995 by ValuJet Airlines, Inc. as its wholly-owned
subsidiary.
ValuJet, Inc. formed VJET Acquisition, Inc. as its wholly-owned subsidiary.
Pursuant to a Plan and Agreement of Merger ("the Merger"), VJET Acquisition,
Inc. was merged into ValuJet Airlines, Inc. with ValuJet Airlines, Inc. being
the surviving corporation. In connection with the Merger, each outstanding
share of Common Stock, $.01 par value per share, of ValuJet Airlines, Inc. was
converted into and became the right to receive one share of Common Stock,
$.001 par value per share, of ValuJet, Inc., and the shares of Common Stock of
VJET Acquisition, Inc. owned by ValuJet, Inc. were converted into shares of
Common Stock of ValuJet Airlines, Inc. The shares of Common Stock of ValuJet,
Inc. owned by ValuJet Airlines, Inc. were canceled. Therefore, the then
current stockholders of ValuJet Airlines, Inc. became stockholders of ValuJet,
Inc. and ValuJet Airlines, Inc. became a wholly-owned subsidiary of ValuJet,
Inc. Each of the former stockholders of ValuJet Airlines, Inc. has exactly the
same proportionate interest in ValuJet, Inc. as they had in ValuJet Airlines,
Inc. prior to the Merger.
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Company offers low-fare, no-frills, point-to-point scheduled air
transportation, serving short-haul markets primarily in the eastern United
States. During 1995, the Company also began offering cargo service.
USE OF ESTIMATES
The preparation of consolidated 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 inevitably will differ from
those estimates, and such differences may be material to the consolidated
financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are primarily due from major credit card processors and
travel agents. These receivables are unsecured. The Company provides an
allowance for doubtful accounts equal to the estimated losses expected to be
incurred in the collection of accounts receivable.
F-7
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INVENTORIES
Inventories of flight equipment expendable parts, materials and supplies are
carried at the lower of cost or market using the first-in, first-out method
(FIFO). These items are charged to expense when issued for use.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Flight equipment is
depreciated to its residual values, estimated at 20%, using the straight-line
method over seven to ten years. Other property and equipment is depreciated
over three years.
AIRCRAFT AND ENGINE MAINTENANCE
The Company accounts for airframe and aircraft engine overhaul costs using
the direct-expensing method. Overhauls are performed on a continuous basis and
the cost of overhauls and routine maintenance costs for aircraft and engine
maintenance are charged to maintenance expense as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense in the period the costs are
incurred. Advertising expense was approximately $8,038,000, $5,507,000 and
$756,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
REVENUE RECOGNITION
Passenger and cargo revenue is recognized when transportation is provided.
Transportation purchased but not yet used is included in air traffic
liability.
INCOME TAXES
At inception, the stockholders of the Company filed with the Internal
Revenue Service a Form 2553 "Election by Small Business Corporation as to
Taxable Status under Subchapter S of the Internal Revenue Code." Prior to
September 30, 1993, the Company met the qualifications for S Corporation
status. As such, the stockholders reported their proportionate share of the
Company's taxable income or loss in their respective tax returns. Effective
September 30, 1993, the Company terminated its S Corporation status.
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
PRE-OPERATING COSTS
The cost of routine development of new routes and the pre-operating cost
incurred in connection with aircraft acquisitions are charged to expense as
incurred.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to officers,
directors, key employees and consultants of the Company with an exercise price
equal to or below the fair value of
F-8
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the shares at the date of grant. The Company accounts for stock option grants
in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and accordingly, recognizes compensation expense only if the market
price of the underlying stock exceeds the exercise price of the stock option
on the date of grant.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, which provides an
alternative to APB Opinion No. 25 in accounting for stock-based compensation
issued to employees. However, the Company plans to continue to account for
stock-based compensation in accordance with APB Opinion No. 25.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
common and preferred shares outstanding and dilutive common stock equivalents
during the periods. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common and preferred stock issued for
consideration below the assumed initial public offering (the "IPO") price of
$3.125 (adjusted for stock splits) per share and stock options and warrants
issued with exercise prices below the IPO price during the twelve-month period
preceding the initial filing of the Registration Statement, have been included
in the calculation of common shares, using the treasury stock method, as if
they were outstanding for all periods prior to the effective date of the
initial public offering.
In accordance with APB Opinion No. 15, supplemental income (loss) per share
data is presented for comparability purposes. The following income (loss) per
share is calculated excluding the effects of common stock equivalents issued
during the twelve months immediately preceding the effective date of the
Company's public offering of its common stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Net income (loss) per share.................... $ 1.13 $ 0.42 $ (0.06)
======= ======= ========
</TABLE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the discounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996, and based on
current circumstances, does not believe the effect of adoption will be
material.
2. COMMITMENTS
At December 31, 1995, the Company's contractual commitments consisted
primarily of scheduled aircraft acquisitions. The Company has entered into a
contract with a major aircraft manufacturer to purchase 50 new aircraft, to be
delivered in 1999 to 2002, with options to purchase another 50 aircraft. The
agreement also requires the major aircraft manufacturer to provide up to 15
used aircraft per year from 1997 through 1999. While the major aircraft
manufacturer is required to provide assistance with respect to the financing
of the aircraft, the Company will be required to obtain financing from other
sources relating to these deliveries. Aggregate funding needed for these and
all other aircraft commitments was approximately $1,080,000,000 at December
31, 1995. In conjunction with these contractual commitments, the Company had
made refundable deposits of approximately $21,800,000 at December 31, 1995.
F-9
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Accrued bonuses................................. $14,017,001 $ 4,743,000
Accrued maintenance............................. 4,700,000 1,025,389
Other........................................... 17,149,094 11,031,082
----------- -----------
$35,866,095 $16,799,471
=========== ===========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
------------ -----------
<S> <C> <C>
Promissory notes for aircraft and other
equipment................................... $109,038,133 $46,964,675
Less current maturities...................... 21,430,984 7,983,995
------------ -----------
$ 87,607,149 $38,980,680
============ ===========
</TABLE>
These notes bear interest at fixed rates per annum ranging from 6.8% to
11.5% or variable rates of interest based on the London Interbank Offered Rate
(5.4375% at December 31, 1995) plus 1.30% to 3% based on the Company's
compliance with specific financial ratios. Principal and interest payments are
due in monthly or quarterly installments over four to six year terms on a
mortgage style amortization based on the delivery date of the aircraft. In
addition, certain notes require prepayment if specific financial ratios are
not maintained. The aircraft, engines and other equipment with a carrying
value of approximately $147,773,000 serve as collateral on these notes.
Future long-term debt principal payments at December 31, 1995 were as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1996...................... $ 21,430,984
1997...................... 23,386,752
1998...................... 25,290,990
1999...................... 20,962,796
2000...................... 12,038,845
Thereafter................ 5,927,766
------------
$109,038,133
============
</TABLE>
5. NOTES RECEIVABLE
During December 1994, the Company entered into a note receivable ("Note")
agreement whereby the Company would lend the holder of the long term debt
("Holder") up to $5,500,000 for the cost of modifications on three aircraft
that were executed by the Holder. As of December 31, 1994, the Company funded
the full amount of the Note, and during 1995, the note was repaid in full.
6. LEASES
The Company leases facilities from local airport authorities or other
carriers, as well as office space. These leases are operating leases and have
terms from one month to three years.
F-10
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES--(CONTINUED)
Total rental expense charged to operations for the years ended December 31,
1995, 1994 and 1993 was $12,516,000, $4,726,000, and $135,000, respectively.
Future minimum lease payments under non-cancelable operating leases with
initial terms in excess of one year at December 31, 1995 were as follows:
<TABLE>
<S> <C>
Year ending December 31,
1996........................ $ 862,034
1997........................ 606,854
1998........................ 606,854
1999........................ 517,779
2000........................ 271,068
Thereafter.................. 542,136
----------
$3,406,725
==========
</TABLE>
7. STOCKHOLDERS' EQUITY
During 1993, the Company issued 300,000 shares of common stock to an officer
of the Company and 75,000 shares to a consultant in exchange for notes
receivable of $200,010 and $50,000, respectively. During 1995 and 1994, the
notes receivable were repaid in full.
In conjunction with a private placement offering for 200 Units during 1993,
the Company issued 250,000 Preferred Stock purchase warrants to the placement
agent which entitled the holder to acquire shares of Preferred Stock at a
price of $4.80 per share. These warrants were exercised for common stock
during the year ended December 31, 1994.
Also, during 1993, the Company issued 260 units ("Units"), each consisting
of 12,500 shares of convertible Series A Preferred Stock ("Preferred Stock")
and warrants to purchase 12,500 shares of common stock, or 3,250,000 shares of
Preferred Stock and 3,250,000 Warrants to purchase common stock, for
$11,858,744, net of issuance costs of $1,141,351. Each Warrant entitled the
holder to purchase shares of common stock at a price of $15.00 per share on or
before December 31, 1995. The Warrants were callable by the Company at $.05
per share if the closing bid price of the Company's common stock was greater
than or equal to $20 per share for a period of fifteen consecutive trading
days and if the common stock issuable upon exercise of warrants was then
covered by an effective registration statement filed with the Securities and
Exchange Commission. In addition, in conjunction with a sale of common stock
in 1993, the Company issued 250,000 warrants to purchase common stock at a
price of $15.00 per share. In October 1994, the Company called the 3,500,000
warrants outstanding at that date. Pursuant to the Company's exchange offer,
2,605,575 warrants for common stock were exercised for $15.00 per share
resulting in proceeds of approximately $38,960,000, net of expenses. The
remaining 894,425 warrants for common stock were exchanged for 111,790 shares
of common stock, in accordance with the Company's exchange offer.
On July 6, 1994, the Company closed an initial public offering of 1.5
million shares of its common stock, generating proceeds of approximately $17
million, net of underwriting discounts and commissions and other expenses.
Concurrently with the closing of the Company's initial public offering all of
the Company's Preferred Stock was automatically converted into common stock on
a one-for-one basis.
F-11
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY--(CONTINUED)
On June 28, 1994, the Company issued 39,680 (adjusted for stock splits)
shares of common stock to a trust for the benefit of its employees at the
initial public offering date. These shares were valued at the initial public
offering price of $3.12 (adjusted for stock splits) per share and compensation
expense related to these shares will be recognized over the vesting period of
three years from the issuance date. At the end of the vesting term, the shares
will be divided among the employees employed at the initial public offering
date remaining with the Company at the end of the three year vesting period.
Approximately 19,840 (adjusted for stock splits) of these shares had been
earned as of December 31, 1995.
During 1995, the Company announced two separate two-for-one stock splits
effected in the form of stock dividends. The stock splits were payable on
April 10, 1995 and November 21, 1995 to stockholders of record as of the close
of business on March 24, 1995 and November 6, 1995, respectively. All option
information, weighted average shares and earnings per share information has
been retroactively restated to reflect the splits.
8. STOCK OPTION PLANS
The Company has established the ValuJet Airlines, Inc. 1993 Incentive Stock
Option Plan (the "Plan") whereby up to 4,800,000 options may be granted to
officers, directors and key employees to purchase shares of common stock at
prices not less than the fair value of the shares on the dates of grant. With
respect to individuals owning more than 10% of the voting power of all classes
of the Company's stock, the exercise price per share shall not be less than
110% of the fair value of the shares on the date of grant.
Vesting and term of these options is determined by the Board of Directors
and may vary by optionee; however, the term may be no longer than ten years
from the date of grant. A summary of option activity in the Plan is as
follows:
<TABLE>
<CAPTION>
OPTION EXERCISE PRICE
SHARES PER SHARE
---------- --------------
<S> <C> <C>
Outstanding at January 1, 1993
Granted...................................... 3,880,000 $0.17
Exercised.................................... -- --
Canceled..................................... -- --
----------
Outstanding at December 31, 1993............... 3,880,000 $0.17
Granted...................................... 160,000 $1.00
Exercised.................................... (8,000) $0.17
Canceled..................................... (52,000) $0.17-$1.00
----------
Outstanding at December 31, 1994............... 3,980,000 $0.17-$1.00
Granted...................................... -- --
Exercised.................................... (1,280,000) $0.17-$1.00
Canceled..................................... (48,000) $0.17
----------
Outstanding at December 31, 1995............... 2,652,000 $0.17-$1.00
==========
Exercisable at December 31, 1995............... 676,000
==========
</TABLE>
F-12
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCK OPTION PLANS--(CONTINUED)
On March 31, 1994, the Company established the ValuJet Airlines, Inc. 1994
Stock Option Plan (the "1994 Plan") whereby up to 4,000,000 incentive stock
options or non-qualified options may be granted to officers, directors, key
employees and consultants of the Company. A summary of option activity in the
Plan is as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at January 1, 1994
Granted........................................ 2,080,000 $1.00-$ 3.75
Exercised...................................... -- --
Canceled....................................... (40,000) $3.13
---------
Outstanding at December 31, 1994................. 2,040,000 $1.00-$ 3.75
Granted........................................ 1,175,600 $3.75-$23.19
Exercised...................................... (57,000) $3.13
Canceled....................................... (191,200) $3.13-$12.19
---------
Outstanding at December 31, 1995................. 2,967,400 $1.00-$23.19
=========
Exercisable at December 31, 1995................. 785,082
=========
</TABLE>
At December 31, 1995, the Company had reserved a total of 7,455,000 shares
of common stock for future issuance upon exercise of stock options.
9. INCOME TAXES
As a result of the termination of the S Corporation election on September
30, 1993, the Company recorded a deferred tax asset of $220,689 relating to
organizational and start-up costs. For financial reporting purposes, a
valuation allowance of $220,689 was established to offset this deferred tax
asset at December 31, 1993. Therefore, the conversion from an S Corporation to
a C Corporation had no effect on financial position or results of operations
of the Company.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal.............................. $30,389,736 $ 8,387,121 $ --
State................................ 2,283,128 1,449,270 --
----------- ----------- ----------
Total current.......................... 32,672,864 9,836,391
Deferred:
Federal.............................. 6,313,839 2,694,773 --
State................................ 1,076,231 317,392 --
----------- ----------- ----------
Total deferred......................... 7,390,070 3,012,165 --
----------- ----------- ----------
$40,062,934 $12,848,556 $ --
=========== =========== ==========
</TABLE>
F-13
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Tax at statutory rate................ $37,738,937 $11,648,639 $(303,991)
State taxes, net of federal benefit.. 2,183,583 1,330,254 (53,645)
Other................................ 140,414 233,576 (6,277)
Valuation reserve.................... -- (363,913) 363,913
----------- ----------- ---------
$40,062,934 $12,848,556 $ --
=========== =========== =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Prepaid insurance............................... $ 1,210,775 $ 211,810
Depreciation.................................... 10,919,065 3,500,703
----------- ----------
Total deferred tax liabilities.................... 12,129,840 3,712,513
Deferred tax assets:
Amortization of organizational and start up
costs.......................................... 114,409 155,492
Allowance for bad debts......................... 153,686 356,958
Inventory obsolescence.......................... 189,865 187,898
Accrued bonuses................................. 1,064,532 --
Accrued interest................................ 116,957 --
Other........................................... 88,156 --
----------- ----------
Total deferred tax assets......................... 1,727,605 700,348
----------- ----------
Net deferred tax liability........................ $10,402,235 $3,012,165
=========== ==========
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company utilizes temporary employees provided by a temporary agency
which is partially owned by the daughter of one of the Company's officers.
Amounts recorded as expense related to this agency were approximately
$12,663,000, $5,140,000, and $450,000 for the years ended December 31, 1995,
1994 and 1993, respectively. Accounts payable to this agency was approximately
$370,703 and $196,000 at December 31, 1995 and 1994, respectively.
11. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and account receivable. The Company maintains cash and cash equivalents with
various financial institutions. The Company's policy is to limit exposure to
any one institution. The Company periodically evaluates the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy. Concentration of credit risk with respect to accounts
receivable is limited due to the large number of customers comprising the
Company's customer base.
F-14
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. FINANCIAL INSTRUMENTS--(CONTINUED)
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts reported
in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements. The fair value of the Company's long-term debt at December
31, 1995 is approximately $110,973,000.
12. EMPLOYEE BENEFIT PLANS
Effective April 1, 1995, the Company adopted the ValuJet Airlines, Inc.
401(k) Plan (the "Plan"), a defined contribution benefit plan which qualifies
under Section 401(k) of the Internal Revenue Code. All employees of the
Company are eligible to participate in the Plan. Participants may contribute
up to 15% of their base salary to the Plan. Contributions to the Plan by the
Company are discretionary. No employer contributions were made in 1995.
Effective May 16, 1995, the Company formed the 1995 Employee Stock Purchase
Plan (the "Stock Plan") whereby employees who complete twelve months of
service are eligible to make quarterly purchases of the Company's common stock
at up to a 15% discount from the market value on the offering date. The
discount rate is determined by the Board of Directors before each offering
date. The Company is authorized to issue up to 4,000,000 shares of common
stock under this plan. During 1995, the employees purchased a total of 1,880
shares (adjusted for stock split in November) at an average price of $20.86
per share, which represented a 5% discount from the market price on the
offering dates.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
---------------------------------
FIRST SECOND THIRD FOURTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 1995:
Operating revenues......................... $60,747 $86,913 $109,296 $110,801
Operating income........................... 14,581 25,992 36,672 30,511
Gain on disposal of equipment.............. -- 1,094 -- --
Net income................................. 9,071 16,860 22,661 19,171
Net income per share....................... .15 .28 .38 .32
<CAPTION>
QUARTER
---------------------------------
FIRST SECOND THIRD FOURTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 1994:
Operating revenues......................... $18,598 $29,709 $ 40,343 $ 45,251
Operating income........................... 3,508 8,541 10,989 11,508
Net income................................. 2,088 5,117 6,574 6,953
Net income per share....................... 0.05 0.13 0.13 0.12
</TABLE>
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of each Registrant incorporated in
Nevada provide that directors of such Registrant will not be personally liable
for monetary damages to such Registrant for certain breaches of their fiduciary
duty as directors to the fullest extent allowable by Nevada law. Under current
Nevada law, directors would remain liable for: (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, and (ii)
approval of certain illegal dividends or redemptions. In appropriate
circumstances, equitable remedies or nonmonetary relief, such as an injunction,
will remain available to a stockholder seeking redress from any such violation.
In addition, the provision applies only to claims against a director arising out
of his role as a director and not in any other capacity (such as an officer or
employee of the Registrant).
Each Registrant incorporated in Nevada also has the obligation,
pursuant to such Registrant's By-laws, to indemnify any director or officer of
the Registrant for all expenses incurred by them in connection with any legal
action brought or threatened against such person for or on account of any action
or omission alleged to have been committed while acting in the course and scope
of the person's duties, if the person acted in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best interests of
the Registrant, and with respect to criminal actions, had no reasonable cause to
believe the person's conduct was unlawful, provided that such indemnification is
made pursuant to then existing provisions of Nevada General Corporation Law at
the time of any such indemnification.
The Partnership Agreement of each Registrant which is a Georgia
partnership, provides that to the fullest extent permitted by law, such
Registrant shall indemnify and shall hold the General Partner, each and every
Authorized Agent of the Partnership, and the Limited Partner acting consistently
with the Partnership Agreement harmless from any loss or damage, including,
without limitation, reasonable legal fees and court costs, incurred by them by
reason of anything they may do or refrain from doing hereafter for and on behalf
of such Registrant and in furtherance of its best interests, specifically
including any such act or failure to act which is attributable, in whole or in
part, to the negligence of the party being indemnified, but specifically
excluding any such act or failure to act which is primarily attributable to the
gross negligence or willful misconduct of such party.
The Registration Rights Agreement filed as Exhibit 4.2 hereto contains
certain provisions pursuant to which certain officers, directors and controlling
persons of the Company may be entitled to be indemnified by the Initial
Purchasers and other holders of Notes.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
3.1 Articles of Incorporation of ValuJet, Inc. (1)
3.2 Bylaws of ValuJet, Inc. (1)
4.1 Indenture dated as of April 17,1996 among the Company, the
Guarantors and Bank of Montreal Trust Company, as Trustee
(including form of Exchange Note and Subsidiary Guarantee). (2)
4.2 Exchange and Registration Rights Agreement dated as of April 17,
1996 among the Company and the Initial Purchasers. (2)
4.3 Form of Exchange Note (included in Exhibit 4.1).
5.1 Opinion of Ellis, Funk, Goldberg & Labovitz, P.C.
8.1 Tax Opinion of Ellis, Funk, Goldberg & Labovitz, P.C.
12.1 Computation of ratio of earnings to fixed charges.
23.1 Consent of Ellis, Funk, Goldberg & Labovitz, P.C. (included in
Exhibit 5.1)
II-1
<PAGE>
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (included on signature pages).
25.1 Statement of Eligibility of Trustee. *
99.1 Form of Transmittal Letter.
99.2 Form of Notice of Guaranteed Delivery.
___________________________________
* To be filed by amendment.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4, registration number 33-95232, filed with the Commission on
August 1, 1995, and amendments thereto.
(2) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, Commission file No. 0-
26914, filed with the Commission on May 3, 1996.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (i) Each undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of ValuJet, Inc. annual report pursuant to section 13(a) or section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(ii) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) Each undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) Each undesigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET, INC.
By: /s/ ROBERT L. PRIDDY
------------------------------------------
Robert L. Priddy, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT L. PRIDDY and LEWIS H. JORDAN, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ ROBERT L. PRIDDY Chairman of the Board (principal
------------------------------------------
Robert L. Priddy executive officer) and Director
/s/ LEWIS H. JORDAN President and Director
------------------------------------------
Lewis H. Jordan
/s/ STEPHEN C. NEVIN Vice President-Finance
------------------------------------------
Stephen C. Nevin (principal financial officer)
/s/ MICHAEL D. ACKS Controller (principal accounting
------------------------------------------
Michael D. Acks officer)
/s/ DON L. CHAPMAN Director
------------------------------------------
Don L. Chapman
/s/ TIMOTHY P. FLYNN Director
------------------------------------------
Timothy P. Flynn
/s/ MAURICE J. GALLAGHER, JR. Director
------------------------------------------
Maurice J. Gallagher, Jr.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET AIRLINES, INC.
By: /s/ ROBERT L. PRIDDY
------------------------------------------
Robert L. Priddy, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT L. PRIDDY and LEWIS H. JORDAN, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ ROBERT L. PRIDDY Chairman of the Board (principal
------------------------------------------
Robert L. Priddy executive officer) and Director
/s/ LEWIS H. JORDAN President and Director
------------------------------------------
Lewis J. Jordan
/s/ STEPHEN C. NEVIN Vice President-Finance
------------------------------------------
Stephen C. Nevin principal financial officer)
/s/ MICHAEL D. ACKS Controller (principal accounting
------------------------------------------
Michael D. Acks officer)
/s/ DON L. CHAPMAN Director
------------------------------------------
Don L. Chapman
/s/ TIMOTHY P. FLYNN Director
------------------------------------------
Timothy P. Flynn
/s/ MAURICE J. GALLAGHER, JR. Director
------------------------------------------
Maurice J. Gallagher, Jr.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET INVESTMENT CORP., INC.
By: /s/ ROBERT L. PRIDDY
------------------------------------------
Robert L. Priddy, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT L. PRIDDY and LEWIS H. JORDAN, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ ROBERT L. PRIDDY Chairman of the Board (principal
------------------------------------------
Robert L. Priddy executive officer) and Director
/s/ MAURICE J. GALLAGHER President and Director
------------------------------------------
Maurice J. Gallagher
/s/ STEPHEN C. NEVIN Secretary/Treasurer (principal
------------------------------------------
Stephen C. Nevin financial officer) and Director
/s/ MICHAEL D. ACKS Assistant Secretary (principal
------------------------------------------
Michael D. Acks accounting officer)
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET CAPITAL CORP.
By: /s/ MAURICE J. GALLAGHER, JR.
----------------------------------------
Maurice J. Gallagher, Jr., President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints STEPHEN C. NEVIN and MICHAEL D. ACKS, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ MAURICE J. GALLAGHER, JR. President (principal executive
------------------------------------
Maurice J. Gallagher, Jr. officer) and Director
/s/ STEPHEN C. NEVIN Vice President (principal financial
-------------------------------------
Stephen C. Nevin officer) and Director
/s/ MICHAEL D. ACKS Secretary/Treasurer (principal
-------------------------------------
Michael D. Acks accounting officer)
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET MANAGEMENT CORP.
By: /s/ ROBERT L. PRIDDY
------------------------------------------
Robert L. Priddy, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT L. PRIDDY and LEWIS H. JORDAN, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ ROBERT L. PRIDDY Chairman of the Board (principal
----------------------------------------
Robert L. Priddy executive officer) and Director
/s/ LEWIS H. JORDAN President and Director
-----------------------------------------
Lewis H. Jordan
/s/ STEPHEN C. NEVIN Secretary/Treasurer (principal
-----------------------------------------
Stephen C. Nevin financial officer) and Director
/s/ MICHAEL D. ACKS Assistant Secretary (principal
-----------------------------------------
Michael D. Acks accounting officer)
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET I, LTD.
By: /s/ MAURICE J. GALLAGHER, JR.
---------------------------------------
Maurice J. Gallagher, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints MICHAEL D. ACKS his true and lawful attorney-in-
fact, with full power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ MAURICE J. GALLAGHER, JR. President (principal executive
- --------------------------------------
Maurice J. Gallagher, Jr. officer) and Director
/s/ MICHAEL D. ACKS Secretary/Treasurer (principal
- -----------------------------------------
Michael D. Acks financial and accounting officer)
and Director
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET II, LTD.
By: /s/ MAURICE J. GALLAGHER, JR.
---------------------------------------
Maurice J. Gallagher, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints MICHAEL D. ACKS his true and lawful attorney-in-
fact, with full power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ MAURICE J. GALLAGHER, JR. President (principal executive
- --------------------------------------
Maurice J. Gallagher, Jr. officer) and Director
/s/ STEPHEN C. NEVIN Secretary/Treasurer (principal
- -----------------------------------------
Stephen C. Nevin financial and accounting officer)
and Director
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET CORPORATE PARTNERS, L.P.
By: /s/ ROBERT L. PRIDDY
------------------------------------------
Robert L. Priddy, Chairman of the Board
and Chief Executive Officer of ValuJet
Management Corp., General Partner
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT L. PRIDDY and LEWIS H. JORDAN, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ ROBERT L. PRIDDY Chairman of the Board (principal
----------------------------------------
Robert L. Priddy executive officer) and Director
of ValuJet Management Corp.,
General Partner
/s/ LEWIS H. JORDAN President and Director
-----------------------------------------
Lewis H. Jordan of ValuJet Management Corp.,
General Partner
/s/ STEPHEN C. NEVIN Secretary/Treasurer (principal
---------------------------------------
Stephen C. Nevin financial officer) of ValuJet
Management Corp., General Partner
/s/ MICHAEL D. ACKS Assistant Secretary (principal
----------------------------------------
Michael D. Acks accounting officer) of ValuJet
Management Corp., General Partner
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 12th day of June 1996.
VALUJET RESERVATION PARTNERS, L.P.
By: /s/ ROBERT L. PRIDDY
------------------------------------------
Robert L. Priddy, Chairman of the Board
and Chief Executive Officer of ValuJet
Management Corp., General Partner
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT L. PRIDDY and LEWIS H. JORDAN, and either
of them (with full power in each to act alone), his true and lawful attorneys-
in-fact, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of June 1996.
/s/ ROBERT L. PRIDDY Chairman of the Board (principal
----------------------------------------
Robert L. Priddy executive officer) and Director
of ValuJet Management Corp.,
General Partner
/s/ LEWIS H. JORDAN President and Director
-----------------------------------------
Lewis H. Jordan of ValuJet Management Corp.,
General Partner
/s/ STEPHEN C. NEVIN Secretary/Treasurer (principal
---------------------------------------
Stephen C. Nevin financial officer) of ValuJet
Management Corp., General Partner
/s/ MICHAEL D. ACKS Assistant Secretary (principal
----------------------------------------
Michael D. Acks accounting officer) of ValuJet
Management Corp., General Partner
II-11
<PAGE>
EXHIBIT 5.1
June ____, 1996
ValuJet, Inc.
1800 Phoenix Blvd.
Suite 126
Atlanta, Georgia 30349
Re: Registration Statement on Form S-4, File No. 333-______________
Ladies and Gentlemen:
We have acted as counsel for ValuJet, Inc., a Nevada corporation (the
"Company"), in connection with the preparation and filing of a registration
statement on Form S-4, File No. 333-___________ (the "Registration Statement"),
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The Registration Statement relates to the exchange of up to an
aggregate principal amount of $150,000,000 of the Company's 10 1/4% Senior Notes
Due 2001 (the "Exchange Notes") for up to an aggregate principal amount of
$150,000,000 of its outstanding 10 1/4% Senior Notes Due 2001. Capitalized
terms used but not defined herein shall have the meanings as set forth in the
Registration Statement.
This letter is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord (the "Accord") of the American Bar Association Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this letter
should be read in conjunction with the Accord. Notwithstanding anything in the
Accord to the contrary, the Accord shall not be deemed to limit or otherwise
qualify any of the express qualifications, exceptions and limitations that are
set forth herein, each of which shall be cumulative of the Accord.
In connection with this opinion, we have relied as to matters of fact, without
investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, (b) the Articles of Incorporation of the Company, (c) the By-laws of
the Company, (d) the minutes of meetings of the Board of Directors of the
Company, (e) the Indenture for the Notes, and (f) the Form of Exchange Note.
In connection with this opinion, we have assumed the accuracy and completeness
of all documents and records that we have reviewed, the genuineness of all
signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies. We have further assumed that:
<PAGE>
ValuJet, Inc.
June ___, 1996
Page 2
(i) All natural persons involved in the transactions contemplated by
the Registration Statement (the "Offering") and the Indenture
have sufficient legal capacity to enter into and perform their
respective obligations under the Indenture and to carry out their
roles in the Offering.
(ii) Each party involved in the Offering other than the Company
(collectively the "Other Parties") has satisfied all legal
requirements that are applicable to it to the extent necessary to
make the Indenture enforceable against it.
(iii) Each of the Other Parties has complied with all legal
requirements pertaining to its status as such related to its
rights to enforce the Indenture against the Company.
The opinions set forth below are limited to the laws of the State of Georgia and
the federal laws of the United States of America. We are not members of the
state bare of New York, and we are not experts on the laws of such state.
Further, we note that the Exchange Notes provide that they are to be governed by
the laws of the State of New York. For purposes of this letter, we have assumed
with your consent that, notwithstanding their express terms, the Exchange Notes
will be governed by the laws of the State of Georgia (without giving effect to
its conflicts of laws principles). We express no opinion on what laws will
actually govern the Exchange Notes.
Based upon and subject to the foregoing, it is our opinion that:
(1) The Company is a corporation duly incorporated and existing under the
laws of the State of Nevada .
(2) The Exchange Notes covered by the Registration Statement, when executed
in the manner set forth in the Indenture and issued and delivered in the manner
set forth in the Registration Statement, will be legally issued, will be binding
obligations of, and will be enforceable against the Company.
The General Qualifications apply to the opinions set forth above.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
ELLIS, FUNK, GOLDBERG, LABOVITZ
& DOKSON, P.C.
By :_____________________________________
Robert B. Goldberg
<PAGE>
EXHIBIT 8.1
June ___, 1996
ValuJet, Inc.
1800 Phoenix Blvd.
Suite 126
Atlanta, Georgia 30349
Ladies and Gentlemen:
We have acted as counsel for ValuJet, Inc., a Nevada corporation (the
"Company"), in connection with the offer by the Company to exchange (the
"Exchange Offer") its 10 1/4% Senior Notes Due 2001 (the "Exchange Notes"), for
all outstanding 10 1/4% Senior Notes Due 2001 (the "Outstanding Notes"). This
letter will confirm that we have advised the Company with respect to certain
United States federal income tax consequences of the Exchange Offer, as
described in the discussion set forth under the caption "Certain United States
Federal Income Tax Consequences" in the Prospectus included in the Registration
Statement on Form S-4 (the "Registration Statement"), filed on this date with
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Act"). Unless otherwise defined, capitalized terms used
herein shall have the respective meanings ascribed to them in the Registration
Statement.
We have based our opinions set forth in this letter on the provisions of the
Internal Revenue Code of 1986, as presently amended (the "Code"), existing
Treasury regulations thereunder (the "Regulations"), published rulings and
practices of the Internal Revenue Service (the "Service") and court decisions.
It should be noted that the federal income tax consequences discussed in this
letter might be modified by legislative, judicial or administrative action at
any time, and such action might be applied retroactively or otherwise in a
manner that might alter such tax consequences.
Based on the assumptions and subject to the qualifications and limitations set
forth therein, (i) we adopt the discussion set forth under the caption "Certain
United States Federal Income Tax Consequences" in the Registration Statement as
our opinion with respect to the material United States federal income tax
consequences of the Exchange Offer, and (ii) in our opinion such discussion
accurately describes the material United States federal income tax consequences
of the acquisition, ownership and disposition of the Notes. Such discussion is
limited to the material United States federal income tax consequences discussed
therein, and it does not purport to discuss all possible federal income tax
consequences or any state, local or foreign tax consequences, of the
acquisition, ownership and disposition of the Notes.
<PAGE>
ValuJet, Inc.
June ____, 1996
Page 2
Except as stated above, we express no opinion with respect to any other matter.
We are furnishing this opinion to you solely in connection with the Exchange
Offer, and this opinion is not to be relied upon, circulated, quoted, or
otherwise referred to for any other purpose.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement, to the use of our name in the Registration Statement and
to the reference to us and this opinion letter in the Registration Statement.
By giving such consent, we do not thereby admit that we are "experts" with
respect to this letter, as that term is used in the Act, or the rules and
regulations of the SEC thereunder.
Very truly yours,
ELLIS, FUNK, GOLDBERG, LABOVITZ
& DOKSON, P.C.
By :_________________________________________________
Robert B. Goldberg
<PAGE>
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended Quarter Ended
December 31 March 31
1992 1993 1994 1995 1995 1996
----------------------------------------------- -------------------------------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Pretax income (loss) from continuing operations $ (23) $(894) $33,581 $107,826 $14,667 $16,969
Interest - 112 2,388 6,579 1,430 2,403
Interest portion of rental expense - 45 1,575 4,172 741 1,626
----------------------------------------------- -------------------------------
Earnings $ (23) $(737) $37,544 $118,577 $16,838 $20,998
=============================================== ===============================
Interest $ - $ 112 $ 2,388 $ 6,579 $ 1,430 $ 2,403
Interest portion of rental expense - 45 1,575 4,172 741 1,626
----------------------------------------------- -------------------------------
Fixed Charges $ - $ 157 $ 3,963 $ 10,751 $ 2,171 $ 4,029
=============================================== ===============================
Ratio of Earnings to Fixed Charges -/(1)/ -/(1)/ 9.5x 11.0x 7.8x 5.2x
=============================================== ===============================
</TABLE>
(1) For the years ended December 31, 1992 and 1993, the Company's earnings were
insufficient to cover fixed charges by $23,000 and $894,000, respectively.
S-1
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated February 8, 1996, in the Registration Statement (Form
S-4) and related Prospectus of ValuJet, Inc. for the registration of
$150,000,000 of its 10-1/4% Senior Notes due 2001.
We also consent to the incorporation by reference therein of our report with
respect to the financial statement schedule of ValuJet, Inc. for the three years
in the period ended December 31, 1995 included in the Annual Report (Form 10-K)
for 1995 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
-----------------------
ERNST & YOUNG LLP
Atlanta, Georgia
June 10, 1996
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF 10 1/4% SENIOR NOTES DUE 2001
IN EXCHANGE FOR
10 1/4% REGISTERED SENIOR NOTES DUE 2001
VALUJET, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME, ON
______________, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). OUTSTANDING
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
Deliver To The Exchange Agent: Bank of Montreal Trust Company
<TABLE>
<CAPTION>
By Hand: By Mail/Overnight Courier: By Facsimile:
-------- -------------------------- -------------
<S> <C> <C>
77 Water Street, 5th Floor Window 77 Water Street (212) 701- 7684
New York, NY 10005 New York, NY 10005 (For Eligible Institutions Only)
Attention Corporate Trust Dept. Attention Corporate Trust Dept. Confirm by Telephone: (212) 701-7653
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated _______________, 1996 (the "Prospectus") of ValuJet, Inc. (the "Company")
and this Letter of Transmittal (the "Letter of Transmittal"), which together
describe the Company's offer (the "Exchange Offer") to exchange its 10 1/4%
Senior Notes due 2001 (the "Exchange Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for a like principal
amount of its issued and outstanding 10 1/4% Senior Notes due 2001 (the
"Outstanding Notes"). Capitalized terms used but not defined herein have the
respective meaning given to them in the Prospectus.
The Company reserves the right, at any time and from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended. The Exchange Offer will no event, however, be extended to a date
beyond ______________, 1996. The Company shall notify the holders of the
Outstanding Notes of any extension by oral or written notice prior to 9:00 A.M.,
New York time, on the next Business Day after the previously scheduled
Expiration Date.
This Letter of Transmittal is to be used by a Holder of Outstanding Notes
either if original Outstanding Notes are to be forwarded herewith or if delivery
of Outstanding Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer-Book-Entry Transfer." Holders
of Outstanding Notes whose Outstanding Notes are not immediately available, or
who are unable to deliver their Outstanding Notes and all other documents
required by this Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date, or who are unable to complete the procedure for book-entry
transfer on a timely basis, must tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer-Guaranteed Delivery Procedures." See Instruction 2.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
<PAGE>
The term "Holder" with respect to the Exchange Offer means any person in
whose name Outstanding Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their
Outstanding Notes must complete this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space below is inadequate, list the registered numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- ------------------------------------------------------------------------------------
Aggregate* Registered
Name(s) and Address(es) of Registered Holder(s) Principal Amount Numbers**
- ------------------------------------------------------------------------------------
<S> <C> <C>
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
- ------------------------------------------------------------------------------------
Attach separate schedule if necessary
- ------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated, any tendering Holder of Outstanding Notes will be
deemed to have tendered the entire aggregate principal amount represented by
such Outstanding Notes. All tenders must be in integral multiples of $1,000.
** Need not be completed by book-entry Holders.
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE ENCLOSED HEREWITH.
-2-
<PAGE>
[_] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[_] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Outstanding Notes:________________________
Date of Execution of Notice of Guaranteed Delivery:__________________________
Window Ticket Number (if available):_________________________________________
Name of Eligible Institution that Guaranteed Delivery:_______________________
Account Number (if delivered by book-entry transfer):________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name: _________________________________________
Address: _________________________________________
_________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Outstanding Notes, it
acknowledges that the Outstanding Notes were acquired as a result of market-
making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW;
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Outstanding
Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Outstanding Notes tendered in accordance
with this Letter of Transmittal, the undersigned hereby exchanges, assigns and
transfers to the Company all right, title and interest in and to the Outstanding
Notes tendered for exchange hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Outstanding Notes with full power of substitution to (i) deliver such
Outstanding Notes, or transfer ownership of such Outstanding Notes on the
account books maintained by the Book-Entry Transfer Facility, to the Company and
deliver all accompanying evidences of transfer and authenticity, and (ii)
present such Outstanding Notes for transfer on the books of the Company and
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Outstanding Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
-3-
<PAGE>
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes tendered hereby and to acquire the Exchange Notes issuable
upon the exchange of such tendered Outstanding Notes, and that the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim,
when the same are accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission"), that the Exchange Notes issued in exchange for the Outstanding
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such Holders' business and such Holders are not
engaging in and do not intend to engage in a distribution of the Exchange Notes
and have no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes. The undersigned hereby further
represent(s) to the Company that (i) any Exchange Notes acquired in exchange for
Outstanding Notes tendered hereby are being acquired in the ordinary course of
business of the person receiving such Exchange Notes, whether or not the
undersigned is such person, (ii) neither the undersigned nor any such other
person is engaging in or intends to engage in a distribution of the Exchange
Notes, (iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, and (iv) neither the Holder nor any such other person is
an "affiliate," as defined in Rule 405 under the Securities Act, of the Company
or, if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the undersigned or the person receiving the Exchange Notes is a broker-
dealer that is receiving Exchange Notes for its own account in exchange for
Outstanding Notes that were acquired as a result of market-making activities or
other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
person is an "underwriter" within the meaning of the Securities Act. The
undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes, in which case the registration statement must contain the selling
security holder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission, and (ii) failure to comply with such
requirements in such instance could result in the undersigned incurring
liability under the Securities Act for which the undersigned is not indemnified
by the Company.
If the undersigned or the person receiving the Exchange Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Company that the undersigned understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Outstanding
Notes tendered hereby, including the transfer of such Outstanding Notes on the
account books maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Outstanding Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any
tendered Outstanding Notes that are not accepted for exchange pursuant to the
Exchange Offer for any reason will be returned, without expense, to the
undersigned at the address shown below or at a different address as may be
indicated herein under "Special Delivery Instructions" as promptly as
practicable after the Expiration Date.
-4-
<PAGE>
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Outstanding Notes pursuant to the procedures described under the
caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Outstanding Notes accepted
for exchange and return any Outstanding Notes not tendered or not exchanged, in
the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Outstanding Notes accepted for exchange and any
Outstanding Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the Exchange Notes
issued in exchange for the Outstanding Notes accepted for exchange in the
name(s) of, and return any Outstanding Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Outstanding Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the
Outstanding Notes so tendered for exchange.
-5-
<PAGE>
________________________________________________________________________________
SIGN HERE
(Complete Substitute Form W-9 on Reverse)
................................................................................
................................................................................
Signature(s) of Owner(s)
(See Gurantee Requirement Below)
Date: ................
(Must be signed by the registered Holder(s) exactly as name(s) appear(s) on
Outstanding Notes or on a security position listing or by person(s) authorized
to become registered Holder(s) by a properly completed bond power from the
registered Holder(s), a copy of which must be transmitted with this Letter of
Transmittal. If Outstanding Notes to which this Letter of Transmittal relate
are held of record by two or more joint Holders, then all such Holders must sign
this Letter of Transmittal. If signing s by an executor, administrator,
trustee, guardian, attorney-in-fact, agent or other person acting in a fiduciary
or representative capacity, please provide the following information. See
Instruction 6.)
Names(s)........................................................................
................................................................................
(Please Print)
Capacity (full title).........................................................
Address ....................................................................
....................................................................
(Print Address, Including Zip Code)
Area Code and Telephone Number................................................
Tax Identification or Social Security No......................................
(Complete Substitute Form W-9 on
Reverse)
________________________________________________________________________________
________________________________________________________________________________
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signatures(s) Guaranteed by an Eligible Institution: ...........................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name of Firm)
................................................................................
(Address, Include Zip Code)
................................................................................
Area Code and Telephone Number)
Dated:.....................................................,1996
________________________________________________________________________________
-6-
<PAGE>
SPECIAL INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
__________________________________________________________________
Box A: SPECIAL ISSUANCE
INSTRUCTIONS
To be completed ONLY (i) if Outstanding Notes in a principal
amount not tendered, or Exchange Notes issued in exchange for
Outstanding Notes accepted for exchange, are to be issued in the
name of someone other than the undersigned, or (ii) if Outstanding
Notes tendered by book-entry transfer which are not exchanged are
to be returned by credit to an account maintained by at the Book-
Entry Transfer Facility.
Issue Exchange Notes and/or Outstanding Notes to:
Name:..............................................................
(Print Name)
Address:...........................................................
...................................................................
(Print Address, Including Zip Code)
...................................................................
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
(Attach Separate Signed Schedule if Necessary)
___________________________________________________________________
___________________________________________________________________
Box B: SPECIAL DELIVERY
INSTRUCTIONS
To be completed ONLY if Outstanding Notes in a principal
amount not tendered, or Exchange Notes issued in exchange for
Outstanding Notes accepted for exchange, are to be mailed or
delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the
undersigned's signature
Mail to:
Name:
(Print Name)
Address:...........................................................
...................................................................
(Print Address, Including Zip Code)
[_] Check ONLY if the address above is a new permanent address.
(Attach Separate Signed Schedule if Necessary)
__________________________________________________________________
[_] Credit unexchanged Outstanding Notes delivered by book-entry transfer to
the Book-Entry Transfer Facility set forth below:
____________________________________________________________
(Book-Entry Transfer Facility Account Number, if applicable)
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE
OFFER.
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OUTSTANDING NOTES OR BOOK-
ENTRY CONFIRMATIONS. All physically delivered Outstanding Notes or any
confirmation of a book-entry transfer to the Exchange Agent's account at the
Book-Entry Transfer Facility of Outstanding Notes tendered by book-entry
transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
time, on the Expiration Date. The method of delivery of the tendered Outstanding
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the Holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Insead of delivery by mail, it is
recommended that the Holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the Exchange
Agent before the Expiration Date. No Letter of Transmittal or Outstanding Notes
should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Outstanding Notes and (a) whose Outstanding Notes are not immediately available,
or (b) who cannot deliver their Outstanding Notes, this Letter of Transmittal or
any other documents required hereby to the Exchange Agent prior to the
Expiration Date, or (c) who are unable to complete
-7-
<PAGE>
the procedure for book-entry transfer on a timely basis, must tender their
Outstanding Notes according to the guaranteed delivery procedures set forth in
the Prospectus. Pursuant to such procedures: (i) such tender must be made by
or through a firm which is a member of a registered national securities exchange
or of the National Association of Securities Dealers Inc. or a commercial bank
or a trust company having an office or correspondent in the United States (an
"Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Outstanding
Notes, the registration number(s) of such Outstanding Notes and the principal
amount of Outstanding Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three (3) New York Stock Exchange, Inc.
("NYSE") trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the Outstanding Notes (or a Book-Entry
Confirmation) in proper form for transfer, will be received by the Exchange
Agent; and (iii) the certificates for all physically tendered shares of
Outstanding Notes, in proper form for transfer, or Book-Entry Confirmation, as
the case may be, and all other documents required by this Letter must be
received by the Exchange Agent within three (3) NYSE trading days after the date
of execution of the Notice of Guaranteed Delivery.
Any Holder of Outstanding Notes who wishes to tender Outstanding Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New York time, on the Expiration Date. Upon request of the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth above. See "The Exchange Offer -- Guaranteed Delivery Procedures"
section of the Prospectus.
3. TENDER BY HOLDER. Only a Holder of Outstanding Notes may tender such
Outstanding Notes in the Exchange Offer. Any beneficial Holder of Outstanding
Notes who is not the registered Holder and who wishes to tender should arrange
with the registered Holder to execute and deliver this Letter of Transmittal on
his behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his Outstanding Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in such Holder's name or obtain a
properly completed bond power from the registered Holder.
4. PARTIAL TENDERS. Tenders of Outstanding Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Outstanding Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the second column of the box entitled "Description of
Outstanding Notes Tendered" above. The entire principal amount of Outstanding
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Outstanding
Notes is not tendered, then Outstanding Notes for the principal amount of
Outstanding Notes not tendered and Exchange Notes issued in exchange for any
Outstanding Notes accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, promptly after the Outstanding Notes are accepted for
exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile
hereof) is signed by the record Holder(s) of the Outstanding Notes tendered
hereby, the signature must correspond with the name(s) as written on the face of
the Outstanding Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal is signed by a participant in the Book-Entry
Transfer Facility, the signature must correspond with the name as it appears on
the security position listing as the Holder of the Outstanding Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Outstanding Notes listed and tendered hereby and
the Exchange Note(s) issued in exchange therefor are to be issued (or any
untendered principal amount of Outstanding Notes is to be reissued) to the
registered Holder, the said Holder need not and should not endorse any tendered
Outstanding Notes, nor provide a separate bond power. In any other case, such
Holder must either properly endorse the Outstanding Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
-8-
<PAGE>
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Outstanding Notes listed,
such Outstanding Notes must be endorsed or accompanied by appropriate bond
powers, in each case signed as the name of the registered Holder or Holders
appears on the Outstanding Notes.
If this Letter of Transmittal (or facsimile hereof) or any Outstanding
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, or officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, evidence satisfactory to the Company
of their authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Outstanding Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Outstanding Notes tendered herewith
(or by a participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of the tendered Outstanding Notes) and
the issuance of Exchange Notes (and any Outstanding Notes not tendered or not
accepted) are to be issued directly to such registered holder(s) (or, if signed
by a participant in the Book-Entry Transfer Facility, any Exchange Notes or
Outstanding Notes not tendered or not accepted are to be deposited to such
participant's account at such Book-Entry Transfer Facility) and neither the box
entitled "Special Delivery Instructions" nor the box entitled "Special Issuance
Instructions" has been completed, or (ii) such Outstanding Notes are tendered
for the account of an Eligible Institution. In all other cases, all signatures
on this Letter of Transmittal must be guaranteed by an Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which Exchange Notes or
substitute Outstanding Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer.
If, however, Exchange Notes or Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Outstanding Notes tendered hereby, or if tendered Outstanding Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered Holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OUTSTANDING NOTES LISTED IN THIS LETTER
OF TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder of any Outstanding Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Company is not provided with the correct TIN, the
Holder may be subject to a $50 penalty imposed by Internal Revenue Service. (If
withholding results in an over-payment of taxes, a refund may be obtained.)
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the
-9-
<PAGE>
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of failure to report all interest or
dividends or (ii) the Internal Revenue Service has notified the holder that such
holder is no longer subject to backup withholding. If the Outstanding Notes are
registered in more than one name or are not in the name of the actual owner, see
the enclosed "Guidelines for Certification of Taxpayer Identification Number of
Substitute Form W-9" for information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Outstanding
Notes will be determined by the Company, in its sole discretion, which
determination will be final and binding. The Company reserves the right to
reject any and all Outstanding Notes not validly tendered or any Outstanding
Notes, the Company's acceptance of which would, in the opinion of the Company or
its counsel, be unlawful. The Company also reserves the right to waive any
conditions of the Exchange Offer or defects or irregularities in tenders of
Outstanding Notes as to any ineligibility of any holder who seeks to tender
Outstanding Notes in the Exchange Offer. The interpretation of the terms and
conditions of the Exchange Offer (which includes this Letter of Transmittal and
the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Outstanding Notes must be cured within such time as the Company shall
determine. The Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Outstanding Notes, but
shall not incur any liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Company reserves the right, in its
reasonable discretion, to waive, in whole or part, any of the conditions to the
Exchange Offer set forth in the Prospectus.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Outstanding Notes on transmittal of this Letter of
Transmittal will be accepted.
12. MUTILATED, LOST, STOLEN, OR DESTROYED OUTSTANDING NOTES. Any Holder
whose Outstanding Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OUTSTANDING NOTES AND ISSUANCE OF EXCHANGE
NOTES; RETURN OF OUTSTANDING NOTES. Subject to the terms and conditions of the
Exchange Offer, the Company will accept for exchange all validly tendered
Outstanding Notes as soon as practicable after the Expiration Date and will
issue Exchange Notes therefor as soon as practicable thereafter. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted tendered
Outstanding Notes when, as and if the Company has given written and oral notice
thereof to the Exchange Agent. If any tendered Outstanding Notes are not
exchanged pursuant to the Exchange Offer for any reason, such unexchanged
Outstanding Notes will be returned, without expense, to the undersigned at the
address shown above (or credited to the undersigned's account at the Book-Entry
Transfer Facility designated above) or at a different address as may be
indicated under the box entitled "Special Delivery Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
-10-
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE OUTSTANDING NOTES WHICH MUST BE DELIVERED BY BOOK-
ENTRY TRANSFER OR IN ORIGINAL HARD COPY FORM) OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M. ON THE
EXPIRATION DATE.
-11-
<PAGE>
(TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5))
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: VALUJET, INC.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TIN IN Social security number
THE BOX AT RIGHT AND CERTIFY
BY SIGNING AND DATING BELOW. OR __________________________________
SUBSTITUTE Employer Identification Number
---------------------------------------------------------------------------------
PART 2 - Check the box if you are NOT subject to backup withholding under the
provisions of Section 3406(a)(i)(C) of the Internal Revenue Code because (1)
you have not been notified that you are subject to backup withholding as a
Form W-9 result of failure to report all interest or dividends, or (2) the
Department of the Treasury Internal Revenue Service has notified you that you are no longer subject
Internal revenue Service to backup withholding. - [_]
---------------------------------------------------------------------------------
Payer's Request for Taxpayer CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I PART 3-
Identification Number ("TIN") CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE Awaiting TIN - [_]
SIGNATURE............................DATE..............
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Part 1 - Taxpayer Identification No. - For All Accounts. Enter your taxpayer
identification number in the appropriate box. For most individuals and sole
proprietors, this is your social security number. For other entities, it is
your Employer Identification Number. If you do not have a number, see How to
Obtain a TIN in the enclosed Guidelines. Note: If the account is in more than
one name, see the chart on page 2 of the enclosed Guidelines to determine what
number to enter.
Part 2 - For Payees Exempt from Backup Withholding (see enclosed Guidelines).
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE EXCHANGE
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
________________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE ................................................. DATE..............
________________________________________________________________________________
-12-
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF 10 1/4% SENIOR NOTES DUE 2001
IN EXCHANGE FOR
10 1/4% REGISTERED SENIOR NOTES DUE 2001
VALUJET, INC.
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of ValuJet, Inc., a Nevada corporation (the
"Company"), who wishes to tender 10 1/4% Senior Notes due 2001 (the "Outstanding
Notes") to the Exchange Agent pursuant to the guaranteed delivery procedures
described in "The Exchange Offer -- Guaranteed Delivery Procedures" of the
Company's Prospectus, dated _____________, 1996 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Outstanding Notes pursuant to such guaranteed delivery procedures must
ensure that the Exchange Agent receives this Notice of Guaranteed Delivery and a
duly executed Letter of Transmittal prior to the Expiration Date (as defined
below) of the Exchange Offer. Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus or the Letter of
Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME, ON
____________, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). OUTSTANDING NOTES
TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is: Bank of Montreal Trust Company
<TABLE>
<CAPTION>
By Hand: By Mail/Overnight Courier: By Facsimile:
- -------- ------------------------- ------------
<S> <C> <C>
77 Water Street 77 Water Street (212) 701-7684
5th Floor Window New York, NY 10005 Confirm by Telephone: (212) 701-7653
New York, NY 10005 Attention Corporate Trust Dept. (For Eligible Institutions Only)
Attention Corporate Trust Dept.
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Outstanding Notes set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Outstanding Notes listed below:
<TABLE>
<CAPTION>
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- ------------------------------------------------------------------------------------
Aggregate Certificate
Name(s) and Address(es) of Registered Holder(s) Principal Amount Numbers
- ------------------------------------------------------------------------------------
<S> <C> <C>
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
- ------------------------------------------------------------------------------------
Attach separate schedule if necessary
- ------------------------------------------------------------------------------------
</TABLE>
PLEASE SIGN AND COMPLETE
Date:___________
Signature(s) of Registered Holder(s) Name(s) of Registered Holder(s):
or Authorized Signatory:
____________________________________ __________________________________
____________________________________ __________________________________
____________________________________ __________________________________
Address:
____________________________________
____________________________________ Area Code and Telephone No:
____________________________________ __________________________________
(Include Zip Code)
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Outstanding Notes or on a security
position listing as the owner of Outstanding Notes, or by a person(s) authorized
to become a Holder(s) by endorsements and documents transmitted with this Notice
of Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Names(s): Capacity:
____________________________________ ___________________________________
____________________________________ ___________________________________
____________________________________ ___________________________________
(Please print name(s) and address(es))
Address(es):
____________________________________
____________________________________
____________________________________
(Include Zip Code)
-2-
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Outstanding Notes tendered hereby in
proper form for transfer (or confirmation of the book-entry transfer of such
Outstanding Notes) into the Exchange Agent's account at the Book-Entry Transfer
Facility described in the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures" and in the Letter of Transmittal and any other
required documents, all by 5:00 p.m., New York time, within three (3) New
York Stock Exchange trading days following the Expiration Date.
Name of Firm: ________________________________________
Authorized Signature:__________________________________
Name:____________________________________________
Title: __________________________________________
(Please type or print)
Address: ________________________________________
________________________________________
________________________________________
(Include Zip Code)
Area Code and Telephone Number:__________________
Date: __________________, 1996
DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. ACTUAL SURRENDER OF
OUTSTANDING NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery Of This Notice Of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date.
The method of delivery of this Notice of Guaranteed Delivery and any other
required documents to the Exchange Agent is at the election and sole risk of the
Holder, and the delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. As an alternative to delivery by
mail, the Holders may wish to consider using an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. For a description of the guaranteed delivery procedures, see
Instruction 2 of the Letter of Transmittal.
-3-
<PAGE>
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the Outstanding
Notes referred to herein, the signature must correspond with the name(s) written
on the face of the Outstanding Notes without alteration, enlargement or any
change whatsoever. If this Notice of Guaranteed Delivery is signed by a
participant of the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the Outstanding Notes, the signature must
correspond with the name shown on the security position listing as the owner of
the Outstanding Notes. If this Notice of Guaranteed Delivery is signed by a
person other than the registered Holder(s) of any Outstanding Notes listed or a
participant of the Book-Entry Transfer Facility, this Notice of Guaranteed
Delivery must be accompanied by appropriate bond powers, signed as the name of
the registered Holder(s) appears on the Outstanding Notes or signed as the name
of the participant shown on the Book-Entry Transfer Facility's security position
listing. If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing and submit with the Letter of Transmittal
evidence satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
-4-
