<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1997
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------
AIRTRAN AIRLINES, INC.
VALUJET, INC.
VALUJET MANAGEMENT CORP.
VALUJET CAPITAL CORP.
VALUJET CORPORATE PARTNERS, L.P.
VALUJET I, LTD.
VALUJET RESERVATION PARTNERS, L.P.
VALUJET II, LTD.
VALUJET INVESTMENT CORP.
(Exact name of registrant as specified in its charter)
------------------
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AirTran Airlines, Inc. - Nevada 4512 AirTran Airlines, Inc. - 88-0290707
Other Registrants - * (Primary Standard Industrial Other Registrants - *
(State or other Jurisdiction of Classification Code Number (I.R.S. Employer Identification No.)
incorporation or organization)
AirTran Airlines, 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 & Dokson, 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: [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Amount to be Offering Price Aggregate Offering Registration
Title of Each Class of Securities to be Registered Registered Per Security (1) Price Fee
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10 1/2% Senior Secured Notes due 2001 $80,000,000 100% $80,000,000 $24,242.42
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Subsidiary Guarantees (2) (2) (2) (2) (2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The Issuer's parent Company and 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 1/2% Senior Secured Notes being registered hereby (the
"Subsidiary Guarantees"). The Guarantors are registering the guarantees.
Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
separate fee is payable for the registration of the 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
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State or Other I.R.S. Address Including Zip Code,
Jurisdiction of Employer and Telephone Number
Incorporation or Identification Including Area Code, of
Name Organization No. Principal Executive Offices
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ValuJet, Inc. Nevada 58-2189551 (1)
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ValuJet Investment Corp. Nevada 88-0339721 (2)
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ValuJet Capital Corp. Nevada 88-0339719 (2)
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ValuJet Corporate Partners, L.P. Georgia 58-2179372 (1)
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ValuJet Reservation Partners, L.P. Georgia 58-2179373 (1)
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ValuJet Management Corp. Nevada 58-2179370 (1)
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ValuJet I, Ltd. Nevada 88-0339723 (2)
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ValuJet II, Ltd. Nevada 88-0339725 (2)
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</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>
AIRTRAN AIRLINES, 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.
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Item Number and Caption in Form S-4 Location or Caption in Prospectus
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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 of ValuJet; Selected
Consolidated Financial and Operating Data
4. Terms of the Transaction.................................. Prospectus Summary; The Exchange Offer; Description of the
Exchange Notes; Certain United States Federal Income Tax
Consequences of the Exchange of Notes
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 of ValuJet; 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............................... Prospectus Summary; Risk Factors; Capitalization; Management's
Discussion and Analysis of Financial Condition and Results of
Operations; Selected Consolidated Financial and Operating Data;
Business of ValuJet; Management; Principal Stockholders;
Description of the Exchange Notes; Financial Statements;
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
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<PAGE>
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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 October ___, 1997
PROSPECTUS
AirTran Airlines, Inc.
[logo]
OFFER TO EXCHANGE
10 1/2% Senior Secured Notes Due 2001
for
All Outstanding 10 1/2% Senior Secured Notes Due 2001
The Exchange Offer will expire at 5:00 p.m., New York Time
on __________________, 1997, unless extended.
AirTran Airlines, Inc., a Nevada corporation formerly known as ValuJet
Airlines, Inc. ("ValuJet Airlines" or the "Issuer") , 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 $80,000,000 of its registered 10 1/2% Series B
Senior Secured Notes Due 2001 (the "Exchange Notes") for up to an aggregate
principal amount of $80,000,000 of its outstanding unregistered 10 1/2% Senior
Secured 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 mature on April 15, 2001 and will not be redeemable
prior to their maturity. The Exchange Notes will be guaranteed (the
"Guarantees") by the parent of ValuJet Airlines, ValuJet, Inc. (the "Company"),
and by each of the Company's other subsidiaries (the Company and such other
subsidiaries being sometimes referred to herein as the "Guarantors"). If a
Change of Control occurs, each holder will have the right to require the Issuer
to repurchase its Exchange Notes at a repurchase price equal to 101% of their
principal amount plus accrued interest to the repurchase date.
The Exchange Notes and the Guarantees will be senior obligations of the
Issuer and the Guarantors, respectively, ranking pari passu with all other
existing and future unsubordinated indebtedness of the Issuer and the
Guarantors. As of June 30, 1997, on a pro forma basis after giving effect to
the issuance of the Outstanding Notes and the application of the net proceeds
therefrom, the Company would have had approximately $247.1 million of
indebtedness outstanding. The Exchange Notes will be secured by a first
priority security interest in 17 Stage 3 DC-9 aircraft, seven Stage 2 DC-9
aircraft, three spare engines and four hush kits after their purchase by ValuJet
Airlines. The Notes will be effectively subordinated to all other existing and
future secured indebtedness of the Issuer and the Guarantors to the extent of
the collateral securing such other indebtedness.
The Issuer will accept for exchange any and all Outstanding Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York time, on
__________________, 1997, unless extended by the Issuer in its sole discretion
(the "Expiration Date"). The Exchange Offer will not in any event be extended
to a date beyond ____________, 1998. Tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration Date.
If the Issuer terminates the Exchange Offer and does not accept for exchange any
Outstanding Notes with respect to the Exchange Offer, the Issuer 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 19 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 _________________, 1997.
<PAGE>
(cover page continued)
Interest on the Exchange Notes will be payable semi-annually on April 15 and
October 15 of each year, commencing April 15, 1998. Holders of the Exchange
Notes will receive interest on April 15, 1998, from the date of initial issuance
of the Exchange Notes, plus an amount equal to the accrued interest on the
Outstanding Notes from the most recent date to which interest has been paid
thereon to the date of exchange thereof.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
August 13, 1997 (the "Registration Rights Agreement") by and among the Issuer,
the Company and UBS Securities, LLC, as the initial purchaser (the "Initial
Purchaser") with respect to the initial sale of the Outstanding Notes. Based on
positions taken by the staff of the Securities and Exchange Commission (the
"Commission") that have been enunciated in no-action letters issued in Exxon
-----
Capital Holdings Corp. (available April 13, 1989) and Morgan Stanley & Co. Inc.
- ---------------------- -------------------------
(available June 5, 1991), among others, 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 Issuer 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. Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Morgan Stanley or similar no-action letters. 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 90 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 Issuer 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 Purchaser has advised the Issuer that it currently intends to make a
market in the Exchange Notes offered hereby. However, the Initial Purchaser is
not obligated to do so and any market making may be discontinued at any time
without notice.
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
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 Issuer. 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 Issuer or the Company since the date
hereof.
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<PAGE>
TABLE OF CONTENTS
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Page
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Available Information.................................................................. 3
Incorporation of Certain Information by Reference...................................... 4
Prospectus Summary..................................................................... 5
Risk Factors........................................................................... 19
Use of Proceeds........................................................................ 27
Capitalization......................................................................... 28
The Exchange Offer..................................................................... 29
Selected Consolidated Financial and Operating Data..................................... 35
Pro Forma Condensed Combined Financial Information..................................... 38
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 42
Business of ValuJet.................................................................... 53
Business of Airways.................................................................... 70
Management............................................................................. 75
Principal Stockholders................................................................. 78
Description of the Exchange Notes...................................................... 81
Certain United States Federal Income Tax Consequences of the Exchange of Notes......... 107
Plan of Distribution................................................................... 108
Legal Matters.......................................................................... 109
Experts................................................................................ 109
Supplemental Guarantor Financial Statements............................................ 109
Index to Financial Statements.......................................................... F-1
</TABLE>
AVAILABLE INFORMATION
The Issuer 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. 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 Issuer 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 Issuer is subject to such
informational requirements of the Exchange Act. While any Exchange Notes remain
outstanding, the Issuer 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 Issuer 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.
All operations of the Company are conducted by AirTran Airlines, Inc.,
a wholly owned subsidiary of the Company, and all of its subsidiaries. Separate
financial statements of the Issuer and of the Guarantors who are subsidiaries of
the Issuer are not presented because the Company and all of the Issuer's
subsidiaries will guarantee the Exchange Notes on a full, unconditional and
joint and several basis and management of the Company has determined that
separate financial statements would not be material to investors.
-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, 1996; (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997; (iii) the
Company's current reports on Form 8-K dated July 10, 1997 and August 13, 1997;
and (iv) 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 June 30, 1997. 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.
____________________________________________
Safe Harbor Statements
Statements made by the Company in this Prospectus regarding the Company's
ability to increase its service levels, to maintain its low cost structure and
to become profitable again are forward-looking statements and are not historical
facts. Instead they are estimates or projections involving numerous risks and
uncertainties including, but not limited to, governmental approval of increases
in service by the Company, the utilization level of the Company's aircraft, the
level of those costs which are beyond the Company's control, the effect of the
Company's accounting policies, the Company's ability to hire and retain
qualified personnel under its new compensation program and results of pending
lawsuits. These risks and uncertainties could potentially cause the Company's
implementation of additional service to be delayed or the Company's costs to
exceed present estimates. The Company disclaims any obligation to update or
correct any of its forward-looking statements.
-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 or incorporated by reference in this Prospectus.
Prospective investors should carefully consider the factors set forth in "Risk
Factors." Unless the context otherwise requires, all references to the
"Company" or "ValuJet" shall include ValuJet, Inc., its wholly owned subsidiary
(AirTran Airlines, Inc.) and its other subsidiaries.
The Company
The Company, through its wholly owned subsidiary, AirTran Airlines, Inc.
(formerly known as ValuJet Airlines, Inc.), operates an affordable, no frills,
limited frequency, scheduled airline serving short haul markets primarily in the
eastern United States. 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 fare conscious travelers.
The Company commenced flight operations in October 1993 with two DC-9 aircraft
serving three cities from Atlanta with eight flights per day. Prior to June
17, 1996, the Company offered service to 31 cities from Atlanta, Washington,
D.C. (Dulles Airport), Boston and Orlando and operated up to 320 flights per
peak day with its fleet of 51 aircraft. The Company's operations were
interrupted by the suspension of the Company's service on June 17, 1996,
pursuant to a consent order entered into with the United States Federal Aviation
Administration ("FAA") following the accident involving Flight 592 on May 11,
1996, and the ensuing extensive adverse media coverage and intense FAA scrutiny
into the Company's maintenance and safety procedures.
Prior to the Company's resumption of service, the Company undertook a thorough
review of operations, implemented several measures to respond to the concerns
that were raised by the FAA and reaffirmed its focus on the safety of its
aircraft and operations. These measures included: (i) creating a new position
of Senior Vice President of Maintenance and Engineering reporting directly to
the President of ValuJet Airlines; (ii) implementing intensified performance,
safety and compliance-assurance audits of key maintenance subcontractors,
together with revised procedures for qualification, inspection and supervision
of all maintenance contractors; (iii) creating an in-house organization to
supervise all engineering and maintenance planning functions; (iv) instituting
improved maintenance training procedures that require more hours for initial DC-
9 familiarization and orientation training, expanded on-the-job and initial
avionics training, mandatory recurrent training for all ValuJet and outstation
contract mechanics, and new courses for inspectors, lead mechanics and
maintenance managers; (v) reviewing thoroughly all aircraft prior to
reintroducing them into service, including, in each case, reconfirming
compliance with all Airworthiness Directives, correcting aircraft-specific FAA
inspection findings and performing special emphasis "B" checks; and (vi)
expanding training for customer service and station personnel.
Upon implementation of the Company's response outlined above and receipt of
FAA approval, the Company resumed limited operations with service between
Atlanta and four other cities as of September 30, 1996. The Company has
continued to work with the FAA since that time to recertify aircraft and expand
its flight operations. As of August 31, 1997, the FAA has approved 31 of the
Company's DC-9 series 30 aircraft for flight and the Company operates a total of
200 flights per peak day of which 182 flights per peak day are between Atlanta
and 23 other cities. Additional service is offered between Washington, D.C.
(Dulles Airport) and Boston and Chicago and between Boston and Philadelphia.
As a result of the accident, the suspension of operations and subsequent
reduced service levels, the Company recorded net losses of $41.5 million for the
year ended December 31, 1996, and $27.7 million in the first six months of 1997.
The Company attributes these losses to substantial nonrecurring expenses
incurred in connection with the accident, the allocation of fixed costs over
fewer available seat miles ("ASMs") as a result of the Company's reduced flight
operations, and lower revenues resulting from reduced flight operations, lower
load factors and reduced average fares.
Since the Company resumed service on September 30, 1996, its principal near-
term objective has been to return to profitability by increasing flight
operations and regaining its low historic cost level per ASM. The Company's
operating cost per ASM was 6.77c for the year ending December 31, 1995.
Although the Company's operating cost per ASM (excluding those expenses
classified as shutdown and other nonrecurring expenses) increased to 10.24c
during first quarter 1997, the Company reported that its operating cost per ASM
declined to 8.22c for second quarter 1997. The Company's goal is to continue to
reduce its cost per ASM through the end of 1997.
-5-
<PAGE>
Proposed Merger
On July 10, 1997, the Company entered into a merger agreement with Airways
Corporation ("Airways"). Under the merger agreement (which remains subject to,
among other things, shareholder approval by both companies and bondholder
consent), the Company will acquire Airways through a merger of Airways with and
into the Company (the "Merger"). Upon completion of the Merger, the Company
intends to change its name to AirTran Holdings, Inc. and change the name of
ValuJet Airlines to AirTran Airlines, while Airways' operating subsidiary,
AirTran Airways Inc. ("AirTran"), will continue to operate under its current
name. The Company may move its headquarters to Airways' existing headquarters
in Orlando, Florida. While the Company intends to initially operate ValuJet
Airlines and AirTran under separate operating certificates, it may also merge
these two operating subsidiaries at a later date (the Merger and such subsequent
merger being referred to herein as the "Airways Acquisition").
The Company believes that the Airways Acquisition will enable it to operate
more competitively and profitably in the eastern United States. Like ValuJet
Airlines, AirTran operates lower cost, used aircraft and targets fare conscious
leisure travelers with a limited flight frequency, no-frills product. Both
airlines rely on achieving and maintaining operating costs below industry
averages in order to offer low fares. The Company believes that the combined
entity can achieve significant financial and operating synergies and cost
savings in the first twelve months after the Merger by eliminating certain
redundant operations, reducing personnel and taking advantage of economies of
scale in maintenance operations and fuel purchasing. The ten Boeing 737-200
aircraft operated by AirTran will provide increased revenue opportunities for
the Company through their longer flight range and greater seating capacity as
compared with the Company's DC-9 aircraft. The Company expects that the change
in name and product image that will accompany the Merger will further increase
its revenue opportunities. In addition, the Company believes that the Airways
Acquisition will afford it a competitive advantage in the consolidating airline
industry.
The purchase price to be paid by the Company in the Merger will consist of
approximately 9.1 million shares of common stock of the Company. The Merger
will also result in an increase in the consolidated debt of the Company of $14.7
million as of June 30, 1997 (which amount reflects the preexisting debt of
Airways), and the assumption by the Company on a consolidated basis of certain
off balance sheet operating lease obligations of Airways. In addition, as a
result of the Merger, a loan of $12.7 million from the Company to AirTran will
be converted into an intercompany loan. As part of the Merger, the Company will
acquire cash and cash equivalents and restricted cash held by Airways of
approximately $12.1 million, as of June 30, 1997. The Company will also acquire
all other assets of Airways, including four Boeing 737's currently owned by
Airways, three of which are Stage 3 aircraft, Airways' fixed base operation
located in Grand Rapids, Minnesota, and Airways' hangar located in Orlando,
Florida. See "Risk Factors -- Risks Associated with Merger" and "Summary Pro
Forma Condensed Combined Financial Information." There can be no assurance that
the Merger will be consummated or that the Company will be able to realize the
expected benefits from the Merger if it is consummated.
Strategy
In order to return to profitability and resume growth, the Company intends to
pursue a three-pronged strategy (i) to maintain its traditional cost and value
leadership in the markets that it serves, (ii) to reposition its brand image
with its target value-conscious customers to address the long-term adverse
effects of the May 1996 accident and the subsequent suspension of operations and
(iii) to gradually expand capacity as market demand warrants.
The Company's strategy is to provide a safe, reliable, customer friendly
alternative for affordable air transportation. 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 fare structure and a competitive low cost structure based
on a ticketless distribution system, a fleet of low cost DC-9 aircraft and
relatively low labor costs. 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, in most cases, physical
ticketing.
The Company's service is intended to satisfy the basic air transportation
needs of the Company's targeted customers who are short haul leisure travelers
visiting friends and relatives or vacationing and fare conscious business
travelers. 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 eight frequencies), baggage service, in-flight beverages
and the ability to make advance reservations.
-6-
<PAGE>
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 Company's pricing structure and affordable 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
travel. The Company's simple fare system incorporates a predictable, "everyday
low pricing" fare structure designed to provide its customers with substantial
savings over its competitors based on walk-up fares and further savings by
purchasing seats in advance or by flying during off peak times. In the first
six months of 1997, the Company's average fare in its markets was substantially
less than the average fare in those markets prior to the Company's commencement
of operations. The Company believes it has historically generated its own
traffic through low fare market stimulation rather than pursuing the more
traditional airline approach of competing for market share with existing
carriers.
The Company's thrifty and informal brand image has traditionally complemented
its position as the cost and value leader in its target markets. While the
Company believes that its basic business model remains viable, it believes that
its name and image have been significantly impaired by the accident in May 1996,
the subsequent suspension of operations and the resulting adverse media
exposure. As a result, the Company has commenced the implementation of a
program to enhance its image. In anticipation of the Merger, ValuJet Airlines
has changed its name to AirTran Airlines, is repainting its aircraft with the
AirTran logo and is changing its marketing accordingly. In addition, the
Company is reconfiguring its aircraft to provide 16 business class seats on each
aircraft and will commence to offer advance seat selection beginning in fourth
quarter 1997. This program is being implemented during the second half of 1997
and is expected to result in the incurrence of material expenses during the
period. If the Merger is not consummated, the Company's right to use the
AirTran name will expire in May 1998.
Once the Company reestablishes profitability and a favorable brand image, the
Company intends to pursue a prudent growth strategy. 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. The MD-95 will have 115 seats consisting of 16 business class seats
and 99 coach seats. The Company estimates that the MD-95 aircraft, which have a
slightly larger seating capacity, increased fuel efficiency and lower
maintenance costs than the Company's DC-9 aircraft, will provide a cost per ASM
lower than the DC-9 fleet, even after taking into account the aircraft's higher
acquisition cost. The Company is the "launch" customer of the MD-95 aircraft.
As the launch customer, the Company anticipates that this contract will provide
material value in terms of acquisition cost and manufacturer financing
assistance. The Company determined that the MD-95 aircraft offers the optimum
balance between operating cost and revenue opportunity.
Collateral
As security for the Notes, the Company has granted to the Trustee for the
benefit of the Holders of the Notes a security interest in 17 Stage 3 DC-9
aircraft and seven Stage 2 DC-9 aircraft (the "Collateral Aircraft"), together
with the installed engines, three spare engines, four hush kits after their
purchase by ValuJet Airlines (which are to be installed on such aircraft) and
all warranties of any manufacturer with respect thereto. The Collateral
Aircraft were manufactured between 1967 and 1976 and have an average number of
take-off and landing cycles of approximately 57,300. A portion of the proceeds
of the sale of the Outstanding Notes will be applied to the purchase of hush
kits for four of such Stage 2 Collateral Aircraft. The Company has obtained two
appraisals of the estimated aggregate market value of the Collateral Aircraft as
of July 1997 and of the estimated aggregate future market value of such aircraft
in 2001. The average of the appraisals reflect an aggregate current value of
$116.1 million and an aggregate future value of $90.7 million.
As additional security for the Notes, the Company has granted to the Trustee
for the benefit of the Holders of the Notes a security interest in certain
monies and securities deposited or required to be deposited with the Trustee; in
certain insurance policies covering loss or damage to the aircraft; and in all
proceeds of the foregoing Collateral Aircraft, monies and securities and
insurance policies (collectively, the "Collateral").
-7-
<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
$80,000,000 aggregate principal amount of
registered 10 1/2% Series B Senior Secured
Notes due 2001 (the "Exchange Notes") for up
to $80,000,000 aggregate principal amount of
its outstanding unregistered 10 1/2% Senior
Secured 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 5:00 p.m.,
New York time, on _______________, 1997, 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 ___________, 1998. 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 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 1/2% per annum, payable semi-
annually on April 15 an October 15, commencing
April 15, 1998, to holders of record on the
immediately preceding April 1 and October 1,
respectively. Holders of the Exchange Notes
will receive interest on April 15, 1998 from
the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued
interest on the Outstanding Notes from the
most recent date to which interest has been
paid thereon 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 to
-8-
<PAGE>
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 the Company is not
permitted to effect the Exchange Offer under
certain previously enunciated positions of the
staff of the Commission, 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 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 two years after the
effective date thereof.
Certain Federal Income Tax
Considerations................. For a discussion of certain federal income tax
considerations relating to the exchange of
Notes, see "United States Federal Income Tax
Consequences of the Exchange of Notes."
Use of Proceeds................. There will be no proceeds to the Company from
the exchange of Notes pursuant to the Exchange
Offer.
Exchange Agent.................. The Bank of New York 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
Notes Offered................... $80.0 million principal amount of 10 1/2%
Series B Senior Secured Notes due 2001 issued
by ValuJet Airlines and guaranteed by the
Company and ValuJet Airlines' subsidiaries.
Maturity Date................... April 15, 2001.
Interest Payment Dates.......... April 15 and October 15 of each year,
commencing April 15, 1998.
Change of Control............... Upon the occurrence of a Change of Control,
each Holder of Exchange Notes will have the
right to require the Issuer 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 - Certain Covenants - Change of
Control."
-9-
<PAGE>
Guarantees...................... The Company and each of the Issuer's
subsidiaries other than the Issuer, until such
subsidiaries cease to be Restricted
Subsidiaries under the Indenture, will fully
and unconditionally guarantee jointly and
severally on a senior basis the due and
punctual payment of all amounts due under the
Exchange Notes. The Company will cause any
future restricted subsidiary to be a Guarantor
while it is a Restricted Subsidiary. See "Risk
Factors -- Fraudulent Conveyance."
The Exchange Notes will be senior secured
obligations of the Issuer and will rank pari
passu in right of payment with all other
existing and future unsubordinated
indebtedness of the Issuer and senior in right
of payment to existing and future subordinated
indebtedness of the Issuer. The Exchange Notes
will have the benefit of the security
interests described under "-- Security". The
Exchange Notes will be effectively
subordinated to other senior secured
indebtedness of the Issuer with respect to the
assets securing such indebtedness of the
Issuer. The Guarantees will rank pari passu in
right of payment with all existing and future
unsecured unsubordinated indebtedness of the
Guarantors and will rank senior in right of
payment to any existing and future
subordinated indebtedness of the Guarantors.
The Guarantees will be effectively
subordinated to all existing and future
secured indebtedness of the Guarantors to the
extent of the collateral securing such
indebtedness.
Security........................ As security for the Notes, the Issuer has
given to the Trustee for the equal and ratable
benefit of the Holders of the Notes a first
priority security interest in: (i) all right,
title and interest of the Issuer in and to 17
Stage 3 DC-9 aircraft and 7 Stage 2 DC-9
aircraft together with the engines relating
thereto, three spare engines, four hush kits
after their purchase by ValuJet Airlines
(which are to be installed on such aircraft)
and all warranties of any manufacturer with
respect thereto; (ii) all monies and
securities deposited or required to be
deposited with the Trustee pursuant to any
term of the Indenture or required to be held
by the Trustee thereunder; (iii) all policies
covering loss or damage to the aircraft that
are made payable to the Trustee; and (iv) all
proceeds of the foregoing (collectively, the
"Collateral"). See "Risk Factors --
Limitations Regarding Aircraft Collateral."
Certain Restrictions............ The Indenture restricts, among other things,
the ability of the Company and its Restricted
Subsidiaries (including the Issuer) (i) to
incur additional indebtedness, (ii) to pledge
or dispose of assets, (iii) to engage in
transactions with affiliates, (iv) to make
distributions on and repurchases of its Common
Stock and to make certain other restricted
payments, (v) to have restrictions on the
ability of Restricted Subsidiaries to make
dividend or other payments and (vii) 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 is 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 "United States Federal Income Tax Consequences of the
Exchange of Notes."
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.
-10-
<PAGE>
Summary Financial and Operating Data
The following summary financial and operating data of the Company for
the period from July 10, 1992 (date of inception) to December 31, 1992 and for
the years ended December 31, 1993, 1994, 1995 and 1996, are derived from the
audited consolidated financial statements of the Company. The financial and
operating data for the six month periods ended June 30, 1996 and 1997 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. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year. The summary financial data
of Airways for the years ended March 31, 1995, March 31, 1996 and March 31,
1997, which follows the information regarding the Company, are derived from the
audited consolidated financial statements of Airways, and the summary financial
and operating data of Airways for the three month periods ended June 30, 1996
and 1997 are derived from unaudited consolidated financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals which Airways considers necessary for a fair presentation of
the financial position and the results of operations for these periods. Airways'
operating results for the three months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the entire year. The data
should be read in conjunction with the financial statements, related notes and
other financial information included herein.
VALUJET, INC.
<TABLE>
<CAPTION>
Period from Year ended Six Months
Inception December 31 Ended June 30
(July 10, 1992) -------------------------------------------------------- ----------------------
to December 31,
1992(a) 1993(a) 1994 1995 1996 (b) 1996 1997
------------------- --------------- --------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data: (dollars in thousands)
Operating revenues........... - $ 5,811 $133,901 $367,757 $ 219,636 $191,212 $ 84,687
Operating expenses:
Flight operations......... - 474 6,967 16,273 16,479 12,933 8,904
Aircraft fuel............. - 977 21,775 55,813 46,691 39,137 19,852
Maintenance............... - 732 14,862 47,330 49,500 31,419 24,640
Station operations........ - 1,199 20,198 49,931 42,018 32,641 22,485
Passenger services........ - 228 3,942 10,363 8,879 7,624 3,817
Marketing and advertising. - 1,097 6,546 8,989 8,426 6,507 5,227
Sales and reservations.... - 967 11,325 31,156 18,378 15,442 6,801
General and administrative $ 23 866 5,039 10,617 13,659 8,161 6,143
Employee bonus............ - - 5,146 14,382 1,245 1,245 -
Depreciation.............. - 138 3,555 15,147 17,551 13,211 12,247
Arrangement fee for aircraft
transfers................ - - - - (13,036) (11,861) -
Gain on insurance recovery - - - (1,094) ( 2,815) (2,815) -
Gain (loss) on sale of assets - - - - ( 3,934) - (50)
Shutdown and other
nonrecurring expenses.... - - - - 67,994 31,623 9,338
----- ------- -------- -------- ---------- -------- ----------
Total operating expenses..... 23 6,678 99,355 258,907 271,035 185,267 119,404
----- ------- -------- -------- ---------- -------- ----------
Operating income (loss)...... (23) (867) 34,546 108,850 ( 51,399) 5,945 ( 34,717)
Interest expense.......... - 112 2,388 6,579 22,186 8,624 12,723
Interest income........... - (85) (1,423) ( 5,555) ( 7,653) (4,524) ( 3,268)
----- ------- -------- -------- ---------- -------- ----------
Income (loss) before income
taxes....................... (23) (894) 33,581 107,826 (65,932) 1,845 ( 44,172)
Provision for income taxes - - 12,849 40,063 ( 24,463) 752 ( 16,439)
----- ------- -------- -------- ---------- -------- ----------
Net income (loss)............ ($23) ($894) $ 20,732 $ 67,763 ($ 41,469) $ 1,093 ($ 27,733)
===== ======= ======== ======== ========== ======== ==========
Ratio of earnings to fixed
charges (c)................. -(d) -(d) 9.5x 11.0x - (d) 1.2x - (d)
----- ------- -------- -------- ---------- -------- ----------
Balance Sheet Data (end of
period):
Cash and cash equivalents.... $ 495 $13,247 $ 85,078 $127,947 $ 150,013 $207,977 $ 149,725
Working capital.............. 482 10,284 58,585 63,523 168,555 185,023 131,998
Property and equipment, net.. - 13,458 71,880 196,954 162,572 225,266 194,050
Total assets................. 495 30,264 173,039 346,741 417,187 521,592 377,008
Total debt................... - 10,397 46,965 109,038 244,706 312,440 235,661
Stockholders' equity......... 482 15,143 93,117 162,065 123,400 165,402 95,884
</TABLE>
See footnotes on page 14
-11-
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year ended December 31, Ended June 30,
------------------------------------- ----------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Data (e):
Revenue passengers enplaned................ 2,040,892 5,177,629 3,003,883 2,522,709 1,347,656
Revenue passenger miles (RPM)(thousands)... 940,546 2,624,298 1,534,439 1,312,519 661,283
Available seat miles (ASM)(thousands)...... 1,470,614 3,812,696 2,689,127 2,301,899 1,213,139
Load factor................................ 64.0% 68.8% 57.1% 57.0% 54.5%
Break-even load factor excluding shutdown
and other nonrecurring expenses......... 44.6% 45.8% 57.0% 47.1% 78.9%
Average fare............................... $63.48 $68.10 $69.81 $72.75 $59.59
Passenger yield............................ 13.77c 13.44c 13.67c 13.98c 12.14c
Total revenue per ASM...................... 9.05c 9.62c 8.12c 8.25c 6.98c
Operating cost per ASM excluding shutdown
and other nonrecurring expenses......... 6.71c 6.77c 7.50c 6.67c 9.07c
Completion factor.......................... 99.5% 99.0% 90.3% 95.1% 99.3%
Aircraft in service (end of period)........ 22 42 15 0 30
Cities served (end of period).............. 17 26 18 0 24
Average passenger trip length (miles)...... 461 507 511 507 474
Average stage length (miles)............... 444 497 501 515 461
</TABLE>
Financial Data
<TABLE>
<CAPTION>
Six Months
Year ended December 31, 1996 Ended June 30, 1997
Actual As Adjusted (f) Actual As Adjusted (f)
-------------- -------------------- -------- -----------------
Balance Sheet Data (end of period): (dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents.. $150,013 $143,723 $149,725 $143,435
Working capital............ 168,555 162,265 131,998 125,708
Total assets............... 417,187 427,897 377,008 387,718
Total debt................. 244,706 256,166 235,661 247,121
Net debt (g)............... 94,693 112,443 85,936 103,686
Stockholders' equity....... 123,400 122,928 95,884 95,412
Other Data:
Rental expense............. $ 15,824 $ 15,824 $ 6,174 $ 6,174
Interest expense........... 22,186 26,796 12,723 15,028
Interest income............ 7,653 7,653 3,268 3,268
Net interest expense....... 14,533 19,143 9,455 11,760
</TABLE>
See footnotes on page 14
-12-
<PAGE>
AIRWAYS CORPORATION
<TABLE>
<CAPTION>
Three Months
Year ended March 31, Ended June 30,
--------------------------------------------- --------------------------
1995 1996 1997 1996 1997
--------------- --------------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data: (dollars in thousands)
Operating revenues................... $ 9,607 $ 68,361 $ 102,623 $ 29,012 $ 27,052
Operating expenses................... 16,028 66,867 114,745 29,493 27,227
-------- -------- ---------- -------- --------
Operating income (loss).............. (6,421) 1,494 (12,122) (481) (175)
Interest expense................. - 524 1,507 390 399
Interest income and other........ (59) (1,007) ( 984) (359) (184)
-------- -------- ---------- -------- --------
Income (loss) before income taxes.... (6,362) 1,977 (12,645) (512) (390)
Provision for income taxes....... (2,866) 790 (5,654) (230) (218)
-------- -------- ---------- -------- --------
Net income (loss).................... ($3,496) $ 1,187 ($6,991) ($ 282) ($172)
======== ======== ========== ======== ========
Balance Sheet Data (end of period):
Cash and cash equivalents............ $ 961 $ 16,437 $ 2,354 $ 15,446 $ 1,672
Working capital...................... 2,058 3,212 (7,144) 4,478 (10,736)
Property and equipment, net......... 2,211 29,458 37,698 29,632 37,030
Total assets......................... 13,544 69,654 73,948 64,640 70,996
Total debt........................... - 13,851 13,696 15,319 14,664
Stockholders' equity................. 7,690 24,363 17,641 24,162 17,472
Operating Data:
Revenue passengers enplaned.......... 87,000 685,000 1,089,000 303,000 288,000
RPMs (thousands)..................... 80,783 605,130 932,305 264,490 245,149
ASMs (thousands)..................... 180,480 974,642 1,426,873 372,202 360,193
Load factor.......................... 44.8% 62.1% 65.3% 71.1% 68.1%
Passenger yield...................... 9.8c 10.7c 10.7c 10.8c 10.4c
Aircraft in service (end of period).. 4 10 10 10 10
Average stage length (miles)......... 880 873 832 893 735
</TABLE>
-13-
<PAGE>
(a) The Company's flight operations commenced October 26, 1993. Prior to that
time, the Company was in the development stage.
(b) The Company's operations were suspended from June 18, 1996 until September
30, 1996 as a result of a consent order entered into between the Company
and the FAA.
(c) 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.
(d) For the periods ending December 31, 1992, December 31, 1993, December 31,
1996, and June 30, 1997, the Company's earnings were insufficient to cover
fixed charges by $23,000, $894,000, $65.9 million and $44.2 million,
respectively.
(e) 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 non-passenger revenue,
divided by scheduled 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).
"Operating cost per ASM excluding shutdown and other nonrecurring
expenses" represents total operating expenses (other than shutdown and
other nonrecurring expenses) 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 passenger miles by revenue passengers enplaned.
"Average stage length" represents the scheduled aircraft miles flown
divided by the total number of departures.
(f) As adjusted to give effect to the sale of the Notes by the Company, after
application of the proceeds thereof and $6.2 million of cash to repay
$68.5 million principal amount of secured debt of the Company, to purchase
four hush kits for $9.2 million and to pay the fees and expenses relating
to a consent solicitation to the holders to the Company's 10 1/4% senior
notes, as though the Company had issued the Notes as of the beginning of
the period for statement of operations purposes and as of December 31,
1996 and June 30, 1997, respectively, for balance sheet purposes.
(g) Net debt represents total debt less cash and cash equivalents.
-14-
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements of
ValuJet and Airways give effect to (i) the sale by ValuJet of $80.0 million of
the Notes on August 13, 1997, and the application of the proceeds as set forth
below, and (ii) the sale by ValuJet of the Notes as described in (i) above and
the Merger as if such transactions had occurred as of January 1, 1996 and 1997
with respect to the statements of operations for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively, and as of June 30,
1997 with respect to the balance sheet. ValuJet received approximately $77.5
million of net proceeds from the Notes, after deduction of the initial
purchaser's discount and expenses of the debt offering. The net proceeds, along
with approximately $6.2 million of ValuJet's cash was used to repay $68.5
million of secured debt of ValuJet and to pay the fees and expenses
(approximately $6.0 million) incurred by ValuJet in connection with a consent
solicitation to the holders of ValuJet's 10 1/4% senior notes and will also be
used to purchase approximately $9.2 million of hush kits for up to four of
ValuJet's Stage 2 DC-9 aircraft. The Merger is reflected using the purchase
method of accounting for business combinations. The pro forma condensed
combined financial information is provided for comparative purposes only and
does not purport to be indicative of the results that would have been obtained
if the events set forth above had been effected on the dates indicated or of
those results that may be obtained in the future. The pro forma condensed
combined financial information with respect to the Merger is based on
preliminary estimates of values and transaction costs which may be incurred in
connection with the Merger. The actual recording of the Merger will be based on
final appraisals, values and transaction costs. Accordingly, the actual
recording of the transaction can be expected to differ from these pro forma
condensed combined financial statements. However, ValuJet's management believes
the asset and liability valuations and allocations utilized for the Merger will
not be materially different from the pro forma information presented herein.
For purposes of preparing the unaudited pro forma condensed combined
statements of operations for the six months ended June 30, 1997 and the year
ended December 31, 1996, Airways' operating results for the six months ended
June 30, 1997 and the year ended March 31, 1997, were combined with ValuJet's
operating results for the six months ended June 30, 1997 and the year ended
December 31, 1996, respectively. Accordingly, Airways' operating results for the
three months ended March 31, 1997 are included in the six months ended June 30,
1997 and in the year ended December 31, 1996 pro forma results. Airways'
revenues and net income for that three month period were $29,777,000 and
$277,000, respectively.
Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
--------------- -------------- ----------- ----------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $149,725 $11,460(a) $143,435 $ 1,672 $145,107
(9,200)(b)
(7,800)(d)
(750)(c)
Restricted cash............. 0 0 10,411 10,411
Accounts receivable, net.... 6,584 6,584 3,956 10,540
Inventory................... 6,159 6,159 1,066 7,225
Prepaid items............... 2,482 2,482 4,257 6,739
Income tax receivable....... 13,711 13,711 0 13,711
Deferred tax asset.......... 0 0 5,101 ($1,528)(k) 3,573
Other current assets........ 1,118 1,118 0 1,118
-------- ------- -------- ------- ------- --------
Total current assets......... 179,779 (6,290) 173,489 26,463 (1,528) 198,424
Property and equipment, net.. 194,049 9,200(b) 203,249 38,804 242,053
Debt issuance costs.......... 3,180 7,800(d) 10,980 10,980
Goodwill, net................ 0 0 1,713 (1,713)(l) 50,662
50,662(n)
Deferred tax asset........... 0 0 3,493 3,493
Other assets, net............ 0 0 523 (523)(k) 0
-------- ------- -------- ------- ------- --------
Total assets................. $377,008 $10,710 $387,718 $70,996 $46,898 $505,612
======== ======= ======== ======= ======= ========
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
--------- --------------- ----------- ------------- --------------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.............................. $ 27,618 $27,618 $ 18,503 $ 3,250(m) $ 49,371
Air traffic liability.................... 10,638 10,638 13,441 24,079
Deferred tax liability................... 485 485 0 485
Current portion of long-term debt........ 9,040 9,040 3,476 12,516
Current portion of maintenance reserves.. 0 0 1,779 (1,779)(k) 0
-------- -------- ------- -------- --------
Total current liabilities.................. 47,781 47,781 37,199 1,471 86,451
Long-term debt less current
maturities............................. 226,621 $ 80,000(a) 238,081 11,188 249,269
(68,540)(a)
Maintenance reserves....................... 0 0 2,343 (2,343)(k) 0
Deferred taxes............................. 6,722 (278)(c) 6,444 2,794 (193)(k) 8,205
(840)(m)
Stockholders' equity:
Preferred stock.......................... 0 0 0 0
Common stock............................. 55 55 91 (91)(n) 64
9(n)
Additional paid-in capital............... 77,453 77,453 26,621 (26,621)(n) 143,719
63,466(n)
2,800(n)
Retained earnings (deficit).............. 18,376 (472)(c) 17,904 (9,240) 9,240(n) 17,904
-------- ------- -------- ------- -------- --------
Total stockholders' equity................. 95,884 (472) 95,412 17,472 48,803 161,687
-------- ------- -------- ------- -------- --------
Total liabilities and
stockholders' equity.................... $377,008 $10,710 $387,718 $70,996 $ 46,898 $505,612
======== ======= ======== ======= ======== ========
</TABLE>
Statements of Operations
(in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
--------------------------------------------------------------------------------------
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
--------- ----------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $84,687 $84,687 $56,829 $141,516
Operating expenses................. 119,404 $750(e) 120,729 56,280 $ (222)(o) 177,560
575(f) (71)(p)
844 (q)
--------- -------- --------- ------- ------- ---------
Operating income (loss)............ (34,717) (1,325) (36,042) 549 (551) (36,044)
Interest expense.................. 12,723 (2,959)(g) 15,028 769 15,797
4,200(h)
1,064(i)
Interest income................... (3,268) (3,268) (366) (3,634)
--------- -------- --------- ------- ------- ---------
Income (loss) before income taxes.. (44,172) (3,630) (47,802) 146 (551) (48,207)
Income tax expense (benefit)....... (16,439) (1,270)(j) (17,709) 41 78 (r) (17,590)
--------- -------- --------- ------- ------- ---------
Net income (loss).................. ($27,733) ($2,360) ($30,093) $105 ($629) ($30,617)
========= ======== ========= ======= ======= =========
Net income (loss) per share........ ($0.51) ($0.55) $0.01 ($0.48)
========= ========= ======= =========
Weighted average shares
outstanding...................... 54,892 54,892 9,065 63,960
========= ========= ======= =========
Ratio of earnings to
fixed charges (s)................ --(t)
=========
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------------------
December 31, Pro Forma ValuJet March 31,
1996 Adjust- As 1997 Pro Forma Pro Forma
ValuJet ments Adjusted Airways Adjustments Combined
------------- ------------ ---------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 219,636 $ 219,636 $102,623 $ 322,259
Operating expenses........ 271,035 $ 750(e) 272,935 114,745 ($443)(o) 388,783
1,150(f) (143)(p)
1,689(q)
--------- -------- --------- -------- ----------- ---------
Operating loss............ (51,399) (1,900) (53,299) (12,122) (1,103) (66,524)
Interest expense......... 22,186 (5,917)(g) 26,796 1,507 28,303
8,400(h)
2,127(i)
Interest income.......... ( 7,653) ( 7,653) ( 984) ( 8,637)
--------- -------- --------- -------- ----------- ---------
Loss before income taxes.. (65,932) (6,510) (72,442) (12,645) (1,103) (86,190)
Income tax benefit........ (24,463) (2,279)(j) (26,742) (5,654) 155(r) (32,241)
--------- -------- --------- -------- ----------- ---------
Net loss.................. ($41,469) ($4,231) ($45,700) ($6,991) ($1,258) ($53,949)
========= ======== ========= ======== =========== =========
Net loss per share........ ($0.76) ($0.84) ($0.77) ($0.85)
========= ========= ======== =========
Weighted average shares
outstanding............. 54,702 54,702 9,029 63,770
========= ========= ======== =========
Ratio of earnings to
fixed charges(s)......... --(t)
=========
</TABLE>
Notes to Pro Forma Financial Statements
(a) Reflects the issuance of $80.0 million of 10 1/2% senior secured notes and
the repayment of $68.5 million of secured debt.
(b) Reflects the purchase of four hush kits for approximately $2.3 million per
hush kit.
(c) Reflects the payment and expensing of certain transaction costs with the
related income tax effect.
(d) Reflects the payment and capitalization of debt issuance costs.
(e) Reflects the effect of expensing certain transaction costs.
(f) Reflects depreciation of the four hush kits assumed to be purchased with a
portion of the proceeds of the $80.0 million secured debt offering.
(g) Reflects the elimination of interest on $68.5 million of debt refinanced by
the $80.0 million secured debt offering.
(h) Reflects interest on the $80.0 million of 10 1/2% senior secured notes.
(i) Reflects the amortization of debt issuance costs.
(j) Reflects the income tax effect of the pro forma adjustments.
(k) Reflects the reversal of preoperating costs and maintenance reserves, and
the related deferred tax amounts, to conform accounting policies.
(l) Reflects the reversal of Airways' historical excess of cost over fair value
of the net tangible assets acquired ("goodwill").
(m) Reflects the accrual of estimated merger costs with the related income tax
effect.
(n) Reflects the excess of cost over the estimated fair value of the net
tangible assets acquired in the Merger, the elimination of Airways'
historical common stock, additional paid-in capital and retained deficit,
the value of the Common Stock issued to the Airways stockholders and the
value of options issued to Airways option holders in the Merger.
<TABLE>
<S> <C>
Number of shares issued to acquire Airways 9,067,937
Per share price at date of agreement and joint press release 7.00
----------
Value of stock $ 63,476
Value of Airways options 2,800
Transaction costs 3,250
----------
Purchase price 69,526
Less estimated fair value of net tangible assets acquired 18,864
----------
Excess of cost over fair value of net tangible assets acquired $ 50,662
==========
</TABLE>
Excess of cost over fair value of the net tangible assets acquired is
presented in the pro forma balance sheet utilizing estimated amounts at June
30, 1997 and will be determined at the Effective Date. Such amount will also
be allocated according to the estimated fair values of assets at the
Effective Date.
(o) Reflects the reversal of historical amortization of preoperating costs of
Airways.
(p) Reflects the reversal of historical amortization of goodwill of Airways.
(q) Reflects the amortization of goodwill resulting from the Merger by use of
the straight line method over a 30-year period.
(r) Reflects the income tax effect of the pro forma adjustments.
(s) 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.
(t) For the periods ending June 30, 1997 and December 31, 1996, the pro forma
combined earnings were insufficient to cover fixed charges by $48.2 million
and $86.2 million, respectively.
-17-
<PAGE>
Comparative Per Share Data
The following table sets forth certain comparative per share data relating to
net income and book value on (i) an historical basis for ValuJet and Airways,
and (ii) a pro forma combined basis per share of ValuJet Common Stock, giving
effect to the sale by ValuJet of the Notes and the application of the proceeds
therefrom and the Merger. The ValuJet and Airways pro forma combined
information gives effect to the Merger on a purchase accounting basis and is
based upon the Exchange Ratio of one share of ValuJet Common Stock for each
share of Airways Common Stock. The unaudited pro forma data is presented for
informational purposes only and is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the sale
by ValuJet of the Notes and the application of the proceeds therefrom and the
Merger been consummated at the dates or during the periods indicated, nor is it
necessarily indicative of future results of operations or combined financial
position.
The information shown below for the year ended December 31, 1996 is derived
from the audited consolidated financial statements of ValuJet for the period
then ended and the audited consolidated financial statements of Airways for the
year ending on the ensuing March 31 and should be read in conjunction with, and
is qualified in its entirety by, the historical financial statements of ValuJet
and Airways, including the respective notes thereto, and the pro forma financial
information included herein. The information shown below for the six months
ended June 30, 1997 is derived from the unaudited consolidated financial
statements of ValuJet and Airways, including the respective notes thereto, and
should be read in conjunction with, and is qualified in its entirety by, the pro
forma financial information included herein. See "Pro Forma Condensed Combined
Financial Information."
<TABLE>
<CAPTION>
Six Months Year ended
Ended December 31,
June 30, 1997 1996(1)
-------------- ------------
<S> <C> <C>
Income (loss) per share
ValuJet historical.......................... $(.51) $(.76)
Airways historical.......................... .01 (.77)
ValuJet and Airways pro forma combined (2).. (.48) (.85)
Book Value per Share (Period End)
ValuJet historical.......................... 1.74
Airways historical.......................... 1.89
ValuJet and Airways pro forma combined (2).. 2.53
</TABLE>
(1) ValuJet's fiscal year end is December 31 and Airways' fiscal year end is
March 31. Consequently, the data included for Airways as of the date
indicated is based on audited financial statements of Airways for the year
ending on March 31, 1997.
(2) Represents the combined results of ValuJet and Airways giving effect to the
sale by ValuJet of the Notes and the application of the proceeds therefrom
and the Merger as if such transactions had occurred as of January 1, 1996
and 1997, with respect to the statements of operations for the year ended
December 31, 1996, and the six months ended June 30, 1997, respectively, and
as of June 30, 1997, with respect to the balance sheet. The Merger is
reflected using the purchase method of accounting for business combinations.
-18-
<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
Accident/Suspension of Operations
As a result of the accident involving Flight 592, the ensuing adverse media
coverage and intensive FAA scrutiny, the Company suspended its operations on
June 17, 1996, pursuant to a consent order entered into with the FAA. The
Company now faces the following additional risk factors: (i) the suspension of
operations has resulted in the failure of the Company to meet certain financial
covenants (the fixed charge coverage ratio) under certain of its secured debt
instruments. All of this debt will be repaid from the proceeds of this
Offering; (ii) there can be no assurance that the Company will be able to regain
and maintain its low cost structure or to recover sufficient customer acceptance
in order to regain profitability; (iii) if the Company regains profitability,
the Company may have increased costs or reduced customer support which could
decrease the Company's profitability indefinitely; (iv) the expansion of the
Company's operations will likely be subject to FAA and DOT approval for an
indefinite period of time; and (v) the occurrence of one or more subsequent
incidents or accidents involving the Company's aircraft would likely have a
substantial adverse effect on the Company's public perception and future
operations.
Recent Operating Losses
The Company has realized net losses in each of its last five quarters. The
Company's earnings before fixed charges for the fiscal year ended December 31,
1996 and the six months ended June 30, 1997 were inadequate to cover fixed
charges by approximately $65.9 million and $44.2 million, respectively.
Continued failure by the Company to cover fixed charges in the future could
result in a failure to meet the Company's debt service obligations, restrictions
on the Company's activities or other material adverse effects on the Company's
financial condition and results of operations. The Company's consolidated
leverage and recent history of losses may adversely affect the Company's ability
to obtain financing on terms satisfactory to the Company in the future.
Ability to Repay Indebtedness At Maturity
On a pro forma basis, after giving effect to this issuance of the Notes, the
Company would have had approximately $247.1 million of Indebtedness on a
consolidated basis as of June 30, 1997. The Indenture limits, but does not
prohibit, the incurrence of additional indebtedness, secured or unsecured, by
the Company and its subsidiaries. Subject to limitations under the Indenture,
the Company expects that it and its subsidiaries will incur substantial
additional indebtedness in the future in connection with the acquisition of
additional aircraft and for other purposes. As a result, a substantial portion
of the Company's cash flow is, and will continue to 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 Notes.
The entire principal amount of the Notes becomes due on April 15, 2001, at
which time the entire principal amount of the Company's Senior Notes due 2001
(initial principal amount of $150.0 million) will also become due. The Company
does not expect to generate sufficient cash flow from operations to repay all
$230.0 million of such indebtedness and, accordingly, in order to repay this
indebtedness, the Company will likely need to seek refinancing through
additional equity or debt or a combination thereof. 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. If no such 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.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness (including the Notes) depends on
its future performance and financial results, which, to a certain extent, are
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable the Company to
service its indebtedness, including the Notes, or make necessary capital
expenditures. The degree to which the Company will be leveraged following the
Offering could have important consequences to the holders of the Notes,
including, but not limited to, the following: (i) a substantial portion of the
Company's cash flow from operations will be required to be dedicated to debt
service and will not be available to the Company for its operations; (ii) the
Company's ability to obtain additional financing in the future for aircraft
purchases, capital expenditures, working capital or general corporate purposes
could be limited, and (iii) the Company's increased vulnerability to adverse
general economic and industry conditions.
-19-
<PAGE>
Limited Operating History
The Company began flight operations on October 26, 1993, and was profitable
for the two years prior to the May 11, 1996 accident. The Company's operations
since September 30, 1996 have been constrained by a phased return to service of
its aircraft fleet as the return to service of each aircraft is subject to FAA
approval. There can be no assurance that the Company will be able to regain and
maintain its profitability 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 and attract customers in its 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 which is the Company's principal hub is currently dominated
by Delta Air Lines, Inc. ("Delta"), which presently offers more than 600 flights
per day from Atlanta. During 1996, Delta enplaned approximately 78% of all
passengers at Atlanta's Hartsfield International Airport. There can be no
assurance that the Company will be able to be successful in light of Delta's
Atlanta market dominance.
Litigation
As a result of the accident and suspension of operations, several class action
suits have been filed by stockholders against the Company and various officers
and directors alleging, among other things, misrepresentations under applicable
securities laws. The plaintiffs seek unspecified damages based upon the decrease
in market value of shares of the Company's stock. Although the Company denies
that it has violated any of its obligations under the federal securities laws,
there can be no assurance that the Company will not sustain material liability
under such or related lawsuits. See "Business of ValuJet - Litigation."
Numerous lawsuits have also 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 lawsuits
under a reservation of rights. See "Business of ValuJet - Litigation." The
Company maintains $750.0 million of liability insurance per occurrence with a
major group of independent insurers that provides facilities for all forms of
aviation insurance for many major airlines. Although the Company believes,
based on the information currently available to it, that such coverage will be
sufficient to cover claims associated with this accident and that the insurers
have sufficient financial strength to pay claims, there can be no assurance that
the total amount of judgments and settlements will not exceed the amount of
insurance available therefor or that all damages awarded will be covered by
insurance.
Several governmental inquiries and investigations have been launched in
connection with the loss of Flight 592, including investigations by the DOT, the
NTSB, the U.S. Attorney's Office in Atlanta, Georgia and Miami, Florida and
certain state agencies in Florida. Although the Company does not believe, based
on information currently available to it, that such investigations and inquiries
will result in any finding of criminal wrongdoing on its part, the
investigations have not yet been concluded and the possibility of such a finding
cannot be ruled out. The Company may also be named as a partially responsible
party and/or be assessed civil penalties in connection with the accident and/or
the results of ensuing investigations. Any such findings or penalties could be
material. In addition, it is possible that the Company could be indirectly
affected by negative publicity related to charges of wrongdoing, if any, against
others acting on behalf of the Company at the time of the accident.
On August 30, 1996, Metropolitan Nashville Airport Authority filed suit
against the Company in State Court in Tennessee for breach of contract and a
declaratory judgment for an anticipatory breach. The Nashville Airport
Authority seeks damages of approximately $2.6 million. The dispute involves
whether the Company was entitled to exercise a termination right contained in
its lease agreement.
In May 1997, the State of Florida filed suit against the Company and its
insurers in the United States District Court for the Southern District of
Florida seeking recovery of costs incurred relating to the accident involving
Flight 592. the Company's insurance carrier has assumed defense of this suit on
the Company's behalf. The Company does not believe that it is obligated for
such amounts and has filed a motion to dismiss this lawsuit. However, the suit
is in its preliminary stages and there can be no assurance that the Company will
not sustain material liability under such suit.
Aging Aircraft; Maintenance and Reliability
The Company's entire fleet consists of DC-9 aircraft manufactured between 1967
and 1976 and having an average number of take-off and landing cycles per
aircraft of approximately 57,300, which is 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 its aircraft in the long-term will be
consistent with industry experience for this aircraft type and age used by
comparable airlines. However, since the resumption of the Company's service in
September 1996, the Company has incurred higher than usual maintenance expenses
as a result of expenses related
-20-
<PAGE>
to reactivating its aircraft. Amendments to FAA regulations are under
consideration which would require certain heavy maintenance checks and other
additional 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 will be required to
comply with any other future regulations or Airworthiness Directives issued with
respect to aging aircraft. 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 mechanically reliable based on the
percentage of scheduled flights completed. However, 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. Various
incidents involving the Company's aircraft prior to May 1996, the accident
involving Flight 592 and the suspension of operations have further contributed
to a negative public perception as to the safety of the Company's aircraft and
operations. See "Risk Factors -- Risks Related to the Company --
Accident/Suspension of Operations."
Various FAA findings and safety violations by the Company discovered by the
FAA in connection with its special scrutiny of the Company led to the consent
order under which the Company's operations were suspended. Although the Company
has satisfied the FAA sufficiently to justify a return of its operating
certificate, the Company continues to be subject to a high level of FAA scrutiny
and there can be no assurance that the Company will be able to avoid violations
in the future. See "Business of ValuJet -- Maintenance and Repairs" and
"Business of ValuJet -- Government Regulation."
Risks Associated With Merger
If the Merger with Airways is consummated, the Company will face the following
additional risks: (i) the usual risks associated with the combination of two
businesses; (ii) risks associated with the name change and possible loss of
market recognition; (iii) Airways has a limited operating history and has
incurred losses during two of its three fiscal years of operations; (iv)
although the Company is seeking to achieve various economies of scale and cost
savings synergies, there can be no assurance that the Company will be able to
realize such benefits; (v) the FAA and DOT may elect to monitor AirTran more
closely and may seek to impose limitations on AirTran's operations that are not
currently in effect; and (vi) AirTran operates Boeing 737-200 aircraft, thereby
adding a second aircraft type to the fleets to be operated by the Company's
operating subsidiaries.
Stage 3 Compliance
To satisfy FAA rules regarding allowable noise levels, each new entrant
airline must have at least 50% of its fleet in compliance with Stage 3 noise
level requirements during 1997. 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 August 31, 1997, only 18 of the Company's 42 aircraft meet the
Stage 3 requirements. As of August 31, 1997, the Company complies with Stage 3
requirements by virtue of 16 of the 31 operating aircraft complying with these
requirements. However, compliance with Stage 3 requirements could be affected
by the planned disposition of certain of the Company's aircraft. See "Business
of ValuJet - Aircraft." The Company intends to meet its Stage 3 noise
requirement obligations by installing hush kits on Stage 2 aircraft, disposing
of other 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.
Low Fuel Efficiency of the Company's Fleet
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. Fuel costs also are affected by increases in taxes imposed
on sale of fuel. For example, in August 1993, the federal taxes on domestic
fuel were increased by 4.3 cents per gallon. The Company estimates that a 1c
increase in fuel cost would increase the Company's fuel expenses by
approximately $59,000 per month based on the Company's current fuel consumption
rate.
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.
-21-
<PAGE>
Aircraft Acquisition Expenditures
The Company has contracted with McDonnell Douglas to purchase 50 MD-95
aircraft to be delivered from 1999 to 2002. 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 will be available, there can be no assurances that such additional
financing will remain available when needed or be available on attractive terms.
The Company can provide no assurance that Boeing, as the successor to McDonnell
Douglas after their merger, will manufacture and deliver the MD-95 aircraft in
accordance with the terms of the purchase contract.
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."
As a result of the accident involving Flight 592, the resulting heightened FAA
scrutiny, customer acceptance concerns and the requirement that the FAA approve
additional aircraft, the Company's continuing expansion has been and may
continue to be delayed. Accordingly, the Company may not be able to utilize all
the aircraft it has committed to purchase. Although the Company has obtained
attractive purchase terms from McDonnell Douglas, if the Company cannot use such
aircraft, it may be required to sell or lease such aircraft on terms which will
depend upon market conditions at the time. There can be no assurance that the
Company will not suffer a financial loss from any such sales or leases. See
"Risk Factors -- Risks Related to the Company - Accident/ Suspension of
Operations."
Employee Relations
The Company believes it operates with lower labor costs than many established
airlines, principally due to greater flexibility in the utilization of
personnel. 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 and mechanics. The Association of
Flight Attendants ("AFA") has filed a lawsuit against the Company regarding the
termination of employment of certain former flight attendants. See "Business of
ValuJet -- Litigation." There can be no assurance that there will not be
further unionization or that the existing level of unionization of the Company's
employees will not materially increase the Company's costs.
Risks of Expansion
The Company intends to expand its operations into new markets, subject to FAA
and DOT approval. Although the Company's low fare service had previously been
accepted in the Company's markets, there can be no assurance that its service
will continue to be accepted in its markets, particularly in light of the
accident involving Flight 592 and greater competition in the Company's markets.
Furthermore, the Company's continued expansion will require substantial
additional capital expenditures, thereby increasing the risks associated with
expansion.
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. In the event of unanticipated problems, 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.
Airport Access
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 of
ValuJet--Litigation." Subsequently, the Company was able to lease other slots
at LaGuardia from Continental Airlines for a period of time that enabled the
Company to commence service to New York City in May 1996, but the Company
subsequently relinquished its slots as a result of the suspension of operations
on June 17, 1996. 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 seeks to
serve may have a material adverse effect on the Company's business.
-22-
<PAGE>
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, 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
inability to control the efficiency, timeliness and quality of contract
services. For example, the Company's reliance on SabreTech, Inc. for certain
maintenance work appears to have contributed to the accident involving Flight
592. 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 $750.0 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. The Company's cost of insurance substantially increased after the
accident. 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.
Dependence on Executive Officers
ValuJet Airlines is dependent on the services of D. Joseph Corr (President and
Chief Executive Officer) and its other executive officers . The loss of
services of these officers could materially and adversely affect the business of
the Company and its future prospects. The Company does not, and does not
presently intend to, maintain key man life insurance on any of the Company's
officers.
Control by Management Group
As of August 31, 1997, the Company's Executive Officers and Directors (ten
persons) owned approximately 18.8% 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 financial resources than
the Company. The Company may also face competition from airlines which may
begin serving any of the markets the Company serves or may subsequently serve,
from an expansion of existing low fare service offered by current competitors,
from new low cost airlines that may be formed to compete in the low fare market
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.
Recent legislation imposes taxes on domestic airline transportation equal to a
per segment flown charge (initially $1.00 to be increased to $3.00 by 2003)
plus a percentage of the ticket price (initially 9% to be decreased to 7.5% in
1999). These taxes will likely have a greater effect on leisure travelers.
Since the Company relies to a large extent on leisure travelers, such a tax
increase may affect the Company to a greater extent than the Company's
competitors who rely more heavily on business travelers.
-23-
<PAGE>
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 leisure travel and 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.
Extraordinary regulatory review of the Company's operations by the FAA
followed the accident involving Flight 592 on May 11, 1996, and various FAA
findings and violations of FAA safety rules ultimately resulted in the consent
order under which the Company's operations were suspended on June 17, 1996. In
the consent order, the FAA alleged that the Company violated various federal
regulations relating to aircraft maintenance, maintenance manuals, training,
record keeping and reporting and the Company agreed to present a plan to the FAA
specifying the methods by which it would demonstrate to the FAA its
qualifications to hold an air carrier operating certificate. The Company
implemented several operating and administrative changes to address the FAA's
concerns and to subsequently satisfied the FAA with respect to the safety
violations referenced in the consent order. The FAA returned the Company's
operating certificate to it on August 29, 1996. The Company is likely to be
subject to increased and continuing regulatory scrutiny which could affect the
Company's operations, acquisition program and expansion plans indefinitely.
Unauthorized Parts
The Company has heavy aircraft maintenance as well as engine and component
overhaul performed by FAA approved contract maintenance providers. Each of the
contractors as well as the Company has procedures in place to ensure the use of
authorized materials during the performance of maintenance. A risk exists that
through fraud or negligence unauthorized parts could be used on any air
carrier's aircraft including those of the Company.
Limitations Regarding Aircraft Collateral
The Company's obligations under the Notes and the Collateral Agreement are
secured by, among other things, the Aircraft.
Aging Collateral
The Notes will be secured by 24 DC-9 series 30 aircraft (the "Aircraft")
manufactured between 1967 and 1976 and having an average number of take-off and
landing cycles of aircraft of approximately 57,300. As of the current time, the
Aircraft have been certificated by the manufacturer for flight up to
approximately 102,000 cycles. One of these Aircraft is currently being stored
and is not being currently operated by this Company. The Company is currently
offering to lease out or sell such Aircraft at the current offering to lease out
or sell such Aircraft at the current time. Of these 24 Aircraft, 17 comply with
the Stage 3 noise requirements at this time. The age of and number of cycles
operated by the Aircraft materially affect their value and will affect the
amount realizable by the holders of the Notes in the event the Aircraft are
foreclosed upon.
Appraisals of Aircraft; Realizable Values
Appraisals in respect of the Aircraft have been prepared by BK Associates
Inc. ("BK Associates") and Aviation Solutions, Inc. ("AvSolutions"). According
to the appraisals of these firms, the Aircraft had an aggregate appraised value
of $119.6 million and $112.5 million, respectively, in July 1997 and estimated
future value in 2001 of $93.7 million and $87.7 million, respectively. The
appraisals were prepared without a physical inspection of the Aircraft. See
"Description of the Aircraft and the Appraisals." However, an appraisal is
only an estimate of value and should not be relied upon as a measure of
realizable value; the proceeds realized upon a sale of any Aircraft may be less
than the appraised value thereof. The value of the Aircraft in the event of the
exercise of remedies under the Collateral Agreement will depend on market and
-24-
<PAGE>
economic conditions, the availability of buyers, the condition of the Aircraft
and other similar factors. Accordingly, there can be no assurance that the
proceeds realized upon any such exercise pursuant to the Collateral Agreement
would be sufficient to satisfy in full payments due on the Notes. If such
proceeds were not sufficient to pay or repay all amounts due under the Notes,
the then holders of the Notes (to the extent not repaid from the proceeds of the
sale of the Aircraft) would bear their allocable percentage of such
insufficiency and any resultant loss.
Effect of Bankruptcy on Exercise of Remedies
The right of the Indenture Trustee to repossess and dispose of any of the
Aircraft following an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy case relating to the Company were to
have commenced prior to the Indenture Trustee's having repossessed and disposed
of such Collateral Aircraft. Under Title 11 of the United States Code (the
"Bankruptcy Code"), a secured creditor, such as the Indenture Trustee, is
prohibited from repossessing its collateral from a debtor in reorganization, or
from disposing of collateral repossessed from such debtor, without bankruptcy
court approval. Moreover, the Bankruptcy Code permits the debtor in
reorganization to continue to retain and to use the collateral even though the
debtor is in default, provided that the secured creditor is given "adequate
protection" for its interest in the collateral. The protections afforded by
Section 1110 of the Bankruptcy Code will not generally be available to the
Indenture Trustee. Provisions of bankruptcy laws in foreign jurisdictions in
which the Aircraft are operated or registered may also limit the Indenture
Trustee's ability to repossess the Aircraft.
Repossession
The Indenture does not contain any general geographic restriction on the
Company's (or any lessee's) ability to operate the Aircraft. Although the
Company has no current intention to do so, the Company is also permitted, upon
compliance with the Indenture, to register the Aircraft in the foreign
jurisdictions set forth in the Indenture (the "Permitted Countries") and to
lease the Aircraft to certain Permitted Air Carriers consisting of those
operating in the United States and the Permitted Countries. While the Indenture
Trustee's rights and remedies in the event of a default under the Indenture
include the right to repossess the Aircraft, it may be difficult, expensive and
time-consuming for the Indenture Trustee to obtain possession of the Aircraft,
particularly when an Aircraft located outside the United States has been
registered in a foreign jurisdiction or is leased to a foreign operator. Any
such exercise of the right to repossess the Aircraft may be subject to the
limitations and requirements of applicable law, including the need to obtain
consents or approvals for deregistration or reexport of the Aircraft, which may
be subject to delays and to political risk. When a defaulting lessee or other
permitted transferee is the subject of a bankruptcy, insolvency or similar
event, such as protective administration, additional limitations may apply.
Despite the limitations contained in the Indenture on Permitted Air Carriers
and reregistration, certain jurisdictions in which aircraft may be operated or
registered may not accord recognition to, or recognize the priority of, the
Indenture or may have no specific laws providing for the creation, recognition
or registration of mortgages over aircraft such as the Indenture, or may accord
higher priority to certain other liens or other third party rights over the
Aircraft. Some or all of these factors could limit the benefits to the
Indenture Trustee of the security interest in the Aircraft.
Maintenance
The Company is responsible for the maintenance, service, repair and overhaul
of the Aircraft, but only to the extent described in the Indenture. The failure
of the Company (or any lessee) to adequately maintain, service, repair or
overhaul the Aircraft may adversely affect the value of such Aircraft and, thus,
upon a liquidation of the Aircraft may affect the proceeds available to repay
the holders of the Notes. Under the Indenture, the applicable maintenance
standards will vary depending upon the jurisdiction in which an Aircraft is
registered and if an Aircraft is leased. Notwithstanding compliance by the
Company (or any lessee) with its obligations under the Indenture to adequately
maintain, service, repair or overhaul the Aircraft, the value of the Aircraft
may deteriorate. Such a deterioration in the value of the Aircraft would not,
in and of itself, constitute a breach by the Company of its obligations under
the Indenture. See "Description of the Exchange Notes -- Covenants Relating to
the Aircraft -- Registration and Maintenance."
Insurance
The Company is responsible for the maintenance of public liability, property
damage and all-risk aircraft hull insurance on the Aircraft to the extent
described in the Indenture. The failure of the Company to adequately insure the
Aircraft, or the retention of self-insurance amounts, will affect the proceeds
which could be obtained upon an Event of Loss and, thus, may affect the proceeds
available to repay the holders of the Notes.
With respect to any insurance required, the Company may maintain deductibles
or self-insurance amounts similar to those maintained by the Company with
respect to other aircraft owned or leased, and operated, by the Company, in each
case similar to such Aircraft; provided, however, that, in the case of required
all-risk aircraft hull insurance, such deductibles and self-insurance are
subject to certain maximum amounts. See "Description of the Exchange Notes --
Covenants Relating to the Aircraft -- Insurance."
-25-
<PAGE>
Risks Related to the Offering
Fraudulent Conveyance
The Subsidiary 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
Subsidiary Guarantees were incurred by any Subsidiary Guarantor with intent to
hinder, delay or defraud any present or future creditor, or a Subsidiary
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 Subsidiary Guarantor
did not receive fair consideration or reasonably equivalent value for issuing
its Subsidiary Guarantees and any Subsidiary guarantor (i) was insolvent, (ii)
was rendered insolvent by reason of the issuance of the Subsidiary Guarantees,
(iii) was engaged or about to engage in a business or transaction for which the
remaining assets of a Subsidiary 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 Subsidiary Guarantees in favor of a Subsidiary
Guarantor's creditors. If the Subsidiary Guarantees are subordinated, payments
of principal and interest on the Notes generally would be subject to the prior
payment in full of all indebtedness of the Subsidiary Guarantors. Among other
things, a legal challenge of the Subsidiary Guarantees on fraudulent conveyance
grounds may focus on the benefits, if any, realized by a Subsidiary Guarantor as
a result of the issuance by the Company of the New Notes. The extent (if any)
to which a particular Subsidiary Guarantor may be deemed to have received such
benefits may depend on the Company's use of the Offering proceeds, including the
extent (if any) to which such proceeds or benefits therefrom are contributed to
the Subsidiary Guarantor. See "Use of Proceeds." 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 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 Subsidiary Guarantees are being incurred for
proper purposes and in good faith, and that the Subsidiary Guarantors (i) are
solvent and will continue to be solvent after issuing the Subsidiary 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 Subsidiary Guarantor received fair
consideration or reasonably equivalent value for issuing its Subsidiary
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 Purchaser of the Outstanding Notes
has advised the Company that it currently intends to make a market in the Notes;
however, it is 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 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.
-26-
<PAGE>
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 canceled and cannot be reissued. Accordingly, issuance of the Exchange
Notes will not result in any increase in the outstanding debt of the Company.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and cash and
cash equivalents of the Company as of June 30, 1997, (i) on an historical basis,
(ii) as adjusted to give effect to the sale by the Company of the Notes and the
application of the proceeds thereof, and (iii) as adjusted to give effect to the
sale of the Notes and the Merger. This table should be read in conjunction with
the financial statements and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------------------------
As Adjusted As Adjusted
for Sale for Sale of Notes
Actual of Notes (1) and Merger (2)
----------- -------------- --------------------
(dollars in thousands)
<S> <C> <C> <C>
Cash and Cash Equivalents................... $149,725 $143,435 $155,518(4)
======== ======== ========
Short-term Debt:
Current maturities of long-term debt... $ 9,040 $ 9,040 $ 12,516
Long-term Debt:
Secured debt........................... 76,621 8,081 19,269
10 1/2% senior secured notes due 2001.. -0- 80,000 80,000
10 1/4% senior notes due 2001.......... 150,000 150,000 150,000
-------- -------- --------
226,621 238,081 249,269
-------- -------- --------
Total debt................................ 235,661(3) 247,121(3) 261,785(3)
Stockholders' Equity:
Common stock, $.001 par value;
1,000,000,000 shares authorized;
54,963,330 shares issued and
outstanding................................ 55 55 64
Additional paid-in capital................. 77,453 77,453 143,719
Retained earnings.......................... 18,376 17,904 17,904
-------- -------- --------
Total stockholders' equity............... 95,884 95,412 161,687
-------- -------- --------
Total capitalization.................... $331,545 $342,533 $423,472
======== ======== ========
</TABLE>
(1) As adjusted to give effect to the issuance and sale of the Notes by the
Company, after application of the proceeds thereof and $6.2 million of cash
to repay $68.5 million principal amount of secured debt of the Company, to
purchase four hush kits for $9.2 million and to pay the fees and expenses
relating to a consent solicitation to the holders of the Company's 10 1/4%
senior notes due 2001, as though the Company had issued the Notes as of June
30, 1997.
(2) As further adjusted to also give effect to the Merger.
(3) The 10 1/4% senior notes dues 2001 ($150.0 million outstanding principal
balance) are the primary obligation of the Company and are guaranteed by
ValuJet Airlines, the Company's other subsidiaries and any future restricted
subsidiaries. All other debt (other than debt to be assumed in connection
with the Merger) is the primary obligation of ValuJet Airlines.
(4) Cash and cash equivalents of Airways includes restricted cash of $10.4
million.
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<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Outstanding Notes were sold by the Company on August 13, 1997 to the
Initial Purchaser, 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 Purchaser 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 secured 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 150 days after such issue date. If applicable law or the positions
taken by the staff of the Commission that have been enunciated in the no-action
letters issued in Exxon Capital Holdings Corp. (available April 13, 1989) and
----------------------------
Morgan Stanley & Co. Inc. (available June 5, 1991), among others, do not permit
- -------------------------
the Company to cause the registration statement containing this Prospectus to
become effective 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 two 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) at
the time of the commencement of the Exchange Offer, it had 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".
Holders who tender Outstanding Notes in the Exchange Offer with the intention to
participate in a distribution of the Exchange Notes may not rely upon the Morgan
------
Stanley or similar no-action letters.
- -------
Resale of Exchange Notes
Based on positions taken 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 positions taken 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".
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.
-29-
<PAGE>
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, $80,000,000 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 5:00 p.m., New York time on
____________________, 1997, 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 _____________, 1998.
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.
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 1/2% per annum, payable
semi-annually, on each April 15 and October 15, commencing April 15, 1998.
Holders of Exchange Notes will receive interest on April 15, 1998 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 October 15, 1997 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 reasonable judgment, might materially impair the ability of the
Company to proceed with the Exchange Offer; or
-30-
<PAGE>
(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 reasonable 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 reasonably 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.
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").
-31-
<PAGE>
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
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;
(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
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<PAGE>
(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 5:00 p.m., 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
The Bank of New York 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:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attn: Corporate Trust Operations
By Facsimile:
(212) 815-5915
(For Eligible Institutions Only)
Confirm by Telephone: [Add]
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
$75,000. 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.
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<PAGE>
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.
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<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, 1995 and 1996, are derived from the audited
consolidated financial statements of the Company. The financial and operating
data for the six month periods ended June 30, 1996 and 1997, 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 results of operations for these periods. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the entire year. The selected financial data of Airways for
the years ended March 31, 1995, 1996 and 1997, which follows the information
regarding the Company, are derived from the audited consolidated financial
statements of Airways, and the selected financial and operating data of Airways
for the three month periods ended June 30, 1996 and 1997 are derived from
unaudited consolidated financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals which Airways
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Airways' operating results for the
three months ended June 30, 1997, are not necessarily indicative of the results
that may be expected for the entire year. The data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
VALUJET, INC.
Period from
Inception Year ended Six months ended
(July 10, 1992) December 31 June 30
to ------------------------------------------------- -----------------------
December 31, 1992(a) 1993(a) 1994 1995 1996(b) 1996 1997
--------------------- --------- --------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Statements of Operations
Data:
Operating revenues........... 0 $ 5,811 $133,901 $ 367,757 $ 219,636 $191,212 $ 84,687
Operating expenses:
Flight operations........ 0 474 6,967 16,273 16,479 12,933 8,904
Aircraft fuel............ 0 977 21,775 55,813 46,691 39,137 19,852
Maintenance.............. 0 732 14,862 47,330 49,500 31,419 24,640
Station operations....... 0 1,199 20,198 49,931 42,018 32,641 22,485
Passenger services....... 0 228 3,942 10,363 8,879 7,624 3,817
Marketing and
advertising............. 0 1,097 6,546 8,989 8,426 6,507 5,227
Sales and reservations... 0 967 11,325 31,156 18,378 15,442 6,801
General and
administrative.......... $ 23 866 5,039 10,617 13,659 8,161 6,143
Employee bonus........... 0 0 5,146 14,382 1,245 1,245 0
Depreciation............. 0 138 3,555 15,147 17,551 13,211 12,247
Arrangement fee for
aircraft transfers...... 0 0 0 0 (13,036) (11,861) 0
Gain on insurance
recovery................ 0 0 0 (1,094) (2,815) (2,815) 0
Gain (loss) on sale
of assets............... 0 0 0 0 (3,934) 0 (50)
Shutdown and other
nonrecurring
expenses................ 0 0 0 0 67,994 31,623 9,338
----- ------- -------- ---------- --------- -------- ---------
Total operating expenses..... 23 6,678 99,355 258,907 271,035 185,267 119,404
----- ------- -------- ---------- --------- -------- ---------
Operating income (loss)...... (23) (867) 34,546 108,850 (51,399) 5,945 (34,717)
Interest expense............ 0 112 2,388 6,579 22,186 8,624 12,723
Interest income............. 0 (85) (1,423) (5,555) (7,653) (4,524) (3,268)
----- ------- -------- ---------- --------- -------- ---------
Income (loss) before
income taxes................ (23) (894) 33,581 107,826 (65,932) 1,845 (44,172)
Provision for income taxes.. 0 0 12,849 40,063 (24,463) 752 (16,439)
----- ------- -------- ---------- --------- -------- ---------
Net income (loss)............ ($23) ($894) $ 20,732 $ 67,763 ($41,469) $ 1,093 ($27,733)
===== ======= ======== ========== ========= ======== =========
Ratio of earnings to fixed
charges (c)................. - (d) - (d) 9.5x 11.0x - (d) 1.2x - (d)
----- ------- -------- ------------- --------- -------- ---------
Balance Sheet Data (end of
period):
Cash and cash equivalents.... $ 495 $13,247 $ 85,078 $ 127,947 $ 150,013 $207,977 $ 149,725
Working capital.............. 482 10,284 58,585 63,523 168,555 185,023 131,998
Property and equipment, net 0 13,458 71,880 196,954 162,572 225,266 194,050
Total assets................. 495 30,264 173,039 346,741 417,187 521,592 377,008
Total debt................... 0 10,397 46,965 109,038 244,706 312,440 235,661
Stockholders' equity......... 482 15,143 93,117 162,065 123,400 165,402 95,884
</TABLE>
See footnotes on page 37
-35-
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year ended December 31 Ended June 30
------------------------------------- ----------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Data (e):
Revenue passengers enplaned................ 2,040,892 5,177,629 3,003,883 2,522,709 1,347,656
Revenue passenger miles (RPM)(thousands)... 940,546 2,624,298 1,534,439 1,312,519 661,283
Available seat miles (ASM)(thousands)...... 1,470,614 3,812,696 2,689,127 2,301,899 1,213,139
Load factor................................ 64.0% 68.8% 57.1% 57.0% 54.5%
Break-even load factor excluding shutdown
and other nonrecurring expenses......... 44.6% 45.8% 57.0% 47.1% 78.9%
Average fare............................... $63.48 $68.10 $69.81 $72.75 $59.59
Passenger yield............................ 13.77c 13.44c 13.67c 13.98c 12.14c
Total revenue per ASM...................... 9.05c 9.62c 8.12c 8.25c 6.98c
Operating cost per ASM excluding shutdown
and other nonrecurring expenses......... 6.71c 6.77c 7.50c 6.67c 9.07c
Completion factor.......................... 99.5% 99.0% 90.3% 95.1% 99.3%
Aircraft in service (end of period)........ 22 42 15 0 30
Cities served (end of period).............. 17 26 18 0 24
Average passenger trip length (miles)...... 461 507 511 507 474
Average stage length (miles)............... 444 497 501 515 461
</TABLE>
Financial Data
<TABLE>
<CAPTION>
Six Months
Year ended December 31, 1996 Ended June 30, 1997
Actual As Adjusted (f) Actual As Adjusted (f)
-------------- -------------------- -------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data (end of period):
Cash and cash equivalents.. $150,013 $143,723 $149,725 $143,435
Working capital............ 168,555 162,265 131,998 125,708
Total assets............... 417,187 427,897 377,008 387,718
Total debt................. 244,706 256,166 235,661 247,121
Net debt (g)............... 94,693 112,443 85,936 103,686
Stockholders' equity....... 123,400 122,928 95,884 95,412
Other Data:
Rental expense............. $ 15,824 $ 15,824 $ 6,174 $ 6,174
Interest expense........... 22,186 26,796 12,723 15,028
Interest income............ 7,653 7,653 3,268 3,268
Net interest expense....... 14,533 19,143 9,455 11,760
</TABLE>
See footnotes on page 37
-36-
<PAGE>
AIRWAYS CORPORATION
<TABLE>
<CAPTION>
Three Months
Year ended March 31 Ended June 30
--------------------------------- --------------------------
1995 1996 1997 1996 1997
--------- --------- ----------- --------- ---------------
Statements of Operations Data: (dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues................... $ 9,607 $ 68,361 $ 102,623 $ 29,012 $ 27,052
Operating expenses................... 16,028 66,867 114,745 29,493 27,227
-------- -------- ---------- -------- --------
Operating income (loss).............. (6,421) 1,494 (12,122) (481) (175)
Interest expense................. - 524 1,507 390 399
Interest income and other........ (59) (1,007) (984) (359) (184)
-------- -------- ---------- -------- --------
Income (loss) before income taxes.... (6,362) 1,977 (12,645) (512) (390)
Provision for income taxes....... (2,866) 790 (5,654) (230) (218)
-------- -------- ---------- -------- --------
Net income (loss).................... ($3,496) $ 1,187 ($6,991) ($ 282) ($172)
======== ======== ========== ======== ========
Balance Sheet Data (end of period):
Cash and cash equivalents............ $ 961 $ 16,437 $ 2,354 $ 15,446 $ 1,672
Working capital...................... 2,058 3,212 (7,144) 4,478 (10,736)
Property and equipment, net......... 2,211 29,458 37,698 29,632 37,030
Total assets......................... 13,544 69,654 73,948 64,640 70,996
Total debt........................... - 13,851 13,696 15,319 14,664
Stockholders' equity................. 7,690 24,363 17,641 24,162 17,472
Operating Data:
Revenue passengers enplaned.......... 87,000 685,000 1,089,000 303,000 288,000
RPMs (thousands)..................... 80,783 605,130 932,305 264,490 245,149
ASMs (thousands)..................... 180,480 974,642 1,426,873 372,202 360,193
Load factor.......................... 44.8% 62.1% 65.3% 71.1% 68.1%
Passenger yield...................... 9.8c 10.7c 10.7c 10.8c 10.4c
Aircraft in service (end of period).. 4 10 10 10 10
Average stage length (miles)......... 880 873 832 893 735
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company's flight operations commenced October 26, 1993. Prior to that
time, the Company was in the development stage.
(b) The Company's operations were suspended from June 18, 1996 until September
30, 1996 as a result of a consent order entered into between the Company
and the FAA.
(c) 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.
(d) For the periods ending December 31, 1992, December 31, 1993, December 31,
1996, and June 30, 1997, the Company's earnings were insufficient to cover
fixed charges by $23,000, $894,000, $65.9 million and $44.2 million,
respectively.
(e) All operating data other than total revenue per ASM and total cost per ASM
refers to scheduled service. See Note (e) to the table under "Prospectus
Summary--Summary Financial and Operating Data" for the definition of the
terms included in Operating Data.
(f) As adjusted to give effect to the sale of the Notes by the Company, after
application of the proceeds thereof and $6.2 million of cash to repay $68.5
million principal amount of secured debt of the Company, to purchase four
hush kits for $9.2 million and to pay the fees and expenses relating to a
consent solicitation to the holders to the Company's 10 1/4% senior notes,
as though the Company had issued the Notes as of the beginning of the
period for statement of operations purposes and as of December 31, 1996 and
June 30, 1997, respectively, for balance sheet purposes.
(g) Net debt represents total debt less cash and cash equivalents.
-37-
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements of
the Company and Airways give effect to (i) the sale by the Company of $80.0
million of the Notes on August 13, 1997, and the application of the proceeds
received, and (ii) the sale by the Company of the Notes as described in (i)
above and the Merger as if such transactions had occurred as of January 1, 1996
and 1997 with respect to the statements of operations for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively, and as
of June 30, 1997 with respect to the balance sheet. The Company received
approximately $77.5 million of net proceeds from the Notes, after deduction of
the initial purchaser's discount and expenses of the debt offering. The net
proceeds, along with approximately $6.2 million of the Company's cash was used
to repay $68.5 million of secured debt of the Company and to pay the fees and
expenses (approximately $6.0 million) incurred by the Company in connection with
a consent solicitation to the holders of the Company's 10 1/4% senior notes and
will also be used to purchase approximately $9.2 million of hush kits for up to
four of the Company's Stage 2 DC-9 aircraft. The Merger is reflected using the
purchase method of accounting for business combinations. The pro forma
condensed combined financial information is provided for comparative purposes
only and does not purport to be indicative of the results that would have been
obtained if the events set forth above had been effected on the dates indicated
or of those results that may be obtained in the future. The pro forma condensed
combined financial information with respect to the Merger is based on
preliminary estimates of values and transaction costs which may be incurred in
connection with the Merger. The actual recording of the Merger will be based on
final appraisals, values and transaction costs. Accordingly, the actual
recording of the transaction can be expected to differ from these pro forma
condensed combined financial statements. However, ValuJet's management believes
the asset and liability valuations and allocations utilized for the Merger will
not be materially different from the pro forma information presented herein.
For purposes of preparing the unaudited pro forma condensed combined
statements of operations for the six months ended June 30, 1997 and the year
ended December 31, 1996, Airways' operating results for the six months ended
June 30, 1997 and the year ended March 31, 1997, were combined with ValuJet's
operating results for the six months ended June 30, 1997 and the year ending
December 31, 1996, respectively. Accordingly, Airways' operating results for
the three months ended March 31, 1997 are included in the six months ended June
30, 1997 and in the year ended December 31, 1996 pro forma results. Airways'
revenues and net income for that three month period were $29,777,000 and
$277,000, respectively.
Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
-------- -------------- ----------- ------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $149,725 $11,460(a) $143,435 $ 1,672 $145,107
(9,200)(b)
(7,800)(d)
(750)(c)
Restricted cash............. 0 0 10,411 10,411
Accounts receivable, net.... 6,584 6,584 3,956 10,540
Inventory................... 6,159 6,159 1,066 7,225
Prepaid items............... 2,482 2,482 4,257 6,739
Income tax receivable....... 13,711 13,711 0 13,711
Deferred tax asset.......... 0 0 5,101 ($1,528)(k) 3,573
Other current assets........ 1,118 1,118 0 1,118
-------- ------- ------- ------- ------- --------
Total current assets......... 179,779 (6,290) 173,489 26,463 (1,528) 198,424
Property and equipment, net.. 194,049 9,200(b) 203,249 38,804 242,053
Debt issuance costs.......... 3,180 7,800(d) 10,980 10,980
Goodwill, net................ 0 0 1,713 (1,713)(l) 50,662
50,662(n)
Deferred tax asset........... 0 0 3,493 3,493
Other assets, net............ 0 0 523 (523)(k) 0
-------- ------- -------- ------- -------- --------
Total assets................. $377,008 $10,710 $387,718 $70,996 $ 46,898 $505,612
======== ======= ======== ======= ======== ========
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
--------- --------------- ----------- ------------- --------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.............................. $ 27,618 $27,618 $ 18,503 $ 3,250(m) $ 49,371
Air traffic liability.................... 10,638 10,638 13,441 24,079
Deferred tax liability................... 485 485 0 485
Current portion of long-term debt........ 9,040 9,040 3,476 12,516
Current portion of maintenance reserves.. 0 0 1,779 (1,779)(k) 0
-------- -------- ------- -------- --------
Total current liabilities.................. 47,781 47,781 37,199 1,471 86,451
Long-term debt less current
maturities............................. 226,621 $ 80,000(a) 238,081 11,188 249,269
(68,540)(a)
Maintenance reserves....................... 0 0 2,343 (2,343)(k) 0
Deferred taxes............................. 6,722 (278)(c) 6,444 2,794 (193)(k) 8,205
(840)(m)
Stockholders' equity:
Preferred stock.......................... 0 0 0 0
Common stock............................. 55 55 91 (91)(n) 64
9(n)
Additional paid-in capital............... 77,453 77,453 26,621 (26,621)(n) 143,719
63,466(n)
2,800(n)
Retained earnings (deficit).............. 18,376 (472)(c) 17,904 (9,240) 9,240(n) 17,904
-------- ------- -------- ------- -------- --------
Total stockholders' equity................. 95,884 (472) 95,412 17,472 48,803 161,687
-------- ------- -------- ------- -------- --------
Total liabilities and
stockholders' equity.................... $377,008 $10,710 $387,718 $70,996 $ 46,898 $505,612
======== ======= ======== ======= ======== ========
</TABLE>
Statements of Operations
(in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
-----------------------------------------------------------------
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
------- ----------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 84,687 $ 84,687 $56,829 $141,516
Operating expenses................. 119,404 $750(e) 120,729 56,280 $(222)(o) 177,560
575(f) (71)(p)
844(q)
--------- ------- -------- ------- -------- --------
Operating income (loss)............ (34,717) (1,325) (36,042) 549 (551) (36,044)
Interest expense.................. 12,723 (2,959)(g) 15,028 769 15,797
4,200(h)
1,064(i)
Interest income................... (3,268) (3,268) (366) (3,634)
--------- ------- -------- ------- -------- --------
Income (loss) before income taxes.. (44,172) (3,630) (47,802) 146 (551) (48,207)
Income tax expense (benefit)....... (16,439) (1,270)(j) (17,709) 41 78(r) (17,590)
--------- ------- -------- ------- -------- --------
Net income (loss).................. ($27,733) ($2,360) ($30,093) $ 105 ($629) ($30,617)
========= ======= ======== ======= ======== ========
Net income (loss) per share........ ($0.51) ($0.55) $0.01 ($0.48)
========= ======== ======= ========
Weighted average shares
outstanding...................... 54,892 54,892 9,065 63,960
========= ======== ======= ========
Ratio of earnings to
fixed charges (s)................ --- (t)
========
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------------------
December 31, Pro Forma ValuJet March 31,
1996 Adjust- As 1997 Pro Forma Pro Forma
ValuJet ments Adjusted Airways Adjustments Combined
-------------- ------------ ---------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 219,636 $ 219,636 $102,623 $ 322,259
Operating expenses........ 271,035 $ 750(e) 272,935 114,745 ($443)(o) 388,783
1,150(f) (143)(p)
1,689(q)
--------- -------- --------- -------- ------- ---------
Operating loss............ (51,399) (1,900) (53,299) (12,122) (1,103) (66,524)
Interest expense......... 22,186 (5,917)(g) 26,796 1,507 28,303
8,400(h)
2,127(i)
Interest income.......... (7,653) (7,653) (984) (8,637)
--------- -------- --------- -------- ------- ---------
Loss before income taxes.. (65,932) (6,510) (72,442) (12,645) (1,103) (86,190)
Income tax benefit........ (24,463) (2,279)(j) (26,742) (5,654) 155(r) (32,241)
--------- -------- --------- -------- ----------- ---------
Net loss.................. ($41,469) ($4,231) ($45,700) ($6,991) ($1,258) ($53,949)
========= ======== ========= ======== =========== =========
Net loss per share........ ($0.76) ($0.84) ($0.77) ($0.85)
========= ========= ======== =========
Weighted average shares
outstanding............. 54,702 54,702 9,029 63,770
========= ========= ======== =========
Ratio of earnings to
fixed charges (s)....... ---(t)
=========
</TABLE>
Notes to Pro Forma Financial Statements
(a) Reflects the issuance of $80.0 million of 10 1/2% senior secured notes and
the repayment of $68.5 million of secured debt.
(b) Reflects the purchase of four hush kits for approximately $2.3 million per
hush kit.
(c) Reflects the payment and expensing of certain transaction costs with the
related income tax effect.
(d) Reflects the payment and capitalization of debt issuance costs.
(e) Reflects the effect of expensing certain transaction costs.
(f) Reflects depreciation of the four hush kits assumed to be purchased with a
portion of the proceeds of the $80.0 million secured debt offering.
(g) Reflects the elimination of interest on $68.5 million of debt refinanced by
the $80.0 million secured debt offering.
(h) Reflects interest on the $80.0 million of 10 1/2% senior secured notes.
(i) Reflects the amortization of debt issuance costs.
(j) Reflects the income tax effect of the pro forma adjustments.
(k) Reflects the reversal of preoperating costs and maintenance reserves, and
the related deferred tax amounts, to conform accounting policies.
(l) Reflects the reversal of Airways' historical excess of cost over fair value
of the net tangible assets acquired ("goodwill").
(m) Reflects the accrual of estimated merger costs with the related income tax
effect.
(n) Reflects the excess of cost over the estimated fair value of the net
tangible assets acquired in the Merger, the elimination of Airways'
historical common stock, additional paid-in capital and retained deficit,
the value of the Common Stock issued to the Airways stockholders and the
value of options issued to the Airways option holders in the Merger.
<TABLE>
<CAPTION>
<S> <C>
Number of shares issued to acquire Airways 9,067,937
Per share price at date of agreement and joint press release 7.00
----------
Value of stock $ 63,476
Value of Airways options 2,800
Transaction costs 3,250
----------
Purchase price 69,526
Less estimated fair value of net tangible assets acquired 18,864
----------
Excess of cost over fair value of net tangible assets acquired $ 50,662
==========
</TABLE>
Excess of cost over fair value of the net tangible assets acquired is
presented in the pro forma balance sheet utilizing estimated amounts at June
30, 1997 and will be determined at the Effective Date. Such amount will also
be allocated according to the estimated fair values of assets at the
Effective Date.
(o) Reflects the reversal of historical amortization of preoperating costs of
Airways.
(p) Reflects the reversal of historical amortization of goodwill of Airways.
(q) Reflects the amortization of goodwill resulting from the Merger by use of
the straight line method over a 30-year period.
-40-
<PAGE>
(r) Reflects the income tax effect of the pro forma adjustments.
(s) 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.
(t) For the periods ending June 30, 1997 and December 31, 1996, the pro forma
combined earnings were insufficient to cover fixed charges by $48.2 million
and $86.2 million, respectively.
Comparative Per Share Data
The following table sets forth certain comparative per share data
relating to net income and book value on (i) an historical basis for ValuJet and
Airways, and (ii) a pro forma combined basis per share of ValuJet Common Stock,
giving effect to the sale by ValuJet of the Notes and the application of the
proceeds therefrom and the Merger. The ValuJet and Airways pro forma combined
information gives effect to the Merger on a purchase accounting basis and is
based upon the Exchange Ratio of one share of ValuJet Common Stock for each
share of Airways Common Stock. The unaudited pro forma data is presented for
informational purposes only and is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the sale
by ValuJet of the Notes and the application of the proceeds therefrom and the
Merger been consummated at the dates or during the periods indicated, nor is it
necessarily indicative of future results of operations or combined financial
position.
The information shown below for the year ended December 31, 1996 is
derived from the audited consolidated financial statements of ValuJet for the
period then ended and the audited consolidated financial statements of Airways
for the year ending on the ensuing March 31 and should be read in conjunction
with, and is qualified in its entirety by, the historical financial statements
of ValuJet and Airways, including the respective notes thereto, and the pro
forma financial information included herein. The information shown below for
the six months ended June 30, 1997 is derived from the unaudited consolidated
financial statements of ValuJet and Airways, including the respective notes
thereto, and should be read in conjunction with, and is qualified in its
entirety by, the pro forma financial information included herein. See "Pro
Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
Six Months Year ended
Ended December 31,
June 30, 1997 1996(1)
-------------- ------------
<S> <C> <C>
Income (loss) per share
ValuJet historical.......................... $(.51) $(.76)
Airways historical.......................... .01 (.77)
ValuJet and Airways pro forma combined (2).. (.48) (.85)
Book Value per Share (Period End)
ValuJet historical.......................... 1.74
Airways historical.......................... 1.89
ValuJet and Airways pro forma combined (2).. 2.53
</TABLE>
(1) ValuJet's fiscal year end is December 31 and Airways' fiscal year end is
March 31. Consequently, the data included for Airways as of the date
indicated is based on audited financial statements of Airways for the year
ending on March 31, 1997.
(2) Represents the combined results of ValuJet and Airways giving effect to the
sale by ValuJet of the Notes and the application of the proceeds therefrom
and the Merger as if such transactions had occurred as of January 1, 1996
and 1997, with respect to the statements of operations for the year ended
December 31, 1996, and the six months ended June 30, 1997, respectively, and
as of June 30, 1997, with respect to the balance sheet. The Merger is
reflected using the purchase method of accounting for business combinations.
-41-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following chart indicates the service offered by the Company from
December 1993 through June 1997:
<TABLE>
<CAPTION>
Number of
Total Number Number of Peak- Cities
As of of Aircraft Day Flights Served
- ------------------------- ---------------- -------------- ----------
<S> <C> <C> <C>
December 31, 1993 6 34 8
March 31, 1994 10 70 13
June 30, 1994 14 92 15
September 30, 1994 16 114 17
December 31, 1994 22 124 17
March 31, 1995 27 184 23
June 30, 1995 28 208 24
September 30, 1995 34 228 26
December 31, 1995 42 268 26
March 31, 1996 47 286 28
June 30, 1996 51 0 (1)
September 30, 1996 46 (2) 16 (3)
December 31, 1996 43 (4) 124 18
March 31, 1997 42 (5) 148 21
June 30, 1997 42 (6) 184 24
</TABLE>
________________________
(1) Service suspended to all markets as of June 17, 1996
(2) Of which 4 had been approved for service by the FAA
(3) Service resumed on September 30, 1996 to Atlanta, Fort Lauderdale,
Orlando, Tampa and Washington, D.C.
(4) Of which 15 had been approved for service by the FAA
(5) Of which 24 had been approved for service by the FAA
(6) Of which 30 had been approved for service by the FAA
On May 11, 1996, ValuJet tragically lost its Flight 592 en route from Miami to
Atlanta. There were no survivors. The accident resulted in extensive media
coverage, calling into question the safety of low fare airlines in general and
ValuJet in particular. In response to the accident, the FAA conducted an
extraordinary review of the ValuJet's operations.
On June 17, 1996, ValuJet entered into a consent order with the FAA under
which: (i) ValuJet agreed to suspend operations until such time as ValuJet was
able to satisfy the FAA as to various regulatory compliance concerns identified
by the FAA as a result of its intensive inspections of ValuJet's operations,
(ii) the FAA agreed to work with ValuJet in order to reestablish operations with
up to 15 aircraft initially and (iii) ValuJet paid $2.0 million to the FAA to
compensate it for the costs of the special inspections conducted. In order to
reduce costs while ValuJet prepared its plan to restore service, ValuJet
furloughed more than 90% of its personnel (approximately 3,600 of 4,000) for
several weeks.
On August 29, 1996, the FAA returned ValuJet's operating certificate and the
Department of Transportation ("DOT") issued a "show cause" order regarding
ValuJet's fitness as an air carrier. The DOT gave its final approval on
September 26, 1996, and ValuJet resumed operations with service between Atlanta
and four other cities on September 30, 1996.
Other effects of the accident, ensuing adverse media coverage, intensive FAA
scrutiny and suspension of operations include the following:
-42-
<PAGE>
1. The suspension of operations resulted in the failure of ValuJet to meet
certain financial covenants under certain of ValuJet's secured debt. All of
this debt was repaid with the proceeds of ValuJet's $80,000,000 secured debt
offering. See "-- Liquidity and Capital Resources" below.
2. The expansion of ValuJet's operations will remain subject to FAA and DOT
approval for an indefinite period of time. FAA approvals are required to
increase the number of aircraft on ValuJet's operating certificate and to
commence service to any new market.
3. ValuJet is unable to predict how significantly the accident and
suspension of operations will affect load factors and yield or the length of
time during which load factors and yield will be impacted. During first quarter
1997, ValuJet's load factor was 53.9% compared to 58.0% for first quarter 1996
and its average fare was $60.47 compared to $72.01 for first quarter 1996.
ValuJet has commenced the implementation of a program to enhance its image. See
"Business of ValuJet -- Strategy."
4. In 1996, ValuJet refunded fares paid by customers affected by ValuJet's
changing schedules and by those who otherwise chose to change their travel
plans.
5. ValuJet's cost per ASM has increased and is likely to remain inflated to
some extent to reflect the cost of additional maintenance procedures and
infrastructure adopted by ValuJet as well as lower aircraft utilization levels.
6. ValuJet may reduce its workforce permanently if reduced traffic levels
continue and ValuJet is unable to reestablish its previous service levels.
7. The aircraft lost was insured for $4.0 million, which was in excess of
book value. ValuJet carries $750.0 million of liability insurance. Although
ValuJet believes that such insurance will be sufficient to cover all claims
arising from the accident, there can be no assurance that all claims will be
covered or that the aggregate of all claims will not exceed such insurance
limits.
8. Several stockholder lawsuits have been filed against ValuJet and certain
of its officers and directors alleging, among other things, violation of federal
securities laws. While ValuJet denies that it has violated any of its
obligations under the federal securities laws, there can be no assurance that
ValuJet will not sustain material liability under such or related lawsuits. See
"Business of ValuJet -- Litigation."
9. Various governmental authorities are conducting investigations of the
circumstances surrounding the accident. ValuJet is cooperating with the
authorities in connection with these investigations. See "Business of ValuJet -
- - Litigation."
As a result of the accident, the ensuing extraordinary review of ValuJet's
operations by the FAA, the suspension of operations in June 1996 and the current
and prospective FAA imposed limitation on the number of aircraft that may be
operated by ValuJet, ValuJet's results for periods prior to May 11, 1996 are not
necessarily indicative of the results to be expected in future periods.
ValuJet's operations for 1996 are also not indicative of future operations as a
result of the suspension of operations for a significant portion of 1996.
ValuJet's operations for the first and second quarters 1997 may not be
indicative of future operations as a result of the reduced level of service,
ValuJet's ownership of more aircraft than may be used and additional
infrastructure to support larger operations during the first and second quarters
of 1997.
-43-
<PAGE>
Comparison of Years Ended December 31, 1996, December 31, 1995 and December 31,
1994
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1995
---------------------------- -----------------------------
% of % of
Amount Revenues Per ASM Amount Revenues Per 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 0.06 (70) (0.0) (0.00)
Shutdown and other nonrecurring 0 0.0 0.00 0 0.0 0.00
-------- ----- ----- -------- ----- -----
Total Expenses $100,320 75.0% 6.78c $259,931 70.7% 6.80c
======== ===== ===== ======== ===== =====
<CAPTION>
Year Ended December 31, 1996
-------------------------------
% of
Amount Revenues Per ASM
--------- -------- --------
(000)
<S> <C> <C> <C>
OPERATING REVENUES $219,636 100.0% 8.12c
======== ===== ====
EXPENSE CATEGORY
Flight operations $ 16,479 7.5% 0.61c
Aircraft fuel 46,691 21.3 1.73
Maintenance 49,500 22.5 1.83
Station operations 42,018 19.1 1.55
Passenger services 8,879 4.0 0.33
Marketing and advertising 8,426 3.8 0.31
Sales and reservations 18,378 8.4 0.68
General and administrative 13,659 6.2 0.51
Employee bonuses 1,245 0.6 0.05
Depreciation 17,551 8.0 0.65
Other expenses (income), net (5,252) (2.4) (0.19)
Shutdown and other nonrecurring 67,994 31.0 2.51
-------- ------- --------
Total Expenses $285,568 130.0% 10.57c
======== ====== =======
</TABLE>
-44-
<PAGE>
OPERATING REVENUES
- ------------------
Total operating revenues for the year ended December 31, 1996 were
approximately $219.6 million as compared to $367.8 million and $133.9 million
for the years ending December 31, 1995 and 1994, respectively. The decrease
from 1995 to 1996 is a result of ValuJet's reduced service level and suspension
of operations during the second and third quarters of 1996. The increase over
1994 is due to ValuJet flying more available seat miles (ASMs) during 1996.
ValuJet flew 2.7 billion ASMs in 1996 as compared to 3.8 billion and 1.5 billion
in 1995 and 1994, respectively. ValuJet's load factors for 1996, 1995 and 1994
were 57.1%, 68.8% and 64.0%, respectively. The lower load factor in 1996 is due
in part to the accident and ensuing circumstances. ValuJet's average fare was
$69.81 for 1996, $68.10 for 1995 and $63.48 for 1994 due to the absence of the
10% federal excise tax for a substantial part of 1996.
EXPENSES
- --------
Flight operations expenses include 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. Flight
operations expenses were higher, on a per ASM basis, for the year ended December
31, 1996 than the previous two years due to the extended period of time that
ValuJet's operations were suspended, the additional training costs incurred at
restart and the change in ValuJet's compensation structure in September 1996,
which reduced the percentage of compensation represented by bonuses and shifted
this cost to base pay charged to each department. The cost of hull insurance
also increased substantially as of October 1, 1996. Certain flight operations
administrative costs were also incurred during the period of the suspension with
no corresponding ASMs being generated over which to spread these costs.
Aircraft fuel expenses include both the direct cost of the fuel as
well as the costs of delivering fuel into the aircraft. Fuel expense, on a per
ASM basis, was higher for 1996 than either of the previous two years due to an
increase in the average price of fuel. The average price of fuel increased from
$0.58 per gallon for 1994 to $0.60 per gallon for 1995 to $0.71 per gallon for
1996. This approximate 20% increase in the price per gallon of fuel accounts
for the 18% increase in fuel cost per ASM.
Maintenance expenses include all administrative costs of the
maintenance department as well as normal recurring maintenance performed during
the year. Expenses for engine overhaul and certain scheduled heavy maintenance
procedures are included in this cost. Most non-routine maintenance costs
performed during the suspension of operations are included in the nonrecurring
expense line item. Maintenance expenses for the year ended December 31, 1996
were higher, on a per ASM basis, than both 1995 and 1994 due to the suspension
of operations during the second and third quarters of 1996 and the reduced level
of service once ValuJet was able to resume operations. ValuJet also had a lower
utilization rate on the aircraft it operated which results in the spreading of
certain fixed costs over fewer ASMs or block hours. In 1996, ValuJet maintained
or paid storage costs on many more aircraft than it was able to operate.
Certain maintenance administrative costs were also incurred during the period of
the suspension of operations with no ASMs being generated over which to spread
these costs.
Station operations expenses include all expenses incurred at the
airports, as well as station operations administration and liability insurance.
Certain facility rental expense related to non-operating stations as a result of
the suspension of operations are included in shutdown and other nonrecurring
expenses. Station operations expenses were higher, on a per ASM basis, for the
year ended December 31, 1996 than in 1995 and 1994 due largely to the suspension
of operations and the inefficiencies generated from restarting operations on a
limited basis. Many station facilities were not fully utilized during the
fourth quarter due to the limited operations. Another factor which contributed
to a higher 1996 station operations expense was an increase in insurance costs
as of October 1, 1996. Certain station operations administrative costs were
also incurred during the period of the suspension of operations with no ASMs
being generated over which to spread these costs.
Passenger services expenses include flight attendant wages and
benefits and catering expenses. Also included are the costs for flight
attendant training and flight attendant overnight expenses. The increase in
passenger services expenses for the year ended December 31, 1996, on a per ASM
basis, over 1995 and 1994 is due to the restructuring of the compensation policy
as it relates to flight attendants. The flight attendants' salary levels were
adjusted upward and the regular quarterly bonus portion of their compensation
was eliminated. This change caused passenger services expense to be higher
while reducing the amount of bonus expense.
-45-
<PAGE>
Marketing and advertising expenses include all advertising expenses
and wages and benefits for the marketing department. Marketing and advertising
expenses for the year ended December 31, 1996, as a percentage of revenue, were
higher than 1995 and lower than 1994. These expenses were higher in 1996 than
1995 due to the additional advertising costs incurred at the resumption of
operations being spread over a reduced revenue base caused by lower service
levels and load factors. Certain marketing administrative costs were also
incurred during the period of the suspension of operations with no ASMs being
generated over which to spread these costs.
Sales and reservations expenses include 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 expenses for the year ended December
31, 1996 were 8.4% of revenue as compared to 8.5% for each of 1995 and 1994.
General and administrative expenses include the wages and benefits for
ValuJet's executive officers and various other administrative personnel. Also
included are costs for office supplies, legal expenses, bad debts, accounting
and other miscellaneous expenses. General and administrative costs for 1996
were higher than each of 1995 and 1994 due to the shift in compensation
structure to one based to a larger extent on base salaries and also due to
increased legal fees.
The amount of bonus expense for the year ended December 31, 1996
reflects the change in salary structure as of September 1996 to a structure
based less on bonus and more on base salary and the fact that ValuJet had a net
loss from the second quarter 1996 through the end of the year. The amount
charged to 1996 approximates the amount paid to those employees in the quarterly
pool for the first quarter of 1996. The actual amount to be paid and the form
of such payout are at the sole discretion of ValuJet'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 for the year ended December 31, 1996 was higher than each of the
previous two years as additional aircraft and other property have been acquired.
During 1996, ValuJet made the decision to dispose of certain idled aircraft.
Subsequent to the decision to sell or lease out such aircraft, no depreciation
was recorded on aircraft held for sale. Depreciation on aircraft idled as a
result of the suspension of operations and reduced operations and not yet
returned to service has been recorded in shutdown and other nonrecurring
expenses.
Shutdown and other nonrecurring expenses include costs associated with
the loss of Flight 592 and excess operating costs related to the reduced
schedule from May 19, 1996 to June 17, 1996, the suspension of operations from
June 17, 1996 to September 29, 1996 and the reduced schedule from September 30,
1996 to December 31, 1996. Such costs consist of expenses directly related to
the accident and the ensuing extensive FAA review of ValuJet's operations
including legal fees, payments to the FAA, inspection related costs and
maintenance in excess of normal recurring maintenance. In addition, depreciation
on grounded aircraft, rental of abandoned or idled facilities and costs of
personnel idled as a result of the reduced and suspended operations from May
through December 1996 are included in shutdown and other nonrecurring expenses.
Personnel costs include full wages, salaries and benefits that were provided to
idled employees during the reduction and suspension of operations.
A summary of such costs is as follows:
<TABLE>
<S> <C>
Maintenance $27,750,000
Legal and other consulting 8,843,000
Facilities rental 6,114,000
Wages, salaries and benefits, excluding maintenance 4,895,000
Depreciation 11,054,000
FAA remediation 2,000,000
Other 7,338,000
-----------
$67,994,000
===========
</TABLE>
ValuJet also incurred additional shutdown and nonrecurring expenses in the
first quarter of 1997 as a result of idled aircraft and facilities due to the
reduced level of service attributable to ValuJet's agreement with the FAA.
-46-
<PAGE>
No accrual was provided for costs to be incurred in future periods related
to aircraft depreciation and maintenance and rental costs associated with
temporarily idled facilities as such costs will be recognized as they are
incurred. There was no accrual for salaries and wages in connection with the
June 18, 1996 furlough of employees at December 31, 1996 as such employees were
paid through June 30, 1996 with no additional severance benefits provided.
Other expenses (income), net include interest income and interest expense
as well as certain property transactions. During the year ended December 31,
1996, interest expense exceeded interest income by approximately $14,534,000 due
to increasing debt levels attributable to the acquisition of aircraft and the
completion of the issuance of $150.0 of million 10 1/4% Notes. During 1996,
ValuJet also recognized $13.0 million of income as an arrangement fee for
aircraft transfers, a $2.8 million gain from insurance recovery and a $3.9
million gain on the sale of aircraft.
Comparison of Quarters Ended June 30, 1997 and June 30, 1996
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
June 30, 1996 June 30, 1997
------------------------------------- ----------------------------
Percent of Per Percent of Per
Amount Revenues ASM Amount Revenues ASM
-------- ---------- --- ------ ---------- ---
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues $ 81,217 100.00% 8.28c $47,759 100.0% 6.82c
======== ====== ===== ======= ===== =====
Expense Category:
- -----------------
Flight operations $ 5,415 6.7% 0.55c $ 4,801 10.1% 0.69c
Aircraft fuel 17,061 21.0 1.74 10,716 22.4 1.53
Maintenance 15,807 19.4 1.61 10,534 22.1 1.50
Station operations 14,749 18.2 1.51 12,132 25.4 1.73
Passenger services 3,632 4.5 0.37 2,122 4.4 0.30
Marketing and advertising 2,223 2.7 0.23 2,875 6.0 0.41
Sales and reservations 6,547 8.1 0.67 3,723 7.8 0.53
General and administrative 4,272 5.3 0.44 3,347 7.0 0.48
Employee bonuses (550) (0.7) (0.06) 0 0.0 0.00
Depreciation 6,695 8.2 0.68 7,362 15.4 1.05
Nonrecurring expenses 31,623 38.9 3.23 0 0.0 0.00
Other expenses, net (11,133) (13.7) (1.14) 4,811 10.1 0.69
-------- ------ ----- ------- ----- ----
Total expenses $ 96,341 118.6% 9.83c $62,423 130.7% 8.91c
======== ====== ===== ======= ===== ====
</TABLE>
OPERATING REVENUES
- ------------------
Total operating revenues for the quarter ended June 30, 1997 were
approximately $47.8 million as compared to $81.2 million for the quarter ended
June 30, 1996. The decrease from 1996 to 1997 is a result of ValuJet's reduced
service level during the second quarter of 1997. ValuJet flew 701 million ASMs
during the second quarter of 1997 as compared to 980 million ASMs during the
second quarter of 1996. ValuJet's load factors for the three month periods
ending June 30, 1997 and 1996 were 54.9% and 55.7%, respectively. ValuJet
believes that the lower load factor in 1997 is due in part to publicity related
to the accident and increased competition. ValuJet's average fare was $58.92
for the three months ending June 30, 1997 and $73.79 for the three months ending
June 30, 1996 due to ValuJet offering numerous sales during 1997.
EXPENSES
- --------
Flight operations expenses were higher, on a per ASM basis, for the quarter
ended June 30, 1997 than the quarter ended June 30, 1996 due to the higher cost
of hull insurance since October 1, 1996.
-47-
<PAGE>
Fuel expense, on a per ASM basis, was lower for the second quarter 1997 than
the second quarter 1996 due to a decrease in the average price of fuel. The
average price of fuel decreased from $0.72 per gallon for the second quarter
1996 to $0.67 per gallon for the second quarter 1997. This approximate 7%
decrease in the price per gallon of fuel as well as a decrease in fuel burn per
block hour from 858 gallons to 837 gallons over the same period accounts for the
12% decrease in fuel cost per ASM.
Maintenance expenses for the quarter ended June 30, 1997 were lower, on a per
ASM basis, than the quarter ended June 30, 1996 due to the reduced level of
service during the second quarter 1997 and the timing of certain heavy
maintenance procedures. ValuJet also incurred substantial expenses during the
second quarter 1996 related to the FAA increased inspections.
Station operations expenses were higher, on a per ASM basis, for the second
quarter 1997 than the second quarter 1996 due largely to the inefficiencies
generated from restarting operations on a limited basis. Many of the station
facilities were not fully utilized during the second quarter 1997 due to the
limited operation. Another factor which contributed to a higher 1997 station
operations expense was an increase in insurance costs as of October 1, 1996.
Insurance costs for the second quarter 1997 were .28 cents per ASM compared to
.08 cents per ASM for the second quarter 1996.
Passenger services expenses remained flat as a percentage of revenue from
second quarter 1996 to second quarter 1997 and decreased on a per ASM basis over
the same period as a result of the timing and amount of purchase of catering
supplies.
Marketing and advertising expenses for the second quarter 1997, as a
percentage of revenue, were higher than the second quarter 1996 due to the
additional advertising costs incurred at the resumption of operations into
various markets being spread over a reduced revenue base caused by lower service
levels and load factors.
Sales and reservations expenses for the quarter ended June 30, 1997 were 7.8%
of revenue as compared to 8.1% for the quarter ended June 30, 1996.
General and administrative costs for the second quarter 1997 were higher, on a
per ASM basis, than the second quarter 1996 due to the shift in compensation
structure to one based to a larger extent on base salaries and the reduced level
of ASMs over which to spread these costs.
There was no expense recorded in the second quarter 1997 related to bonuses as
ValuJet did not have income. The actual amount to be paid and the form of such
payout are at the sole discretion of ValuJet's Board of Directors.
Depreciation expense for the quarter ended June 30, 1997 was higher than the
quarter ended June 30, 1996 due to the return of aircraft to operating
specifications and to depreciation on non-performing assets being recorded in
the shutdown and other nonrecurring expenses line item for the second quarter
1996.
Shutdown and other nonrecurring expenses include costs associated with the
loss of Flight 592 and excess operating costs related to the reduced schedule
from May 19, 1996 to June 17, 1996 and the suspension of operations subsequent
to June 17, 1996. Such costs consist of expenses directly related to the
accident and the ensuing extensive FAA review of ValuJet's operations including
legal fees, payments to the FAA, inspection related costs and maintenance in
excess of normal recurring maintenance. In addition, depreciation on grounded
aircraft, rental of abandoned or idled facilities and costs of personnel idled
as a result of the reduced and suspended operations during May and June 1996 are
included in shutdown and other nonrecurring expenses. Personnel costs include
full wages, salaries and benefits that were provided to idled employees during
the reduction and suspension of operations.
-48-
<PAGE>
A summary of such costs is as follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
1996 1997
------------------------------------
<S> <C> <C>
Maintenance $7,855,000 $ 0
Legal and other consulting $6,317,000 $ 0
Facilities rental $4,109,000 $ 0
Wages, salaries and benefits, excluding maintenance $3,916,000 $ 0
Depreciation $1,480,000 $ 0
FAA remediation $2,000,000 $ 0
Other $5,946,000 $ 0
----------- -----
$31,623,000 $ 0
=========== -----
</TABLE>
No accrual was provided for costs to be incurred in future periods
related to aircraft depreciation and maintenance and rental costs associated
with temporarily idled facilities as such costs were recognized as they were
incurred. There was no accrual at June 30, 1996 for salaries and wages in
connection with the June 18, 1996 furlough of employees as such employees were
paid through June 30, 1996 with no additional severance benefits provided.
During the quarter ended June 30, 1997, interest expense exceeded
interest income by approximately $4,811,000 due to increasing debt levels
attributable to the completion in April 1996 of the issuance of $150 million
10 1/4% senior notes due 2001.
Comparison of Six Months Ended June 30, 1997 and June 30, 1996
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------------------------
June 30, 1996 June 30, 1997
---------------------------------- -------------------------------
Percent of Per Percent of Per
Amount Revenues ASM Amount Revenues ASM
-------- ---------- ----- ------- ---------- -----
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues $191,212 100.00% 8.25c $ 84,687 100.0% 6.98c
======== ====== ===== ======== ===== ======
Expense Category:
- -----------------
Flight operations $ 12,933 6.8% 0.56c 8,904 10.5% 0.73c
Aircraft fuel 39,137 20.4 1.69 19,852 23.4 1.64
Maintenance 31,419 16.4 1.35 24,640 29.1 2.03
Station operations 32,641 17.1 1.41 22,485 26.6 1.85
Passenger services 7,624 4.0 0.33 3,817 4.5 0.31
Marketing and advertising 6,507 3.4 0.28 5,227 6.2 0.43
Sales and reservations 15,442 8.1 0.67 6,801 8.0 0.56
General and administrative 8,161 4.3 0.35 6,143 7.2 0.51
Employee bonuses 1,245 .7 0.05 0 0.0 0.00
Depreciation 13,211 6.9 0.57 12,247 14.5 1.01
Nonrecurring expenses 31,623 16.5 1.36 9,338 11.0 0.77
Other expenses, net (10,576) (5.5) (0.46) 9,405 11.2 0.78
-------- ------ ----- -------- ----- ------
Total expenses $189,367 99.1% 8.16c $128,859 152.2% 10.62c
======== ====== ===== ======== ===== ======
</TABLE>
OPERATING REVENUES
- ------------------
Total operating revenues decreased approximately 56% ($106,525,000) from the
six months ended June 30, 1996 to the six months ended June 30, 1997. This
decrease was due to several factors. The average number of flights decreased
from 222 flights per day to 127 flights per day during the same period due to
reduced service levels attributable to the suspension of operations and FAA
approval process for aircraft and markets. Total available seat miles (ASMs)
decreased 48% from the six months ending June 30, 1996 to the six months ending
June 30, 1997 and revenue passenger miles (RPMs) decreased 50% during the same
period. The decreases in ASMs and RPMs were attributable to reduced
-49-
<PAGE>
service levels subsequent to the accident.
EXPENSES
- --------
Expenses for flight operations per ASM increased from approximately .56c per
ASM for the six months ended June 30, 1996 to .73c per ASM for the six months
ended June 30, 1997 due to ValuJet's higher training costs during the first
quarter of 1997 and ValuJet's increased cost for hull insurance during the six
month period ending June 30, 1997. Hull insurance increased from .06 cents per
ASM for the first six months of 1996 to .19 cents per ASM for the first six
months of 1997.
Aircraft fuel cost decreased approximately 3% on a per ASM basis from the
first six months of 1996 to the first six months of 1997 primarily due to a
decrease in the fuel burn per block hour. ValuJet's average fuel cost increased
from approximately $.70 per gallon for the six months ended June 30, 1996 to
approximately $.71 per gallon for the six months ended June 30, 1997 while fuel
burn per block hour decreased from 846 gallons to 837 gallons over the same
period. Fuel expenses were also impacted by additional ferrying and positioning
flights made necessary as a result of the FAA intensive investigations during
the second quarter of 1996.
Maintenance expenses were higher on a per ASM basis from the first six months
of 1996 to the first six months of 1997. Maintenance expenses in prior periods
were lower as a result of aircraft recently acquired by ValuJet entering service
immediately following a scheduled maintenance check, therefore, no scheduled
maintenance was required during the first several months of each aircraft's
operations. Due to ValuJet's use of a continuous overhaul program, ValuJet's
aircraft are generally scheduled for some level of overhaul procedures within
twelve months of the purchase date. ValuJet's maintenance expenses were also
negatively impacted by the number of aircraft which were put into heavy
maintenance during the first quarter of 1997 in anticipation of their return to
service.
Station operations expenses increased on a per ASM basis from the six months
ended June 30, 1996 to the six months ended June 30, 1997, primarily due to
inefficiencies in the use of ValuJet's station assets, primarily related to
airport gate usage. The second quarter 1997 costs were also higher, on a per
ASM basis, due to a substantial increase in liability insurance costs as of
October 1, 1996, from .08 cents per ASM for the first six months of 1996 to .21
cents per ASM for the first six months of 1997.
Passenger services expenses decreased from .33 cents per ASM to .31 cents per
ASM from the first six months of 1996 to the first six months of 1997.
Marketing and advertising expenses, as a percentage of revenues, increased
from 3.4% in the first six months of 1996 to 6.2% in the first six months of
1997 due to ValuJet halting all advertising as of May 11, 1996 and a lower
revenue base during the first six months of 1997 over which to spread these
costs.
Sales and reservations expenses remained flat from the six month period ending
June 30, 1996 to the six month period ending June 30, 1997, decreasing from
8.1% of revenue to 8.0% of revenue.
General and administrative costs for the six months ending June 30, 1997 were
higher, on a per ASM basis, than the six months ending June 30, 1996 due to the
shift in compensation structure to one based to a larger extent on base salaries
and the reduced level of ASMs over which to spread these costs.
Depreciation expense for the six months ended June 30, 1997 was higher than
the six months ended June 30, 1996 due to the return of aircraft to operating
specifications and to depreciation on nonperforming assets being recorded in the
shutdown and other nonrecurring expenses line item for the second quarter 1996.
Shutdown and other nonrecurring expenses for the six months ended June 30,
1996, include costs associated with the loss of Flight 592 and excess operating
costs related to the reduced schedule from May 19, 1996 to June 17, 1996 and the
suspension of operations subsequent to June 17, 1996. Such costs consist of
expenses directly related to the accident and the ensuing extensive FAA review
of ValuJet's operations including legal fees, payments to the FAA, inspection
related costs and maintenance in excess of normal recurring maintenance. In
addition, depreciation on grounded aircraft, rental of abandoned or idled
facilities and costs of personnel idled as a result of the reduced and suspended
operations
-50-
<PAGE>
during May and June 1996 are included in shutdown and other nonrecurring
expenses. Personnel costs include full wages, salaries and benefits that were
provided to idled employees during the reduction and suspension of operations.
A summary of such costs is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1997
------------------------------------
<S> <C> <C>
Maintenance $7,855,000 $7,300,000
Legal and other consulting 6,317,000 0
Facilities rental 4,109,000 0
Wages, salaries and benefits, excluding maintenance 3,916,000 0
Depreciation 1,480,000 2,038,000
FAA remediation 2,000,000 0
Other 5,946,000 0
----------- ----------
$31,623,000 $9,338,000
=========== ==========
</TABLE>
ValuJet incurred shutdown and nonrecurring expenses in the six months
ended June 30, 1997 as a result of idled aircraft and facilities due to the
reduced level of service attributable to ValuJet's agreement with the FAA and
continued excess maintenance associated with the extensive FAA inspections.
No accrual was provided for costs to be incurred in future periods
related to aircraft depreciation and maintenance and rental costs associated
with temporarily idled facilities as such costs were recognized as they were
incurred. There was no accrual at June 30, 1996 for salaries and wages in
connection with the June 18, 1996 furlough of employees as such employees were
paid through June 30, 1996 with no additional severance benefits provided.
During the six months ended June 30, 1997, interest expense exceeded
interest income by approximately $9,500,000 due to increasing debt levels
attributable to the issuance during April 1996 of $150 million of 10 1/4% senior
notes due 2001.
Liquidity and Capital Resources
For the six months ended June 30, 1997, ValuJet generated cash flow
from operations of approximately $13.5 million, used cash of approximately $5.9
million to acquire property and equipment and generated cash flow from the
disposal of property and equipment of $.9 million. Approximately $9.0 million
of cash was used for the repayment of debt and $.2 million of cash was generated
from the sale of common stock through option exercises. As of June 30, 1997,
ValuJet had cash and cash equivalents of approximately $149.7 million and
working capital of approximately $132.0 million.
ValuJet 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 from 1999 to 2002. Approximately $7.6 million and
$31.7 million of cash will be paid in progress payments during 1997 and 1998,
respectively. The balance of the purchase price after all progress payments is
required to be paid or financed upon delivery of each aircraft. If ValuJet
exercises its option to acquire up to an additional 50 MD-95 aircraft,
additional payments will be required. ValuJet may finance up to 90% of the cost
or appraised value of each of these aircraft. Although McDonnell Douglas has
agreed to provide assistance with respect to the financing of aircraft to be
acquired, ValuJet will be required to obtain the financing from other sources.
ValuJet believes that with the assistance to be provided by McDonnell Douglas,
aircraft related debt financing should be available when needed. However, there
is no assurance that ValuJet will be able to obtain sufficient financing on
attractive terms. If it is unable to do so, ValuJet could be required to modify
its aircraft acquisition plans or to incur higher than anticipated financing
costs, which could have a material adverse effect on ValuJet's results of
operations and cash flows.
ValuJet's compliance with Stage 3 noise requirements will require
substantial additional capital expenditures over the next several years. By
December 31, 1999, all of ValuJet's aircraft must be brought into compliance
with Stage 3 requirements. ValuJet intends to meet its Stage 3 noise
requirement obligations by installing hush kits on Stage 2 aircraft and
acquiring Stage 3 aircraft. ValuJet expects that FAA certified hush kits will
cost approximately $2.3 million per aircraft or approximately $55.0 million for
a fleet of 24 non-hushed DC-9-30 aircraft as of June 30, 1997. Approximately
-51-
<PAGE>
$7.3 million of the proceeds from ValuJet's sale of 10 1/2% senior secured notes
("10 1/2% Secured Notes") will be used to finance 80% of the cost of four hush
kits. ValuJet may be able to finance a portion of the cost of the remaining
hush kits and plans to pay for the balance of the hush kits using cash flows
generated from operations and from cash reserves. ValuJet expects to pay the
debt service on any such loans out of cash flow generated from operations during
the term of the financing. The phase-in period for full compliance with Stage 3
(through December 31, 1999) and the expected terms of financing, if available,
should allow ValuJet to spread the payments for Stage 3 compliance over a number
of years.
Prior to August 1997, a substantial number of ValuJet's secured notes
allowed the lender to accelerate payment if specific financial ratios
(concerning debt to equity, net worth, fixed charge coverage and current ratio)
were not maintained. Although ValuJet was in violation of the fixed charge
coverage ratio as of December 31, 1996, ValuJet subsequently entered into
agreements with six of the seven affected lenders for a waiver or reset of this
financial test for each quarter in 1997. ValuJet made all payments under such
secured debt when due and no prepayment event was declared by any lender. In
addition, ValuJet believes that it may have failed to meet certain of the reset
financial maintenance covenants as of June 30, 1997. However, no such
determination was made as all such debt was repaid with the proceeds of the
issuance of the Notes. Approximately $68.5 million of the proceeds of the Notes
was used to prepay and replace secured debt, including debt to seven bank
lenders whose secured aircraft loans contained various financial maintenance
covenants. As result of this new financing, ValuJet no longer has any debt
outstanding with financial maintenance covenants.
As of June 30, 1997, ValuJet's debt related to asset financing totaled
$85.7 million, with respect to which ValuJet's aircraft and certain other
equipment are pledged as security. ValuJet has purchased all of its aircraft
and, consequently, has no lease commitments relating to its aircraft fleet. In
addition, ValuJet has $150.0 million of 10 1/4% senior unsecured notes ("10 1/4%
Senior Notes") outstanding. The principal balance of the 10 1/4% Senior Notes
is due in 2001 and interest is payable semi-annually. ValuJet's debt (other
than the 10 1/4% Senior Notes and debt refinanced with the proceeds of the
Notes) has final maturities ranging from 1998 to 2001 with scheduled debt
amortization (calculated without giving effect to any prepayment that may be
required as a result of asset sales) as follows: 1997 (after June 30, 1997) --
$4.7 million, 1998--$6.6 million, 1999--$3.0 million, 2000--$1.4 million, 2001-
- -$400,000.
Certain of ValuJet's secured debt, excluding the Notes, bears interest
at fixed rates ranging from 8.0% to 9.78% per annum and is repayable in
consecutive monthly or quarterly installments over a two- to four year period.
Certain other notes have a variable rate of interest based on LIBOR plus 2.26%
to 2.75%.
Although ValuJet has sufficient cash assets to pay its recurring
obligations and debt service for an extended period of time, ValuJet's failure
to resume profitable operations may result in defaults under ValuJet's debt and
the acceleration of ValuJet's debt. In such event, there can be no assurance
that ValuJet would be able to satisfy all of its obligations on a timely basis.
As a result of the accident and suspension of operations, several
class action suits have been filed by stockholders against ValuJet and various
officers and directors alleging, among other things, misrepresentations under
applicable securities laws. The plaintiffs seek unspecified damages based upon
the decrease in market value of shares of ValuJet's stock. See "Business of
ValuJet -- Litigation." Although management of ValuJet intends to defend these
actions vigorously, any litigation contains elements of uncertainty and there
can be no assurance that ValuJet will not sustain material liability under such
or related lawsuits.
Numerous lawsuits have also been filed against ValuJet seeking damages
attributable to the deaths of those on Flight 592, and additional lawsuits are
expected. ValuJet's insurance carrier has assumed defense of these lawsuits
under a reservation of rights against third parties and ValuJet. See "Business
of ValuJet -- Litigation." As all claims are handled independently by ValuJet's
insurance carrier, ValuJet cannot reasonably estimate the amount of liability
which might ultimately exist. As a result, no accruals for losses and the
related claim for recovery from ValuJet's insurance carrier have been reflected
in ValuJet's financial statements. ValuJet maintains $750.0 million of
liability insurance per occurrence with a major group of independent insurers
that provides facilities for all forms of aviation insurance for many major
airlines. Although ValuJet believes, based on the information currently
available to it, that such coverage is sufficient to cover claims associated
with this accident and that the insurers have sufficient financial strength to
pay claims, there can be no assurance that the total amount of judgments and
settlements will not exceed the amount of insurance available therefore or that
all damages awarded will be covered by insurance.
-52-
<PAGE>
BUSINESS OF VALUJET
General
ValuJet, through its wholly owned subsidiary, AirTran Airlines, Inc.
operates an affordable, no frills, limited frequency, scheduled airline serving
short haul markets primarily in the eastern United States. ValuJet 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 fare conscious travelers.
ValuJet commenced flight operations in October 1993 with two DC-9 aircraft
serving three cities from Atlanta with eight flights per day. The success of
ValuJet's business model allowed it to grow rapidly. During 1995, ValuJet
achieved revenues of $367.8 million and net income of $67.8 million. Prior to
June 17, 1996, ValuJet offered service to 30 cities from Atlanta, Washington,
D.C. (Dulles Airport), Boston and Orlando and operated up to 320 flights per
peak day with its fleet of 51 aircraft.
ValuJet's operations were interrupted by the suspension of ValuJet's
service on June 17, 1996, pursuant to a consent order entered into with the FAA
following the accident involving Flight 592 on May 11, 1996 and the ensuing
extensive adverse media and intense FAA scrutiny into ValuJet's maintenance and
safety procedures.
Prior to ValuJet's resumption of service, ValuJet undertook a thorough
review of its operations, implemented several measures to respond to the
concerns that were raised by the FAA and reaffirmed its focus on the safety of
its aircraft and operations. These measures included: (i) creating a new
position for Senior Vice President of Maintenance and Engineering reporting
directly to the President of ValuJet Airlines; (ii) implementing intensified
performance, safety and compliance-assurance audits of key maintenance
subcontractors, together with revised procedures for qualification, inspection
and supervision of all maintenance contractors; (iii) creating an in-house
organization to supervise all engineering and maintenance planning functions;
(iv) instituting improved maintenance training procedures that require more
hours for initial DC-9 familiarization and orientation training, expanded on-
the-job and initial avionics training, mandatory recurrent training for all
ValuJet and outstation contract mechanics, and new courses for inspectors, lead
mechanics and maintenance managers; (v) reviewing thoroughly all aircraft prior
to reintroducing them into service, including, in each case, reconfirming
compliance with all Airworthiness Directives, correcting aircraft-specific FAA
inspection findings and performing special emphasis "B" checks; and (vi)
expanding training for customer service and station personnel.
Upon implementation of ValuJet's response outlined above and receipt of FAA
approval, ValuJet resumed limited operations with service between Atlanta and
four other cities as of September 30, 1996. ValuJet has continued to work with
the FAA since that time to recertify aircraft and expand its flight operations.
As of August 31, 1997, the FAA has approved 31 of ValuJet's DC-9 Series 30
aircraft for flight and ValuJet operates a total of 200 flights per peak day of
which 182 flights per peak day are between Atlanta and 23 other cities.
Additional service is offered between Washington, D.C. (Dulles Airport) and
Boston and Chicago and between Boston and Philadelphia.
As a result of the accident, the suspension of operations and subsequent
reduced service levels, ValuJet recorded net losses of $41.5 million for the
year ended December 31, 1996, and $27.7 million in the first six months of 1997.
ValuJet attributes these losses to substantial nonrecurring expenses incurred in
connection with the accident, the allocation of fixed costs over fewer ASMs as a
result of ValuJet's reduced flight operations, and lower revenues resulting from
reduced flight operations, lower load factors and reduced average fares.
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Since ValuJet resumed service on September 30, 1996, its principal near-
term objective has been to return to profitability by increasing flight
operations and regaining its low historic cost level per ASM. ValuJet's
operating cost per ASM was 6.77 (cents) for the year ended December 31, 1995,
one of the lowest in the airline industry. Although ValuJet's operating cost per
ASM (excluding those expenses classified as shutdown and other nonrecurring
expenses) increased to 10.24 (cents) in the first quarter of 1997, ValuJet
reported that its cost per ASM declined to 8.22 (cents) for the second quarter
of 1997, which it believes compares favorably with other airlines providing
service in ValuJet's markets. ValuJet's goal is to continue to reduce its cost
per ASM through the end of 1997.
Despite lower average fares, ValuJet's load factors during the period from
recommencement of operations on September 30, 1996, through April 30, 1997 have
been less than the load factors achieved by ValuJet during the same month in the
previous year, except for October 1996, during which ValuJet offered aggressive
fare discounts. Management believes that the lower load factors are
attributable to aggressive fare matching by ValuJet's competitors and as a
result of the accident involving Flight 592 and the suspension of operations.
The following reflects a comparison of ValuJet's load factor in each month
following recommencement of operations and the same month of the immediately
preceding year:
<TABLE>
<CAPTION>
Month Load Factor Month Load Factor
- --------------- ------------ ------------- ------------
<S> <C> <C> <C>
October 1996 72.1% October 1995 64.2%
November 1996 48.2% November 1995 66.7%
December 1996 56.0% December 1995 62.8%
January 1997 41.5% January 1996 48.5%
February 1997 55.7% February 1996 58.6%
March 1997 62.1% March 1996 65.3%
April 1997 59.7% April 1996 61.8%
</TABLE>
Proposed Merger
On July 10, 1997, the Company entered into a merger agreement with
Airways. Under the merger agreement (which remains subject to, among other
things, shareholder approval by both companies), the Company will acquire
Airways through a merger of Airways with and into the Company. In anticipation
of the Merger, the name of ValuJet Airlines has been changed to "AirTran
Airlines." Upon completion of the Merger, the Company intends to change its
name to AirTran Holdings, Inc. and Airways' operating subsidiary (AirTran)
will continue to operate under its current name. The Company may move its
headquarters to Airways' existing headquarters in Orlando, Florida. While the
Company intends to initially operate ValuJet Airlines and AirTran under separate
operating certificates, it may also merge these two operating subsidiaries at a
later date.
The Company believes that the Airways Acquisition will enable it to
operate more competitively and profitably in the eastern United States. Like
ValuJet Airlines, AirTran operates lower cost, used aircraft and targets fare
conscious leisure travelers with a limited flight frequency, no-frills product.
Both airlines rely on achieving and maintaining operating costs below industry
averages in order to offer low fares. The Company believes that the combined
entity can achieve significant financial and operating synergies and cost
savings in the first twelve months after the Merger by eliminating certain
redundant operations, reducing personnel and taking advantage of economies of
scale in maintenance operations and fuel purchasing. The 11 Boeing 737-200
aircraft operated by AirTran will provide increased revenue opportunities for
the Company through their longer flight range and greater seating capacity as
compared with the Company's DC-9 aircraft. The Company expects
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that the change in name and product image that will accompany the Merger will
further increase its revenue opportunities. In addition, the Company believes
that the Airways Acquisition will afford it a competitive advantage in the
consolidating airline industry.
The purchase price to be paid by the Company in the Merger will
consist of approximately 9.1 million shares of common stock of the Company. The
Merger will also result in an increase in the consolidated debt of the Company
of $14.7 million as of June 30, 1997 (which amount reflects the preexisting debt
of Airways), and the assumption by the Company on a consolidated basis of
certain off balance sheet operating lease obligations of Airways. In addition,
as a result of the Merger, a loan of $12.7 million from the Company to AirTran
will be converted into an intercompany loan. As part of the Merger, the Company
will acquire cash and cash equivalents and restricted cash held by Airways of
approximately $12.1 million, as of June 30, 1997. The Company will also acquire
all other assets of Airways, including four Boeing 737's currently owned by
Airways, three of which are Stage 3 aircraft, Airways' fixed based operations,
located in Grand Rapids, Minnesota and Airways' hangar, located in Orlando,
Florida. There can be no assurance that the Merger will be consummated or that
the Company will be able to realize the expected benefits from the Merger if it
is consummated. See "Risk Factors -- Risks Associated with the Merger" and "Pro
Forma Condensed Combined Financial Information."
Strategy
In order to return to profitability and resume growth, ValuJet intends
to pursue a three-pronged strategy (i) to maintain its traditional cost and
value leadership in the markets that it serves, (ii) to reposition its brand
image with its target value-conscious customers to address the long-term adverse
effects of the May 1996 accident and the subsequent suspension of operations,
and (iii) to gradually expand capacity as market demand warrants.
ValuJet's strategy is to provide a safe, reliable, customer friendly
alternative for affordable air transportation. ValuJet'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 fare structure and a competitive low cost structure based
on a ticketless distribution system, a fleet of low cost DC-9 aircraft and
relatively low labor costs. 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, in most cases, physical
ticketing.
ValuJet's service is intended to satisfy the basic air transportation
needs of ValuJet's targeted customers who are short haul leisure travelers
visiting friends and relatives or vacationing and fare conscious business
travelers. ValuJet 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 nine frequencies), baggage service, in-flight beverages and
the ability to make advance reservations. ValuJet avoids what it believes to be
unnecessary and nonproductive costs such as meals, a frequent flyer program,
airport clubs and other amenities offered by many of its competitors.
ValuJet's pricing structure and affordable fares are intended to
stimulate new demand for air travel by leisure customers and fare conscious
business travelers who would have otherwise not traveled or used ground
transportation. ValuJet's simple fare system incorporates a predictable,
"everyday low pricing" fare structure designed to provide its customers with
substantial savings over its competitors based on walk up fares and further
savings by purchasing seats in advance or by flying during off peak times.
ValuJet believes that it has
55
<PAGE>
historically generated its own traffic through low fare market stimulation
rather than by pursuing the more traditional airline approach of competing for
market share with existing carriers.
ValuJet's thrifty and informal brand image has traditionally
complemented its position as the cost and value leader in its target markets.
While ValuJet believes that its basic business model remains viable, it believes
that its name and image have been significantly impaired by the accident in May
1996, the subsequent suspension of operations and the resulting adverse media
exposure. As a result, ValuJet has commenced the implementation of a program to
enhance its image. In anticipation of the Merger and to seek to increase
revenue opportunities of both ValuJet Airlines and AirTran, the parties entered
into a Code Share Agreement and License Agreement in September 1997. The Code
Share Agreement permits the airlines to use a single designator code in the
Official Airline Guide and in reservations systems. The License Agreement
provides ValuJet the non-exclusive use of the name "AirTran Airlines," AirTran's
designator code "FL" and AirTran's service marks. In order to begin to
capitalize on this joint marketing program, ValuJet's operating subsidiary,
ValuJet Airlines, has changed its name to AirTran Airlines, is repainting its
aircraft with the AirTran logo and is changing its marketing accordingly. In
addition, ValuJet is reconfiguring its aircraft to provide 16 business class
seats in each aircraft and will commence to offer advance seat selection
beginning in fourth quarter 1997. This program is being implemented during the
second half of 1997 and is expected to result in the incurrence of material
expenses during the period. If the Merger is not consummated, ValuJet's right to
use the AirTran name will expire in May 1998.
Once ValuJet reestablishes profitability and a favorable brand image,
ValuJet intends to pursue a prudent growth strategy. ValuJet 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. The MD-95 will have 115 seats, consisting of 16 business class seats
and 99 coach seats. ValuJet estimates that the MD-95 aircraft, which have a
slightly larger seating capacity, increased fuel efficiency and lower
maintenance costs than ValuJet's DC-9 aircraft, will provide a cost per ASM
lower than ValuJet's DC-9 fleet, even after taking into account the aircraft's
higher acquisition cost. ValuJet is the "launch" customer of the MD-95
aircraft. As the launch customer, ValuJet anticipates that this contract will
provide material value in terms of acquisition cost and manufacturer financing
assistance. ValuJet determined that the MD-95 aircraft offers the optimum
balance between operating cost and revenue opportunity.
Geographic Market
ValuJet's markets are located predominantly in the eastern United
States. These markets are attractive to ValuJet due to the concentration of
major population centers within relatively short distances from Atlanta,
historically high air fares and the potential for attracting leisure customers
who would otherwise use ground transportation.
During 1996, the Atlanta Airport was the second busiest airport in the
United States, enplaning over 30 million passengers. Additionally, ValuJet
offers service to Florida markets as ValuJet 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 ValuJet's city selection process, ValuJet 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
ValuJet serves short haul markets (up to 1,000 miles) primarily from
Atlanta with a limited number of flights (up to nine round trips per destination
per day) offering basic air transportation at affordable fares. Service is
provided on all routes every day although more frequent service may be provided
on peak travel days.
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<PAGE>
ValuJet offers a range of fares based on advance purchases of 14 days,
7 days and "walk-up" fares. Within the 14 and 7 day fare types, ValuJet offers
off-peak and peak fares which are typically $10 to $30 higher based on day of
week and time of day traveled. Peak travel times are those designated by flight
by ValuJet; peak times are generally portions of the day or all day on
Thursdays, Fridays, Saturdays and Sundays. All ValuJet's fares are
nonrefundable, but can be changed prior to departure for a $30 fee. ValuJet's
fares are always purchased on a one-way basis. ValuJet's fares do not require
any minimum, maximum or day of week (e.g., Saturday night) stay. ValuJet'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 and restrictions for seats on any one flight.
ValuJet's published Atlanta fares for non-stop service range from $49
to $89 for off-peak one-way travel on a 14 day advance purchase basis and $119
to $159 for one-way travel on a "walk-up" basis. During the reintroduction of
ValuJet's service to markets previously served and during the introduction of
service to new markets, ValuJet generally offers introductory one-way fares for
all flights to or from Atlanta. In addition, ValuJet offers fare sales from
time to time (such as additional discounts for companion travelers) in order to
seek to generate additional traffic. There is recently passed legislation that
imposes taxes on domestic airline transportation equal to a per segment flown
charge (initially $1.00 to be increased to $3.00 by 2003) plus a percentage of
the ticket price (initially 9% to be decreased to 7.5% in 1999). Such taxes
will likely have a greater effect on leisure travelers. Since ValuJet relies to
a large extent on leisure travelers, such tax increase may affect ValuJet to a
greater extent than ValuJet's competitors who rely more heavily on business
travelers. As of this time, ValuJet does not expect to increase its fares to
offset the effect of these taxes.
A majority of ValuJet's customers originate or terminate their travel
on ValuJet's non-stop service. One-stop connecting service is provided through
Atlanta between certain of the other cities served by ValuJet.
The following table sets forth certain information with respect to
ValuJet's route system based on ValuJet's schedule in effect as of September 3,
1997.
<TABLE>
<CAPTION>
Round Trip
Service Flights
Commencement Scheduled
Airport Served Date (a) On Peak Day (b)
-------------------------- -------------------- ----------------------
<S> <C> <C>
Atlanta-
Akron/Canton, OH March 1997 3
Boston, MA.............. February 1997 3(c)
Chicago, IL (Midway).... October 1996 5
Dallas/Fort Worth, TX... April 1997 5
Flint, MI............... May 1997 3
Fort Lauderdale, FL..... September 1996 6
Fort Myers, FL.......... January 1997 2
Fort Walton Beach, FL... October 1996 2
Jacksonville, FL........ October 1996 4
Memphis, TN............. October 1996 4
Mobile, AL.............. October 1996 2
New Orleans, LA......... October 1996 3
Newport News, VA........ October 1996 3
Orlando, FL............. September 1996 6
Philadelphia, PA........ October 1996 4
Raleigh/Durham, NC...... October 1996 4
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
Savannah, GA............ October 1996 2
Tampa, FL............... September 1996 6
Washington DC (Dulles).. September 1996 9
West Palm Beach, FL..... December 1996 2
Washington, DC (Dulles)-
Atlanta, GA............. September 1996 9
Boston, MA.............. February 1997 4
Chicago, IL (Midway).... July 1997 3
- --------------------------
</TABLE>
(a) For markets served by ValuJet prior to the suspension of its operations, the
date indicated is the date ValuJet recommenced service.
(b) Peak day refers to the days of the week on which ValuJet provides the
greatest number of flights for the route shown.
(c) Does not include one-stop service through Washington, DC (Dulles) (up to
four round trips per peak day).
The Company also provides three round trips per peak day between Boston and
Philadelphia.
The Company commenced service between Atlanta and Houston with three round
trips per peak day effective September 24, 1997.
Subject to the FAA's approval, ValuJet will consider the addition of other
markets and the provision of service between cities other than Atlanta. There
can be no assurance as to the timing of approvals of additional aircraft or
additional markets by the FAA which will depend upon the FAA's review of
ValuJet's operations. See "Risk Factors -- Accident/Suspension of Operations"
and "Risk Factors -- Federal Regulation."
ValuJet'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. ValuJet's target customers are travelers visiting friends and
relatives, vacationers and small business travelers who are more price sensitive
than schedule or frequency sensitive. Since these customers are not typically
as time sensitive as business travelers, ValuJet's schedule provides for two to
nine frequencies per peak travel day in any given market.
ValuJet's low fixed aircraft ownership costs (depreciation plus interest
expense) provide ValuJet with flexibility to tailor capacity to demand. As a
result, on low demand travel days such as Tuesday and Wednesday, ValuJet reduces
total costs by operating a reduced schedule with fewer frequencies per market.
Conversely on peak days, ValuJet may add more frequencies to accommodate higher
demand. ValuJet generally keeps a number of its aircraft out of scheduled
service in order to provide operating spares and to rotate aircraft into routine
scheduled maintenance.
Aircraft
As of August 31, 1997, ValuJet owned 42 DC-9 Series 30 aircraft. The Company
is in the process of reconfiguring its DC-9 fleet to 106 seats consisting of 16
business class seats and 90 coach seats. As of August 31, 1997, the FAA has
approved 31 of ValuJet's aircraft for operation by ValuJet. The addition of
aircraft to ValuJet's operations is subject to FAA and DOT approval. There can
be no assurance as to the timing or extent of any such subsequent approvals.
ValuJet's expansion is subject to FAA approval and could be affected by
heightened FAA scrutiny and ValuJet's ability to regain customer acceptance.
58
<PAGE>
In order to simplify its operations and in light of the limited number of
aircraft ValuJet is authorized to operate, ValuJet has leased out three of its
aircraft under leases not longer than 18 months. Aircraft in excess of the
number ValuJet is authorized to operate will be stored until ValuJet receives
authorization to operate from the FAA and return them to service.
ValuJet 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. The MD-95 will have 115 seats, consisting of 16
business seats and 99 coach seats. ValuJet 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 ValuJet's existing DC-9 fleet,
even after including its higher acquisition cost. ValuJet is the "launch"
customer of the MD-95 aircraft. As the launch customer, ValuJet anticipates that
this contract will provide material value in terms of acquisition cost and
manufacturer financing assistance. ValuJet has determined that the MD-95
aircraft offers the optimum balance for its purposes between operating cost and
revenue opportunity. ValuJet has not received any indication that Boeing, as
the successor to McDonnell Douglas in their merger, will not manufacture and
deliver the MD-95 aircraft in accordance with the terms of the purchase
agreement, but ValuJet cannot provide any assurance to that effect.
According to FAA rules, during 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 August 31, 1997,
only 18 of ValuJet's 42 aircraft meet the Stage 3 requirements. However,
ValuJet is in compliance with Stage 3 by virtue of the fact that 16 of ValuJet's
31 aircraft currently comply with these requirements. Of ValuJet's remaining 11
aircraft, two comply with Stage 3 as of the date of this Prospectus. ValuJet
intends to meet the Stage 3 requirements by installing hush kits on certain of
its Stage 2 aircraft and by acquiring additional Stage 3 aircraft. ValuJet
expects that FAA certified hush kits will cost approximately $2.3 million per
aircraft or approximately $55.0 million for a fleet of 24 non-hushed DC-9
aircraft. Approximately $7.3 million of the proceeds from ValuJet's sale of the
Notes will be used to finance 90% of the cost of four hush kits. Although
ValuJet has sufficient cash reserves to fund the purchase of the remaining hush
kits, ValuJet intends to seek to finance a portion of the cost of the remaining
hush kits. If financing is obtained, ValuJet plans to pay for the nonfinanced
portion of the hush kits using cash flows generated from operations and from
cash reserves. ValuJet expects to pay the debt service on any such loans out of
cash flow generated from operations during the term of financing. The phase-in
period for full compliance with Stage 3 (through December 31, 1999) and the
expected terms of financing, if available, should allow ValuJet to spread the
payments for Stage 3 compliance over a number of years.
Maintenance and Repairs
Since ValuJet's fleet of DC-9 aircraft are all more than 20 years old, they
will require higher maintenance expenses than newer aircraft. ValuJet believes
that its aircraft are mechanically reliable and that in the long term the
estimated cost of maintenance to fly such aircraft will be within industry norms
for this aircraft type and age. Since the resumption of ValuJet's service in
September 1996, ValuJet has incurred higher maintenance expenses as a result of
costs incurred in connection with reactivating its aircraft. Amendments to FAA
regulations are under consideration which would require certain heavy
maintenance checks and other maintenance requirements for aircraft operating
beyond certain operational limits. ValuJet will be required to comply with such
proposals, if adopted, and with any other aging aircraft issues, regulations or
Airworthiness Directives, that may be promulgated in the future. There can be
no assurance that ValuJet's maintenance expenses (including costs to comply with
aging aircraft requirements) will fall within industry norms.
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<PAGE>
Various incidents involving ValuJet's aircraft prior to May 1996, the
accident involving Flight 592 and the suspension of ValuJet's operations have
contributed to a negative public perception as to the safety of ValuJet's
aircraft and operations. Extraordinary regulatory review of ValuJet's
operations by the FAA followed the May 1996 accident and various FAA findings
ultimately resulted in the consent order under which ValuJet's operations were
suspended on June 17, 1996. In the consent order, the FAA alleged that ValuJet
violated various federal regulations relating to aircraft maintenance,
maintenance manuals, training, record keeping and reporting and ValuJet agreed
to present a plan to the FAA specifying the methods by which it would
demonstrate to the FAA its qualifications to hold an air carrier operating
certificate. ValuJet subsequently satisfied the FAA's requirements outlined in
the consent order and the FAA returned ValuJet's operating certificate to it on
August 29, 1996. ValuJet is likely to be subject to continuing regulatory
scrutiny which could affect ValuJet's operations, acquisition program and
expansion plans indefinitely.
Prior to the resumption of service, ValuJet implemented the following
additional steps to respond to the concerns that were expressed by the FAA and
reaffirmed its focus on the safety of its aircraft and operations: (i) creating
a new position for a Senior Vice President of Maintenance and Engineering, a new
position reporting directly to the President of ValuJet Airlines; (ii)
implementing intensified performance, safety and compliance-assurance audits of
key maintenance subcontractors, together with revised procedures for
qualification, inspection and supervision of all maintenance contractors; (iii)
creating an in-house organization to supervise all engineering and maintenance
planning functions; (iv) instituting improved maintenance training procedures
that require more hours for initial DC-9 familiarization and orientation
training, expanded on-the-job and initial avionics training, mandatory recurrent
training for all ValuJet and outstation contract mechanics, and new courses for
inspectors, lead mechanics and maintenance managers; (v) reviewing thoroughly
all aircraft prior to reintroducing them into service, including, in each case,
reconfirming compliance with all Airworthiness Directives, correcting aircraft-
specific FAA inspection findings and performing special emphasis "B" checks; and
(vi) expanding training for customer service and station personnel.
Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta by ValuJet's employees or contract employees and by contractors at the
other cities served by ValuJet. Heavy maintenance and other work which require
hangar facilities are currently performed at three maintenance contractors. The
contractors are Zantop International Airlines, Inc. of Macon, Georgia, Aero
Corp. of Lake City, Florida and Pemco World Air Services of Dothan, Alabama.
ValuJet may replace these contractors or add additional contractors subject to
FAA approval. Other routine daily maintenance contractors are either other
airlines which operate DC-9 Series 30 aircraft or other maintenance companies
approved by the FAA, who in either case have employees qualified in DC-9 Series
30 aircraft maintenance.
The addition of MD-95 aircraft and, if the Merger is consummated, Airways'
Boeing 737-200 aircraft, will require greater inventories of spare parts and
associated costs.
Fuel
The cost of jet fuel is an important expense for ValuJet. ValuJet estimates
that a 1c increase in fuel cost would increase ValuJet's fuel expenses by
approximately $59,000 per month, based on ValuJet's current fuel consumption
rate. 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. Due to the effect of world and economic 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 ValuJet's operations and
operating results. ValuJet has not entered into any agreement which fixes the
price of fuel over any period of time.
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<PAGE>
A significant increase in the price of jet fuel would result in a
disproportionately higher increase in ValuJet's average total costs than its
competitors using more fuel efficient aircraft and whose fuel costs represent a
smaller portion of total costs. ValuJet would possibly seek to pass such a cost
increase to ValuJet's customers through a fare increase. There can be no
assurance that any such fare increase would not reduce the competitive advantage
ValuJet seeks by offering affordable fares.
ValuJet's fleet of DC-9 Series 30 aircraft are relatively fuel inefficient
compared to newer aircraft and industry averages. The primary reasons for this
inefficiency are aircraft size and engine technology. In management's opinion,
the lower ownership costs of the DC-9 aircraft more than compensate for this
relative fuel inefficiency. The MD-95 aircraft to be acquired by ValuJet are
expected to be more fuel efficient and should make ValuJet relatively less
susceptible to adverse effects attributable to fuel price changes.
Distribution and Marketing
ValuJet's marketing efforts are vital to its success as it seeks to stimulate
new customer demand, generate the majority of its revenue through consumer
direct distribution channels and forgo traditional amenities. ValuJet has
targeted short haul travelers visiting friends and relatives, vacationing or
involved with fare conscious businesses. These are market segments which
ValuJet believes offer the greatest opportunity for stimulating new demand,
selling direct and not requiring traditional amenities. Based on a survey
conducted by ValuJet in 1994, a substantial majority of ValuJet's customers were
traveling for pleasure.
The primary objectives of ValuJet'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 or restarting flights to previously
served markets, ValuJet typically makes extensive use of advertising, as well
as active public relations efforts, and focuses on the affordable fares to be
offered on an everyday basis.
ValuJet communicates regularly and frequently with potential customers
through the use of advertisements in newspapers, on radio and on billboards and
through toll-free telephone numbers. These communications feature ValuJet's
destinations, everyday affordable fares, ease of use (including its simplified
fare structure and ticketless travel process) and ValuJet's reservations phone
number.
ValuJet seeks to sell seats directly to the customer whenever possible.
ValuJet also sells seats through travel agents and pays customary sales
commissions, but without volume override increases. Information on its
customers' needs, travel patterns and identity is collected, organized and
stored by ValuJet's automated reservation system and can be used at a future
time for direct marketing efforts.
In June 1997, ValuJet signed participation agreements with two of the leading
travel agency computer reservation system ("CRS") vendors worldwide: Sabre
Travel Information Network Div. (SABRE) and Worldspan L.P. (WORLDSPAN). These
systems provide flight schedules and pricing information. However, flight
reservations made by travel agents can only be confirmed over the telephone with
ValuJet's reservations personnel. Beginning in the fourth quarter of 1997,
ValuJet's participation in these systems is expected to allow travel agents
participating in either of these two systems to electronically process a ValuJet
flight reservation without contacting ValuJet's reservations facility. These
agreements represent an effort by ValuJet to obtain the benefit of additional
distribution channels without compromising ValuJet's ticketless and direct form
of payment (credit card) practices.
ValuJet performs public relations and promotional activities in house.
Advertising is handled by an outside advertising agency.
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In June 1997, ValuJet and Greyhound Lines, Inc. introduced "FlightLink" which
provides intermodal scheduled ground transportation between Atlanta's Hartsfield
International Airport and Dalton and Macon, Georgia as well as Chattanooga,
Tennessee. The operation uses modern 47-passenger air-conditioned motor coach
vehicles and provides up to six round-trip segments to each destination.
Customers connecting to/from ValuJet flights can take advantage of FlightLink's
reservations, baggage checking and flight check-in functions. By using this
service, customers avoid airport parking availability problems as well as
parking lot fees and are delivered to Hartsfield's North Terminal lower level
doors. Customers not connecting to ValuJet flights may also purchase FlightLink
reservations.
ValuJet and The Hertz Corporation operate a joint program under which
ValuJet's customers are able to reserve a Hertz rental car outside of Florida at
discounted rates when making a reservation for ValuJet's flights. Alamo Rent A
Car offers discounted car rental rates to ValuJet's customers in Florida.
Air travel in ValuJet's markets tends to be seasonal, with the highest levels
occurring during the winter months to Florida and the summer months to the
midwest/northeastern U.S. Advertising and promotional 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 ValuJet's strategy. ValuJet's UNIX based
computer system has been specifically designed to implement ValuJet's
simplified, ticketless service and is an important component of ValuJet's
attempt to maintain its low cost structure, particularly as ValuJet grows.
ValuJet 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. ValuJet's software supports
all of ValuJet's operational areas (e.g., flight operations, maintenance,
accounting, marketing and personnel).
A key component of this system and ValuJet's low cost structure is the
"ticketless" environment. At the time of a sale/reservation, ValuJet 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.
In June 1997, ValuJet entered into an agreement for the Open Skies
reservation system which it expects will provide greater flexibility than the
system currently in use. Benefits expected from the Open Skies system include
improved mainframe and hardware performance and reliability, CRS (SABRE) booking
access, applications to improve unit revenue through enhanced data reporting and
software to facilitate Internet reservations booking and processing. ValuJet
expects to effect a transition to the new system during the second half of 1997.
There can be no assurance that ValuJet will not suffer losses of revenue during
the transition period or that ValuJet will be able to secure the benefits
sought.
Furthermore, ValuJet does not participate in the ARC, the airline industry
collection agent for travel agency sales. At the time of the reservation,
ValuJet identifies the travel agency making the booking and takes credit card
information. Each agency then receives a statement summarizing these
transactions. Although management believes that travel agencies are accustomed
to doing business through ARC, management believes
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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, ValuJet's
customers are not able to transfer their reservations from ValuJet to other
airlines, for example in the event of an interruption of a Company flight or a
last minute change in their travel plans.
Employees
As of August 31, 1997, ValuJet employed approximately 2,300 people.
Additional employees will be hired as ValuJet increases the number of aircraft
operated subject to FAA approval.
ValuJet has modified its compensation program, increasing employee base pay
for most workers and reducing reliance on variable performance bonuses as a
major component of the overall compensation package. Regular, periodic bonuses
have been eliminated.
Training, both initial and recurrent, is required for most employees. The
average training period for all new employees is approximately one to two weeks,
depending on classification. Both pilot training and mechanic training are
provided by professional training organizations, which may include other
airlines. ValuJet 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. New hire pilots pay for their own initial training which includes
an airline transport pilot rating. 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 and aircraft inspection must meet experience
standards prescribed by FAA regulations. All of these employees are subject to
pre-employment and subsequent drug testing.
ValuJet's flight attendants have elected the Association of Flight Attendants
("AFA") and ValuJet's mechanics have elected the International Brotherhood of
Teamsters (the "Teamsters") to represent them in negotiating contracts with
ValuJet. In April 1997, ValuJet reached an agreement with the Teamsters.
ValuJet does not expect that the unionization of its flight attendants or
mechanics will have a material adverse effect on its operating costs or
performance. However, until union contracts are negotiated, there can be no
assurance that this will be the case.
ValuJet 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 ValuJet's employees for representation in such an organization could
result in employee compensation and working condition demands that may affect
operating performance or expenses.
The AFA has filed a lawsuit against ValuJet relating to the termination of
certain former flight attendants. See " -- Litigation."
ValuJet from time to time considers alternative means of providing
compensation to its employees and ValuJet's method of determining compensation
is subject to possible change in the future.
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Airport Operations
Ground handling services typically can be placed in three categories--public
contact, underwing and complete ground handling. Public contact services
involve meeting, greeting and serving ValuJet's customers at the check-in
counter, gate and baggage claim area. Underwing ground handling services
include, but are not limited to, marshaling 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.
All of ValuJet's ground handling services in Atlanta are conducted by
ValuJet's employees. At other airports, Company operations not conducted by
ValuJet's employees are contracted to other air carriers, ground handling
companies or fixed base operators.
Insurance
ValuJet carries customary levels of passenger liability insurance, aircraft
insurance for aircraft loss or damage and other business insurance. ValuJet 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. See "Litigation" below. ValuJet is required by the DOT to carry
liability insurance on each of its aircraft. ValuJet currently maintains
liability insurance in the amount of $750 million per occurrence. Although
ValuJet currently believes its insurance coverage is adequate, there can be no
assurance that the amount of such coverage will not be changed or that ValuJet
will not be forced to bear substantial losses from accidents. Substantial
claims resulting from an accident in excess of related insurance coverage or not
covered by ValuJet's insurance could have a material adverse effect on ValuJet.
Moreover, any aircraft accident, even if fully insured, could cause and has
caused a public perception that some of ValuJet's aircraft are less safe or
reliable than other aircraft, which could have and has had a material adverse
effect on ValuJet's business. ValuJet's insurance premiums have increased
significantly since the accident on May 11, 1996.
Seasonality and Cyclicality
ValuJet'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 as of September 1997.
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<TABLE>
<CAPTION>
Daily Non-stop Round Trips
--------------------------
American/Northwest/
Atlanta to/from Delta USAir Others(a)
- --------------------------- -------- ------------------- ---------
<S> <C> <C> <C>
Akron/Canton, OH........... -- -- --
Boston, MA................. 10 -- --
Chicago, IL (Midway)(b).... -- -- 2
Dallas/Fort Worth, TX...... 17 14.5 --
Flint, MI.................. -- -- --
Fort Lauderdale, FL........ 9.5 -- --
Fort Myers, FL............. 7.5 -- --
Fort Walton Beach, FL...... -- -- 9
Jacksonville, FL........... 7 -- --
Memphis, TN................ 9.5 6 --
Mobile, AL................. 8 -- --
New Orleans, LA............ 9 -- --
Newport News, VA........... 5(c) -- --
Orlando, FL................ 14 -- --
Philadelphia, PA........... 9.5 6 --
Raleigh/Durham, NC......... 9 -- --
Savannah, GA............... 8 -- --
Tampa, FL.................. 10 -- --
Washington DC (Dulles)(d).. 6 -- 1
West Palm Beach, FL........ 9 -- 1
--- ----- ------
Total...................... 148 26.5 13
=== ===== ======
- ---------------------
</TABLE>
(a) Includes United Airlines and Kiwi. Also includes commuter affiliates of
major airlines which generally provide service with turboprop aircraft.
(b) Several major airlines operate daily flights to Chicago's O'Hare Airport
which are not reflected in the table above.
(c) Service provided by Delta to Norfolk, VA.
(d) Delta operates daily flights to Washington DC's National Airport which are
not reflected in the table above.
ValuJet currently provides service between Atlanta and other markets generally
within a 1,000 mile radius and other limited service from Washington, D.C.
(Dulles Airport), Boston, Chicago and Philadelphia. In the future, ValuJet may
add additional service between cities already served by ValuJet or may add
service to new markets. ValuJet'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 ValuJet will continue to provide
service to all of the markets listed above or that ValuJet will not provide
service to any other particular market.
With respect to ValuJet's one-stop service provided between markets served on
a connecting basis through Atlanta, ValuJet faces competition from numerous
airlines with varying degrees of flight frequency and marketing approaches. In
addition, ValuJet competes with numerous nonstop flights to many of its cities
from other airports in the same metropolitan areas as served by ValuJet (such as
Washington's National Airport and Chicago's O'Hare Airport).
In October 1996, Delta Express, Delta's new-low-fare operation, commenced
nonstop service from Orlando to various midwest and northeast cities --
Hartford, CT / Springfield, MA / Boston, MA / Columbus, OH / Newark, NJ /
Washington, DC (Dulles) / Indianapolis, IN/ Philadelphia, PA / Louisville, KY /
and Providence,
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RI; plus Orlando to four other Florida cities -- Tampa, Ft. Lauderdale, Ft.
Myers and West Palm Beach. Delta Express recently announced that service to
Philadelphia will be discontinued as of September 30, 1997, and new service will
be commenced to Islip, New York, and Raleigh-Durham, North Carolina. Delta
Express operates a dedicated single class fleet of 25 Boeing 737-200 aircraft
which are flown by pilots who are paid less, fly longer hours and operate under
more efficient work rules than other Delta pilots.
Initially, Delta Express started service with 62 daily flights and has
increased daily departures to a total of 128 as of June 1997. A three-tiered
fare structure (21-day advance purchase, 7-day advance purchase and walk-up) is
offered in addition to advance seat selection and the SkyMiles frequent flyer
program. Fares offered by Delta Express compete with ValuJet's connecting fares
via Atlanta. However, Delta Express does not currently have any flights
operating to/from Atlanta and has not announced any current plans to operate
this service in the Atlanta area.
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 September 1997, upon which the foregoing information
was based, are representative of the competition ValuJet may face, competing
airlines and their flight schedules are subject to frequent change.
ValuJet 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 other major airlines) and from ground transportation alternatives.
ValuJet believes that the most significant competitive factors among airlines
are price (fare levels), convenient departure times, flight frequency and the
availability of incentives such as a frequent flyer program. ValuJet currently
does not offer a frequent flyer program and typically offers limited flight
frequencies. There can be no assurances that ValuJet will not choose 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
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.
U.S. Department of Transportation
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.
Each United States air carrier must obtain, and ValuJet has obtained a
Certificate of Public Convenience and Necessity issued by the DOT pursuant to
Section 401 of the Aviation Act. As a result of ValuJet's suspension of
operations on June 17, 1996, ValuJet was required to apply for recertification
by the DOT. The DOT issued a "show cause" order on August 29, 1996, reflecting
its preliminary determination that ValuJet had satisfied the DOT requirements
and issued its final order on September 26, 1996, approving ValuJet's return to
service.
Each United States carrier must qualify as a United States citizen, which
requires that it be organized under the laws of the United States or a state,
territory or possession thereof, that its President and at least two-thirds of
its Board of Directors and other managing officers must be comprised of United
States citizens, that not more than
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25% of its voting stock may be owned by foreign nationals, and that the carrier
not be otherwise subject to foreign control.
U.S. Federal Aviation Administration
ValuJet has also obtained an operating certificate issued by the FAA pursuant
to Part 121 of the Federal Aviation Regulations. ValuJet's operating
certificate was surrendered to the FAA in connection with the consent order
dated June 17, 1996 and returned to ValuJet on August 29, 1996, after ValuJet
satisfied the requirements of the FAA in the consent order. In the consent
order, the FAA alleged that ValuJet violated various federal regulations
relating to aircraft maintenance, maintenance manuals, training, record keeping
and reporting and ValuJet agreed to present a plan to the FAA specifying the
methods by which it would demonstrate to the FAA its qualifications to hold an
air carrier operating certificate. Under the consent order, ValuJet suspended
operations and paid $2 million to the FAA to compensate it for the costs of the
special FAA inspections conducted and increases in the number of aircraft are
presently subject to FAA approval.
Since the recommencement of operations on September 30, 1996, ValuJet has made
approximately fifteen voluntary self disclosures to the FAA for maintenance,
operational and in-flight violations. Under the voluntary self disclosure
program, when a violation is detected, the air carrier promptly discloses and
remedies the violation. If the FAA accepts the remedy proposed by the air
carrier, the FAA will not impose civil penalties for the violation. Minor
penalties have been assessed with respect to certain of these self-disclosures
with all penalties totaling less than $40,000. To its knowledge, ValuJet
believes that it has disclosed all relevant items, but there can be no assurance
that ValuJet will not have other non-compliance items in the future. Although
ValuJet believes that the self-disclosed matters are relatively routine in the
airline business and does not believe that these items will result in material
adverse consequences to ValuJet, ValuJet does not have control over the
consequences that may be imposed by the FAA as a result of such items.
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, ValuJet has effective
FAA certificates of airworthiness for all of the aircraft used in its
operations. ValuJet's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the FAA. ValuJet's director of safety and regulatory compliance acts
as a liaison between ValuJet 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 ValuJet.
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 ValuJet's knowledge, ValuJet's aircraft comply with all applicable
FAA noise control regulations (except as indicated below) and with current
emissions standards.
The 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.
As of August 31, 1997, ValuJet's operating aircraft consisted of 31 aircraft, 16
of which comply with Stage 3. See "Business of ValuJet -- Aircraft" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Therefore, ValuJet 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. ValuJet does not
currently provide any international service.
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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
ValuJet is subject to FCC requirements, it has taken and will continue to take
all necessary steps to comply with those requirements.
ValuJet's operations may become subject to additional federal regulatory
requirements in the future under certain circumstances. ValuJet'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 ValuJet 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
jurisdictions. ValuJet 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
ValuJet leases approximately 40,500 square feet of office space at 1800
Phoenix Boulevard, Suite 126, Atlanta, Georgia 30349 for general corporate and
operational use (including Atlanta reservations) under a lease which expires
September 30, 1999 and ValuJet also leases approximately 15,000 square feet of
space for use as a training center under a lease that expires August 31, 1999.
ValuJet has signatory status on a lease of facilities at the Atlanta Airport,
which lease expires in the year 2010. ValuJet also maintains a separate
reservations center in leased premises in Savannah, Georgia (approximately 7,000
square feet) which lease expires in January 2000 and leases additional space in
Newport News, Virginia (approximately 20,000 square feet) which lease expires in
the year 2001. ValuJet is not currently using its leased premises in Newport
News, Virginia, and is seeking to sublease such space.
The check-in counters, gates and airport office facilities at each of the
airports ValuJet 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 facilities at any
additional cities to be served by ValuJet are not available at acceptable rates,
or if such facilities cease to be available at acceptable rates, then ValuJet
may choose not to service such markets.
Litigation
Several stockholder class action suits have been filed against ValuJet and
certain of its executive officers ("Defendants"). The consolidated lawsuits
discussed below seek class certification for all purchasers of stock in ValuJet
during periods beginning on or after June 1995 and ending on or before June 18,
1996, and are based on allegedly misleading public statements made by ValuJet or
omission to disclose material facts in violation of federal securities laws. A
total of 14 stockholder lawsuits have been filed against and served upon ValuJet
between May 30, 1996 and July 26, 1996. Of these suits, 11 have been filed in
the United States District Court for the Northern District of Georgia and these
suits have been consolidated into a single action (In re ValuJet, Inc.).
-------------------
Another lawsuit filed in the United States District Court for the Middle
District of Florida has been transferred to the Northern District of Georgia and
has been consolidated into In re ValuJet, Inc. One additional class action
-------------------
stockholder lawsuit (Davis v. ValuJet Airlines, Inc., et al.) has been filed and
---------------------------------------
served upon the Defendants. Regarding Davis, the Defendants filed a "Notice of
-----
Newly-Filed Case Opposition to Joiner of Michael Acks and Alternative Motion to
Dismiss" on the same grounds that Defendants have moved to dismiss Plaintiffs'
existing Complaint. All of the Defendants filed a joint Motion to Dismiss the
Consolidated Amended Complaint on December 23, 1996, to which the Plaintiffs
have responded. On November 25, 1996, Plaintiffs filed their Motion for Class
Certification. On January 14, 1997, Defendants filed a "Notice of Stay of
Discovery and Other Proceedings," in which Defendants state that the filing of
their Motion to Dismiss has stayed the issue of class certification pursuant to
the Private Securities Litigation Reform Act. By consent of the parties,
Defendants are not currently obligated to respond to Plaintiffs' Motion for
Class Certification, and if the Court decides that the issue of class
certification is not stayed by the Private Securities Litigation Reform Act, the
Defendants have 30 days from the date of such decision to respond to Plaintiffs'
Motion for Class Certification. Two suits (Cohen et al. v. ValuJet, Inc., et
---------------------------------
al. and Hepler
- --- ------
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et al. v. ValuJet, Inc. et al.) have been filed in the State Court of Fulton
- ------------------------------
County, Georgia. On December 23, 1996, all Defendants in both actions, other
than SabreTech, answered the Complaint and filed a Motion to Dismiss the
Complaint. On May 8, 1997, Plaintiffs responded to this motion. Defendants are
currently working on a response with respect to which no deadline has been
established. On May 2, 1997, the Court ordered the consolidation of these two
state court actions and now refers to them as Cohen, et al. v. ValuJet Airlines,
----------------------------------
Inc. Additionally, Defendant Timothy Flynn filed a Motion to Dismiss for lack
- ----
of personal jurisdiction. Although ValuJet denies that it has violated any of
its obligations under the federal securities laws, there can be no assurance
that ValuJet will not sustain material liability under such or related lawsuits.
Numerous lawsuits have been filed against ValuJet seeking damages attributable
to the deaths of those on Flight 592, and additional lawsuits are expected.
Thus far, approximately 80 such lawsuits have been filed against ValuJet
Airlines, Inc. prior to September 22, 1997. Most of the cases were initially
removed to the federal court. That court, however, remanded the majority of the
actions to the state courts from which they originated and retained jurisdiction
over only seven cases. As a consequence, most of the cases will proceed in
state courts in Florida and Georgia. ValuJet's insurance carrier has assumed
defense of all of these suits under a reservation of rights against third
parties and ValuJet and has settled and paid approximately 47 claims as of
September 22, 1997, and is pursuing settlements in the balance of the claims.
In the remaining lawsuits, SabreTech has been named as a co-defendant as a
result of the role that it played in the accident. ValuJet maintains a $750
million policy of liability insurance per occurrence. ValuJet believes that the
coverage will be sufficient to cover all claims arising from the accident.
In one of the wrongful death suits pending in the State Court of Fulton
County, Georgia, ValuJet petitioned the Court in April 1997 to allow ValuJet to
file a third party complaint against SabreTech, seeking to hold SabreTech
responsible for the accident involving Flight 592. SabreTech is the maintenance
contractor who delivered oxygen generators without safety caps and in a
mislabeled box for shipment aboard Flight 592. The oxygen generators are
currently believed to have caused or contributed to the fire which resulted in
the accident. The third party complaint seeks indemnification against losses
attributable to the lawsuits referred to above and other damages that ValuJet
suffered as a result of the accident. In June 1997, the judge denied ValuJet's
motion to file the third party complaint. ValuJet has appealed this denial.
In May 1997, SabreTech filed a Complaint for declaratory judgment and other
relief against ValuJet. The action seeks a determination that SabreTech is not
liable to ValuJet for the accident involving Flight 592 as a result of language
contained in certain of the contracts between the parties and that ValuJet is
liable to SabreTech for damages that it has suffered. ValuJet intends to
vigorously defend this lawsuit and to assert all claims it has against
SabreTech.
On August 30, 1996, Metropolitan Nashville Airport Authority filed suit
against ValuJet in State Court in Tennessee for breach of contract and a
declaratory judgment for an anticipatory breach. The Nashville Airport
Authority seeks damages of approximately $2.6 million. The dispute involves
whether ValuJet was entitled to exercise a termination right contained in its
lease agreement.
In May 1997, the State of Florida filed suit against ValuJet and its insurers
in the United States District Court for the Southern District of Florida seeking
recovery of costs incurred relating to the accident involving Flight 592.
ValuJet does not believe that it is obligated for such amounts and has filed a
motion to dismiss this lawsuit.
On October 21, 1995, the Association of Flight Attendants ("AFA") filed suit
in federal court alleging that ValuJet had violated the Railway Labor Act by
terminating between 20 and 40 flight attendants for engaging in protected union
activities associated with the AFA's organizing drive. ValuJet 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. During the course of discovery, the number of
plaintiffs in the case has been reduced to the AFA and five individuals.
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In November 1995, ValuJet filed suit against Delta and TWA in federal district
court alleging violations of the antitrust laws and, regarding TWA, breaches of
contract, arising from ValuJet's attempt to obtain slots to conduct flight
operations at New York's LaGuardia Airport. Preliminary injunctive relief was
denied, and the parties have since been involved in discovery. The court
granted TWA's motion for summary judgment on contract and conspiracy claims, but
has not entered such judgment, and TWA has remained a party. The court
subsequently denied Delta's motion for summary judgment on antitrust
monopolization claims. Trial is expected to begin before the end of 1997.
From time to time, ValuJet is engaged in litigation arising in the ordinary
course of its business. ValuJet does not believe that any such pending
litigation will have a material adverse effect on its results of operations or
financial condition.
Governmental Investigations
Several governmental inquiries and investigations have been launched in
connection with the loss of Flight 592, including investigations by the DOT, the
NTSB, the U.S. Attorney's Office in Atlanta, Georgia and Miami, Florida and
certain state agencies in Florida. Although ValuJet does not believe, based on
information currently available to it, that such investigations and inquiries
will result in any finding of criminal wrongdoing on its part, the
investigations have not yet been concluded and the possibility of such a finding
cannot be ruled out. ValuJet may also be assessed civil penalties in connection
with the accident and/or the results of ensuing investigations. Any such
findings or penalties could be material. In addition, it is possible that
ValuJet could be indirectly affected by negative publicity related to charges of
wrongdoing, if any, against others acting on behalf of ValuJet at the time of
the accident.
BUSINESS OF AIRWAYS
The following is a description of the business of Airways, with whom the
Company has signed a Merger Agreement. However, the Merger remains subject to
various conditions (including approval by the stockholders of both the Company
and Airways) and there can be no assurance that the Merger will be consummated.
The following description of the business of Airways does not reflect any
changes that may be implemented after the Merger.
General
Airways, a Delaware corporation incorporated in 1995, is the parent Company of
AirTran, a domestic commercial airline providing direct scheduled passenger air
service from Orlando, Florida to 23 locations in the eastern United States.
AirTran, a Delaware corporation incorporated in September 1993, was acquired by
Mesaba Holdings, Inc. (formerly known as AirTran Corporation) from Conquest
Airlines Corporation in June 1994.
AirTran began flying commercially in July 1994 with one Boeing 737-200
aircraft providing charter services and commenced scheduled flight operations in
October 1994. As of August 15, 1997, AirTran operated a fleet of 11 Boeing 737-
200 aircraft.
In addition to AirTran, Airways operates a fixed base operation in Grand
Rapids, Minnesota (the "FBO"), which provides private aircraft services,
maintenance, fueling, hangar facilities, flight instruction, aircraft parts
sales and other ground services to general aviation and government aircraft
fleets. The FBO began operations in 1944 and was previously owned by Mesaba
Aviation, Inc., a subsidiary of Mesaba Holdings, Inc. Airways currently
operates its FBO business under an FAA repair station certificate.
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<PAGE>
Business Strategy
- -----------------
AirTran's strategy is based on a commitment to customer service, reliability
and affordable service. AirTran's one-way fares currently range from $39 (for
flights between two of its outstations) to $219.
AirTran's affordable service strategy depends on maintaining competitive
operating cost levels. In the fiscal year ended March 31, 1997 ("fiscal 1997"),
AirTran's total cost per ASM was 8.04c, resulting in a 73% break-even load
factor. AirTran's fixed aircraft expenses (including hull insurance and
depreciation expense) were 9.6% of operating expenses during fiscal 1997.
Fares, Route System and Scheduling
AirTran provides direct scheduled passenger air service between Orlando and
cities principally in the eastern half of the United States. AirTran's strategy
in developing its route system is to serve medium-sized cities from which direct
service to Orlando is not typically provided by the major airlines. This
strategy involves flying long stage lengths to medium-sized markets on a low
frequency basis. Stage lengths range from approximately 152 miles (for the
interstation flights between Kansas City and Omaha) to 1,140 miles and service
is provided to most markets on a one-flight-per-day schedule.
AirTran generally offers four fare levels in each of its markets. The number
of seats available at each fare level is set according to market conditions.
AirTran may also offer promotional fares in certain markets. Tickets are non-
refundable but travel dates can be changed prior to departure for a $35 fee.
All fares are sold on a one-way basis without any minimum, maximum or required
overnight stay. The following table shows the expansion of AirTran's scheduled
route system and fleet through August 31, 1997.
71
<PAGE>
<TABLE>
<CAPTION>
As of Total number Departures
month end of aircraft per month Scheduled cities added
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal Year 1995:
October 2 164 Orlando, Providence*, Hartford*, Huntsville*,
Knoxville & Newburgh
November 2 192 -
December 3 317 Ft. Lauderdale* and Islip*
January 3 326 -
February 3 266 Cincinnati, Albany, and Syracuse
March 4 362 Omaha
Fiscal Year 1996:
April 4 354 -
May 4 428 Nashville*
June 4 412 -
July 4 426 -
August 6 714 San Antonio*, Dayton, Birmingham*, and Buffalo
September 6 642 -
October 7 880 Dallas* , Greenville/Spartanburg, Kansas City
and Norfolk
November 7 874 -
December 8 883 -
January 9 929 -
February 10 1,126 Allentown, Canton/Akron, and Rochester
March 10 1,223 Richmond
Fiscal Year 1997:
April 10 1,209 -
May 10 1,135 -
June 10 1,106 Greensboro
July 10 1,315 -
August 10 1,280 -
September 10 963 -
October 10 1,045 Chattanooga*
November 10 1,020 Toledo
December 10 1,034 Bloomington/Normal
January 10 1,060 -
February 10 1,075 Harrisburg, Charleston* and Columbia*
March 10 1,437 Des Moines and Moline
Fiscal Year 1998:
April 10 1,357 -
May 10 1,290 -
June 10 1,245 -
July 10 1,284 -
August 11 1,199 -
</TABLE>
* Service to these locations was subsequently discontinued.
72
<PAGE>
Maintenance and Repairs
Aircraft maintenance consists of routine maintenance and major
overhauls. Routine maintenance is performed in Orlando and at AirTran's newest
maintenance station in Greensboro, North Carolina by AirTran's employees. In
other cities, that work is performed by FAA-approved contractors. Major
overhauls or heavy checks are performed by a contractor approved by the FAA to
work on Boeing 737-200 aircraft.
AirTran's aircraft were manufactured between 1968 and 1985. AirTran
believes that its aircraft are mechanically reliable but that its maintenance
costs may be higher (including costs to comply with FAA aging aircraft
requirements and procedures) than maintenance costs associated with newer
fleets.
AirTran maintains an inventory of rotable aircraft parts and supplies
for routine maintenance and obtains parts for major overhauls from vendors and
manufacturers when needed. Due to the large number of 737 aircraft in
commercial operation, AirTran expects that a reliable supply of replacement
engines and parts will continue to be available at market prices.
Aircraft
AirTran's fleet currently consists of seven leased and four owned
Boeing 737-200 aircraft with average capacities of 126 passengers. The lease
terms range from three to seven years and require monthly lease payments of
$45,000 to $142,000 as well as reserve payments for major engine and airframe
overhauls.
According to FAA rules, AirTran's fleet must comply with the FAA's
Stage 3 noise level requirements on the same schedule as ValuJet. Six of
AirTran's 11 aircraft currently meet Stage 3 requirements. AirTran intends to
remain in compliance with noise requirements through the acquisition of Stage 3
aircraft and the installation of hush kits on Stage 2 aircraft presently in its
fleet. Hush kits certified by the FAA for the Boeing 737-200 aircraft are
available at an installed cost of approximately $1.5 million per aircraft.
Fuel
The cost of jet fuel, related taxes and fueling fees is AirTran's
largest operating expense, accounting for 19.5% of total operating costs in
1997. Jet fuel costs are subject to wide fluctuations, primarily resulting from
changes in supply and the effects of world events. These changes make
predicting the cost of jet fuel difficult. Increases in fuel prices could have
a materially adverse effect on AirTran's operating results. AirTran has not
entered into any fixed-price or guaranteed delivery contracts for fuel.
AirTran's fleet is not as fuel efficient as competitors' fleets
comprised of newer, more fuel efficient jet aircraft. As a result, a significant
increase in the price of jet fuel would disproportionately affect AirTran's
costs as compared to such competitors. AirTran intends to pass on fuel cost
increases through increased fares, but there can be no assurance that AirTran's
competitive fare advantage would not be negatively impacted by such fare
increases.
Insurance
AirTran carries the types of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers'
compensation. AirTran believes that this insurance is adequate in amount and
risk covered. There can be no assurance, however, that the insurance coverage
would be sufficient to protect AirTran adequately in the event of a catastrophic
accident.
73
<PAGE>
Seasonality
Seasonal factors, primarily weather conditions and passenger demand,
are expected to affect AirTran's monthly passenger boardings. AirTran generally
experiences diminished demand in late spring, early fall and mid-winter.
Competition and Industry Considerations
AirTran's competition includes carriers with substantially greater
financial resources. Fare levels and passenger demand are negatively affected
by a number of factors, including the general state of the economy and intense
fare competition in the industry.
Marketing
AirTran's marketing objective is to build on the growing awareness of
its service and benefits in the markets served. The message is focused on
leisure travelers and travel agents.
Employees
As of August 31, 1997, Airways had 578 full-time equivalent employees.
Management personnel directly involved in the supervision of flight
operations, training, maintenance and aircraft inspection must meet certain
experience levels set by the FAA. Under FAA regulations, pilots are required to
be licensed as commercial pilots, with specific ratings for the type of aircraft
flown, and must also be medically certified as physically fit. In order to
maintain licenses and medical certifications, pilots must satisfy periodic
continuation requirements, including recurrent training and recent flying
experience. Mechanics, quality control inspectors and flight dispatchers must
also be licensed and qualified for specific aircraft. Flight attendants are
required to have initial and periodic competency fitness training and
certification. As required by FAA regulations, all of these employees must
undergo pre-employment and periodic drug testing as well as employment and
background checks. Airways is presently negotiating a collective bargaining
agreement with its mechanics and store clerks, who are represented by the
International Association of Machinists. Elections for union representation are
pending for Airways' pilots and flight attendants. Airways has not experienced
any work stoppages and believes that its employee relations are satisfactory.
Airport Operations
AirTran's operations are based largely at the Orlando International
Airport, where it maintains its aircraft fleet. In Orlando, AirTran's employees
provide passenger services, catering and cleaning of the aircraft. All other
ground services are provided by contractors. In most other cities served by
AirTran, contractors, including major airlines, provide all ground handling
services, including passenger services. Ground handling services include
greeting and serving passengers at check-in, gate and baggage claim areas,
catering, guiding aircraft to and from gates, baggage handling services,
aircraft cleaning, lavatory and water servicing, de-icing and certain overnight
aircraft maintenance services. AirTran has at least one employee at each of the
cities it serves to promote sales and oversee its operations.
Real Property
AirTran's principal executive offices are located two miles from the
Orlando International Airport in a leased facility consisting of approximately
11,500 square feet of office space. This facility houses the executive offices
of both Airways and AirTran as well as the general administrative staff,
reservations staff and computer systems of AirTran. The lease agreement for
this facility expires in October 1998 and requires monthly lease payments of
approximately $14,000. In January 1996, AirTran entered into a ground lease
with the Greater Orlando Aviation Authority expiring in 2016 and a purchase
agreement with Page AvJet Corporation to acquire an aircraft hangar of
approximately 70,000 square feet at the Orlando International Airport for its
operations staff, including flight operations and station operations, and its
maintenance staff, records, inventory and personnel training facilities. AirTran
paid $3.6 million for the hangar, improved the facilities and makes monthly
ground lease payments of
74
<PAGE>
approximately $8,900. The FBO's principal offices are located in one leased and
one owned facility at the Grand Rapids Itasca County Airport in Grand Rapids,
Minnesota.
MANAGEMENT
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 50 Chairman of the Board of Directors, Chief
Executive Officer
Lewis H. Jordan 53 President, Chief Operating Officer and
Director; Chairman of the Board
of ValuJet Airlines, Inc.
D. Joseph Corr 56 Director and Executive Vice President;
President and Chief Executive Officer of
ValuJet Airlines, Inc.
Stephen C. Nevin 47 Senior Vice President - Finance and Chief
Financial Officer
Thomas Kalil 61 Senior Vice President - Customer Service of
ValuJet Airlines, Inc.
James R. Jensen 56 Senior Vice President - Maintenance and
Engineering of ValuJet Airlines, Inc.
M. Ponder Harrison 36 Senior Vice President - Sales and Marketing of
ValuJet Airlines, Inc.
Don L. Chapman 58 Director
Timothy P. Flynn 47 Director
Maurice J. Gallagher, Jr. 48 Director
</TABLE>
* Unless otherwise indicated, the position indicated is that held with
ValuJet, Inc.
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. As of November 1996, he resigned his
position as Chairman of the Board and Chief Executive Officer of the Company's
subsidiary, ValuJet Airlines, Inc. 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
has also served as a director of Lukens Medical Corporation, a medical supplies
Company, since 1995.
Lewis H. Jordan has served as President, Chief Operating Officer and a
Director of the Company since June 1993. As of November 1996, he resigned his
position as President and Chief Operating Officer of the Company's subsidiary,
ValuJet Airlines, Inc., and he became Chairman of the Board of ValuJet Airlines,
Inc. 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. 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
75
<PAGE>
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.
D. Joseph Corr joined the Company in November 1996 as President and Chief
Executive Officer of ValuJet Airlines, Inc. Mr. Corr was elected as a Director
and Executive Vice President of the Company in July 1997. Since June 1990, Mr.
Corr has also been the President and owner of Aircorr, Inc., an aircraft repair
business, and D. Joseph Corr, Inc., an investments and management services firm.
Prior to 1990, Mr. Corr served as Chairman, President and Chief Executive
Officer of Continental Airlines from December 1988 to October 1989. From March
1986 to November 1988, Mr. Corr was Vice Chairman, President and a Director of
TransWorld Airways (TWA). Mr. Corr also served as Chairman and Director of
Ozark Airlines during 1986 and as Chairman and a Director of Mid-Coast Aviation
from 1986 to 1988.
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 Senior Vice President - Customer Service of
ValuJet Airlines, Inc. 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.
James R. Jensen was elected as Senior Vice President - Maintenance and
Engineering of ValuJet Airlines, Inc. in August 1996. From October 1992 until
joining the Company in July 1996, Mr. Jensen was employed as Vice President,
Product Support of Douglas Aircraft Company. Mr. Jensen retired from TWA in
October 1992 after serving in various maintenance and engineering positions for
more than 26 years. Before retiring, Mr. Jensen served as TWA's Senior Vice
President - Maintenance and Engineering.
M. Ponder Harrison has been employed as Vice President - Sales and Marketing
of ValuJet Airlines, Inc. since June 1993. In December 1996, he was elected as
Senior Vice President - Sales and Marketing of ValuJet Airlines, Inc. Prior to
joining the Company, he was employed by Delta Air Lines, Inc. from 1988 to June
1993 in various marketing positions, his last position being national accounts
manager, corporate marketing. He was also employed by Delta from 1983 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 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 and other 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.
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<PAGE>
Maurice J. Gallagher, Jr. has been a Director of the Company since he
participated in its founding in July 1992. He served as the Company's President
from the Company's inception until June 1993. Prior to May 1994, he also served
as Chief Financial Officer of the Company. He served as Vice Chairman of the
Board of the Company from June 1993 until October 1996. Since May 1992, he has
also been involved as an investor in various aviation related and other
companies. 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.
Upon the consummation of the Merger, Messrs. Gallagher and Flynn will resign
from the Board of Directors and three individuals selected by Airways will be
added to the Board. As of the time of this Prospectus, Airways has selected
Robert D. Swenson, John K. Ellingboe and Robert C. Pohlad as its designees to
the ValuJet Board. The following information relates to such designees:
Robert D. Swenson, age 43, has served as Chairman of the Board and Chief
Executive Officer of Airways since April 1995 and as Chairman of the Board of
AirTran since June 1994. From June 1994 to January 1995, Mr. Swenson was
President of AirTran. On July 11, 1996, the Board of Directors of Airways and
AirTran appointed him to the office of President of Airways and President and
Chief Executive Officer of AirTran. Mr. Swenson served as a director, President
and Chief Executive Officer of Mesaba Holdings, Inc. and its subsidiary, Mesaba
Aviation, Inc. from 1981 to 1995 and was Chairman of the Board of Mesaba
Holdings, Inc. and Mesaba Aviation, Inc. from 1986 to September 1995. Mr.
Swenson also served as President of Mesaba's predecessor from 1978 until March
1981. Mr. Swenson holds an Airline Transport Pilot certificate with flight
instructor privileges and is type rated in the Fokker F-27 aircraft. Mr.
Swenson was a member of the Board of Directors of the Regional Airline
Association from 1985 through 1988 and served as Treasurer of the Association
during 1987 and 1988. He was elected to serve as Vice Chairman of the Board of
Directors of the Association for 1992 and was elected Chairman for 1993.
John K. Ellingboe, age 46, has served as a director of Airways since April
1995 and a director of AirTran since June 1994. Mr. Ellingboe served as a
director of Mesaba Holdings, Inc. from September 1990 to September 1995. Since
June 1996, Mr. Ellingboe has been Chief Executive Officer of PMSA Management
Group, LLC, a management consulting firm. From October 1993 to May 1996, he was
Senior Vice President, Business Development, General Counsel and Secretary of
Fingerhut Companies, Inc. From May 1990 to October 1993, he was Vice President,
General Counsel and Secretary of Fingerhut Companies, Inc. Prior to 1990, he
was an attorney in private practice.
Robert C. Pohlad, age 43, has served as President of Pohlad Companies, a
holding and management services company, since 1987. Since 1988 he has been
Chief Executive Officer and a director of Delta Beverage Group, Inc., a soft
drink manufacturer and distributor. He also serves as a director of Mesaba
Holdings, Inc., a regional air carrier, Grow Biz International, Inc. and North
Central Life Insurance Company.
CERTAIN TRANSACTIONS
Prior to August 1996, the Company contracted with Jordan Temporaries, Inc. for
temporary personnel and certain recruiting services. Lewis Jordan's daughter is
president and a part owner of Jordan Temporaries, Inc. Jordan Temporaries
provided the Company with flight attendants and ticket and gate agents during
1996. The Company's expense to Jordan Temporaries for the services of temporary
personnel and recruiting services provided was approximately $4.2 million for
the year ending December 31, 1996. Management believes that the rates paid to
Jordan Temporaries were competitive with alternative agencies which provide
similar services and that the terms of payment were at least as favorable as
available from similar agencies. The Company discontinued its relationship with
Jordan Temporaries in August 1996.
77
<PAGE>
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 $328,000 during 1996. 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.
PRINCIPAL STOCKHOLDERS
Security Ownership of Management and Certain Beneficial Owners of ValuJet
The following table sets forth, as of September 30, 1997, certain information
with respect to ValuJet's Common Stock owned beneficially by each ValuJet
director, by all executive officers and directors as a group and by each person
known by ValuJet to be a beneficial owner of more than 5% of the outstanding
Common Stock of ValuJet. Except as noted in the footnotes, each of the persons
listed has sole investment and voting power with respect to the shares of
ValuJet Common Stock included in the table.
<TABLE>
<CAPTION>
Number of Shares Percent
Name of Beneficial Owner Beneficially Owned (1) of Ownership (2)
- ------------------------------------------- ---------------------- ----------------
<S> <C> <C>
Lewis H. Jordan (3)........................ 4,389,540 7.6%
Robert L. Priddy (4)....................... 4,140,000 7.4%
Maurice J. Gallagher, Jr. (5).............. 3,475,000 6.3%
Don L. Chapman (6)......................... 79,000 *
Timothy P. Flynn (7)....................... 25,000 *
All Executive Officers and Directors as a
group (10 persons) (2)(3)(4)(5)(6)(7)(8)... 12,448,740 21.0%
</TABLE>
- ---------------------
* Less than 1%
(1) Information with respect to beneficial ownership is based upon information
furnished by each owner.
(2) 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 presently exercisable stock
options.
(3) Includes options to purchase 3,040,000 shares of Common Stock which are
presently exercisable and also includes 100,000 shares owned by a trust
under which Mr. Jordan is a beneficiary. Mr. Jordan's address is 1800
Phoenix Boulevard, Suite 126, Atlanta, Georgia 30349.
(4) Includes options to purchase 640,000 shares of Common Stock which are
presently exercisable. Excludes 100,000 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.
(5) Includes options to purchase 155,000 shares of Common Stock which are
presently exercisable, 3,539,000 shares of Common Stock owned by the
Gallagher/Moritz Family Trust under which Mr. Gallagher is a trustee and
beneficiary, and 157,500 shares of Common Stock owned by the
Gallagher/Moritz 1992 Trust
78
<PAGE>
under which Mr. Gallagher's children are beneficiaries. Also includes
30,000 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.
(6) Includes 69,000 shares of Common Stock owned by a corporation in which Mr.
Chapman is an officer and sole stockholder and options to purchase 10,000
shares of Common Stock which are presently exercisable.
(7) Includes options to purchase 5,000 shares of Common Stock which are
presently exercisable and 20,000 shares of Common Stock owned by Mr. Flynn's
children. Mr. Flynn's address is 6900 Westcliff Drive, Suite 505, Las
Vegas, Nevada 89128.
(8) In addition to outstanding shares of Common Stock owned by Executive
Officers not named in the table, also included are options to purchase
150,000, 88,400, 31,000 and 36,600 shares of Common Stock by D. Joseph Corr,
Stephen C. Nevin, Thomas Kalil and M. Ponder Harrison, respectively, which
are presently exercisable.
79
<PAGE>
DESCRIPTION OF COLLATERAL AIRCRAFT
Collateral Aircraft
The Collateral Aircraft are to consist of 24 McDonnell Douglas DC-9
series 30 aircraft. The aircraft were manufactured between 1967 and 1976 and
have an average number of take-off and landing cycles of aircraft of
approximately 57,300. Seventeen of the Collateral Aircraft already comply with
the Stage 3 noise requirements, hush kits having been already added. The
remaining Collateral Aircraft are Stage 2 aircraft. A portion of the proceeds
of this Offering will be applied to the purchase of hush kits for four of such
Stage 2 aircraft.
In addition, three Pratt & Whitney JT8D-9A spare engines and four hush
kits to be installed on such aircraft (after their purchase by ValuJet Airlines)
also serve as collateral for the Notes.
Appraisals
The Company has obtained appraisals of the Collateral Aircraft from BK
Associates and AvSolutions. The appraisals estimate aggregate current fair
market value at $119.6 million and $112.5 million, respectively, and estimated
aggregate future market value in 2001 at $93.7 million and $87.7 million,
respectively. The following is a summary of the appraisals (the totals do not
add up due to rounding):
<TABLE>
<CAPTION>
Future Fair Market
Current Fair Market Appraised Value Appraised Value As of April 2001
Registration Date of ----------------------------------- -----------------------------------
Number Manufacture Stage AvSolutions BK Associates Average AvSolutions BK Associates Average
- ------------ ----------- ----- ----------- ------------- ------- ----------- ------------- -------
(dollars in millions) (dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
N921VV 1968 2 $ 2.5 $ 3.2 $ 2.8 $ 3.5 $3.8 $3.6
N922VV 1968 2 2.5 3.2 2.8 3.5 3.8 3.6
N923VV 1971 2 2.6 3.7 3.1 3.8 3.9 3.9
N924VV 1968 2 2.5 3.2 2.8 3.5 3.8 3.6
N925VV 1968 2 2.5 3.2 2.8 3.5 3.8 3.6
N930VV 1976 3 6.1 7.0 6.5 4.3 4.8 4.5
N931VV 1975 3 6.0 6.6 6.3 4.2 4.6 4.4
N932VV 1970 3 5.6 5.6 5.6 3.8 3.8 3.8
N933VV 1969 3 5.5 5.4 5.4 3.5 3.8 3.7
N934VV 1969 3 5.5 5.4 5.4 3.5 3.8 3.7
N935VV 1971 3 5.7 5.8 5.7 3.8 3.9 3.9
N936VV 1971 3 5.7 5.8 5.7 3.8 3.9 3.9
N937VV 1968 3 5.4 5.3 5.4 3.5 3.8 3.6
N938VV 1970 3 5.6 5.6 5.6 3.8 3.8 3.8
N939VV 1967 3 5.3 5.1 5.2 3.4 3.8 3.6
N945VV 1969 3 5.5 5.4 5.4 3.5 3.8 3.7
N946VV 1968 3 5.4 5.3 5.4 3.5 3.8 3.6
N947VV 1972 3 5.7 6.0 5.9 3.9 4.1 4.0
N948VV 1972 3 5.7 6.0 5.9 3.9 4.1 4.0
N949VV 1971 3 5.7 5.8 5.7 3.8 3.9 3.9
N960VV 1967 2 2.5 3.0 2.7 3.4 3.8 3.6
N965VV 1968 2 2.5 3.2 2.8 3.5 3.8 3.6
N966VV 1968 3 5.4 5.3 5.4 3.5 3.8 3.6
N967VV 1968 3 5.4 5.3 5.4 3.5 3.8 3.6
---- ---- ---- ---- ---- ----
Total $112.5 $119.6 $116.1 $87.7 $93.7 $90.7
</TABLE>
Current fair market value is the most likely trading price that, in the
opinion of the appraiser, may be generated for an aircraft under the market
conditions that are perceived to exist at the time in question. Current fair
market value assumes that the aircraft is valued for its highest, best use, that
the parties to the hypothetical sale transaction are
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willing, able, prudent and knowledgeable, and under no unusual pressure for a
prompt sale, and that the transaction would be negotiated in an open and
unrestricted market on an arm's length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers. Current market value also assumes that an aircraft's
physical condition is average for aircraft of its type and age.
The appraised value of the Collateral Aircraft does not necessarily
reflect the price the Company would receive if it were to sell such aircraft.
If, for example, a distress sale were necessary to dispose of Collateral
Aircraft quickly, a substantial discount from the appraised value could be
required.
In making their appraisals, the appraisers have not physically inspected
the Collateral Aircraft nor the related technical documentation, and have relied
solely on data provided by the Company for purposes of the appraisals. In
making the appraisals, the appraisers have made the following assumptions: (i)
the aircraft have "half-time" remaining to the next major overhauls or scheduled
shop visit on the aircraft's airframe or major components, (ii) the aircraft are
in compliance with all FAA airworthiness directives, (iii) the aircraft are in
current flight operations, (iv) the aircraft have no damage history, (v) the
aircraft are in average or better physical condition, and (vi) the aircraft are
sold for cash without seller financing. However, one of the Collateral Aircraft
is currently being stored and is not currently in the Company's flight
operations. Unless such aircraft is leased out or sold by the Company, the
Company intends to reactivate such aircraft into commercial service in the near
future.
DESCRIPTION OF THE EXCHANGE NOTES
General
The Outstanding Notes were issued under an Indenture dated as of August
13, 1997 (the "Indenture") among the Company, (sometimes referred to herein as
the "Guarantor"), the Subsidiary Guarantors (as defined herein) and The Bank of
New York, 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 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
will be considered collectively to be a single class for all purposes of this
"Description of the Exchange Notes" (except under the 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 Notes are secured senior obligations of the Issuer, will be limited
to $80.0 million aggregate principal amount and will mature on April 15, 2001.
The Outstanding Notes bear interest at the rate of 10 1/2% per annum from August
13, 1997, the date of initial issuance. The Exchange Notes will bear interest
at the rate of 10 1/2% per annum from their date of issuance, except that
holders of Exchange Notes will also receive interest on April 15, 1998 from
October 15, 1997, to the date of surrender of such Outstanding Notes in exchange
for Exchange Notes. Subject to the preceding sentence, payable in cash on April
15 and October 15 of each year, commencing April 1, 1998, to the holders of
record at the close of business on the preceding April 1 or October 1 (whether
or not a business day), as the case may be. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the Notes is subject to increase in certain
circumstances if the registered exchange offer is not consummated and a shelf
registration statement is not declared effective on a timely basis as described
under "--Registration Rights."
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 Issuer in The Borough of Manhattan, The City of New York. In addition,
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payment of interest may, at the option of the Issuer, be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register.
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.
Redemption
The Notes will not be subject to any redemption at the option of the
Issuer and will not have the benefit of any sinking fund obligations.
Guarantees
The Notes are fully and unconditionally guaranteed by the Guarantor and
all existing Restricted Subsidiaries of the Guarantor (other than the Issuer),
and the Guarantor has agreed to cause any future Restricted Subsidiaries to
fully and unconditionally guarantee the Notes, in each case jointly and
severally on a senior basis (such guarantees, the "Guarantees," such
Restricted Subsidiary guarantors, the "Subsidiary Guarantors" and, together
with the Guarantor, the "Guarantors"); provided that each such Restricted
Subsidiary will cease to be a Subsidiary Guarantor when it ceases to be a
Restricted Subsidiary.
Ranking
The Notes are senior secured obligations of the Issuer and rank pari
passu in right of payment with all other existing and future unsubordinated
indebtedness of the Issuer. The Notes have the benefit of the security interests
described under "--Security." The Notes are effectively subordinated to other
senior secured indebtedness of the Issuer with respect to the assets securing
such indebtedness. The Guarantees rank pari passu in right of payment with all
existing and future unsecured unsubordinated indebtedness of the Guarantors will
rank senior in right of payment to any future subordinated indebtedness. The
Guarantees are effectively subordinated to all existing and future secured
indebtedness of the Guarantors to the extent of the collateral securing such
indebtedness. See "Risk Factors--Recent Operating Losses; Ability to Repay
Indebtedness At Maturity." In addition, the Notes and the Guarantees are
effectively subordinated to all liabilities (including trade payables) of the
Guarantors' subsidiaries (if any) that are not Subsidiary Guarantors.
Security
As security for the Notes, the Issuer has granted to the Trustee for the
equal and ratable benefit of the Holders of the Notes a security interest in:
(i) all right, title and interest of the Issuer in and to the Aircraft, the
Engines and the hush kits and all warranties of any manufacturer with respect
thereto; (ii) all monies and securities deposited or required to be deposited
with the Trustee pursuant to any term of the Indenture or required to be held by
the Trustee thereunder; (iii) all policies covering loss or damage to the
Aircraft that are made payable to the Trustee; and (iv) all proceeds of the
foregoing.
Subject to the exception summarized in this paragraph, the Issuer will be
required to keep each Aircraft registered under the Aviation Act and to record,
or maintain the recordation of, the Indenture, among other documents, with
respect to each Aircraft under the Aviation Act. Such recordation of the
Indenture and other documents with respect to each Aircraft will give the
Trustee a first priority perfected security interest in the related Aircraft
wherever it is located in the United States or any of its territories and
possessions and, with certain exceptions, in a limited number of other
jurisdictions. In the event the Issuer leases any Aircraft to a Permitted Air
Carrier operating pursuant to a license or authorization issued under the laws
of a Permitted Country, the Issuer may, subject to certain conditions, re-
register an Aircraft under the laws of such country. On or prior to such lease
or change in the jurisdiction of registry, the Trustee shall have received an
opinion (or opinions) of counsel to the effect that, among other things, the
lien of the Indenture continues to be perfected, the Indenture continues to be
enforceable against the parties thereto
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and the Trustee maintains its right to repossession thereunder, in each case
pursuant to applicable law. In the case of an Event of Default, the ability of
the Trustee to realize upon its security interest in an Aircraft could be
adversely affected as a legal or practical matter if the Aircraft is registered
or located outside of the United States. The Aircraft also may be operated by
the Issuer or by a lessee under lease in certain countries that are not
Permitted Countries. The extent to which the priority of the Trustee's security
interest would be recognized in such countries is uncertain, but the Issuer has
covenanted not to create or suffer to exist any other Liens except for certain
Permitted Liens.
Funds, if any, held from time to time by the Trustee with respect to any
Aircraft, including funds held as a result of an Event of Loss to such Aircraft
or an Asset Disposition of such Aircraft, so long as no Event of Default shall
have occurred and be continuing, will be invested and reinvested by the Trustee,
at the direction of the Issuer, in certain Permitted Investments. The Issuer
will pay the amount of any loss resulting from any such investment directed by
it.
Although the Indenture and other documents will give the Trustee a first
priority perfected security interest in the Aircraft, the protections of Section
1110 under Title 11 of the United States Bankruptcy Code will not be available.
Section 1110 grants special rights to parties who acquire security interests in
various aircraft-related transactions if such security interests are purchase
money security interests and the security interests are granted by a U.S.
certificated air carrier. Under Section 1110, the right of a party to repossess
an aircraft in compliance with the terms of the security agreement relating to
the aircraft will not be affected in a Chapter 11 bankruptcy reorganization case
by the automatic stay provisions of the Bankruptcy Code or any power of the
bankruptcy court to enjoin such repossession unless, within 60 days after
commencement of a Chapter 11 bankruptcy reorganization case, the debtor agrees,
with the court's approval, to perform its obligations under the security
agreement that are or thereafter become due and cures all outstanding defaults
(other than defaults relating to financial condition or bankruptcy). Because the
protections of Section 1110 will not be available, payments under the Notes
might be interrupted without the ability to repossess the Aircraft from the
Issuer or the ability of the Trustee to exercise its remedies under the Notes
may be adversely affected. See "Risk Factors--Effect of Bankruptcy on Exercise
of Remedies."
Registration Rights
The Issuer and the Guarantors have entered into a registration rights
agreement (the "Registration Rights Agreement") pursuant to which they agreed
with the Initial Purchaser, for the benefit of the holders of the Notes, (i) to
file with the Commission, within 60 days following the Closing Date, a
registration statement (the "Exchange Offer Registration Statement") under the
Securities Act relating to an exchange offer (the "Exchange Offer") pursuant
to which securities (the "Exchange Notes") substantially identical to the
Notes (except that such securities will not bear legends restricting the
transfer thereof) would be offered in exchange for the then outstanding Notes
and (ii) to use their best efforts to cause the Exchange Offer Registration
Statement to become effective within 150 days following the Closing Date. The
Issuer and the Guarantors have further agreed to hold the Exchange Offer open
for at least 30 days (or longer if required by applicable law), and to issue
Exchange Notes for all outstanding Notes validly tendered and not withdrawn
before the expiration of the Exchange Offer.
Under positions enunciated by the staff of the Securities and Exchange
Commission (the "Commission") in no-action letters issued in Exxon Capital
Holdings Corp. and Morgan Stanley & Co. Inc., among others, 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 in these no-action letters
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 Issuer and the
Guarantors are required to allow Participating Broker-Dealers to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes. Each holder of the outstanding Notes 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
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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 Issuer (as defined in Rule 405 of the Securities Act) or,
if it is an affiliate, that it will comply with all applicable registration and
prospectus delivery requirements of the Securities Act.
However, if the interpretations of the staff of the Commission do not
permit the Issuer and the Guarantors to effect the Exchange Offer, or under
certain other circumstances, the Issuer and the Guarantors have agreed to use
their best efforts to cause a shelf registration statement relating to resales
of the Notes (the "Shelf Registration Statement") to become effective and to
remain effective until the expiration of the time period referred to in Rule
144(k) under the Securities Act after the Closing Date or such shorter period
that will terminate when all Notes covered by the Shelf Registration Statement
have been sold pursuant thereto. The Issuer and the Guarantors will, in the
event of a shelf registration, provide to the Holders of the Notes copies of the
prospectus that is a part of the Shelf Registration Statement, notify such
Holders when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit resales of the Notes. A Holder
of Notes that sells such Notes pursuant to the Shelf Registration Statement
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 that (a) neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the Commission on or
prior to the 60th day following the Closing Date, (b) neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has been declared
effective on or prior to the 150th day following the Closing Date, (c) either
the Exchange Offer has not been consummated or a Shelf Registration Statement
has not been declared effective on or prior to the 180th day following the
Closing Date or (d) after the Shelf Registration Statement is declared
effective, such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Notes or
Exchange Notes in accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) a "Registration Default"), interest ("Additional Interest") will
accrue on the Notes and the Exchange Notes (in addition to the stated interest
on the Notes and the Exchange Notes) from and including the date on which any
such Registration Default shall occur to, but excluding the date on which all
Registration Defaults have been cured. The Additional Interest will accrue at a
rate of 0.50% per annum during the 90-day period immediately following the
occurrence of any Registration Default and shall increase by 0.50% per annum at
the end of each subsequent 90-day period, but in no event shall such rate exceed
1.50% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Covenants Relating to the Aircraft
Registration and Maintenance. Pursuant to the Indenture, the Issuer is
obligated, at its expense, to cause each Aircraft to be duly registered, to pay
all costs of operating each Aircraft and to maintain, service and repair each
Aircraft so as to keep each Aircraft in as good operating condition as on the
Closing Date, ordinary wear and tear excepted, and in such condition as may be
necessary to enable the airworthiness certification thereof to be maintained in
good standing at all times (other than during temporary periods of repair,
maintenance, modification, storage or grounding) under the Aviation Act;
provided that in the event the Issuer leases the Aircraft in accordance with the
terms of the Indenture to a Permitted Air Carrier organized and operating under
the laws of a Permitted Country, such lease shall provide that the lessee shall
(i) throughout the term of such lease, inspect, service, repair, overhaul and
test the Aircraft in compliance with such lessee's maintenance program as
approved by the applicable governmental authority and maintain the airworthiness
certification of such Aircraft in such Permitted Country in good standing
throughout the term of the lease; and (ii) return the Aircraft at the end of the
term of the lease in an operating condition the same or better than the
operating condition of the Aircraft when delivered to the lessee (ordinary wear
and tear
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excepted), and in such condition as to qualify for a United States standard FAA
certificate of airworthiness. The Issuer will be obligated, at its expense, to
replace, or cause to be replaced, all parts (other than severable parts added at
the option of the Issuer and obsolete or unsuitable parts that the Issuer is
permitted to remove to the extent described below) that may from time to time be
incorporated or installed in or attached to any Aircraft and that may become
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
rendered permanently unfit for use. The Issuer will have the right to make such
alterations and modifications in and additions to (including removal of parts
from) each Aircraft as the Issuer deems desirable; provided that no such
alteration, modification, addition or removal shall materially diminish the
value, utility or condition of such Aircraft in the service in which it is
operated by the Issuer or impair the airworthiness thereof.
Possession, Lease and Transfer. The Issuer may lease any Aircraft or
Engine to a Permitted Air Carrier; provided that the Trustee shall have received
an opinion (or opinions) of counsel to the effect that, among other things, the
lien of the Indenture continues to be perfected, the Indenture continues to be
enforceable against the parties thereto and the Trustee maintains its right to
repossession thereunder, in each case pursuant to applicable law. In addition,
subject to certain limitations, the Issuer (and any permitted lessee) may (i)
transfer possession of any Aircraft pursuant to "wet lease" or similar
arrangements, in each case whereby the Issuer (or such permitted lessee)
maintains operational control of the Aircraft, (ii) transfer possession of any
Aircraft or the Engines, other than by lease, through transfers to the United
States Government and transfers in connection with maintenance or modifications;
(iii) transfer possession of the Engines and any parts from time to time
installed on any Aircraft or Engine other than by lease through transfers in
connection with interchange and pooling arrangements with certificated "air
carriers" within the meaning of the Aviation Act or FAA licensed repair
stations; or (iv) install one or more of the Engines on airframes owned,
mortgaged, leased or subject to conditional purchase by, the Issuer (or such
permitted lessee); provided that the rights of the parties to agreements related
thereto effectively provide that such Engines shall not become subject to the
lien of such agreement notwithstanding the installation thereof on such airframe
(and the Indenture shall provide for a reciprocal agreement for the benefit of
such parties that have so agreed that the Trustee shall not claim a lien on any
Engine installed on an Airframe). If any Aircraft is leased or the possession is
otherwise transferred, such Aircraft will remain subject to the lien of the
Indenture. No lease of any Aircraft shall be for a term in excess of five years
beyond the maturity of the Notes and the Issuer shall grant to the Trustee for
the equal and ratable benefit of the Holders of the Notes a security interest in
such lease; provided that at all times prior to an Event of Default (and at any
time thereafter when any such Event of Default has been cured or waived), the
Issuer (x) shall be entitled to receive and retain all payments made pursuant to
the lease; and (y) shall be entitled to exercise (to the exclusion of the
Trustee) all rights and remedies of the "Lessor" under the lease and grant
such consents, waivers and enter into such amendments to the lease as are
consistent with the provisions of the Indenture and as the Issuer may determine
appropriate in its discretion.
Liens. The Aircraft will be maintained by the Issuer free of any Liens,
other than the rights of the Trustee under the Indenture and certain Permitted
Liens, such as Liens for taxes either not yet due and payable or being contested
in good faith; suppliers', mechanics' and other similar Liens arising in the
ordinary course of business and either not yet due and payable or being
contested in good faith; certain judgment Liens whose enforcement has been
stayed; salvage and similar rights of insurers of the Aircraft, and certain
other Liens with respect to which the Issuer shall have provided a bond or other
security in an amount and under terms reasonably satisfactory to the Trustee.
Insurance. The Issuer will maintain, at its expense, all-risk aircraft
hull insurance covering the Aircraft and all-risk property damage insurance
covering Engines and parts, including while temporarily removed from an Aircraft
pending replacement, at all times in an amount not less than the aggregate
Initial Appraised Value of all of the Aircraft (as such aggregate appraised
value may be reduced from time to time in connection with an Asset Disposition
permitted under the terms of the Indenture); provided that in no event will a
Stage 3 Aircraft be insured for less than $5.5 million or a Stage 2 Aircraft be
insured for less than $3.0 million. See "--Limitation on Certain Asset
Dispositions." All policies covering loss or damage to such Aircraft shall be
made payable to the Trustee for any Event of Loss to an Aircraft and for that
portion, if any, of damage not constituting an Event of Loss to an Aircraft in
excess of $900,000, which amount will be applied to repair of such aircraft in
accordance with the Indenture. The Issuer may self-insure a portion of these
risks by means of deductible or premium adjustment provisions in insurance
policies in such
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reasonable amounts as are then applicable to other similar owned aircraft in the
Issuer's fleet, but in no case will the self-insurance (including the self-
insurance for public liability and property damage referred to below) with
respect to all of the aircraft in the Issuer's fleet (including the Aircraft)
exceed, for any policy period, 7.5% of Consolidated Net Worth (during the
preceding calendar year) of all aircraft in which the Company carries insurance.
The Issuer is also permitted a deductible per occurrence not in excess of the
prevailing standard market deductible for similar aircraft in the case of damage
to such Aircraft not constituting an Event of Loss to such Aircraft. In
addition, the Issuer will, at its expense, maintain public liability and
property damage insurance (exclusive of manufacturer's product liability
insurance) with respect to each Aircraft in amounts that are not less than the
public liability and property damage insurance applicable to similar aircraft in
the Issuer's fleet. The Issuer may also self-insure a portion of these risks by
means of deductible or premium adjustment provisions in insurance policies which
are subject to the same limitation with respect to the aggregate amount of self-
insurance as that set forth in the third sentence of this paragraph for
insurance for risks of loss or damage to such Aircraft. The Issuer is also
permitted a deductible per occurrence not in excess of the prevailing standard
market deductible for similar aircraft. To the extent that a lessee of an
Aircraft maintains insurance policies which name the Trustee as loss payee and
which comply with the terms of the Indenture, the Issuer will not be required to
maintain such insurance coverage. The Trustee and the Issuer will be named as
insured parties under all insurance policies required with respect to such
Aircraft. If and to the extent that the Issuer or a lessee operates the Aircraft
(A) on routes where it maintains war risk insurance in effect with respect to
other similar equipment or (B) on routes where the custom in the industry is to
carry such insurance, the Issuer or such lessee shall maintain such insurance
with respect to the Aircraft in an amount not less than the Initial Appraised
Value of the Aircraft; provided that in no event will a Stage 3 Aircraft be
insured for less than $5.5 million or a Stage 2 Aircraft be insured for less
than $3.0 million. Unless the Aircraft is operated or used under a contract with
the United States Government pursuant to which the United States Government
assumes liability for damage or loss to such Aircraft and to other property or
persons, the Issuer may not operate or locate any such Aircraft outside the
United States and Canada (i) in any war zone or recognized or, in the Issuer's
reasonable judgment, threatened area of hostilities, unless such Aircraft is
covered by war risk insurance, or (ii) in any area excluded from the insurance
coverage required by the Indenture.
Certain Covenants
The Indenture contains, among others, the following covenants:
(a) Limitation on Guarantor Debt. The Guarantor 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 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.
Without regard to the foregoing limitation, the Guarantor 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 Guarantor to any Wholly Owned Restricted
Subsidiary of the Guarantor; 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 Guarantor or another
Wholly Owned Restricted Subsidiary of the Guarantor or (B) such Wholly
Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
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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 Guarantor
or a Restricted Subsidiary of the Guarantor 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, or all such
Debt refinanced pursuant to Clause (viii) below or Clause (x) under
"Limitation on Subsidiary Debt and Preferred Stock" below, does not
exceed $10.0 million at any one time outstanding;
(vii) Debt (other than the Notes) Incurred to finance the
acquisition and installation after June 30, 1997 of Stage 3 hush kit
units, which Debt is Incurred prior to, at the time of or within 180 days
after the acquisition of such hush kit units and which hush kit units
were not owned by the Guarantor or a Restricted Subsidiary of the
Guarantor prior to such acquisition; provided that the aggregate
principal amount of all Debt Incurred pursuant to the provisions
described under this Clause (vii) and Clause (viii) under "Limitation on
Subsidiary Debt and Preferred Stock" below, or all such Debt refinanced
pursuant to Clause (viii) below or Clause (x) under "Limitation on
Subsidiary Debt and Preferred Stock" below, does not exceed $53.0
million at any one time outstanding;
(viii) Debt Incurred to renew, extend, refund or otherwise
refinance any Debt referred to in Clauses (ii) through (vii) 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 Guarantor as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated
repurchase, plus the expenses of the Guarantor 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 Guarantor or any Restricted
Subsidiary of the Guarantor, 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 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;
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(ix) Debt consisting of Permitted Interest Rate, Currency and Fuel
Protection Agreements; and
(x) Debt not otherwise permitted to be Incurred pursuant to
Clauses (i) through (ix) above, which, together with any other
outstanding Debt Incurred pursuant to this Clause (x), has an aggregate
principal amount not in excess of $45.0 million at any one time
outstanding.
(b) Limitation on Subsidiary Debt and Preferred Stock. The Guarantor may
not permit any Restricted Subsidiary of the Guarantor 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 Guarantor or
a Wholly Owned Restricted Subsidiary of the Guarantor; provided, however,
that upon either (x) the transfer or other disposition by the Guarantor
or such Wholly Owned Restricted Subsidiary of any Debt or Preferred Stock
so permitted to a Person other than the Guarantor or another Wholly Owned
Restricted Subsidiary of the Guarantor 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 Guarantor
(including by way of a merger or consolidation with another Restricted
Subsidiary of the Guarantor), 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 Guarantor or
a Restricted Subsidiary of the Guarantor 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 Guarantor Debt" above, or all such Debt refinanced
pursuant to Clause (x) below or Clause (viii) under the "Limitation on
Guarantor Debt" above, does not exceed $10.0 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
Guarantor under Bank Credit Agreements in an aggregate principal amount at
any one time outstanding not in excess of the Bank Debt Limit;
(viii) Debt (other than the Notes) Incurred to finance the
acquisition and installation after June 30, 1997 of Stage 3 hush kit units,
which Debt is Incurred prior to, at the time of or within 180 days after the
acquisition of such hush kit units and which hush kit units were not owned by
the Guarantor or a Restricted Subsidiary of the Guarantor prior to such
acquisition; provided that the aggregate principal amount of all Debt Incurred
pursuant to the provisions described under this Clause (viii) and Clause (vii)
under "Limitation on Guarantor Debt" above, or all such Debt refinanced pursuant
to Clause (x) below or clause (viii) under "Limitation on Guarantor Debt" above,
does not exceed $53.0 million at any one time outstanding;
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(ix) Debt consisting of Guarantees of the Notes Incurred by any
Restricted Subsidiary upon such Person becoming a Restricted Subsidiary;
and
(x) 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 (ix) 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 Guarantor as necessary to accomplish such exchange or refinancing by
means of a tender offer or privately negotiated repurchase, plus the
expenses of the Guarantor 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 Guarantor or any Restricted Subsidiary of the Guarantor, 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.
(c) Limitation on Liens. The Guarantor may not, and may not permit any
Restricted Subsidiary of the Guarantor to, Incur any Lien on any property of the
Guarantor or any of its Restricted Subsidiaries, now owned or hereafter
acquired, to secure any Debt without making, or causing such Restricted
Subsidiary to make, effective provision for securing the Notes (and, if the
Guarantor may so determine, any other Debt of the Guarantor 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.
The foregoing restrictions will not apply to the following liens
(collectively "Permitted Liens"):
(i) Liens securing only the Notes;
(ii) Liens in favor of only the Guarantor 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 Guarantor or another Restricted Subsidiary of
the Guarantor or (b) such Restricted
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Subsidiary ceasing to be a Restricted Subsidiary, the provisions 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 Guarantor 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 Guarantor 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;
(xiv) Liens (a) on an aggregate of four DC-9 aircraft to secure Debt of
up to $3.0 million per aircraft, which is permitted to be Incurred under the
"Limitation on Guarantor Debt" or the "Limitation on Subsidiary Debt and
Preferred Stock" covenants, Incurred to finance the acquisition and
installation after June 30, 1997 of Stage 3 hush kit units on other aircraft and
(b) on an aircraft to secure Debt, which is permitted to be Incurred under the
"Limitation on Guarantor Debt" or the "Limitation on Subsidiary Debt and
Preferred Stock" covenants, Incurred to finance the acquisition and
installation after June 30, 1997 of Stage 3 hush kit units on such aircraft; and
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(xv) any Liens securing Debt Incurred to extend, renew, refinance or
refund secured Debt which is permitted to be Incurred under Clause (viii)
of the "Limitation on Guarantor Debt" or Clause (x) of the "Limitation on
Subsidiary Debt and Preferred Stock" covenants; provided such Liens do
not extend to any property other than the property securing the Debt
being extended, renewed, refinanced or refunded.
(d) Limitation on Restricted Payments. The Guarantor (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 Guarantor to, purchase, redeem or otherwise
acquire or retire for value (a) any Capital Stock of the Guarantor or any
Related Person of the Guarantor or (b) any options, warrants or other rights to
acquire, or any securities convertible or exchangeable into, shares of Capital
Stock of the Guarantor or any Related Person of the Guarantor; (iii) may not
make, or permit any Restricted Subsidiary of the Guarantor to make, any
Investment that is not a Permitted Investment; and (iv) may not, and may not
permit any Restricted Subsidiary of the Guarantor to, redeem, defease (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, 10 1/4% Notes or any Debt of the Issuer or any Guarantor that is
subordinate in right of payment to the Notes or the Guarantees (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 Guarantor 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 Guarantor 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, 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
Guarantor'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 cash proceeds from
the issuance or sale (other than to a Restricted Subsidiary of the
Guarantor) of Capital Stock (other than Disqualified Stock) of the
Guarantor and options, warrants or other rights to acquire Capital Stock
(other than Disqualified Stock) of the Guarantor and the principal amount
of Debt of the Guarantor that has been converted into or exchanged for
Capital Stock (other than Disqualified Stock) of the Guarantor after the
date of the Indenture.
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; (ii) any
refinancing of Debt permitted pursuant to Clause (viii) of the second paragraph
under "Limitation on Guarantor Debt" above or any refinancing or exchange of
Debt or Preferred Stock permitted pursuant to Clause (x) under "Limitation on
Subsidiary Debt and Preferred Stock" above; (iii) any purchase, redemption or
other acquisition or retirement for value of Capital Stock of the Guarantor or
Debt with the proceeds of, or in exchange for, shares of Capital Stock (other
than Disqualified Stock) of the Guarantor; (iv) the repurchase of 10 1/4% Notes
or any Debt of the Issuer or any Guarantor that is subordinate in right of
payment to the Notes or the Guarantees in connection with an Asset Disposition
or Change of Control; provided that the Issuer shall have made an Offer to
Purchase the Notes, and shall
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have accepted and paid for any Notes properly tendered in connection therewith,
in each case in accordance with the terms of the Indenture; (v) Investments
acquired as a capital contribution to the Guarantor or in exchange for Capital
Stock (other than Disqualified Stock) of the Guarantor; provided, however, that
the amount of any such capital contribution or Investment acquired in exchange
of Capital Stock shall not be added to the aggregate amount available to the
Guarantor to make Restricted Payments as calculated under clause (3)(b) of the
preceding paragraph; and (vi) the repurchase of 10 1/4% Notes in an aggregate
principal amount not to exceed $35.0 million.
(e) Limitations Concerning Distributions by Subsidiaries, etc. The
Guarantor may not, and may not permit any Restricted Subsidiary of the Guarantor
to, suffer to exist any consensual encumbrance or restriction on the ability of
any Restricted Subsidiary of the Guarantor (i) to 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 Guarantor or any other Restricted
Subsidiary of the Guarantor; (ii) to make loans or advances to the Guarantor or
any Restricted Subsidiary of the Guarantor; or (iii) to transfer any of its
property to the Guarantor or any Restricted Subsidiary of the Guarantor 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 Guarantor (including by reason of a merger or
consolidation with another Subsidiary of the Guarantor), 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.
(f) Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Guarantor will not, and will not permit any Restricted
Subsidiary of the Guarantor 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 Guarantor 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."
(g) Limitation on Transactions with Affiliates and Related Persons. The
Guarantor may not, and may not permit any Restricted Subsidiary of the Guarantor
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 Guarantor;
or (ii) the terms of the transaction are no less favorable to the Guarantor 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 Guarantor or
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such Subsidiary; provided that, for any transaction (or series of related
transactions) in which the total consideration given or to be provided by the
Guarantor 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 $5.0 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.
(h) Limitation on Certain Asset Dispositions. The Guarantor may not make,
and may not permit any Restricted Subsidiary of the Guarantor to make, any Asset
Disposition in one or more related transactions unless: (i) the Guarantor (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 Guarantor 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 Guarantor (or
such Subsidiary) consists of cash or readily marketable cash equivalents or the
assumption of Debt or other obligations of the Guarantor 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 Guarantor 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 Guarantor (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 unsubordinated 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) ("Excess
Proceeds"), 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; 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 Guarantor which is not otherwise prohibited by
the Indenture.
Notwithstanding the foregoing, the Issuer 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 $10.0
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).
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 business
days after the aggregate amount of Excess Proceeds exceeds $10.0 million. 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 (x) all or substantially all the properties and assets of the
Issuer or the Guarantor subject to the provisions described under "Mergers,
Consolidations and Certain Sales and Purchases of Assets" or (y) Collateral
subject to the provisions described under "Limitation on Collateral Sales."
(i) Limitation on Collateral Sales; Event of Loss. The Issuer will not
transfer, convey, sell, lease (other than leases and transfers of possession
permitted under "Covenants Relating to the Aircraft") or otherwise dispose of
(a "Sale") any Aircraft or Engine unless (i) the Issuer receives (x)
consideration, consisting solely of cash, at the time of such Sale at least
equal to the fair market value of the Aircraft or Engine disposed of (determined
by the Chief
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Financial Officer of the Issuer in good faith) or (y) a Stage 3 Aircraft or
Engine or, in the case of a Sale of any Stage 2 Aircraft or Engine only, a Stage
2 Aircraft or Engine, as the case may be, of the same or a more advanced model
and having a value (determined by the Chief Financial Officer of the Issuer in
good faith) and utility at least equal to, and in as good operating condition
and repair and as airworthy as, the Aircraft or Engine subject to the Sale,
assuming such Aircraft or Engine, as the case may be, was in the condition and
repair required by the Indenture immediately prior to such Sale. If the Issuer
consummates a Sale for cash, or if an Event of Loss occurs, with respect to any
Aircraft or Engine, the Trustee will receive and hold, and if received by the
Issuer, the Issuer will pay over to the Trustee, the proceeds of such Sale or
Event of Loss; provided that if the amount of such proceeds is less than the
Initial Appraised Value of such Aircraft or Engine, the Issuer shall pay to the
Trustee an additional amount equal to the difference between such proceeds and
the Initial Appraised Value. The Issuer may, within 365 days after such Sale or
Event of Loss, subject to the lien of the Indenture, substitute a Stage 3
aircraft or engine or, in the case of a Sale of a Stage 2 aircraft or engine
only, a Stage 2 Aircraft or Engine, of the same or a more advanced model and
having a value (determined by the Chief Financial Officer of the Issuer in good
faith) and utility at least equal to, and in as good operating condition and
repair and as airworthy as, the Aircraft or Engine subject to the Sale or Event
of Loss, assuming such Aircraft or Engine was in the condition and repair
required by the Indenture immediately prior to the occurrence of such Sale or
Event of Loss, and the Trustee shall, upon receipt of evidence of such
substitution, pay to the Issuer the proceeds of such Sale or Event of Loss and
any related additional amounts held by it. In the event the Issuer elects not to
replace such Aircraft (or in the event such Aircraft or Engine is not replaced
within 365 days after such Sale or Event of Loss), the Trustee will refund to
the Issuer, and the Issuer will be required to apply, an amount equal to the
proceeds received from such Sale or Event of Loss, together with any additional
amounts paid to the Trustee by the Issuer with respect to the difference between
the amount of such proceeds and the Initial Appraised Value of such Aircraft, to
purchase Notes in the open market; provided that with respect to the proceeds of
any Sale of or Event of Loss to an Aircraft, in no event shall the Issuer be
required to so apply, and the Issuer shall be permitted to retain, amounts, if
any, in excess of the Initial Appraised Value of such Aircraft unless such
Aircraft was a Stage 2 Aircraft at the date such Initial Appraised Value was
determined (or an Aircraft substituted for such Aircraft under the Indenture)
and such Aircraft (or such substituted Aircraft) subsequently became a Stage 3
Aircraft, in which case the maximum amount the Issuer would be required to so
apply will be the Initial Appraised Value of such Aircraft plus $2.3 million.
Notwithstanding the foregoing, if the Issuer consummates a Sale, or an Event of
Loss occurs, with respect to an Engine alone, the Issuer must replace such
Engine with another engine of the same or an improved model of the same or
another manufacturer and suitable for installation and use on the Aircraft, and
having a value and utility at least equal to and in as good operating condition
as, the Engine subject to the Sale or Event of Loss, assuming such Engine was of
the value and utility and in the condition and repair required by the Indenture
immediately prior to the occurrence of such Sale or Event of Loss. Any cash
received in connection with a Sale or an Event of Loss shall be held by the
Trustee and invested in Permitted Collateral Investments until applied in
accordance with this covenant. Upon payment to the Trustee of the proceeds from
the Sale or an Event of Loss with respect to an Aircraft, together with any
additional amounts paid to the Trustee by the Issuer in respect of the
difference between the amount of such proceeds and the Initial Appraised Value
of such Aircraft, as required by this "Limitation on Collateral Sales"
covenant, the lien of the Indenture with respect to such Aircraft (but not the
proceeds with respect thereto) shall terminate.
(j) Provision of Financial Information. Whether or not the Guarantor is
required to be subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provision thereto, the Guarantor will file with the Commission the
annual reports, quarterly reports and other documents which the Guarantor 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 Guarantor were so required, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Guarantor would have been required
so to file such documents if the Guarantor were so required. The Guarantor 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 Guarantor 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 Guarantor were required to be subject to
such Sections and (b) if filing
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such documents by the Guarantor with the Commission is not permitted under the
Exchange Act, promptly upon written request supply copies of such documents to
any prospective Holder.
(k) Unrestricted Subsidiaries. The Guarantor 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 Guarantor may at any time terminate
the status of any Subsidiary as an Unrestricted Subsidiary, whereupon such
Subsidiary and each other Subsidiary of the Guarantor (if any) of which such
Subsidiary is a Subsidiary will cease to be an Unrestricted Subsidiary.
Notwithstanding the foregoing, no change in the status of a Subsidiary
of the Guarantor 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 Guarantor 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 2.50 to 1, (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 Guarantor 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 Guarantor or any of its
Subsidiaries that is not an Unrestricted Subsidiary or (ii) the Guarantor or any
Subsidiary of the Guarantor 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 Guarantor 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 Guarantor or a Subsidiary of the
Guarantor 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 Guarantor or any
such other Subsidiary or (y) such Debt is secured by a Lien on any property of
the Guarantor or any of its Subsidiaries that is not an Unrestricted Subsidiary.
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 Guarantor will be
deemed to be a Restricted Subsidiary at all times when it is a Subsidiary of the
Guarantor that is not an Unrestricted Subsidiary. Each Person that is or becomes
a Wholly Owned Subsidiary of the Guarantor shall be deemed to be a Wholly Owned
Restricted Subsidiary at all times when it is a Wholly Owned Subsidiary of the
Guarantor that is not an Unrestricted Subsidiary.
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(l) 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 Issuer 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 Issuer and the Guarantors or defeasance from their 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 Guarantor, (ii) any
Person or Group, together with any Affiliates or Related Persons thereof,
succeeds in having a sufficient number of its nominees elected to the Board of
Directors of the Guarantor such that such nominees, when added to any existing
director remaining on the Board of Directors of the Guarantor 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 Guarantor, (iii) there
occurs any transaction or series of related transactions, and the beneficial
owners of the Voting Stock of the Guarantor 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 Guarantor (or in the case of a transaction
(or series) in which another entity becomes a successor to the Guarantor, of the
successor entity) or (iv) the Guarantor shall cease to own 100% of the
outstanding Capital Stock of the Issuer; 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).
The Issuer 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 Guarantor and its Subsidiaries as the Issuer
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 Guarantor'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 Issuer to make
the Offer to Purchase), (c) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the Issuer
to make the Offer to Purchase and (d) any other information required by
applicable law to be included therein. The Offer Document 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 Issuer 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.
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 Issuer or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Trustee duly
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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
Issuer (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.
The Indenture does not contain any other change of control provisions.
Mergers, Consolidations and Certain Sales and Purchases of Assets
Neither the Guarantor nor the Issuer (i) may consolidate with or merge
into any other Person or permit any other Person to consolidate with or merge
into the Guarantor or any Restricted Subsidiary of the Guarantor (in a
transaction in which such Subsidiary remains a Restricted Subsidiary); (ii) may,
directly or indirectly, in one or a series of transactions, transfer, convey,
sell, lease or otherwise dispose of all or substantially all of its properties
and assets; (iii) may, and neither may permit any Restricted Subsidiary of the
Guarantor 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, and neither may permit any Restricted Subsidiary of the Guarantor 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 Guarantor or a Subsidiary of the Guarantor as a result of such transaction
(or series) as having been Incurred by the Guarantor 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 Guarantor or the Issuer does not survive or in which the Guarantor
or the Issuer 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 obligations under the Indenture of the Guarantor or the Issuer,
as the case may be; (3) immediately after giving effect to such transaction (or
series), the Guarantor or the Issuer or the successor entity would have a
Consolidated Net Worth equal to or greater than 90% of the Consolidated Net
Worth of the Guarantor or the Issuer, as the case may be, immediately prior to
such transaction (or series); (4) immediately after giving effect to such
transaction (or series) the Consolidated Cash Flow Ratio of the Guarantor 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 Guarantor or any
Subsidiary of the Guarantor would become subject to a Lien prohibited by the
"Limitation on Liens" covenant, the Guarantor or the successor entity will have
secured the Notes as required by such covenant; , and (6) the Guarantor or the
Issuer, as the case may be, has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel as specified in the Indenture.
Notwithstanding the foregoing, the Airways Acquisition will be exempt from the
restrictions of the "Mergers, Consolidations and Certain Sales and Purchases of
Assets" covenant and any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to the Guarantor or another
Restricted Subsidiary.
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.
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"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" means each of the Airframes, together with the Engines relating
thereto and hush kits, if any, installed thereon, upon which the Trustee has
been granted a security interest and mortgage lien by the Issuer pursuant to the
Indenture, and any airframes which may from time to time be substituted for such
Airframes pursuant to the terms of the Indenture.
"Aircraft Acquisition Debt" means Debt Incurred by the Company or any of
its Restricted Subsidiaries either (i) in connection with an acquisition of
aircraft, related engines or spare engines which Debt either constitutes part of
the purchase price of such aircraft, engine or spare engines, as the case may
be, 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, related engine or
spare engine from the manufacturer thereof) after the acquisition of such
equipment for the purpose of financing or refinancing part of the purchase price
thereof, and which equipment 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 or appraised value of such equipment at the time of such
financing does not exceed 80% (or, with respect to Debt Incurred to acquire MD-
95 aircraft, related engines and spare engines, 90%), and (B) other than in the
case of financing of MD-95 aircraft, related engines and spare engines, after
giving effect to the Incurrence of such Debt and the acquisition of such
equipment, the Company's Consolidated Net Worth is not less than $150.0 million
or (ii) which is a Restricted Lease Obligation relating solely to an aircraft,
related engine or spare engine 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, other than in the case of financing of MD-95 aircraft, related
engines or spare engines, after giving effect to the Incurrence of such Debt the
Company's Consolidated Net Worth is not less than $150.0 million.
"Airframes" means each of the 17 Stage 3 DC-9 aircraft and each of the
seven Stage 2 DC-9 aircraft (except Engines or engines from time to time
installed on such aircraft) initially pledged to secure the Issuer's obligations
under the Indenture and the Notes, and any aircraft (except Engines or engines
from time to time installed on such aircraft) which may from time to time be
substituted for such aircraft (except Engines or engines from time to time
installed on such aircraft) pursuant to the Indenture.
"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.
"Aviation Act" means the Federal Aviation Act of 1958, as amended, and the
applicable regulations thereunder.
"Bank Credit Agreements" means one or more credit agreements between the
Guarantor 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.
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"Bank Debt Limit" means $50.0 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 $50.0 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 basis that borrowings in an amount equal to the Excess
Amount or $50.0 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 Guarantor 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 Guarantor Debt," then
the Bank Debt Limit shall be the Adjusted Bank Debt Limit or $100.0 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 amount of any such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
generally accepted accounting principles, and 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, whether voting or
nonvoting) in equity of such Person.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"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 deducted in determining the Consolidated Net
Income 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
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the event such Person or any of its Restricted Subsidiaries has made
acquisitions of a division or line of business 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.
"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; (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); and (vii) interest in respect of any Debt that is guaranteed
or secured by the Guarantor or any of its Restricted Subsidiaries.
"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 Guarantor, 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 Guarantor and its Restricted Subsidiaries, adjustments following
the date of the Indenture to the accounting books and records of the Guarantor
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 Guarantor 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
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(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 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.
"Engines" means, for each of the 17 Stage 3 DC-9 Airframes and seven
Stage 2 DC-9 Airframes, each of two JT8D-9 engines relating thereto, as
specified in the Indenture, three spare JT8D-9 engines and any engines which may
from time to time be substituted for such engines pursuant to the Indenture.
"Event of Loss" means, with respect to an Aircraft or Engine, any of the
following events: (i) payment of an insurance settlement with respect to such
property on the basis of any actual or constructive total loss; (ii) destruction
or damage beyond repair; (iii) theft or disappearance for a period in excess of
120 days; (iv) the condemnation or taking of title to such Aircraft or Airframe
by the United States government or any foreign government or instrumentality or
agency thereof; (v) the requisition or taking of such Aircraft or Airframe by a
foreign government or instrumentality or agency for a continuous period of more
than six months; or (vi) with respect to an Engine only, the requisition for use
by any government or the divestiture of title resulting from installation of
such Engine on an airframe leased to the Issuer or purchased by the Issuer
subject to a conditional sale agreement, in either case under circumstances
where the Trustee's security interest in such engine is adversely affected
thereby. An Event of Loss with respect to the Aircraft will be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe of such
Aircraft. An Event of Loss in respect of an Engine will not be an Event of Loss
in respect of an Airframe.
"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" and "Guaranteeing" 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
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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" and "Incurred" 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.
"Initial Appraised Value" with respect to any Aircraft means the average
of two independent appraisals of the "Current Fair Market Value" of such
aircraft obtained by the Issuer from BK Associates and AvSolutions in connection
with this Offering.
"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 Ratings Services at such time.
"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
acquire 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
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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 Air Carrier" means (i) a United States "air carrier" within
the meaning of the Aviation Act or (ii) an air carrier which, among other
things, (A) is duly organized and operating pursuant to a license or
authorization issued under the laws of any Permitted Country and (B) will
perform or cause to be performed maintenance, preventive maintenance and
inspections for such Aircraft, Airframe or any Engine or engine in accordance
with standards which are approved by the Aeronautical Authority in the country
of registration of the Aircraft.
"Permitted Collateral Investments" means (i) securities either issued
directly or fully guaranteed or insured by the government of the United States
of America or any agency or instrumentality thereof maturing within one year
from the date of acquisition; (ii) time deposits and certificates of deposit of
any U.S. commercial bank or U.S. branch of a foreign bank, in each case having
capital and surplus in excess of $500.0 million and having outstanding long-term
debt rated A or better (or the equivalent thereof) by Standard & Poor's Ratings
Services or A2 or better (or the equivalent thereof) by Moody's Investors
Service, Inc. and maturing within six months from the date of acquisition; and
(iii) commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Services or P-1 or the equivalent thereof by Moody's Investors Service,
Inc. and maturing within six months from the date of acquisition.
"Permitted Country" means any of the foreign countries set forth in the
"Schedule of Permitted Countries" to the Indenture.
"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 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.
"Permitted Investments" means (i) Investments in (including a Guaranty of
any obligation of) the Guarantor or any Person that is, or as a consequence of
such Investment becomes, a Restricted Subsidiary of the Guarantor (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 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,
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in each case having capital and surplus in excess of $500.0 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 Ratings Services 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 Ratings
Services 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 $35.0 million; provided that
the amount available under this clause (vi) may be increased from time to time
by an amount equal to the net reduction of an Investment in a Person made under
this clause (vi) through a cash payment to the Issuer, the Guarantor or any
Restricted Subsidiary by such Person, or through the forgiveness of Debt of the
Issuer, the Guarantor or any Restricted Subsidiary to such Person (except, in
either case, to the extent such payment or proceeds are included in the
calculation of Consolidated Net Income), not to exceed, in each case, the amount
of such Permitted Investment previously made by the Guarantor or any Restricted
Subsidiary in such Person and (vii) Permitted Interest Rate, Currency and Fuel
Protection Agreements.
"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.
"Recovered Restricted Payment" means (i) a Guaranty that, when Incurred,
constitutes a Restricted Payment, but only to the extent that the obligations of
the Guarantor and its Restricted Subsidiaries in respect of such Guaranty are
discharged for consideration given by the Guarantor 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 Guarantor, or
(ii) a loan that, when made, constitutes a Restricted Payment, but only to the
extent that such loan is repaid to the Guarantor and the Restricted Subsidiaries
in cash without restriction and is not included in Consolidated Net Income of
the Guarantor.
"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 Guarantor and its Restricted Subsidiaries and,
upon consummation of such investment, are owned by the Guarantor 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.
"Restricted Lease Obligation" 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 Guarantor that is not
an Unrestricted Subsidiary; and on the date of the Indenture includes all of the
Guarantor'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.
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"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 thereof 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.
"10 1/4% Notes" means the 10 1/4% senior notes due 2001 issued pursuant
to an indenture dated as of April 17, 1996, among ValuJet, the guarantors
specified therein and Bank of Montreal Trust Company, as Trustee, as amended.
"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) 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 Guarantor that is
deemed by the Guarantor to be an Unrestricted Subsidiary and is not terminated
as an Unrestricted Subsidiary by the Guarantor, in each case in accordance with
the provisions in the Indenture described under the caption "Certain 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" or pursuant to the "Limitation on Collateral Sales"
covenant; (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 Guarantor or the Issuer 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 Guarantor or any Restricted Subsidiary of the Guarantor
having an outstanding principal amount of $10.0 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 $16.0 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 Guarantor or any of its Subsidiaries in an aggregate
amount in excess of $15.0 million which remains unstayed, undischarged or
unbonded for a period of 60 days thereafter; (h) certain
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events of bankruptcy, insolvency or reorganization affecting the Guarantor or
any Restricted Subsidiary of the Guarantor; (i) failure to procure and maintain
property and liability insurance in accordance with the provisions of the
Indenture continuing, in the case of maintaining such insurance, until the
earlier of (x) 30 days after notice to the Issuer or the Trustee of the lapse or
cancellation of such insurance and (y) the date such lapse or cancellation is
effective as to the Trustee; (j) operation of any Aircraft after the insurance
required by the Indenture had been canceled; and (k) except as provided in the
Indenture, the Trustee does not have at all times a first priority perfected
security interest in the Aircraft or the Issuer or any Guarantor asserts in
writing that the security arrangements under the Indenture are not in full force
and effect.
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. 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.
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. 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.
The Guarantor will be required to furnish to the Trustee annually a
statement as to the performance by the Guarantor and its Restricted Subsidiaries
of certain of their obligations under the Indenture and as to any default in
such performance.
Defeasance
The Indenture will provide that (A) if applicable, the Issuer and the
Guarantors will be discharged from any and all obligations in respect of the
outstanding Notes or (B) if applicable, the Guarantor and the Issuer 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 Issuer
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
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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 Issuer 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 Issuer 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.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Issuer,
the Guarantors 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, (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, or (i) create any lien on the property subject
to the Indenture ranking prior to, or on a parity with, the security interest
created by the Indenture except such as are permitted by the Indenture or
deprive any Holder of Notes of the benefit of the lien of the Indenture.
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. 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.
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE OF NOTES
The following summary of all material federal income tax consequences of
the exchange of Notes is based on the opinion of Ellis, Funk, Goldberg, Labovitz
& Dokson, P.C., counsel to the Company, which opinion has been filed as an
exhibit to the Registration Statement. Such opinion is based upon the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), the final,
temporary and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions in effect as of the date hereof, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. The following summary is not binding on the Internal Revenue
Service ("IRS") and there can be no assurance that the IRS will take a similar
view with respect to the tax consequences described below. No ruling has been or
will be requested by the Company from the IRS on any tax matters relating to the
Notes or the Exchange Offer. This discussion is for general information only and
does not purport to address the possible federal income tax consequences or any
state, local or foreign tax consequences of the acquisition, ownership and
disposition of the Notes or the Exchange Notes other than the exchange of
Outstanding Notes for Exchange Notes in this Exchange Offer.
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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. 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.
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.
PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to Exxon Capital Holdings Corp. and Morgan Stanley &
Co. Inc., among others, 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
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Outstanding Notes to the Initial Purchaser 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.
Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Morgan Stanley or similar no-action letters.
--------------
108
<PAGE>
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 and the United States federal income tax consequences of the
Exchange Offer will be passed upon for the Company by Ellis, Funk, Goldberg,
Labovitz & Dokson, P.C., Atlanta, Georgia. Certain shareholders of Ellis, Funk,
Goldberg, Labovitz & Dokson, P.C. own approximately 23,600 shares of common
stock of the Company.
EXPERTS
The consolidated financial statements of ValuJet, Inc. at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 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.
SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
The Issuer is offering to exchange $80,000,000 of registered 10 1/2%
Senior Secured Notes Due 2001 (the "Exchange Notes") for its unregistered notes
which were issued on August 13, 1997 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, Inc. and all of the
subsidiaries of the Issuer (the "Guarantors"). All operations of the Company are
conducted by AirTran Airlines, Inc., which is a wholly owned subsidiary of the
Company, and all of its subsidiaries. All of the subsidiary Guarantors are
wholly owned direct or indirect subsidiaries of the Company and there are no
direct or indirect subsidiaries of the Company that are not Guarantors. The
Exchange Notes and the guarantees will rank pari passu in right of payment with
all other existing and future unsubordinated indebtedness of the Issuer and the
Guarantors, respectively, and will rank senior in right of payment to any future
indebtedness of the Issuer and the Guarantors, respectively, to the extent of
the Collateral or with respect to indebtedness that may be subordinated thereto.
Separate financial statements of the Issuer are not presented because the
Company and the Issuer's subsidiaries will be obligated on or will guarantee the
Exchange Notes on a full, unconditional and joint and several basis and
management of the Company has determined that separate financial statements
would not be material to investors. Summarized financial information of the
Issuer and its subsidiaries is included in a footnote to the December 31, 1996
audited financial statements of the Company in accordance with the disclosure
provisions of the Securities Act of 1933 for filings involving the guarantee of
securities by a parent.
109
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VALUJET, INC.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS--YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets--December 31, 1996 and 1995................ F-3
Consolidated Statements of Operations--Years Ended December 31, 1996,
1995 and 1994......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity--Years Ended
December 31,
1996, 1995 and 1994................................................... F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1996,
1995 and 1994......................................................... F-6
Notes to Consolidated Financial Statements--December 31, 1996.......... F-7
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--THREE AND SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
Consolidated Balance Sheets (Unaudited)--December 31, 1996 and June 30,
1997.................................................................. F-20
Consolidated Statements of Operations (Unaudited)--Three Months Ended
June 30,
1997 and 1996......................................................... F-22
Consolidated Statements of Operations (Unaudited)--Six Months Ended
June 30,
1997 and 1996......................................................... F-23
Consolidated Statements of Cash Flows (Unaudited)--Six Months Ended
June 30,
1997 and 1996......................................................... F-24
Condensed Notes to Unaudited Consolidated Interim Financial
Statements--June 30, 1997............................................. F-25
</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, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
February 10, 1997, except for
Note 4 as to which the date is
March 27, 1997
F-2
<PAGE>
VALUJET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $150,012,695 $127,947,096
Accounts receivable, less allowance of $838,000
and $405,000 at December 31, 1996 and 1995,
respectively.................................... 7,014,702 12,074,394
Income tax receivable............................ 36,440,653 --
Inventories of parts and supplies................ 6,607,307 4,016,266
Prepaid expenses................................. 8,066,792 4,758,205
Deferred tax asset............................... -- 401,621
Assets held for disposition...................... 42,060,242 --
Other current assets............................. 839,040 589,986
------------ ------------
Total current assets........................... 251,041,431 149,787,568
Property and equipment:
Flight equipment................................. 126,829,882 153,513,693
Other property and equipment..................... 65,662,504 40,472,604
Deposits on flight equipment purchase contracts.. 14,534,895 21,801,525
------------ ------------
207,027,281 215,787,822
Less accumulated depreciation.................... (44,455,397) (18,834,231)
------------ ------------
162,571,884 196,953,591
Debt issuance costs................................ 3,573,561 --
------------ ------------
Total assets................................... $417,186,876 $346,741,159
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 3,221,542 $ 6,721,754
Accrued liabilities.............................. 22,718,555 35,866,095
Air traffic liability............................ 3,813,583 22,221,133
Income taxes payable............................. -- 24,957
Deferred tax liability........................... 1,298,400 --
Current maturities of long-term debt............. 33,246,302 21,430,984
Debt on assets held for disposition.............. 18,188,222 --
------------ ------------
Total current liabilities...................... 82,486,604 86,264,923
Long-term debt less current maturities............. 193,271,800 87,607,149
Deferred income taxes payable...................... 18,028,835 10,803,856
Stockholders' equity:
Convertible preferred stock, $.01 par value:
Authorized shares--5,000,000 Issued and
outstanding shares--none at December 31, 1996
and 1995....................................... -- --
Common stock, $.001 par value:
Authorized shares--1,000,000,000 Issued and
outstanding--54,875,610 and 54,556,020 at
December 31, 1996 and 1995, respectively....... 54,876 54,556
Additional paid-in capital......................... 77,236,447 74,433,062
Retained earnings.................................. 46,108,314 87,577,613
------------ ------------
Total stockholders' equity..................... 123,399,637 162,065,231
------------ ------------
Total liabilities and stockholders' equity..... $417,186,876 $346,741,159
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Passenger.......................... $209,707,346 $352,574,954 $129,551,344
Cargo.............................. 2,968,863 4,874,449 --
Other.............................. 6,960,023 10,307,975 4,349,966
------------ ------------ ------------
Total operating revenues......... 219,636,232 367,757,378 133,901,310
Operating expenses and other, net:
Flight operations.................. 16,478,712 16,272,833 6,967,015
Aircraft fuel...................... 46,691,296 55,812,838 21,774,936
Maintenance........................ 49,500,163 47,330,009 14,862,239
Station operations................. 42,018,389 49,931,088 20,197,983
Passenger services................. 8,878,835 10,363,538 3,941,749
Marketing and advertising.......... 8,426,358 8,988,656 6,546,043
Sales and reservations............. 18,377,843 31,155,592 11,325,162
General and administrative......... 13,659,237 10,617,312 5,038,897
Employee bonus..................... 1,245,000 14,382,000 5,146,039
Depreciation....................... 17,550,596 15,147,647 3,555,426
Arrangement fee for aircraft
transfers......................... (13,036,294) -- --
Gain on insurance recovery......... (2,814,785) (1,093,527) --
Gain on sale of property........... (3,934,576) -- --
Shutdown and other nonrecurring
expenses.......................... 67,994,000 -- --
------------ ------------ ------------
Total operating expenses and
other, net...................... 271,034,774 258,907,986 99,355,489
------------ ------------ ------------
Operating (loss) income.............. (51,398,542) 108,849,392 34,545,821
Interest expense (income):
Interest expense................... 22,186,349 6,579,020 2,388,240
Interest income.................... (7,652,592) (5,555,160) (1,422,955)
------------ ------------ ------------
Total interest expense, net...... 14,533,757 1,023,860 965,285
------------ ------------ ------------
(Loss) income before income taxes.... (65,932,299) 107,825,532 33,580,536
Income tax (benefit) expense......... (24,463,000) 40,062,934 12,848,556
------------ ------------ ------------
Net (loss) income.................... $(41,469,299) $ 67,762,598 $ 20,731,980
============ ============ ============
Net (loss) income per share.......... $ (0.76) $ 1.13 $ 0.44
============ ============ ============
Weighted average shares outstanding.. 54,702,000 59,793,000 47,620,000
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK
---------------------------------- ---------------------------------
NOTES
ADDITIONAL ADDITIONAL RECEIVABLE RETAINED TOTAL
PAID-IN- PAID-IN- FROM 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
DECEMBER 31,
1993........... 3,250,000 $ 32,500 $ 11,826,244 22,300,000 $ 223,000 $ 4,302,028 $(324,010) $ (916,965) $ 15,142,797
Payments on
notes
receivable from
common stock
sale and
offering
expenses
related to
issuance of
common stock... -- -- -- -- -- (8,858) 124,000 -- 115,142
Conversion of
preferred
stock.......... (3,250,000) (32,500) (11,826,244) 13,000,000 130,000 11,728,744 -- -- --
Issuance of
common stock to
employees...... -- -- -- 39,680 396 (396) -- --
Issuance of
common stock,
net of issuance
costs.......... -- -- -- 6,000,000 60,000 16,904,743 -- -- 16,964,743
Exercise of
warrants for
common stock... -- -- -- 1,000,000 10,000 1,190,000 -- -- 1,200,000
Issuance of
common stock
for exercise of
options........ -- -- -- 8,000 80 1,253 -- -- 1,333
Exercise of
warrants for
common stock... -- -- -- 10,422,300 104,224 38,856,528 -- -- 38,960,752
Exchange of
warrants for
common stock... -- -- -- 447,160 4,472 (4,472) -- -- --
Net income...... -- -- -- -- -- -- -- 20,731,980 20,731,980
---------- -------- ------------ ---------- --------- ----------- --------- ------------ ------------
BALANCE AT
DECEMBER 31,
1994........... -- -- -- 53,217,140 532,172 72,969,570 (200,010) 19,815,015 93,116,747
Issuance of
common stock
for exercise of
options........ -- -- -- 28,000 280 10,171 -- -- 10,451
Issuance of
common stock
for exercise of
options........ -- -- -- 1,309,000 13,090 373,111 -- -- 386,201
Issuance of
common stock
under stock
purchase plan.. -- -- -- 1,880 18 39,206 -- -- 39,224
Change in par
value.......... -- -- -- -- (491,004) 491,004 -- -- --
Accrued
compensation
related to
stock options.. -- -- -- -- -- 550,000 -- -- 550,000
Payments on
notes
receivable from
common stock
sale........... -- -- -- -- -- -- 200,010 -- 200,010
Net income...... -- -- -- -- -- -- -- 67,762,598 67,762,598
---------- -------- ------------ ---------- --------- ----------- --------- ------------ ------------
BALANCE AT
DECEMBER 31,
1995........... -- -- -- 54,556,020 54,556 74,433,062 -- 87,577,613 162,065,231
Issuance of
common stock
for exercise of
options........ -- -- -- 310,810 311 835,862 -- -- 836,173
Issuance of
common stock
under stock
purchase plan.. -- -- -- 8,770 9 113,493 -- -- 113,502
Accrued
compensation
related to
stock options.. -- -- -- -- -- 1,854,030 -- -- 1,854,030
Net loss........ -- -- -- -- -- -- -- (41,469,299) (41,469,299)
---------- -------- ------------ ---------- --------- ----------- --------- ------------ ------------
BALANCE AT
DECEMBER 31,
1996........... -- $ -- $ -- 54,875,600 $ 54,876 $77,236,447 $ -- $ 46,108,314 $123,399,637
========== ======== ============ ========== ========= =========== ========= ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income................. $ (41,469,299) $ 67,762,598 $ 20,731,980
Adjustments to reconcile net
(loss) income to cash (used in)
provided by operating activities:
Depreciation and amortization... 29,164,596 15,147,647 3,548,426
Provision for uncollectible
accounts....................... 3,637,589 3,159,935 1,043,902
Deferred income taxes........... 8,925,000 7,390,070 3,012,165
Gain on disposal of flight
equipment...................... (6,749,361) (1,093,527) --
Changes in operating assets and
liabilities:
Accounts receivable............ 1,422,103 (7,705,398) (6,285,616)
Other current assets........... (6,148,682) (6,644,002) (1,218,142)
Accounts payable and accrued
liabilities................... (14,354,877) 23,738,400 16,921,695
Air traffic liability.......... (18,407,550) 12,614,252 7,361,035
Income taxes payable........... (36,465,610) (581,559) 606,516
------------- ------------- ------------
Net cash (used in) provided by
operating activities............. (80,446,091) 113,788,416 45,721,961
INVESTING ACTIVITIES
Purchases of property and equip-
ment............................. (127,570,815) (142,128,206) (61,969,880)
Proceeds from disposal of
equipment........................ 97,598,198 3,000,000 --
------------- ------------- ------------
Net cash used in investing
activities....................... (29,972,617) (139,128,206) (61,969,880)
FINANCING ACTIVITIES
Notes receivable.................. -- 5,500,000 (5,500,000)
Payment received on notes
receivable from common stock
sale............................. -- 200,010 50,000
Issuance of long-term debt........ 224,497,189 73,707,688 40,612,884
Proceeds from sale of common
stock............................ 949,675 435,876 56,961,546
Payment of long-term debt......... (92,962,557) (11,634,230) (4,045,580)
------------- ------------- ------------
Net cash provided by financing
activities....................... 132,484,307 68,209,344 88,078,850
------------- ------------- ------------
Net increase in cash and cash
equivalents...................... 22,065,599 42,869,554 71,830,931
Cash and cash equivalents at
beginning of year................ 127,947,096 85,077,542 13,246,611
------------- ------------- ------------
Cash and cash equivalents at end
of year.......................... $ 150,012,695 $ 127,947,096 $ 85,077,542
============= ============= ============
Cash paid for income taxes........ $ 4,041,000 $ 32,770,000 $ 9,215,000
============= ============= ============
Cash paid for interest............ $ 19,412,000 $ 6,592,000 $ 2,155,000
============= ============= ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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. became
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 affordable, no-frills, point-to-point scheduled air
transportation and cargo service, serving short-haul markets primarily in the
eastern United States.
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 due primarily 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)
Inventories of Parts and Supplies
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.
Allowances for obsolescence are provided over the estimated useful life of the
related aircraft and engines, for spare parts expected to be on hand at the
date aircraft are retired from service.
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.
Interest Capitalized
Interest attributable to funds used to finance the acquisition of new
aircraft is capitalized as an additional cost of the related asset. Interest
is capitalized at the Company's weighted average interest rate on long-term
debt or, where applicable, the interest rate related to specific borrowings.
Capitalization of interest ceases when the asset is placed in service. In
1996, approximately $1,212,000 of interest cost was capitalized. No interest
was capitalized in 1995 or 1994.
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 $6,261,000, $8,038,000 and
$5,507,000 for the years ended December 31, 1996, 1995 and 1994, 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.
Arrangement Fee for Aircraft Transfers
During 1996, the Company sold its contractual purchase commitments with
respect to certain aircraft to other entities for approximately $17,000,000
which, net of related deposits, resulted in income of approximately
$13,000,000. This amount is reflected as Arrangement Fee for Aircraft
Transfers in the accompanying statement of operations. The Company has no
further obligations with respect to these purchase commitments.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Preoperating 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.
F-8
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 will 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 initial
public offering ("IPO") price of $3.125 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
("Cheap Stock") 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 IPO.
In accordance with APB Opinion No. 15, supplemental income per share data
for 1994 is presented for comparability purposes. The following income per
share is calculated excluding the effects of Cheap Stock issued during the
twelve months immediately preceding the effective date of the Company's IPO.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Net income per share......................................... $0.42
=====
</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 adopted Statement 121 in the first quarter of 1996, and the effect of
adoption was not material.
During 1996, as a result of the accident involving Flight 592 and the
consent order with the FAA which requires the Company to reestablish
operations with up to 15 aircraft and subjects further expansion of the
Company's operations to FAA and DOT approval, the Company plans to sell
certain of its aircraft with a carrying amount of approximately $42 million.
Those aircraft which the Company has decided to sell have been classified in
the balance sheet as assets held for disposition and are stated at the lower
of carrying amount or fair value less cost to sell. The Company began
marketing the aircraft to potential buyers and plans to sell the aircraft
during 1997. At December 31, 1996, the fair value, as estimated by the current
market value, less cost to sell exceeded the carrying amount of such aircraft.
F-9
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the current year presentation.
2. COMMITMENTS AND CONTINGENCIES
On May 11, 1996, the Company suffered a tragic loss involving Flight 592.
The accident 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 accident is still under investigation by the
National Transportation Safety Board. In response to the accident, the Federal
Aviation Administration (FAA) conducted an extraordinary review of the
Company's operations. As a result, the Company significantly reduced its
schedule between May 19, 1996 and June 17, 1996, and on June 17, 1996 entered
into a consent order with the FAA under which the Company agreed to several
matters including the suspension of operations until such time as the Company
was able to satisfy the FAA as to its various regulatory compliance concerns
and the payment of $2,000,000 to the FAA to compensate it for the cost of the
special inspections. The Company satisfied the FAA's requirements and received
FAA clearance during August 1996. The Company received its determination of
fitness from the Department of Transportation on September 25, 1996 and
restarted operations on September 30, 1996. See Note 9 regarding charges
associated with the accident and related suspension of operations.
As a result of the above mentioned events, numerous lawsuits were filed
against the Company seeking damages attributable to the deaths of those on
Flight 592. Thus far, a total of approximately 50 such lawsuits have been
filed against ValuJet Airlines, Inc. Most of the cases were initially removed
to the federal court. That court, however, remanded the majority of the
actions to the state courts from which they originated and retained
jurisdiction for only seven cases. As a consequence, most of the cases will
proceed in state courts in Florida and Georgia. In 36 of these lawsuits, a
third party maintenance contractor has been named as a co-defendant. The
Company's insurance carrier has assumed defense of these suits under a
reservation of rights. As all claims are handled independently by the
Company's insurance carrier, the Company cannot reasonably estimate the amount
of liability which might finally exist. As a result, no accruals for losses
and the related claim for recovery from the Company's insurance carrier have
been reflected in the Company's financial statements. The Company maintains
$750 million of liability insurance, per occurrence, with a major group of
independent insurers that provide facilities for all forms of aviation
insurance for many major airlines.
Although the Company believes, based on the information currently available
to it, that such coverage will be sufficient to cover all claims arising out
of the loss of Flight 592 and that the insurers have sufficient financial
strength to pay claims, there can be no assurance that the total amount of
judgments and settlements will not exceed the Company's insurance limit or
that all damages awarded will be covered by insurance.
Several stockholder class action suits have been filed against the Company
and certain of its executive officers ("Defendants"). The consolidated
lawsuits seek class certification for all purchasers of stock in the Company
during periods beginning on or after June 1995 and ending on or before June
18, 1996, and are based on allegedly misleading public statements made by the
Company or failure to disclose material facts in violation of federal
securities laws. A total of 14 stockholder lawsuits were filed against the
Company. Of these suits, 11 were filed in the United States District Court for
the Northern District of Georgia and these suits have been consolidated into a
single action (In re: ValuJet, Inc.). Another lawsuit filed in the United
States District Court for the Middle District of Florida has been transferred
to the Northern District of Georgia and has been consolidated into In re:
ValuJet, Inc. All of the Defendants filed a joint Motion to Dismiss the
Consolidated Amended Complaint on December 23, 1996. The Plaintiffs' response
to this motion to Dismiss is due on May 9, 1997. On November 25, 1996,
Plaintiffs filed their Motion for Class Certification. On January 14, 1997,
Defendants filed a "Notice of Stay of Discovery and Other Proceedings", in
which Defendants state that the
F-10
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
filing of their Motion to Dismiss has stayed the issue of class certification
pursuant to the Private Securities Litigation Reform Act. By consent of the
parties, Defendants are not currently obligated to respond to Plaintiffs'
Motion for Class Certification, and if the Court decides that the issue of
class certification is not stayed by the Private Securities Litigation Reform
Act, the Defendants have 30 days from the date of such decision to respond to
Plaintiffs' Motion for Class Certification. Two suits (Cohen et al. v.
ValuJet, Inc., et al. and Hepler et al. v. ValuJet, Inc. et al.) have been
filed in the State Court of Fulton County, Georgia. On December 23, 1996, all
Defendants in both actions, other than a third party contractor, answered the
Complaint and filed a Motion to Dismiss the Complaint. Additionally, a
director named in the suits filed a Motion to Dismiss for lack of personal
jurisdiction. By consent of the parties, the Plaintiffs have until May 9,
1997, to respond to these motions to dismiss. The Company denies that it has
violated any of its obligations under the federal securities laws and believes
that meritorious defenses exist in the lawsuits.
On August 30, 1996, Metropolitan Nashville Airport Authority filed suit
against the Company in State Court in Tennessee for breach of contract and a
declaratory judgment for an anticipatory breach. The Nashville Airport
Authority seeks damages of approximately $2.6 million. The dispute involves
whether the Company was entitled to exercise a termination right contained in
its lease agreement. Management believes the ultimate resolution will not have
a materially adverse effect on the Company's financial position or results of
operations.
From time to time, the Company is engaged in litigation arising in the
ordinary course of business. The Company does not believe that any such
pending litigation will have a material adverse effect on its results of
operations or financial condition.
At December 31, 1996, 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 from 1999 to 2002, with options to purchase another 50 aircraft.
Aggregate funding needed for these and all other aircraft commitments was
approximately $1 billion at December 31, 1996. Approximately $162 million of
this amount is required to be paid in progress payments due from 1995 to 2001.
After progress payments, the balance of the total purchase price must be paid
or financed upon delivery of each aircraft. While the major aircraft
manufacturer is required to provide credit support for a limited portion of
third party financing, the Company will be required to obtain financing from
other sources relating to these deliveries. If the Company exercises its
option to acquire up to an additional 50 aircraft, additional payments could
be required beginning in 1997. In conjunction with these contractual
commitments, the Company has made refundable deposits of approximately
$13,008,000 at December 31, 1996.
Future required deposits for aircraft progress payments as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997......................................................... $ 7,567,000
1998......................................................... 31,655,000
1999......................................................... 35,512,000
2000......................................................... 44,874,000
2001......................................................... 29,565,000
------------
$149,173,000
============
</TABLE>
F-11
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
By December 31, 1999, all of the Company's aircraft must be brought into
compliance with the FAA's Stage 3 noise 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 $55,000,000 for its aircraft not
currently meeting such requirements.
3. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Accrued bonuses...................................... $ -- $12,017,001
Accrued maintenance.................................. 7,710,207 4,700,000
Other................................................ 15,008,348 19,149,094
----------- -----------
$22,718,555 $35,866,095
=========== ===========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Senior notes..................................... $150,000,000 $ --
Promissory notes for aircraft and other
equipment....................................... 94,706,324 109,038,133
------------ ------------
244,706,324 109,038,133
Less current maturities.......................... 33,246,302 21,430,984
Less debt on assets held for disposition......... 18,188,222 --
------------ ------------
$193,271,800 $ 87,607,149
============ ============
</TABLE>
During April 1996, the Company closed a private offering of $150,000,000
principal amount of 10 1/4% Senior Notes due 2001. In October 1996, the
Company exchanged the unregistered Notes for Registered 10 1/4% Senior Notes
due 2001. Interest on the Senior Notes is payable semi-annually on April 15
and October 15.
The promissory notes relate to aircraft financing and bear interest at rates
ranging from 7.43% to 10.18% per annum, and principal and interest payments
are due in monthly or quarterly installments over four to seven year terms on
a mortgage-style amortization based on the delivery date of the aircraft.
Certain of these notes, with an aggregate unpaid principal balance of
approximately $14.3 million as of December 31, 1996, have a variable rate of
interest based on the London interbank offered rate (LIBOR) (5.5% at December
31, 1996) plus 1.85% to 3% (1.85% at December 31, 1996) based on the Company's
compliance with specific financial ratios concerning leverage and fixed charge
coverage. Certain other of these notes have a variable rate of interest based
on LIBOR plus a range of 1.20% to 2.75%.
A substantial portion of the secured notes require prepayment if specific
financial ratios (concerning debt to equity, net worth, fixed charge coverage
and current ratio) are not maintained. At December 31, 1996, the Company was
in violation of the fixed charge coverage ratio covenant related to
approximately $66,103,000 of this secured debt. In March 1997, certain of the
Company's secured lenders agreed to waive the fixed charge coverage ratio
covenant at December 31, 1996 and to waive or reduce the required fixed charge
coverage ratio through December 31, 1997. As a result, management believes it
will meet all loan covenant requirements on such debt totalling $47,151,000
through December 31, 1997. Accordingly, amounts payable under these secured
debt agreements, excluding current maturities and debt on assets held for
disposition, are classified as long-term in the accompanying consolidated
balance sheet. The Company remains in violation of the fixed charge coverage
ratio for $18,952,000 of secured debt. As a result, such debt has been
classified as current maturities or debt on assets held for disposition, where
appropriate, in the accompanying consolidated balance sheet. No prepayment
requests have been made related to such debt. The Company's aircraft, engines
and computer and telephone equipment totalling approximately $155,157,000
serve as collateral on secured debt.
F-12
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future statutory long-term debt principal payments at December 31, 1996 were
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997............................................................ $ 21,457,302
1998............................................................ 23,124,833
1999............................................................ 20,552,472
2000............................................................ 15,536,446
2001............................................................ 162,885,469
Thereafter...................................................... 1,149,802
------------
$244,706,324
============
</TABLE>
5. 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 fourteen years.
Total rental expense charged to operations for facilities and office space
for the years ended December 31, 1996, 1995 and 1994 was approximately
$15,824,000, $12,516,000, and $4,726,000, respectively.
Future minimum lease payments under non-cancelable operating leases with
initial terms in excess of one year at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
<S> <C>
1997............................................................. $ 5,076,000
1998............................................................. 4,922,000
1999............................................................. 4,750,000
2000............................................................. 4,131,000
2001............................................................. 3,954,000
Thereafter....................................................... 34,597,000
-----------
$57,430,000
===========
</TABLE>
6. STOCKHOLDERS' EQUITY
During 1993, the Company issued 1,200,000 shares of common stock to an
officer of the Company and 300,000 shares to a consultant in exchange for
notes receivable of $200,010 and $50,000, respectively. During 1996 and 1995,
the notes receivable were repaid in full.
In conjunction with a private placement offering 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 50,000 shares of common stock, or 3,250,000 shares of
Preferred Stock and 13,000,000 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 $3.75 per share on or
before December 31, 1995. The warrants were callable by the Company at $.0125
per share if the closing bid price of the Company's common stock was greater
than or equal to $5 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 1,000,000 warrants to purchase
F-13
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
common stock at a price of $3.75 per share. In October 1994, the Company
called the 14,000,000 warrants outstanding at that date. Pursuant to the
Company's exchange offer, 10,422,300 warrants for common stock were exercised
for $3.75 per share resulting in proceeds of approximately $38,960,000, net of
expenses. The remaining 3,577,700 warrants for common stock were exchanged for
447,160 shares of common stock, in accordance with the Company's exchange
offer.
On July 6, 1994, the Company closed an initial public offering of 6,000,000
shares of its common stock, generating proceeds of approximately $17 million,
net of underwriting discounts and commissions, and other expenses. Concurrent
with the closing of the Company's IPO, all of the Company's Preferred Stock
was automatically converted into common stock on a one-for-four basis.
On June 28, 1994, the Company issued 39,680 shares of common stock to a
trust for the benefit of its employees at the IPO date. These shares were
valued at the IPO price of $3.12 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 IPO date remaining with the Company at the
end of the three year vesting period. Approximately 33,000 of these shares had
been earned as of December 31, 1996.
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
references in the consolidated financial statements to shares, per share
amounts and stock plans have been retroactively restated to reflect the stock
splits.
7. STOCK OPTION PLANS
In 1993, the Company established the ValuJet Airlines, Inc. 1993 Incentive
Stock Option Plan (the "1993 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.
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.
On January 30, 1996, the Company established the ValuJet, Inc. 1996 Stock
Option Plan (the "1996 Plan") whereby up to 5,000,000 incentive stock options
or non-qualified options may be granted to officers, directors, key employees
and consultants of the Company.
Vesting and term of all 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.
At December 31, 1996, the vesting of 1,504,000 stock options with a weighted
average exercise price of $0.85 granted to two executive officers was
accelerated such that they became fully vested on that date. Such stock
options represented all of the nonvested stock options held by the two
executive officers.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by Statement 123, which also requires that the information
be determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair
F-14
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for 1996 and 1995, respectively: risk-free interest rates of 7.3% and 6.4%; no
dividend yields; volatility factors of the expected market price of the
Company's common stock of .625 for 1996 and 1995; and a weighted-average
expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
A summary of stock option activity under the above-described plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES PRICE RANGE AVERAGE PRICE
---------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993........ 3,880,000 $ 0.17 $0.17
Granted........................... 2,240,000 1.00 - 3.75 2.90
Exercised......................... (8,000) 0.17 0.17
Canceled.......................... (92,000) 0.17 - 3.13 1.63
----------
Balance at December 31, 1994........ 6,020,000 0.17 - 3.75 1.16
Granted........................... 1,175,600 3.75 - 23.19 5.67
Exercised......................... (1,337,000) 0.17 - 3.13 0.33
Canceled.......................... (239,200) 0.17 - 12.19 3.42
----------
Balance at December 31, 1995........ 5,619,400 0.17 - 23.19 2.20
Granted........................... 1,406,000 3.75 - 23.19 15.99
Exercised......................... (310,010) 0.17 - 3.13 2.68
Canceled.......................... (91,860) 0.17 - 12.19 5.91
----------
Balance at December 31, 1996........ 6,623,530 0.17 - 23.19 5.06
==========
Exercisable at December 31, 1996.... 4,336,430
==========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.17 2,516,000 6.50 $ 0.17 2,452,000 $ 0.17
$ 1.00 - $ 5.13 2,603,230 7.69 $ 3.52 1,315,230 $ 2.68
$ 8.50 - $15.00 570,000 9.62 $10.23 15,600 $13.43
$18.38 - $23.19 934,300 8.82 $19.35 553,600 $18.40
--------- ---------
6,623,530 7.60 $ 5.06 4,336,430 $ 3.21
========= =========
</TABLE>
F-15
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Pro forma net income (loss)....................... $(44,880,415) $67,193,721
Pro forma earnings (loss) per share:.............. (0.82) 1.14
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
1999.
The weighted-average fair value of options granted during 1996 and 1995 with
option prices equal to the market price on the date of grant was $7.82 and
$4.00, respectively. The weighted-average fair value of options granted during
1996 and 1995 with option prices less than the market price of the stock on
the date of grant was $10.13 and $2.73, respectively.
At December 31, 1996, the Company had reserved a total of 12,144,190 shares
of common stock for future issuance upon exercise of stock options.
8. INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $(31,311,000) $30,389,736 $ 8,387,121
State................................ (2,077,000) 2,283,128 1,449,270
------------ ----------- -----------
Total current.......................... (33,388,000) 32,672,864 9,836,391
Deferred:
Federal.............................. 10,614,000 6,313,839 2,694,773
State................................ (1,689,000) 1,076,231 317,392
------------ ----------- -----------
Total deferred......................... 8,925,000 7,390,070 3,012,165
------------ ----------- -----------
$(24,463,000) $40,062,934 $12,848,556
============ =========== ===========
</TABLE>
A reconciliation of the provision for income taxes (benefit) to the federal
statutory rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Tax at statutory rate... $(23,076,000) $37,738,937 $11,648,639
State taxes, net of fed-
eral benefit........... (2,448,000) 2,183,583 1,330,254
Other................... 1,061,000 140,414 233,576
Valuation reserve....... -- -- (363,913)
------------ ----------- -----------
$(24,463,000) $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:
F-16
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Prepaid insurance................................. $ 2,687,180 $ 1,210,775
Depreciation...................................... 19,584,784 10,919,065
Gain on involuntary conversion.................... 1,484,100 --
----------- -----------
Total deferred tax liabilities...................... 23,756,064 12,129,840
Deferred tax assets:
Accrued liabilities............................... 770,463 1,181,489
State operating loss carryforwards................ 2,035,751 --
Non qualified stock options....................... 929,956 --
Other............................................. 692,659 546,116
----------- -----------
Total deferred tax assets........................... 4,428,829 1,727,605
----------- -----------
Net deferred tax liability.......................... $19,327,235 $10,402,235
=========== ===========
</TABLE>
Various subsidiaries of the Company have state operating loss carryforwards
of approximately $3,100,000 with expiration dates through the year 2011.
9. SHUTDOWN AND OTHER NONRECURRING EXPENSES
Shutdown and other nonrecurring expenses include costs associated with the
loss of Flight 592 and excess operating costs related to the reduced schedule
from May 19, 1996 to the June 17, 1996 shutdown, the suspension of operations
from June 17, 1996 to September 29, 1996 and the reduced schedule from
September 30, 1996 to December 31, 1996. Such costs consist of expenses
directly related to the accident and the ensuing extensive FAA review of the
Company's operations including legal fees, payments to the FAA, inspection
related costs and unusual maintenance in excess of normal recurring
maintenance. In addition, depreciation on grounded aircraft, rental of vacated
or idled facilities and costs of personnel idled as a result of the reduced
and suspended operations from May through December, 1996 are included in
shutdown and other nonrecurring expenses. Personnel costs include full wages,
salaries and benefits that were provided to idled employees during the
reduction and suspension of operations.
A summary of such costs is as follows for the year ended December 31, 1996:
<TABLE>
<S> <C>
Maintenance..................................................... $27,750,000
Legal and other consulting...................................... 8,843,000
Facilities rental............................................... 6,114,000
Wages, salaries and benefits, excluding maintenance............. 4,895,000
FAA remediation................................................. 2,000,000
Depreciation.................................................... 11,054,000
Other........................................................... 7,338,000
-----------
$67,994,000
===========
</TABLE>
No accrual was provided for costs to be incurred in future periods related
to aircraft depreciation and maintenance and rental costs associated with
temporarily idled facilities as such costs will be recognized as they are
incurred. There is no accrual for salaries and wages in connection with the
June 18, 1996 furlough of employees at December 31, 1996 as such employees
were paid through June 30, 1996 with no additional severance benefits
provided.
F-17
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company has utilized temporary employees provided by a temporary agency
which is partially owned by the daughter of one of the Company's officers.
This arrangement was terminated during 1996. Amounts recorded as expense
related to this agency were approximately $4,223,000, $12,663,000, and
$5,140,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Accounts payable to this agency was approximately $370,703 at December 31,
1995. No amounts were due at December 31, 1996.
11. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains cash and cash equivalents with
various high credit-quality financial institutions or in short-duration high
quality debt securities. 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.
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 carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and
cash equivalents....... $150,012,695 $150,012,695 $127,947,096 $127,947,096
Accounts receivable, net
of allowance........... 7,014,702 7,014,702 12,074,394 12,074,394
Accounts payable........ 3,221,036 3,221,036 6,721,754 6,721,754
Long-term debt.......... 244,706,324 219,326,000 109,038,133 110,973,000
</TABLE>
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 1996 or
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
F-18
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
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 1996 and 1995, the employees purchased a total of 8,770 and 1,880
shares at an average price of $12.94 and $20.86 per share, respectively, which
represented a 5% discount from the market price on the offering dates.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
-------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 1996:
Operating revenues.................. $109,995 $ 81,217 $ 311 $ 28,113
Operating income (loss)............. 17,525 (11,581) (29,946) (27,397)
Net income (loss)................... 10,667 (9,574) (21,945) (20,617)
Net income (loss) per share......... .18 (.18) (.40) (.38)
</TABLE>
<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 27,086 36,672 30,511
Net income............................... 9,071 16,860 22,661 19,171
Net income per share..................... .15 .28 .38 .32
</TABLE>
14. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $150,000,000 of 10 1/4% Senior Notes issued during 1996 are
fully and unconditionally guaranteed on a joint and several basis by ValuJet
Airlines, Inc., a wholly-owned subsidiary of the Company, and all its
subsidiaries ("Guarantors"). All of the operations of the Company are
conducted by ValuJet Airlines, Inc. and its subsidiaries. All of the
Guarantors are wholly-owned or indirect subsidiaries of the Company, and there
are no direct or indirect subsidiaries of the Company that are not Guarantors.
Separate financial statements of the Guarantors are not presented because all
of the Company's subsidiaries guarantee the Senior Notes on a full,
unconditional and joint and several basis.
Summarized financial information of ValuJet Airlines, Inc. and its
subsidiaries is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Current assets.............................................. $246,041,431
Non-current assets.......................................... 162,571,884
Current liabilities......................................... 81,743,233
Non-current liabilities..................................... 207,167,474
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Operating revenues.......................................... $219,636,232
Operating loss.............................................. (51,398,542)
Loss before income taxes.................................... (65,932,299)
Net loss.................................................... (41,469,299)
</TABLE>
F-19
<PAGE>
VALUJET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $150,012,695 $149,724,768
Accounts receivable, less allowance of $838,000
and $1,141,000 at December 31, 1996 and June 30,
1997, respectively.............................. 7,014,702 6,583,785
Inventories of parts............................. 6,607,307 6,159,038
Prepaid expenses................................. 8,066,792 2,481,642
Income taxes receivable.......................... 36,440,653 13,711,144
Assets held for disposition...................... 42,060,242 0
Other current assets............................. 839,040 1,118,194
------------ ------------
Total current assets............................... 251,041,431 179,778,571
Property and equipment, at cost
Flight equipment................................. 126,829,882 166,292,124
Other property and equipment..................... 65,662,504 70,779,835
Deposits on flight equipment purchase contracts.. 14,534,895 15,352,895
------------ ------------
207,027,281 252,424,854
Less allowance for depreciation.................. (44,455,397) (58,375,017)
------------ ------------
162,571,884 194,049,837
Debt issuance costs................................ 3,573,561 3,179,811
------------ ------------
Total assets....................................... $417,186,876 $377,008,219
============ ============
</TABLE>
- --------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. See condensed notes to
financial statements.
F-20
<PAGE>
VALUJET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(NOTE) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 3,221,542 $ 3,305,939
Accrued liabilities................................ 22,718,555 24,311,893
Air traffic liability.............................. 3,813,583 10,638,312
Deferred tax liability............................. 1,298,400 485,400
Current maturities of long-term debt............... 33,246,302 9,039,986
Debt on assets held for sale....................... 18,188,222 0
------------ ------------
Total current liabilities............................ 82,486,604 47,781,530
Long-term debt less current maturities............... 193,271,800 226,620,758
Deferred income taxes payable........................ 18,028,835 6,721,835
Stockholders' equity:
Common stock, $.001 par value:
1,000,000,000 shares authorized: issued and
outstanding--54,875,610 at December 31, 1996 and
54,963,330 at June 30, 1997....................... 54,876 54,964
Additional paid-in capital......................... 77,236,447 77,453,497
Retained earnings.................................. 46,108,314 18,375,635
------------ ------------
Total stockholders' equity........................... 123,399,637 95,884,096
------------ ------------
Total liabilities and stockholders' equity........... $417,186,876 $377,008,219
============ ============
</TABLE>
- --------
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. See condensed notes to
financial statements.
F-21
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Operating revenues:
Passenger........................................ $ 77,961,574 $ 45,192,019
Cargo............................................ 1,261,818 677,831
Other............................................ 1,993,898 1,889,317
------------ ------------
Total operating revenues........................... 81,217,290 47,759,167
Operating expenses and other, net:
Flight operations................................ 5,414,622 4,801,014
Aircraft fuel.................................... 17,061,473 10,716,157
Maintenance...................................... 15,807,217 10,534,328
Station operations............................... 14,748,674 12,132,375
Passenger services............................... 3,631,749 2,122,077
Marketing and advertising........................ 2,223,363 2,875,368
Sales and reservations........................... 6,547,058 3,723,027
General and administrative....................... 4,271,741 3,346,538
Employee bonus................................... (550,000) 0
Depreciation..................................... 6,694,708 7,362,025
Arrangement fee for aircraft transfers........... (11,861,294) 0
Gain from insurance recovery..................... (2,814,785) 0
Shutdown and other nonrecurring expenses......... 31,623,410 0
------------ ------------
Total operating expenses and other, net............ 92,797,936 57,612,909
------------ ------------
Operating loss..................................... (11,580,646) (9,853,742)
Interest expense (income):
Interest expense................................. 6,221,023 6,513,064
Interest income.................................. (2,677,785) (1,702,111)
------------ ------------
Total interest expense, net........................ 3,543,238 4,810,953
------------ ------------
Loss before income taxes........................... (15,123,884) (14,664,695)
Provision for income taxes......................... (5,550,000) (5,439,000)
------------ ------------
Net loss........................................... $ (9,573,884) $ (9,225,695)
============ ============
Net loss per share................................. $ (0.18) $ (0.17)
============ ============
Weighted average shares outstanding................ 54,663,481 54,906,000
============ ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Operating revenues:
Passenger........................................ $183,530,818 $ 80,307,366
Cargo............................................ 2,707,764 1,127,081
Other............................................ 4,973,715 3,252,931
------------ ------------
Total operating revenues........................... 191,212,297 84,687,378
Operating expenses:
Flight operations................................ 12,932,717 8,904,203
Aircraft fuel.................................... 39,137,578 19,851,908
Maintenance...................................... 31,418,618 24,639,815
Station operations............................... 32,641,303 22,485,239
Passenger services............................... 7,623,789 3,817,164
Marketing and advertising........................ 6,506,737 5,227,059
Sales and reservations........................... 15,442,045 6,800,726
General and administrative....................... 8,161,420 6,142,929
Employee bonus................................... 1,245,000 0
Depreciation..................................... 13,211,088 12,247,322
Arrangement fee for aircraft transfers........... (11,861,294) 0
Gain from insurance recovery..................... (2,814,785) 0
Gain on sale of assets........................... 0 (49,600)
Shutdown and other nonrecurring expenses......... 31,623,410 9,338,000
------------ ------------
Total operating expenses........................... 185,267,626 119,404,765
------------ ------------
Operating income (loss)............................ 5,944,671 (34,717,387)
Interest expense (income):
Interest expense................................. 8,624,015 12,722,772
Interest income.................................. (4,524,234) (3,268,480)
------------ ------------
Total interest expense, net........................ 4,099,781 9,454,292
------------ ------------
Income (loss) before income taxes.................. 1,844,890 (44,171,679)
Provision for income taxes......................... 752,000 (16,439,000)
------------ ------------
Net income (loss).................................. $ 1,092,890 $(27,732,679)
============ ============
Net income (loss) per share........................ $ 0.02 $ (0.51)
============ ============
Weighted average shares outstanding................ 59,587,450 54,892,000
============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE>
VALUJET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1996 1997
------------- -------------
<S> <C> <C>
Operating revenues:
Net income (loss)............................... $ 1,092,890 ($27,732,679)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation.................................. 14,690,386 14,634,446
Provision for uncollectible accounts.......... 2,420,482 749,515
Gain from disposal of assets.................. (2,814,785) (49,600)
Deferred income taxes......................... 0 (11,307,000)
Changes in operating assets and liabilities:
Accounts receivable......................... 7,910,190 (318,598)
Other current assets........................ (256,477) 5,754,265
Accounts payable and accrued liabilities.... (13,803,802) 3,467,059
Air traffic liability....................... (18,393,981) 6,824,729
Income taxes payable........................ 309,945 21,431,109
------------- -------------
Net cash provided by (used in) operating activi-
ties........................................... (8,845,152) 13,453,246
Investing activities:
Proceeds from disposal of equipment............. 4,000,000 949,974
Purchases of property and equipment............. (116,706,995) (5,862,705)
------------- -------------
Net cash used in investing activities........... (112,706,995) (4,912,731)
Financing activities:
Issuance of long-term debt...................... 216,529,498 0
Proceeds from sale of common stock.............. 2,244,351 217,138
Payment of long-term debt....................... (17,191,703) (9,045,580)
------------- -------------
Net cash provided by (used in) financing activi-
ties........................................... 201,582,146 (8,828,442)
------------- -------------
Net increase (decrease) in cash and cash equiva-
lents.......................................... 80,029,999 (287,927)
Cash and cash equivalents at beginning of peri-
od............................................. 127,947,096 150,012,695
------------- -------------
Cash and cash equivalents at end of period...... $ 207,977,095 $ 149,724,768
============= =============
</TABLE>
See accompanying notes.
F-24
<PAGE>
VALUJET, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
interim financial statements contain all adjustments necessary to present
fairly the Company's financial position as of June 30, 1997 and December 31,
1996, the results of operations for the three and six month periods ended June
30, 1997 and June 30, 1996, and cash flows for the six month periods ended
June 30, 1997 and June 30, 1996. The adjustments made are of a normal
recurring nature. Certain information and footnote disclosures normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission for Form 10-Q. It is suggested that these unaudited interim
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Annual Report on Form 10-K
filed by the Company with the Securities and Exchange Commission on March 31,
1997, and amendments thereto.
The results of operations for the three and six month periods ended June 30,
1997 and 1996 are not necessarily indicative of the results to be expected for
the full fiscal year.
B. NET INCOME PER COMMON SHARE
Net income per share is based on the weighted average number of common
shares outstanding and common stock equivalents during the periods. Common
stock equivalents include shares issuable upon the assumed exercise of stock
options using the treasury stock method when dilutive. See Note G.
C. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Senior notes due 2001................................ $150,000,000 $150,000,000
Promissory notes due 1998 through 2006............... 94,706,324 85,660,744
Less current maturities.............................. 33,246,302 9,039,986
Less debt on assets held for sale.................... 18,188,222 0
------------ ------------
$193,271,800 $226,620,758
============ ============
</TABLE>
Interest on the Company's $150 million senior notes is payable semi-annually
on April 15 and October 15 at 10 1/4% per annum. Certain debt bears interest
at fixed rates ranging from 8.0% to 9.78% per annum and is repayable in
consecutive monthly or quarterly installments over a two- to four-year period.
Certain other notes have a variable rate of interest based on the London
interbank offered rate (LIBOR) plus 2.26% to 2.75%.
A substantial portion of the secured notes require prepayment if specific
financial ratios (concerning debt to equity, net worth, fixed charge coverage
and current ratio) are not maintained. Although the Company was in violation
of the fixed charge coverage ratio as of December 31, 1996, the Company
subsequently entered into agreements with six of the seven affected lenders
for a waiver or reset of this financial test for each quarter in 1997. In
August, 1997, the Company completed the private placement of $80 million of 10
1/2% senior secured notes due April 15, 2001. All of the secured debt with
financial maintenance covenants was repaid with a portion of the proceeds of
this offering. As a result, such debt has been classified as long-term debt in
the accompanying balance sheet. Certain aircraft, together with the installed
engines related thereto, three spare engines and four hush kits after their
purchase by ValuJet Airlines serve as collateral for the senior secured notes.
F-25
<PAGE>
VALUJET, INC.
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
D. COMMITMENTS AND CONTINGENCIES
On May 11, 1996, the Company suffered a tragic loss involving Flight 592.
The accident 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 accident is still under investigation by the
National Transportation Safety Board. In response to the accident, the Federal
Aviation Administration (FAA) conducted an extraordinary review of the
Company's operations. As a result, on June 17, 1996 the Company entered into a
consent order with the FAA under which the Company agreed to several matters
including the suspension of operations until such time as the Company was able
to satisfy the FAA as to various regulatory compliance concerns and the
payment of $2,000,000 to the FAA to compensate it for the cost of the special
inspections. The Company satisfied the FAA's requirements and received FAA
clearance during August 1996. The Company received its determination of
fitness from the Department of Transportation on September 25, 1996 and
restarted operations on September 30, 1996. See Note H regarding charges
associated with the accident and related shutdown of operations.
As a result of the above mentioned events, several class action suits have
been filed by shareholders against the Company and various officers alleging,
among other things, misrepresentations regarding the Company's safety. The
plaintiffs seek unspecified damages based upon the decrease in market value of
shares of the Company's stock. Management intends to defend these actions
vigorously and believes that the suits are without merit. While any litigation
contains elements of uncertainty, management presently believes, based on the
information available to it and discussions with outside counsel, that the
outcome of each such proceeding or claim which is pending or known to be
threatened, or all of them combined, will not have a material adverse effect
on the results of operations or the financial position of the Company.
Numerous lawsuits have also 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
lawsuits under a reservation of rights and is providing the defense of such
claims. As all claims are handled independently by the Company's insurance
carrier, the Company cannot reasonably estimate the amount of liability which
might finally exist. As a result, no accruals for losses and the related claim
for recovery from the Company's insurance carrier have been reflected in the
Company's financial statements. The Company maintains $750 million of
liability insurance, per occurrence, with a major group of independent
insurers that provide facilities for all forms of aviation insurance for many
major airlines. Although the Company believes, based on the information
currently available to it, that such coverage is sufficient to cover claims
arising out of the loss of Flight 592 and that the insurers have sufficient
financial strength to pay claims, there can be no assurance that the total
amount of judgments and settlements will not exceed the amount of insurance
available therefor or that all damages awarded will be covered by insurance.
On August 30, 1996, Metropolitan Nashville Airport Authority filed suit
against the Company in State Court in Tennessee for breach of contract and a
declaratory judgment for an anticipatory breach. The Nashville Airport
Authority seeks damages of approximately $2.6 million. The dispute involves
whether the Company was entitled to exercise a termination right contained in
its lease agreement. Management believes the ultimate resolution will not have
a materially adverse effect on the Company's financial position or results of
operations.
From time to time, the Company is engaged in litigation arising in the
ordinary course of business. The Company does not believe that any such
pending litigation will have a material adverse effect on its results of
operations or financial condition.
E. PROPOSED MERGER
On July 10, 1997, the Company entered into a merger agreement with Airways
Corporation ("Airways"). Under the merger agreement (which remains subject to,
among other things, shareholder approval by both companies), the Company will
acquire Airways through a merger of Airways with and into the Company (the
F-26
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Merger"). The purchase price to be paid by the Company in the Merger will
consist of approximately 9.1 million shares of Common Stock of the Company.
Upon completion of the Merger, the Company intends to change its name to
AirTran Holdings, Inc., and to change the name of ValuJet Airlines to AirTran
Airlines, while Airways' operating subsidiary, AirTran Airways, Inc.
("AirTran") will continue to operate under its current name.
F. ASSETS HELD FOR DISPOSITION
During 1996, as a result of the loss of Flight 592 and the consent order
with the FAA which required the Company to reestablish operations with up to
15 aircraft and subjected further expansion of the Company's operations to FAA
and DOT approval, the Company's management decided to sell or lease certain of
its aircraft. Those aircraft which the Company decided to sell were removed
from operations and were classified in the balance sheet as assets held for
disposition and were stated at the lower of carrying amount or fair value less
cost to sell. Such aircraft were available for sale and an active sales
program was initiated. The fair value, as estimated by the current market
value of these aircraft, less cost to sell exceeded the carrying amount of
such aircraft.
At June 30, 1997, as a result of the pending merger with Airways and the
resulting opportunities for the Company to expand its services, the Company's
management has decided to make the remaining aircraft classified as assets
held for disposition available for a return to its operating specifications.
Each of ValuJet Airlines and AirTran 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. All remaining aircraft
classified as assets held for disposition were reclassified to flight
equipment at their carrying amount at June 30, 1997 and will continue to be
depreciated over their remaining depreciable lives.
G. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will
change the current method of computing earnings per share. The new standard
requires presentation of "basic earnings per share" and "diluted earnings per
share" amounts, as defined. SFAS No. 128 will be effective for the Company's
quarter and year ending December 31, 1997, and, upon adoption, all prior-
period earnings per share data presented shall be restated to conform with the
provisions of the new pronouncement. Application earlier than the Company's
quarter ending December 31, 1997 is not permitted.
Pro forma basic and diluted earnings per share for the three months and six
months ended June 30, 1996 and 1997 calculated under the provisions of SFAS
No. 128 are as follows:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- --------------
1996 1997 1996 1997
------- ------- --------------
<S> <C> <C> <C> <C>
Basic earnings per share.................. $ (0.18) $ (0.17) $ 0.02 $ (0.51)
Diluted earnings per share................ (0.18) (0.17) $ 0.02 (0.51)
</TABLE>
H. SHUTDOWN AND OTHER NONRECURRING EXPENSES
Costs associated with the loss of Flight 592 and excess operating costs
related to the reduced schedule and grounded aircraft for the six months ended
June 30, 1997 are shown in the statement of operations as shutdown and other
nonrecurring expenses. Such costs consist of expenses directly related to the
accident and the ensuing
F-27
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
extensive FAA review of the Company's operations including legal fees, payments
to the FAA, inspection related costs and unusual maintenance costs in excess of
normal recurring maintenance. In addition, depreciation on grounded aircraft,
rental of abandoned or idled facilities and costs of personnel idled as a
result of the reduced and suspended operations during May and June of 1996 are
included in shutdown and other nonrecurring expenses. No such costs were
incurred in the three months ended June 30, 1997.
A summary of such costs is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1996 1997 1996 1997
--------------- ---------------------- ------------
<S> <C> <C> <C> <C>
Maintenance.................. $ 7,855,000 $ 0 $ 7,855,000 $ 7,300,000
Depreciation................. 1,480,000 0 1,480,000 2,038,000
Legal/consulting............. 6,317,000 0 6,317,000 0
Facilities rental............ 4,109,000 0 4,109,000 0
Wages/Salaries............... 3,916,000 0 3,916,000 0
FAA payment.................. 2,000,000 0 2,000,000 0
Other........................ 5,946,000 0 5,946,000 0
--------------- ------- ------------- ------------
$ 31,623,000 $0 $ 31,623,000 $ 9,338,000
=============== ======= ============= ============
</TABLE>
F-28
<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 August 13, 1997 among the Issuer, the Guarantors
and The Bank of New York, as Trustee
4.2 Registration Rights Agreement dated as of August 13, 1997 among the
Issuer, the Company and UBS Securities LLC.
4.3 Form of Exchange Note*
5.1 Opinion of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.*
8.1 Tax Opinion of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.*
12.1 Computation of ratio of earnings to fixed charges.
II-1
<PAGE>
23.1 Consent of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C. (included in
Exhibits 5.1 and 8.1)
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.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(a) (i) The undersigned Registrant hereby undertakes:
(A) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(B) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unissued at the
termination of the offering.
(ii) 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.
(iii) 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
II-2
<PAGE>
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 undersigned 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-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 9th day of October, 1997.
AIRTRAN AIRLINES, INC.
By: /s/ D. Joseph Corr, President and Chief
----------------------------------------
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints D. JOSEPH CORR and STEPHEN C. NEVIN,
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, 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 9th day of October, 1997.
/s/ D. Joseph Corr President (principal executive officer)
- ----------------------------- and Director
D. Joseph Corr
/s/ Lewis H. Jordan Chairman of the Board and Director
- -----------------------------
Lewis H. Jordan
/s/ Stephen C. Nevin Senior Vice President-Finance
- ----------------------------- (principal financial officer)
Stephen C. Nevin
/s/ Michael D. Acks Controller (principal accounting officer)
- -----------------------------
Michael D. Acks
Director
- -----------------------------
Don L. Chapman
/s/ Timothy P. Flynn Director
- -----------------------------
Timothy P. Flynn
/s/ Maurice J. Gallagher, Jr. Director
- -----------------------------
Maurice J. Gallagher, Jr.
/s/ Robert L. Priddy Director
- -----------------------------
Robert L. Priddy
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 9th day of October, 1997.
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 D. JOSEPH CORR and STEPHEN C. NEVIN,
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 9th day of October, 1997.
/s/ Robert L. Priddy Chairman of the Board (principal
- -------------------------------- executive officer) and Director
Robert L. Priddy
/s/ Lewis H. Jordan President and Director
- --------------------------------
Lewis H. Jordan
/s/ Stephen C. Nevin Senior Vice President-Finance
- -------------------------------- (principal financial officer)
Stephen C. Nevin
/s/ Michael D. Acks Controller (principal accounting
- -------------------------------- officer)
Michael D. Acks
Director
- --------------------------------
Don L. Chapman
/s/ D. Joseph Corr Director
- --------------------------------
D. Joseph Corr
/s/ Timothy P. Flynn Director
- --------------------------------
Timothy P. Flynn
/s/ Maurice J. Gallagher, Jr. Director
- --------------------------------
Maurice J. Gallagher, Jr.
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 9th day of October, 1997.
VALUJET INVESTMENT 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 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 9th day of October, 1997.
/s/ Robert L. Priddy Chairman of the Board (principal
- ------------------------------ executive officer) and Director
Robert L. Priddy
/s/ Maurice J. Gallagher, Jr. President and Director
- ------------------------------
Maurice J. Gallagher, Jr.
/s/ Stephen C. Nevin Secretary/Treasurer (principal
- ------------------------------ financial officer) and Director
Stephen C. Nevin
/s/ Michael D. Acks Assistant Secretary (principal accounting
- ------------------------------ officer)
Michael D. Acks
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 9th day of October, 1997.
VALUJET CAPITAL CORP.
By: /s/ Maurice J. Gallagher
_________________________________________
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 9th day of October, 1997.
/s/ Maurice J. Gallagher, Jr. President (principal executive
- ------------------------------ officer) and Director
Maurice J. Gallagher, Jr.
/s/ Stephen C. Nevin Vice President (principal
- ------------------------------ financial officer) and Director
Stephen C. Nevin
/s/ Michael D. Acks Secretary/Treasurer (principal accounting
- ------------------------------ officer)
Michael D. Acks
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 9th day of October, 1997.
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 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 9th day of October, 1997.
/s/ Robert L. Priddy Chairman of the Board (principal
- ----------------------------- executive officer) and Director
Robert L. Priddy
/s/ Lewis H. Jordan
- ----------------------------- President and Director
Lewis H. Jordan
/s/ Stephen C. Nevin Secretary/Treasurer (principal
- ----------------------------- financial officer) and Director
Stephen C. Nevin
/s/ Michael D. Acks Assistant Secretary (principal accounting
- ----------------------------- officer)
Michael D. Acks
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 9th day of October, 1997.
VALUJET I, LTD.
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 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 9th day of October, 1997.
/s/ Maurice J. Gallagher, Jr. President (principal executive
- ------------------------------ officer) and Director
Maurice J. Gallagher, Jr.
/s/ Michael D. Acks Secretary/Treasurer (principal accounting
- ------------------------------ officer) and Director
Michael D. Acks
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 9th day of October, 1997.
VALUJET II, LTD.
By: /s/ Maurice J. Gallagher
_____________________________________
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, 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 9th day of October, 1997.
/s/ Maurice J. Gallagher, Jr. President (principal executive
- ------------------------------ officer) and Director
Maurice J. Gallagher, Jr.
/s/ Stephen C. Nevin Secretary/Treasurer (principal accounting
- ------------------------------ officer) and Director
Stephen C. Nevin
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 9th day of October, 1997.
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 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 9th day of October, 1997.
/s/ Robert L. Priddy Chairman of the Board (principal executive
- ----------------------------- officer) and Director of ValuJet Management
Robert L. Priddy Corp., General Partner
/s/ Lewis H. Jordan President and Director
- ----------------------------- of ValuJet Management Corp.,
Lewis H. Jordan General Partner
/s/ Stephen C. Nevin Secretary/Treasurer (principal
- ----------------------------- financial officer) of ValuJet
Stephen C. Nevin Management Corp., General Partner
/s/ Michael D. Acks Assistant Secretary (principal accounting
- ----------------------------- officer) of ValuJet Management Corp.,
Michael D. Acks General Partner
II-11
<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 9th day of October, 1997.
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 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 9th day of October, 1997.
/s/ Robert L. Priddy Chairman of the Board (principal executive
- -------------------------- officer) and Director of ValuJet Management Corp.,
Robert L. Priddy General Partner
/s/ Lewis H. Jordan President and Director
- -------------------------- of ValuJet Management Corp.,
Lewis H. Jordan General Partner
/s/ Stephen C. Nevin Secretary/Treasurer (principal
- -------------------------- financial officer) of ValuJet
Stephen C. Nevin Management Corp., General Partner
/s/ Michael D. Acks Assistant Secretary (principal accounting
- -------------------------- officer) of ValuJet Management Corp.,
Michael D. Acks General Partner
II-12
<PAGE>
EXHIBIT 4.1
A-2
EXECUTION COPY
================================================================================
INDENTURE
Dated as of August 13, 1997
among
VALUJET AIRLINES, INC.,
VALUJET, INC. and
each Subsidiary listed on
the signature pages hereof,
as Guarantors
and
THE BANK OF NEW YORK,
Trustee and Collateral Trustee
____________________
$80,000,000
10 1/2% Senior Secured Notes Due 2001
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES......................................................................... 1
RECITALS OF THE COMPANY......................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions..................................................... 4
Act......................................................... 4
Affiliate................................................... 5
Agent....................................................... 5
Agent Members............................................... 5
Aircraft.................................................... 5
Aircraft Acquisition Debt................................... 5
Airframes................................................... 6
AirTran..................................................... 6
Airways..................................................... 6
Airways Acquisition......................................... 6
Asset Disposition........................................... 6
Authenticating Agent........................................ 6
Aviation Act................................................ 6
Bank Credit Agreements...................................... 7
Bank Debt Limit............................................. 7
Board of Directors.......................................... 7
Board Resolution............................................ 7
Business Day................................................ 7
Capital Lease Obligation.................................... 7
Capital Stock............................................... 8
Change of Control........................................... 8
Closing Date................................................ 8
Collateral.................................................. 8
Collateral Trustee.......................................... 8
Commission.................................................. 8
Common Stock................................................ 9
Company..................................................... 9
Company Request" or "Company Order.......................... 9
Consolidated Cash Flow Available for Fixed Charges.......... 9
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Cash Flow Ratio................................ 9
Consolidated Income Tax Expense............................. 10
Consolidated Interest Expense............................... 10
Consolidated Net Income..................................... 10
Consolidated Net Worth...................................... 11
Consolidated Rent Expense................................... 11
Consolidated Subsidiaries................................... 11
Corporate Trust Office...................................... 11
Corporation................................................. 11
covenant defeasance......................................... 11
Current Fair Market Value................................... 11
Debt........................................................ 12
Default..................................................... 12
Defaulted Interest.......................................... 12
defeasance.................................................. 12
Depositary.................................................. 12
Disqualified Stock.......................................... 12
Engines..................................................... 12
Event of Default............................................ 12
Event of Loss............................................... 13
Excess Proceeds............................................. 13
Exchange Act................................................ 13
Exchange Securities......................................... 13
Exchange Offer.............................................. 13
Exchange Offer Registration Statement....................... 13
Expiration Date............................................. 13
Federal Bankruptcy Code..................................... 13
Global Securities........................................... 13
"Guarantor" or "Guarantors"................................. 14
Guarantee................................................... 14
Holder...................................................... 14
Incur....................................................... 14
Indebtedness................................................ 14
Indenture................................................... 14
Initial Appraised Value..................................... 15
Initial Securities.......................................... 15
Institutional Accredited Investor........................... 15
Interest Payment Date....................................... 15
Interest Rate, Currency and Fuel Protection Agreement....... 15
Investment.................................................. 15
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Grade................................................... 15
Lien............................................................... 15
Mandatory Payments................................................. 16
Maturity........................................................... 16
Net Available Proceeds............................................. 16
Non-U.S. Person.................................................... 16
Officers' Certificate.............................................. 16
Offshore Global Security........................................... 17
Offshore Security Exchange Date.................................... 17
Offshore Physical Security......................................... 17
Opinion of Counsel................................................. 17
Outstanding........................................................ 17
Parent Company..................................................... 18
pari passu......................................................... 18
Paying Agent....................................................... 18
Permitted Air Carrier.............................................. 18
Permitted Aircraft Lease........................................... 18
Permitted Collateral Investments................................... 18
Permitted Country.................................................. 19
Permitted Holder................................................... 19
Permitted Interest Rate, Currency and Fuel Protection Agreement.... 19
Permitted Investments.............................................. 19
Permitted Liens.................................................... 20
Person............................................................. 20
Physical Securities................................................ 20
Predecessor Security............................................... 20
Preferred Stock.................................................... 20
Private Placement Legend........................................... 20
QIB................................................................ 20
Recovered Restricted Payment....................................... 20
Redemption Date.................................................... 21
Redemption Price................................................... 21
Registration Rights Agreement...................................... 21
Regular Record Date................................................ 21
Regulation S....................................................... 21
Reinvested Amounts................................................. 21
Related Person..................................................... 21
Responsible Officer................................................ 21
Restricted Lease Obligation........................................ 22
Restricted Subsidiary.............................................. 22
</TABLE>
<PAGE>
iv
<TABLE>
<CAPTION>
PAGE
<S> <C>
Sale and Leaseback Transaction................................... 22
Secured Payments................................................. 22
Secured Obligations.............................................. 22
Securities....................................................... 22
Securities Act................................................... 22
Security Register" and "Security Registrar....................... 22
Shelf Registration Statement..................................... 22
Special Record Date.............................................. 22
Stated Maturity.................................................. 23
Subsidiary....................................................... 23
Subsidiary Guarantors............................................ 23
Subsidiary Mandatory Payments.................................... 23
Subsidiary Scheduled Payments.................................... 23
10 1/4% Notes.................................................... 23
Trust Indenture Act" or "TIA..................................... 24
Unpermitted Debt................................................. 24
U.S. Global Security............................................. 24
U.S. Government Obligations...................................... 24
U.S. Physical Security........................................... 24
Unrestricted Subsidiary.......................................... 24
ValuJet Guarantee................................................ 24
Vice President................................................... 24
Voting Stock..................................................... 25
SECTION 102. Compliance Certificates and Opinions.................................. 25
SECTION 103. Form of Documents Delivered to Trustee................................ 25
SECTION 104. Acts of Holders....................................................... 26
SECTION 105. Notices, Etc., to Trustee, Company and Guarantors..................... 28
SECTION 106. Notice to Holders; Waiver............................................. 28
SECTION 107. Effect of Headings and Table of Contents.............................. 29
SECTION 108. Successors and Assigns................................................ 29
SECTION 109. Separability Clause................................................... 29
SECTION 110. Benefits of Indenture................................................. 29
SECTION 111. Governing Law......................................................... 29
SECTION 112. Legal Holidays........................................................ 29
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally........................................................ 30
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 202. Form of Trustee's Certificate of Authentication....................... 31
SECTION 203. Restrictive Legends................................................... 32
SECTION 204. Form of Certificate to Be Delivered upon Termination of Restricted
Period........................................................... 34
</TABLE>
<PAGE>
vi
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount............................................................. 35
SECTION 302. Denominations...................................................... 36
SECTION 303. Execution, Authentication, Delivery and Dating..................... 36
SECTION 304. Temporary Securities............................................... 37
SECTION 305. Registration, Registration of Transfer and Exchange................ 38
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities................... 39
SECTION 307. Payment of Interest; Interest Rights Preserved..................... 40
SECTION 308. Persons Deemed Owners.............................................. 41
SECTION 309. Cancellation....................................................... 42
SECTION 310. Computation of Interest............................................ 42
SECTION 311. Book-Entry Provisions for Global Securities........................ 42
SECTION 312. Transfer Provisions................................................ 43
SECTION 313. Form of Accredited Investor Certificate............................ 52
SECTION 315. Form of Rule 144A Certificate...................................... 57
SECTION 316. CUSIP Numbers...................................................... 58
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture............................ 58
SECTION 402. Application of Trust Money......................................... 60
ARTICLE FIVE
EVENTS OF DEFAULT AND REMEDIES
SECTION 501. Events of Default.................................................. 60
SECTION 502. Acceleration of Maturity; Rescission and Annulment................. 62
SECTION 503. Collection of Indebtedness; Provisions Regarding Sale by Trustee... 64
SECTION 504. Trustee or Collateral Trustee May File Proofs of Claim............. 68
SECTION 505. Trustee May Enforce Claims Without Possession of Securities........ 69
SECTION 506. Application of Money Collected..................................... 69
SECTION 507. Limitation on Suits................................................ 70
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest......................................................... 71
</TABLE>
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vii
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 509. Restoration of Rights and Remedies........................................ 71
SECTION 510. Rights and Remedies Cumulative............................................ 72
SECTION 511. Delay or Omission Not Waiver.............................................. 72
SECTION 512. Control by Holders........................................................ 72
SECTION 513. Waiver of Past Defaults................................................... 72
SECTION 514. Waiver of Stay or Extension Laws.......................................... 73
SECTION 515. Undertaking for Costs..................................................... 73
ARTICLE SIX
THE TRUSTEE AND COLLATERAL TRUSTEE
SECTION 601. Notice of Defaults........................................................ 74
SECTION 602. Certain Rights of Trustee and the Collateral Trustee...................... 74
SECTION 603. Neither Trustee nor the Collateral Trustee Responsible for Recitals or
Issuance of Securities................................................. .76
SECTION 604. May Hold Securities....................................................... 76
SECTION 605. Money Held in Trust....................................................... 76
SECTION 606. Compensation and Reimbursement............................................ 76
SECTION 607. Corporate Trustee Required; Eligibility................................... 77
SECTION 608. Resignation and Removal; Appointment of Successor......................... 78
SECTION 609. Acceptance of Appointment by Successor.................................... 79
SECTION 610. Merger, Conversion, Consolidation or Succession to Business............... 80
SECTION 611. Appointment of Authenticating Agent....................................... 81
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.............................. 82
SECTION 702. Reports by Trustee........................................................ 83
SECTION 703. Reports by Company........................................................ 83
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Parent Company or Company May Consolidate, Etc., Only on Certain
Terms.................................................................. 84
SECTION 802. Successor Substituted..................................................... 86
</TABLE>
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vii
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 803. Securities to Be Secured in Certain
Events.................................................................................. 86
</TABLE>
<PAGE>
ix
<TABLE>
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<S> <C>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.......................... 86
SECTION 902. Supplemental Indentures with Consent of Holders............................. 87
SECTION 903. Execution of Supplemental Indentures........................................ 88
SECTION 904. Effect of Supplemental Indentures........................................... 88
SECTION 905. Conformity with Trust Indenture Act......................................... 89
SECTION 906. Reference in Securities to Supplemental Indentures.......................... 89
SECTION 907. Notice of Supplemental Indentures........................................... 89
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest........................ 89
SECTION 1002. Maintenance of Office or Agency............................................ 89
SECTION 1003. Money for Security Payments to Be Held in Trust............................ 90
SECTION 1004. Corporate Existence........................................................ 91
SECTION 1005. Payment of Taxes and Other Claims.......................................... 92
SECTION 1006. Registration and Maintenance of Properties................................. 92
SECTION 1007. Purchase of Securities upon Change in Control.............................. 92
SECTION 1008. Statement by Officers as to Default........................................ 94
SECTION 1009. Provision of Financial Statements.......................................... 94
SECTION 1010. Insurance.................................................................. 95
SECTION 1011. Limitation on Liens........................................................ 95
SECTION 1012. Limitation on Parent Company Debt.......................................... 97
SECTION 1013. Limitation on Subsidiary Debt and Preferred Stock.......................... 99
SECTION 1014. Limitation on Restricted Payments.......................................... 102
SECTION 1015. Unrestricted Subsidiaries.................................................. 104
SECTION 1016. Limitations Concerning Distributions by Subsidiaries, Etc.................. 105
SECTION 1017. Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries........................................................... 106
SECTION 1018. Limitation on Transactions with Affiliates and Related Persons............. 106
SECTION 1019. Limitation on Certain Asset Dispositions................................... 107
SECTION 1020. Limitation on Collateral Sales; Event of Loss.............................. 108
SECTION 1021. Waiver of Certain Covenants................................................ 110
</TABLE>
<PAGE>
VALUJET AIRLINES, INC
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF AUGUST 13, 1997/1/
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
(S) 310(a)(1) ..................................... 607(a)
(a)(2) ..................................... 607(a)
(b) ..................................... 607(b), 608
(S) 312(c) ..................................... 701
(S) 314(a) ..................................... 703
(a)(4) ..................................... 1008(a)
(c)(1) ..................................... 102
(c)(2) ..................................... 102
(e) ..................................... 102
(S) 315(b) ..................................... 601
(S) 316(a)(last)
Sentence) ..................................... 101 ("Outstanding")
(a)(1)(A) ..................................... 502, 512
(a)(1)(B) ..................................... 513
(b) ..................................... 508
(c) ..................................... 104(d)
(S) 317(a)(1) ..................................... 503
(a)(2) ..................................... 504
(b) ..................................... 1003
(S) 318(a) ..................................... 111
</TABLE>
_________________
1 Note: This reconciliation and tie shall not, for any purpose, be deemed
----
to be a part of the Indenture.
<PAGE>
INDENTURE, dated as of August 13, 1997 among VALUJET AIRLINES, INC., a
corporation duly organized and existing under the laws of the State of Nevada
(herein called the "Company"), having its principal office at 1800 Phoenix
Boulevard, Suite 126, Atlanta, Georgia 30349, VALUJET, INC., a corporation duly
organized and existing under the laws of the State of Nevada (the "Parent
Company") and each of the SUBSIDIARY GUARANTORS (as hereinafter defined), as
Guarantors, and THE BANK OF NEW YORK, a New York banking corporation located at
101 Barclay Street, Floor 21 West, New York, New York 10286, Trustee (herein
called the "Trustee") and Collateral Trustee (herein called "Collateral
Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its 10 1/2%
Senior Secured Notes Due 2001 (the "Initial Securities"), and its 10 1/2% Series
B Senior Secured Notes Due 2001 (the "Exchange Securities", and together with
the Initial Securities, the "Securities") of substantially identical tenor and
amount, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the effectiveness
of the Shelf Registration Statement (as defined herein), this Indenture will be
subject to, and shall be governed by, the provisions of the Trust Indenture Act
(as defined herein), as amended, that are required to be part of or deemed to be
part of and to govern the indentures qualified thereunder.
All things necessary have been done to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
GRANTING CLAUSE
NOW, THEREFORE, THIS INDENTURE WITNESSETH, for and in consideration of the
premises and the purchase of the Securities by the Holders thereof, to secure
the prompt payment of the principal of and interest on, and all other amounts
due with respect to, all Securities from time to time outstanding under this
Indenture and the performance and observance by the Company of all the
agreements, covenants and provisions for the benefit of the Holders in this
Indenture and the Securities contained, and the prompt payment of any and all
amounts from time to time owing under this Indenture by the Company to the
Trustee (collectively, the "Secured Obligations"), and for the uses and purposes
and subject to the terms and provisions hereof, and in consideration of the
premises and the covenants herein contained, and the acceptance of the Notes by
the Holders and of the sum of $1 paid to the Company by the
<PAGE>
2
Collateral Trustee at or before the delivery hereof, the receipt whereof is
hereby acknowledged, the Company has granted, sold, assigned, transferred,
conveyed, pledged and confirmed, and does hereby grant, assign, transfer,
convey, pledge and confirm, unto the Collateral Trustee and its successors and
assigns, for the security and benefit of the Holders and the Trustee as
aforesaid, a first priority security interest in all estate, right, title and
interest of the Company in, to and under the following described property,
rights and privileges (which, collectively, including all property hereafter
specifically subjected to the Lien of this Indenture by any agreement
supplemental hereto, or otherwise expressly subject to the terms and provisions
hereof, shall constitute the "Collateral"), to wit:
(i) (a) 17 Stage 3 DC-9 aircraft, together with two of the
Engines, each as identified in Schedule II attached hereto, whether or not
any such Engines shall be installed in or attached to any Airframe or any
other airframe, and the parts, together with all accessories, equipment,
parts and appurtenances appertaining or attached to the Airframes and
Engines, whether now owned or hereafter acquired, and all substitutions,
modifications, improvements, accessions and accumulations to the Airframes,
the Engines and the Parts, (b) seven Stage 2 DC-9 aircraft, together with
two of the Engines, each as identified in Schedule II attached hereto,
whether or not any such Engines shall be installed in or attached to any
Airframe or any other airframe, and the parts, together with all
accessories, equipment, parts and appurtenances appertaining or attached to
the Airframes and Engines, whether now owned or hereafter acquired, and all
substitutions, modifications, improvements, accessions and accumulations to
the Airframes, the Engines and the Parts, (c) three spare Engines, each as
identified in Schedule II attached hereto, whether or not any such Engines
shall be installed in or attached to any Airframe or any other airframe,
and the parts, together with all accessories, equipment, parts and
appurtenances appertaining or attached to such Engines, whether now owned
or hereafter acquired, and all substitutions, modifications, improvements,
accessions and accumulations to such Engines and the Parts, and (d) all
warranties of any manufacturer with respect thereto;
(ii) four Stage 3 hush kits after their purchase by the Company
(which are to be installed on certain of the Aircraft) and all warranties
of any manufacturer with respect thereto;
(iii) all monies and securities deposited or required to be deposited
with the Trustee pursuant hereto or required to be held by the Trustee
hereunder;
(iv) all policies covering loss or damage to the Aircraft or the
Engines that are made payable to the Trustee;
<PAGE>
3
(v) all leases entered into by the Company with respect to any
Aircraft or Engine, including, without limitation, each of the leases set
forth on Schedule III hereto;
(vi) all logs, records and data, non-proprietary manuals supplied to
the Company by vendors and manufacturers (to the extent the same can be so
assigned without the consent of any such vendor or manufacturer) and
inspection, modification, maintenance and overhaul records and other
documents, in each case, maintained in respect of the Aircraft, Engines or
hush kits, including, without limitation, all such logs, records, data and
other documents maintained pursuant to requirements of the FAA or any other
Aeronautical Authority; and
(vii) All proceeds of the foregoing, including all proceeds with
respect to the requisition of title to an Aircraft Engine, hush kit or any
part thereof or any property described in any of these Clauses (i) through
(vii), and all insurance proceeds with respect to any Aircraft or Engine or
any part thereof, but excluding any insurance maintained by the Company and
not required under Section 1010 and 1102;
PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so long
as no Event of Default shall have occurred and be continuing under this
Indenture, (a) the Collateral Trustee shall not take or cause to be taken any
action contrary to the Company's right hereunder to quiet enjoyment of the
Airframes, Engines and hush kits, and to possess, use, retain and control the
Airframes, Engines and hush kits and all revenues, income and profits derived
therefrom.
HABENDUM CLAUSE
TO HAVE AND TO HOLD ALL and singular and aforesaid property unto the
Collateral Trustee and its successors and assigns, in trust for the benefit and
security of the Holders and the Trustee and for the uses and purposes and
subject to the terms and provisions set forth in this Indenture; provided,
however, that the Lien of this Collateral Agreement shall be subject to
discharge as provided in Section 401.
The Company does hereby constitute the Collateral Trustee the true and
lawful attorney of the Company, irrevocably, with full power (in the name of the
Company or otherwise) to ask, require, demand, receive, compound and give
acquittance for any and all monies and claims for monies (in each case including
insurance and requisition proceeds) due and to become due under or arising out
of the this Indenture and any documents related hereto and all other property
which now or hereafter constitutes part of the Collateral, to endorse any checks
or other instruments or orders in connection therewith and to file any claims or
to take any action or to institute any proceedings which the Collateral Trustee
may deem to be necessary or advisable in the premises; providing, however, that
the Collateral Trustee shall not exercise any such rights except upon the
occurrence of an Event of Default under this Indenture.
<PAGE>
4
The Company agrees that at any time and from time to time, upon the
written request of the Collateral Trustee or the Holder of a majority in
principal amount of the Securities Outstanding, the Company will promptly and
duly execute and deliver or cause to be duly executed and delivered any and all
such further instruments and documents as the Collateral Agent or such Holder of
a majority in principal amount of the Securities Outstanding may reasonably deem
desirable in obtaining the full benefits of the assignment hereunder and the
rights and powers granted herein.
IT IS HEREBY MUTUALLY COVENANTED AND AGREED, for the equal and
proportionate benefit of all Holders, by and between the parties hereto as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
<PAGE>
5
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Aeronautical Authority" means as of any time of determination, the
FAA or other governmental airworthiness authority having jurisdiction over the
Aircraft or the Airframe and Engines or engines attached thereto under the laws
of the country in which the Airframe is then registered.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified 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.
"Agent" means an agent or agents under a Bank Credit Agreement.
"Agent Members" has the meaning set forth in Section 311.
"Aircraft" means each of the Airframes, together with two of the
Engines and hush kits, if any, installed thereon, upon which the Trustee has
been granted a security interest and mortgage lien by the Company pursuant to
the Indenture, as more particularly described in Schedule II hereto.
"Aircraft Acquisition Debt" means Debt Incurred by the Parent Company,
the Company or any of its Restricted Subsidiaries either (i) in connection with
an acquisition of aircraft, related engines or spare engines, which Debt either
(x) constitutes part of the purchase price of such aircraft, engine or spare
engines, as the case may be, or (y) 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, related engine or spare engine from the manufacturer thereof) after
the acquisition of such equipment for the purpose of financing or refinancing
part of the purchase price thereof, and which equipment was not owned by the
Parent Company, the Company or a Restricted Subsidiary of the Parent 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 or
appraised value of such equipment at the time of such financing does not exceed
80% (or, with respect to Debt Incurred to acquire MD-95 aircraft, related
engines and spare engines, 90%), and (B) other than in the case of financing of
MD-95 aircraft, related engines and spare engines, after giving effect to the
Incurrence of such Debt and the acquisition of such equipment, the Parent
Company's Consolidated Net Worth is not less than $150 million, or (ii) which is
a Restricted Lease Obligation relating solely to an aircraft, related engine or
spare engine that was not owned by the Parent Company, the Company or a
Restricted Subsidiary of the Parent Company more than 270
<PAGE>
6
days prior to such Incurrence; provided, however, that, other than in the case
of financing of MD-95 aircraft, related engines or spare engines, after giving
effect to the Incurrence of such Debt, the Parent Company's Consolidated Net
Worth is not less than $150.0 million.
"Airframes" means each of the 17 Stage 3 DC-9 aircraft and each of the
seven Stage 2 DC-9 aircraft (except Engines or engines from time to time
installed on such aircraft) initially pledged to secure the Company's
obligations hereunder and under the Notes, and any airframes which may from time
to time be substituted for an Airframe, as more particularly described in
Schedule II hereto.
"AirTran" means AirTran Airways, Inc., a Delaware corporation and a
wholly owned subsidiary of Airways.
"Airways" means Airways Corporation, a Delaware corporation.
"Airways Acquisition" means the acquisition of Airways by the Parent
Company through a statutory merger of Airways with and into the Parent Company
pursuant to the Plan of Reorganization and Agreement of Merger dated as of July
10, 1997, between the Parent Company and Airways, together with the contemplated
merger of the Company and AirTran upon completion of the merger of the Parent
Company and Airways Corporation.
"Applicable Law" means all applicable laws, treaties, judgments,
decrees, injunctions, writs and orders of any court, governmental agency or
authority and rules, regulations, orders, directives, licenses and permits of
any governmental body, instrumentality, agency or authority.
"Appraisers" means each of BK Associates Inc. and AvSolutions, Inc.
"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.
<PAGE>
7
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Notes.
"Aviation Act" means Title 49 of the United States Code, as amended,
relating to aviation.
"Bank Credit Agreements" means one or more credit agreements between
the Parent 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 $50.0 million; provided, however, 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 $50.0 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 basis that borrowings in an amount equal
to the Excess Amount or $50.0 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 Parent 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 of Section 1012, then the Bank Debt
Limit shall be the Adjusted Bank Debt Limit or $100.0 million, whichever is
less.
"Board of Directors" means either the board of directors of the
Company or the Parent Company, as the case may be, or any duly authorized
committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or the Parent Company, as the
case may be, to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
<PAGE>
8
"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 obligation or a
liability on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles for the purposes of this Indenture, the
amount of any such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with such principles, and 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" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or nonvoting) in equity of such Person, whether now outstanding or issued
after the date hereof, including, without limitation, all Common Stock and
Preferred Stock.
"Change of Control" means an event as a result of which, after the
date hereof, (i) any Person, or any Persons acting together that would
constitute 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 Parent Company, (ii) any Person or Group,
together with any Affiliates or Related Persons thereof, succeeds in having a
sufficient number of its nominees elected to the Board of Directors of the
Parent Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Parent 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 Parent Company, (iii) there occurs any
transaction or series of related transactions, and the beneficial owners of the
Voting Stock of the Parent 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 Parent Company (or in the case of a transaction (or series)
in which another entity becomes a successor to the Parent Company, of the
successor entity) or (iv) the Parent Company shall cease to own 100% of the
outstanding Capital Stock of the Company; 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).
"Closing Date" means the date on which the Notes are originally issued
hereunder.
"Collateral" has the meaning set forth in the Granting Clause hereof.
<PAGE>
9
"Collateral Trustee" means the Person named as the "Collateral
Trustee" in the first paragraph of this Indenture until a successor Collateral
Trustee shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Collateral Trustee" shall mean such successor
Collateral Trustee.
"Commission" means the U.S. Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution hereof such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, 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, whether now outstanding or issued after the date of
this Indenture, and includes, without limitation, all series and classes of such
common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chief Executive Officer, its President,
any Vice President, its Treasurer or an Assistant Treasurer, and delivered to
the Trustee.
"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 deducted in determining the
Consolidated Net Income 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 result 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
<PAGE>
10
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 a division or line of business
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.
"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; (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); and (vii) interest in respect of any Debt that is guaranteed
or secured by the Parent Company or any of its Restricted Subsidiaries.
"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
<PAGE>
11
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 Parent 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 Parent Company and its subsidiaries, adjustments following
the date hereof to the accounting books and records of the Parent Company and
its subsidiaries in accordance with Accounting Principles Board Opinion Nos. 16
and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of the Parent 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.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be principally administered, which office at the date hereof is located at 101
Barclay Street, Floor 21 West, New York, New York 10286.
"Corporation" includes corporations, associations, companies and
business trusts.
"covenant defeasance" has the meaning specified in Section 1303.
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12
"Current Fair Market Value" is defined by each of the appraisers to
mean the most likely trading price that, in the opinion of the appraiser, may be
generated for an aircraft under the market conditions that are perceived to
exist at the time in question. Current Fair Market Value assumes that the
aircraft is valued for its highest, best use, that the parties to the
hypothetical transaction are willing, able, prudent and knowledgeable, and under
no unusual pressure for, or under compulsion to realize, a prompt sale, and that
the transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
"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
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.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning set forth in Section 307.
"defeasance" has the meaning specified in Section 1302.
"Depositary" means The Depository Trust Company, a New York
corporation, its nominees and successors.
"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,
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13
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.
"Engines" means, for each of the 17 Stage 3 DC-9 Airframes and seven
Stage 2 DC-9 Airframes, each of two JT8D-9 engines relating thereto and three
spare JT8D-9 engines as specified herein, and any engines which may from time to
time be substituted for such engines pursuant to the Indenture, as more
particularly described in Schedule II hereto.
"Event of Default" has the meaning set forth in Section 501.
"Event of Loss" means, with respect to an Aircraft or Engine, any of
the following events: (i) payment of an insurance settlement with respect to
such property on the basis of any actual or constructive total loss; (ii)
destruction or damage beyond repair; (iii) theft or disappearance for a period
in excess of 120 days; (iv) condemnation or taking of title to such Aircraft or
Airframe by the United States government or any foreign government or
instrumentality or agency thereof; (v) the requisition or taking of such
Aircraft or Airframe by a foreign government or instrumentality or agency for a
continuous period of more than six months; or (vi) with respect to an Engine
only, the requisition for use by any government or the divestiture of title
resulting from installation of such Engine on an airframe leased to the Company
or purchased by the Company subject to a conditional sale agreement, in either
case under circumstances in which the Trustee's security interest in such engine
is adversely affected thereby. An Event of Loss with respect to the Aircraft
will be deemed to have occurred if an Event of Loss occurs with respect to the
Airframe of such Aircraft. An Event of Loss in respect of an Engine will not be
an Event of Loss in respect of an Airframe.
"Excess Proceeds" has the meaning set forth in Section 1019.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Securities" has the meaning stated in the first recital of
this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that (i) such Exchange
Securities shall not contain terms with respect to transfer restrictions and
shall be registered under the Securities Act, and (ii) certain provisions
relating to an increase in the stated rate of interest thereon shall be
eliminated) that are issued and exchanged for the Initial Securities in
accordance with the Exchange Offer, as provided for in the Registration Rights
Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Securities to exchange all of the Initial Securities for Exchange
Securities, as provided for in the Registration Rights Agreement.
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14
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Expiration Date" has the meaning set forth in Section 1007.
"FAA" means the U.S. Federal Aviation Administration.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"Global Securities" has the meaning set forth in Section 201.
"Guarantor" or "Guarantors" means the Parent Company and the
Subsidiary Guarantors.
"Guarantee" 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" and "Guaranteeing" shall have meanings correlative
to the foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"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" and "Incurred" 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.
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15
"Indebtedness" means (a) any liability of any Person (1) for borrowed
money, or under any reimbursement obligation relating to a letter of credit, (2)
evidenced by a bond, note, debenture or similar instrument (including a purchase
money obligation) given in connection with the acquisition of any businesses,
properties or assets of any kind (other than a trade payable or a current
liability arising in the ordinary course of business), or (3) for the payment of
money relating to a Capital Lease Obligation; (b) any liability of others
described in the preceding clause (a) that such Person has guaranteed or that is
otherwise its legal liability; and (c) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types referred
to in Clauses (a) and (b) above.
"Indenture" means this instrument as originally executed and as from
time to time supplemented or amended by one or more indentures supplemental or
supplements to the indenture entered into pursuant to the applicable provisions
hereof.
"Initial Appraised Value" with respect to any Aircraft means the
average of two independent appraisals of the Current Fair Market Value of such
aircraft obtained by the Company from the Appraisers in connection with this
Offering and set forth on Schedule 2 hereto. With respect to Engines, the
Initial Appraised Value of each Stage 2 JT8D-9A shall be deemed to be $500,000
and the Initial Appraised Value of each Stage 3 JT8D-9A shall be deemed to be
$600,000.
"Initial Securities" has the meaning specified in the recitals to this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act.
"Interest Payment Date" means each April 15 and October 15, commencing
on October 15, 1997, (or, if any April 15 or October 15 is not a Business Day,
the next succeeding Business Day).
"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
<PAGE>
16
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 Guarantee 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 Ratings Services at such time.
"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).
"Mandatory Payments" has the meaning set forth in Section 1012.
"Maturity" means, when used with respect to any Security, the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"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
<PAGE>
17
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 judgment
evidenced by a resolution of the Board of Directors filed with the Trustee;
provided, however, that any reduction in such reserve within 12 months following
the consummation of such Asset Disposition will be treated, for all purposes of
this Indenture and the Securities, as a new Asset Disposition at the time of
such reduction with Net Available Proceeds equal to the amount of such
reduction.
"Non-U.S. Person" means a person who is not a U.S. Person as defined
in Regulation S.
"Officers' Certificate" means a certificate signed by the Chief
Executive Officer, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Offshore Global Security" has the meaning set forth in Section 201.
"Offshore Security Exchange Date" has the meaning set forth in Section
203.
"Offshore Physical Security" has the meaning set forth in Section 201.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant hereto or provision therefor satisfactory to the Trustee has
been made;
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18
(iii) Securities, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Thirteen; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant hereto, other than any such Securities in respect of
which there shall have been presented to the Trustee proof satisfactory to
it that such Securities are held by a bona fide purchaser in whose hands
the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Parent Company" means the Person named as the Parent Company in the
first paragraph of this Indenture, until a successor Person shall have become
such pursuant to the applicable provisions hereof, and thereafter "Parent
Company" shall mean such successor Person.
"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.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature other than
complete Engines or engines, which are from time to time incorporated or
installed in or attached to the Airframe or any Engine, exclusive of any items
leased by the Company from third parties.
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19
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Securities on behalf of the Company.
"Permitted Air Carrier" means (i) a United States "air carrier" within
the meaning of the Aviation Act or (ii) an air carrier which, among other
things, (A) is duly organized and operating pursuant to a license or
authorization issued under the laws of any Permitted Country and (B) will
perform or cause to be performed maintenance, preventive maintenance and
inspections for such Aircraft, Airframe or any Engine or engine in accordance
with standards which are approved by the Aeronautical Authority in the country
of registration of the Aircraft.
"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.
"Permitted Collateral Investments" means (i) securities either issued
directly or fully guaranteed or insured by the government of the United States
of America or any agency or instrumentality thereof maturing within one year
from the date of acquisition; (ii) time deposits and certificates of deposit of
any U.S. commercial bank or U.S. branch of a foreign bank, in each case having
capital and surplus in excess of $500.0 million and having outstanding long-term
debt rated A or better (or the equivalent thereof) by Standard & Poor's Ratings
Services or A2 or better (or the equivalent thereof) by Moody's Investors
Service, Inc. and maturing within six months from the date of acquisition; and
(iii) commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Services or P-1 or the equivalent thereof by Moody's Investors Service,
Inc. and maturing within six months from the date of acquisition.
"Permitted Country" means any of the countries set forth in Schedule 1
thereto.
"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
<PAGE>
20
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
Guarantee of any obligation of) the Parent Company or any Person that is, or as
a consequence of such Investment becomes, a Restricted Subsidiary of the Parent
Company (provided that any such Guarantee 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 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 $500.0
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 Ratings Services 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
Ratings Services 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 $35.0 million;
provided that the amount available under this Clause (vi) may be increased from
time to time by an amount equal to the net reduction of an Investment in a
Person made under this Clause (vi) through a cash payment to the Company, the
Parent Company or any of its Restricted Subsidiaries by such Person, or through
the forgiveness of Debt of the Company, the Parent Company or any Restricted
Subsidiary to such Person (except, in either case, to the extent such payment or
proceeds are included in the calculation of Consolidated Net Income), not to
exceed, in each case, the amount of such Permitted Investment previously made by
the Parent Company or any Restricted Subsidiary in such Person and (vii)
Permitted Interest Rate, Currency and Fuel Protection Agreements.
"Permitted Liens" has the meaning set forth in Section 1011.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Securities" has the meaning set forth in Section 201.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same Debt as that evidenced by such
particular Security; and,
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21
for the purposes of this definition, any Security authenticated and delivered
under Section 306 in exchange for a mutilated security or in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same Debt as the
mutilated, lost, destroyed or stolen Security.
"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.
"Private Placement Legend" has the meaning set forth in Section 203.
"QIB" means a "Qualified Institutional Buyer" within the meaning of
Rule 144A under the Securities Act.
"Recovered Restricted Payment" means (i) a Guarantee that, when
Incurred, constitutes a Restricted Payment, but only to the extent that the
obligations of the Parent Company and its Restricted Subsidiaries in respect of
such Guarantee are discharged for consideration given by the Parent Company and
any of 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 Parent Company, or (ii) a loan that, when made, constitutes a Restricted
Payment, but only to the extent that such loan is repaid to the Parent Company
and any of its Restricted Subsidiaries in cash without restriction and is not
included in Consolidated Net Income of the Parent Company.
"Redemption Date", when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof, between the Company, the Parent Company
and UBS Securities LLC, as initial purchaser of the Initial Securities.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the April 1 or October 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
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22
"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 Parent Company and any of its Restricted
Subsidiaries and, upon consummation of such investment, are owned by the Parent
Company or any of its Restricted Subsidiaries.
"Required Filing Dates: has the meaning set forth in Section 1009.
"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.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above-designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"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 Parent Company that
is not an Unrestricted Subsidiary; and on the date of the Indenture includes all
of the Parent 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.
<PAGE>
23
"Secured Payments" has the meaning set forth in Section 1012.
"Secured Obligations" has the meaning stated in the Granting Clause to
this Indenture.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
<PAGE>
24
"Stage 2", when describing an aircraft, an engine or a hush kit, means
a piece of equipment which holds or is capable of holding a noise certificate
issued under Chapter 2 of the Chicago Convention or has been shown to comply or
aid compliance with the Stage 2 noise levels.
"Stage 3", when describing an aircraft, an engine or a hush kit, means
a piece of equipment which holds or is capable of holding a noise certificate
under Chapter 3 of Volume I, Part II of Annex 16 of the Chicago Convention or
has been shown to comply or aid compliance with the Stage 3 noise levels set out
in Section 36.5 of Appendix C of Part 36 of the United States Federal Aviation
Regulations.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"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 thereof 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.
"Subsidiary Guarantors", as of any time, means the Restricted
Subsidiaries of the Parent Company at such time, which, as of the date hereof,
are ValuJet Management Corp., a Nevada corporation, ValuJet Investment Corp., a
Nevada corporation, ValuJet Capital Corp., a Nevada corporation, ValuJet
Corporate Partners, L.P., a limited partnership organized under the laws of
Georgia. ValuJet Reservation Partners, L.P., a limited partnership organized
under the laws of Georgia, ValuJet I, Ltd., a Nevada corporation, and ValuJet
II, Ltd., a Nevada corporation.
"Subsidiary Mandatory Payments" has the meaning set forth in Section
1013.
"Subsidiary Scheduled Payments" has the meaning set forth in Section
1013.
"10 1/4% Notes" means the 10 1/4% Senior Notes Due 2001 of the Parent
Company issued pursuant to an indenture dated as of April 17, 1996 among the
Parent Company, the guarantors specified therein and Bank of Montreal Trust
Company, as Trustee, as amended.
<PAGE>
25
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended, as in force at the date as of which this Indenture was executed,
except as provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unpermitted Debt" has the meaning set forth in Section 1015.
"U.S. Global Security" has the meaning set forth in Section 201.
"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) 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.
"U.S. Physical Security" has the meaning set forth in Section 201.
"Unrestricted Subsidiary" means a Subsidiary of the Parent Company
that is deemed by the Parent Company to be an Unrestricted Subsidiary and is not
terminated as an Unrestricted Subsidiary by the Parent Company, in each case in
accordance with the provisions in the Indenture described in Section 1015
hereof.
"ValuJet Guarantee" means the guarantee by the Guarantors of the
Issuer's obligations hereunder pursuant to Article XIV of this Indenture.
"Vice President", when used with respect to the Company, the Parent
Company or the Trustee, means any vice president, whether or not designated by a
number or a word or words added before or after the title "vice president".
<PAGE>
26
"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.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case in which several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters
<PAGE>
27
and one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
When any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, consolidate such
applications, requests, consents, certificates, statements, opinions or other
instruments and form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, when it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. When such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
<PAGE>
28
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(f) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders or record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective
<PAGE>
29
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
SECTION 105. Notices, Etc., to Trustee, Company and Guarantors.
-------------------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration; or
(2) the Company or any Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to the Company or any Guarantor addressed to it at the address of its
principal office specified in the first paragraph of this Indenture, or at
any other address previously furnished in writing to the Trustee by the
Company; or
(3) an Agent by the Company, the Trustee or any Holder shall be
sufficient for any purpose hereunder if made, given, furnished or
delivered, in writing to or with such Agent addressed to it as set forth in
the Bank Credit Agreement, or at any other address previously furnished in
writing to the Company and the Trustee by such Agent.
SECTION 106. Notice to Holders; Waiver.
-------------------------
When this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case in which notice to Holders is given by mail, neither the failure to
mail such notice nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Any notice mailed to a Holder in the manner herein prescribed shall be
conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice. When this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
<PAGE>
30
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, or the Holders any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. This Indenture is subject
to the provisions of the Trust Indenture Act that are required to be part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. Legal Holidays.
--------------
In any case in which any Interest Payment Date, Redemption Date,
sinking fund payment date or Stated Maturity or Maturity of any Security shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Securities) payment of principal
<PAGE>
31
(or premium, if any) or interest need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, Redemption Date or sinking fund payment date, or at
the Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, sinking fund
payment date, Stated Maturity or Maturity, as the case may be.
SECTION 113. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
This Indenture incorporates by reference the provisions of the Trust
Indenture Act. The following Trust Indenture Act terms used in this Indenture
have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Holder;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in the Trust Indenture
Act to another statute or defined by a rule of the Commission and not otherwise
defined herein shall have the meanings assigned to them therein. If any
provision hereof conflicts with a provision of the Trust Indenture Act
incorporated herein, the provision of the Trust Indenture Act shall control.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
---------------
The Initial Securities shall be known as the "10 1/2% Senior Secured
Notes Due 2001" and the Exchange Securities shall be known as the "10 1/2%
Series B Senior Secured Notes Due 2001", in each case, of the Company. The
Securities and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such
<PAGE>
32
Securities, as evidenced by their execution of the Securities. Any portion of
the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security. Each Security shall
be dated the date of its authentication.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Securities, as
evidenced by their execution of such Securities.
Initial Securities offered and sold in reliance on Rule 144A under the
Securities Act may be issued in the form of one or more permanent global
Securities substantially in the form set forth in Exhibit A (the "U.S. Global
Securities") deposited with the Trustee, as custodian for the Depositary or its
nominee, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Initial Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued in the form of a single permanent
global Security substantially in the form set forth in Sections 204 and 205 (the
"Offshore Global Security") deposited with the Trustee, as custodian for the
Depositary or its nominee, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount at maturity of
the Offshore Global Security may from time to time be increased or decreased by
adjustments made in the records of the Trustee, as custodian for the Depositary
or its nominee, as herein provided.
Initial Securities which are offered and sold to Institutional
Accredited Investors which are not QIBs (excluding Non-U.S. Persons) shall be
issued in the form of permanent certificated Securities in substantially the
form set forth in Sections 204 and 205 (the "U.S. Physical Securities").
Securities issued pursuant to Section 306 in exchange for or upon transfer of
beneficial interests in the U.S. Global Security or the Offshore Global Security
shall be in the form of U.S. Physical Securities or in the form of permanent
certificated Securities substantially in the form set forth in Sections 204 and
205 (the "Offshore Physical Securities"), respectively, as hereinafter provided.
The Offshore Physical Securities and U.S. Physical Securities are
sometimes collectively herein referred to as the "Physical Securities". The
U.S. Global Security and the Offshore Global Security are sometimes collectively
referred to as the "Global Securities".
<PAGE>
33
SECTION 202. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
Subject to Section 611, the Trustee's certificate of authentication
shall be in substantially the following form:
This is one of the Notes referred to in the within-mentioned
Indenture.
Dated: THE BANK OF NEW YORK,
Trustee
By__________________________________
Authorized Signatory
SECTION 203. Restrictive Legends.
-------------------
Unless and until (i) an Initial Security is sold pursuant to an
effective Shelf Registration Statement or (ii) an Initial Security is exchanged
for an Exchange Note in an Exchange Offer pursuant to an effective Exchange
Offer Registration Statement, in each case pursuant to the Registration Rights
Agreement (A) each U.S. Global Security and U.S. Physical Security shall bear
the following legend set forth below (the "Private Placement Legend") on the
face thereof and (B) the Offshore Physical Securities and Offshore Global
Securities shall bear the Private Placement Legend on the face thereof until at
least 41 days after the date hereof (the "Offshore Note Exchange Date") and
receipt by the Company and the Trustee of a certificate substantially in the
form provided in Section 204:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO
(X) THE DATE WHICH IS TWO
<PAGE>
34
YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR
THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL, OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S, (E) TO AN
ACCREDITED INVESTOR THAT IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF SUCH ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND, THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. IF ANY PROPOSED TRANSFER IS BEING MADE IN
ACCORDANCE WITH (2)(D), (E) OR (F) ABOVE, THE HOLDER ACKNOWLEDGES THAT THE
COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION SATISFACTORY TO THE COMPANY TO CONFIRM
THAT THE PROPOSED TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED
STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY
REGULATION S.
<PAGE>
35
Each Global Security, whether or not an Initial Security, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 311 AND 312 OF THE INDENTURE.
SECTION 204. Form of Certificate to Be Delivered upon Termination of
-------------------------------------------------------
Restricted Period.
- -----------------
On or after September 22, 1997
THE BANK OF NEW YORK
101 Barclay Street
New York, NY 10286
Attention: Corporate Trust Administration
Re: VALUJET AIRLINES, INC. (the "Company")
10 1/2% Senior Secured Notes due 2001 (the "Notes")
---------------------------------------------------
<PAGE>
36
Ladies and Gentlemen:
This letter relates to $__________ principal amount of Securities
represented by the offshore global note certificate (the "Offshore Global
Security"). Pursuant to Section 204 of the Indenture dated as of August 13,
1997 relating to the Securities (the "Indenture"), we hereby certify that (1) we
are the beneficial owner of such principal amount of Securities represented by
the Offshore Global Security and (2) we are a Non-U.S. Person to whom the
Securities could be transferred in accordance with Rule 904 of Regulation S
promulgated under the Securities Act of 1933, as amended ("Regulation S").
Accordingly, you are hereby requested to issue an Offshore Physical Security
representing the undersigned's interest in the principal amount of Securities
represented by the Global Security, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:___________________________________
Authorized Signature
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount.
------
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $80,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306,
906, 1007 or 1019.
<PAGE>
37
The Initial Securities shall be known as the "10 1/2% Senior Secured
Securities Due 2001" and the Exchange Securities shall be known as the "10 1/2%
Series B Senior Secured Notes Due 2001", in each case, of the Company. Their
Stated Maturity shall be April 15, 2001, and they shall bear interest at the
rate of 10 1/2% per annum from August 13, 1997, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, payable on
October 15, 1997 and semi-annually thereafter on April 15 and October 15 in each
year and at said Stated Maturity, until the principal thereof is paid in full
and to the Person in whose name the Security (or any predecessor Security) is
registered at the close of business on the April 1st or October 1st next
preceding such Interest Payment Date (each a "Regular Record Date").
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that, at the
option of the Company, interest may be paid by check mailed to addresses of the
Persons entitled thereto as such addresses shall appear on the Security
Register.
Holders shall have the right to require the Company to purchase their
Securities, in whole or in part, in the event of a Change of Control pursuant to
Section 1007.
The Securities shall not be redeemable.
SECTION 302. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its Chief
Executive Officer, its President or a Vice President, under its corporate seal
reproduced thereon and attested by its Secretary or an Assistant Secretary. The
signature of any of these officers on the Securities may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
<PAGE>
38
On Company Order, the Trustee shall authenticate for original issue
Exchange Securities in an aggregate principal amount not to exceed $80,000,000;
provided that such Exchange Securities shall be issuable only upon the valid
surrender for cancellation of Initial Securities of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Exchange Securities. Such
order shall specify the amount of Exchange Securities to be authenticated and
the date on which the original issue of Exchange Securities is to be
authenticated.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 310 together
with a written statement (which need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel) stating that such Security has never been
issued and sold by the Company, for all purposes of this Indenture such Security
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of the Indenture.
In case the Company or the Parent Company, pursuant to Article Eight,
shall be consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its properties and assets substantially
as an entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or
<PAGE>
39
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
The Trustee shall have the right to decline to authenticate and deliver
any Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
<PAGE>
40
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1007 or 1019 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee, or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as
<PAGE>
41
may be required by them to save each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a new
Security of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Unless and until (i) an Initial Note is sold pursuant to an effective
Registration Statement, or (ii) an Initial Security is exchanged for an Exchange
Security in the Exchange Offer pursuant to an effective Registration Statement,
in each case pursuant to the Registration Rights Agreement, the following
provisions shall apply:
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
option be paid by (i) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of
<PAGE>
42
such Person as it appears in the Security Register or (ii) transfer to an
account located in the United States maintained by the payee.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in Clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner: the Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
<PAGE>
43
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 307) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be delivered to the Company by Company Order directing that
cancelled Securities be returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
<PAGE>
44
SECTION 311. Book-Entry Provisions for Global Securities.
-------------------------------------------
(a) Each Global Security initially shall (i) be registered in the name
of the Depositary for such Global Security or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 203.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a beneficial owner of any Security. The registered holder of a Global
Security may grant proxies and otherwise authorize any person, including Agent
Members and persons that may hold interests through Agent Members, to take any
action which a Holder is entitled to take under this Indenture or the
Securities.
(b) Interests of beneficial owners in a Global Security may be
transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 312. Transfers of a Global Security
shall be limited to transfers of such Global Security in whole, but not in part,
to the Depositary, its successors or their respective nominees, except (i) as
otherwise set forth in Section 312 and (ii) U.S. Physical Securities or Offshore
Physical Securities shall be transferred to all beneficial owners in exchange
for their beneficial interests in the U.S. Global Security or the Offshore
Global Security, respectively, in the following circumstances: (x) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the applicable Global Security or the Depositary ceases to be a
"Clearing Agency" registered under the Exchange Act and a successor depositary
is not appointed by the Company within 90 days or (y) an Event of Default has
occurred and is continuing and Holders of more than 25% in aggregate principal
amount of the Securities at the time Outstanding represented by the Global
Securities advise the Trustee through the Depositary in writing that the
continuation of a book-entry system through the Depositary with respect to the
Global Securities is no longer required. In connection with a transfer of an
entire Global Security to beneficial owners pursuant to clause (ii) of this
paragraph (b), the applicable Global Security shall be deemed to be surrendered
to the Trustee for cancellation, and the Company shall execute, and the Trustee
shall authenticate and deliver, to each beneficial owner identified by the
Depositary in exchange for its beneficial interest in the applicable Global
Security, an equal aggregate principal amount at maturity of U.S. Physical
Securities (in the case of the U.S. Global Security) or Offshore Physical
Securities (in the case of the Offshore Global Security), as the case may be, of
authorized denominations.
<PAGE>
45
(c) Any beneficial interest in one of the Global Securities that is
transferred to a person who takes delivery in the form of an interest in the
other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest.
(d) Any U.S. Physical Security delivered in exchange for an interest
in the U.S. Global Security pursuant to paragraph (b) of this Section shall,
unless such exchange is made on or after the Resale Restriction Termination Date
and except as otherwise provided in Section 312, bear the Private Placement
Legend.
SECTION 312. Transfer Provisions.
-------------------
Unless and until (i) an Initial Security is sold pursuant to an
effective Registration Statement, or (ii) an Initial Security is exchanged for
an Exchange Security in the Exchange Offer pursuant to an effective Registration
Statement, in each case, pursuant to the Registration Rights Agreement, the
following provisions shall apply:
(a) General. The provisions of this Section 312 shall apply to all
-------
transfers involving any Physical Security and any beneficial interest in
any Global Security.
(b) Certain Definitions. As used in this Section 312 only, "delivery"
-------------------
of a certificate by a transferee or transferor means the delivery to the
Registrar or Co-Registrar by such transferee or transferor of the
applicable certificate duly completed; "holding" includes both possession
of a Physical Security and ownership of a beneficial interest in a Global
Security, as the context requires; "transferring" a Global Security means
transferring that portion of the principal amount of the transferor's
beneficial interest therein that the transferor has notified the Co-
Registrar that it has agreed to transfer; and "transferring" a Physical
Security means transferring that portion of the principal amount thereof
that the transferor has notified the Registrar or Co-Registrar that it has
agreed to transfer.
As used in this Indenture, "Accredited Investor Certificate" means a
certificate substantially in the form set forth in Section 313; "Regulation
S Certificate" means a certificate substantially in the form set forth in
Section 314; "Rule 144A Certificate" means a certificate substantially in
the form set forth in Section 315; and "Non-Registration Opinion and
Supporting Evidence" means a written opinion of counsel reasonably
acceptable to the Company to the effect that, and such other certification
or information as the Company may reasonably require to confirm that, the
proposed
<PAGE>
46
transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain
-----------------------------------------------------
Circumstances. A Rule 144A Certificate, if not actually delivered, will be
-------------
deemed delivered if (A) (i) the transferor advises the Company and the
Trustee in writing that the relevant offer and sale were made in accordance
with the provisions of Rule 144A (or, in the case of a transfer of a
Physical Security, the transferor checks the box provided on the Physical
Security to that effect) and (ii) the transferee advises the Company and
the Trustee in writing that (x) it and, if applicable, each account for
which it is acting in connection with the relevant transfer, is a QIB
within the meaning of Rule 144A, (y) it is aware that the transfer of
Securities to it is being made in reliance on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A, and
(z) prior to the proposed date of transfer it has been given the
opportunity to obtain from the Company the information referred to in Rule
144A(d)(4), and has either declined such opportunity or has received such
information (or, in the case of a transfer of a Physical Security, the
transferee signs the certification provided on the Physical Security to
that effect); or (B) the transferor holds the U.S. Global Security and is
transferring to a transferee that will take delivery in the form of the
U.S. Global Security.
(e) Procedures and Requirements.
---------------------------
(1). If the proposed transfer occurs prior to the Offshore Security
Exchange Date, and the proposed transferor holds:
(A) a U.S. Physical Security which is surrendered to the Co-
Registrar, and the proposed transferee or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and, if
required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have delivered)
a Rule 144A Certificate and the proposed transferee requests
delivery in the form of Physical Securities, then the Co-
Registrar shall (x) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(y) cancel such surrendered U.S. Physical Security and (z)
deliver a new U.S. Physical Security to such transferee duly
registered in the name of such transferee in a principal amount
equal to the principal amount being transferred of such
surrendered U.S. Physical Security.
<PAGE>
47
(ii) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests that the proposed transferee receive
a beneficial interest in the U.S. Global Security, then the Co-
Registrar shall (x) cancel such surrendered U.S. Physical
Security, (y) record an increase in the principal amount of the
U.S. Global Security equal to the principal amount being
transferred of such surrendered U.S. Physical Security and (z)
notify the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
Offshore Global Security, then the Co-Registrar shall (x) cancel
such surrendered U.S. Physical Security, (y) record an increase
in the principal amount of the Offshore Global Security equal to
the principal amount being transferred of such surrendered U.S.
Physical Security and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of such
transfer.
In the case described in Section 312(e)(1)(A)(i), the Co-
Registrar shall deliver to the transferor a new U.S. Physical Security
in principal amount equal to the principal amount not being
transferred of such surrendered U.S. Physical Security.
(B) the U.S. Global Security, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and, if
required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have delivered)
a Rule 144A Certificate and the proposed transferee requests
delivery in the form of Physical Securities, then the Co-
Registrar shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(x) record a decrease in the principal amount of the U.S. Global
Security in an amount equal to the beneficial interest therein
being transferred, (y) deliver a new U.S. Physical Security to
such transferee duly registered in the name of such transferee in
a principal amount equal to the amount of such decrease and (z)
notify the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
<PAGE>
48
(ii) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests that the proposed transferee receive
a beneficial interest in the U.S. Global Security, then the
transfer shall be effected in accordance with the procedures of
the Depositary therefor.
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
Offshore Global Security, then the Co-Registrar shall (w)
register such transfer in the name of such transferee and record
the date thereof in its books and records, (x) record a decrease
in the principal amount of the U.S. Global Security in an amount
equal to the beneficial interest therein being transferred, (y)
record an increase in the principal amount of the Offshore Global
Security equal to the amount of such decrease and (z) notify the
Depositary in accordance with the procedures of the Depositary
that it approves of such transfer.
(C) the Offshore Global Security, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and, if
required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have delivered)
a Rule 144A Certificate and the proposed transferee requests
delivery in the form of Physical Securities, then the Co-
Registrar shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(x) record a decrease in the principal amount of the Offshore
Global Security in an amount equal to the beneficial interest
therein being transferred, (y) deliver a new U.S. Physical
Security to such transferee duly registered in the name of such
transferee in a principal amount equal to the amount of such
decrease and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such transfer.
(ii) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests that the proposed transferee receive
a beneficial interest in the U.S. Global Security, then the
Registrar or Co-Registrar shall (x) record a decrease in the
principal amount of the Offshore Global Security in an amount
equal to the beneficial interest therein
<PAGE>
49
being transferred, (y) record an increase in the principal amount
of the U.S. Global Security equal to the amount of such decrease
and (z) notify the Depositary in accordance with the procedures
of the Depositary that it approves of such transfer.
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
Offshore Global Security, then the transfer shall be effected in
accordance with the procedures of the Depositary therefor;
provided, however, that until the Offshore Security Exchange Date
occurs, beneficial interests in the Offshore Global Security may
be held only in or through accounts maintained at the Depositary
by Euroclear or Cedel (or by Agent Members acting for the account
thereof), and no person shall be entitled to effect any transfer
or exchange that would result in any such interest being held
otherwise than in or through such an account.
(2) If the proposed transfer occurs on or after the Offshore
Securities Exchange Date and the proposed transferor holds:
(A) a U.S. Physical Security which is surrendered to the
Registrar or Co-Registrar, and the proposed transferee or transferor,
as applicable:
(i) delivers an Accredited Investor Certificate and, if
required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have delivered)
a Rule 144A Certificate and the proposed transferee requests
delivery in the form of Physical Securities, then the procedures
set forth in Section 312(e)(1)(A)(i) shall apply.
(ii) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests that the proposed transferee receive
a beneficial interest in the Offshore Global Security, then the
procedures set forth in Section 312(e)(1)(A)(ii) shall apply.
(iii) delivers a Regulation S Certificate, then the Co-
Registrar shall cancel such surrendered U.S. Physical Security
and at the direction of the transferee, either:
<PAGE>
50
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Security to such
transferee in principal amount equal to the principal amount
being transferred of such surrendered U.S. Physical
Security, or
(y) if the proposed transferee is or is acting through
an Agent Member, record an increase in the principal amount
of the Offshore Global Security equal to the principal
amount being transferred of such surrendered U.S. Physical
Security and notify the Depositary in accordance with the
procedures of the Depositary that it approves of such
transfer.
In any of the cases described in this Section 312(e)(2)(A)(i) or
(iii)(x), the Co-Registrar shall deliver to the transferor a new U.S.
Physical Security in principal amount equal to the principal amount
not being transferred of such surrendered U.S. Physical Security.
(B) the U.S. Global Security, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and, if
required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have delivered)
a Rule 144A Certificate and the proposed transferee requests
delivery in the form of Physical Securities, then the procedures
set forth in Section 312(e)(1)(B)(i) shall apply.
(ii) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests that the proposed transferee receive
a beneficial interest in the U.S. Global Security, then the
procedures set forth in Section 312(e)(1)(B)(ii) shall apply.
(iii) delivers a Regulation S Certificate, then the Co-
Registrar shall (x) record a decrease in the principal amount of
the U.S. Global Security in an amount equal to the beneficial
interest therein being transferred, (y) notify the Depositary in
accordance with the procedures of the Depositary that it approves
of such transfer and (z) at the direction of the transferee,
either:
<PAGE>
51
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Security to such
transferee in principal amount equal to the amount of such
decrease, or
(y) if the proposed transferee is or is acting through
an Agent Member, record an increase in the principal amount
of the Offshore Global Security equal to the amount of such
decrease.
(C) an Offshore Physical Security which is surrendered to the
Registrar or Co-Registrar, and the proposed transferee or transferor,
as applicable:
(i) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests delivery in the form of the U.S.
Global Security, then the Co-Registrar shall (x) cancel such
surrendered Offshore Physical Security, (y) record an increase in
the principal amount of the U.S. Global Security equal to the
principal amount being transferred of such surrendered Offshore
Physical Security and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of such
transfer.
(ii) where the proposed transferee is or is acting through
an Agent Member, requests that the proposed transferee receive a
beneficial interest in the Offshore Global Security, then the Co-
Registrar shall (x) cancel such surrendered Offshore Physical
Security, (y) record an increase in the principal amount of the
Offshore Global Security equal to the principal amount being
transferred of such surrendered Offshore Physical Security and
(z) notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer.
(iii) does not make a request covered by Section
312(e)(2)(C)(i) or Section 312(e)(2)(C)(ii), then the Co-
Registrar shall (x) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(y) cancel such surrendered Offshore Physical Security and (z)
deliver a new Offshore Physical Security to such transferee duly
registered in the name of such transferee in principal amount
equal to the principal amount being transferred of such
surrendered Offshore Physical Security.
<PAGE>
52
In any of the cases described in this Section 312(e)(2)(C), the
Co-Registrar shall deliver to the transferor a new U.S. Physical
Security in principal amount equal to the principal amount not being
transferred of such surrendered U.S. Physical Security.
(D) the Offshore Global Security, and the proposed transferee or
transferor, as applicable:
(i) delivers (or is deemed to have delivered) a Rule 144A
Certificate and the proposed transferee is or is acting through
an Agent Member and requests delivery in the form of the U.S.
Global Security, then the Co-Registrar shall (x) record a
decrease in the principal amount of the Offshore Global Security
in an amount equal to the beneficial interest therein being
transferred, (y) record an increase in the principal amount of
the U.S. Global Security equal to the amount of such decrease and
(z) notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer.
(ii) where the proposed transferee is or is acting through
an Agent Member, requests that the proposed transferee receive a
beneficial interest in the Offshore Global Security, then the
transfer shall be effected in accordance with the procedures of
the Depositary therefor.
(iii) does not make a request covered by Section
312(e)(2)(D)(i) or Section 312(e)(2)(D)(ii), then the Co-
Registrar shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(x) record a decrease in the principal amount of the Offshore
Global Security in an amount equal to the beneficial interest
therein being transferred, (y) deliver a new Offshore Physical
Security to such transferee duly registered in the name of such
transferee in principal amount equal to the amount of such
decrease and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such transfer.
(f) Execution, Authentication and Delivery of Physical Securities. In
-------------------------------------------------------------
any case in which the Co-Registrar is required to deliver a Physical
Security to a transferee, the Company shall execute, and the Trustee shall
authenticate and deliver, such Physical Security.
(g) Certain Additional Terms Applicable to Physical Securities. (i)
----------------------------------------------------------
Any transferee entitled to receive a Physical Security may request that the
principal amount
<PAGE>
53
thereof be evidenced by one or more Physical Securities in any authorized
denomination or denominations and the Registrar or Co-Registrar shall
comply with such request if all other transfer restrictions are satisfied.
(ii) In the event that a transferor transfers less than the entire
principal amount of a Physical Security surrendered for transfer, following
the transfer the Registrar or Co-Registrar shall deliver to the transferor
a new Physical Security of the same type in principal amount equal to the
untransferred portion of the surrendered Physical Security.
(h) Transfers Not Covered by Section 312(e). The Co-Registrar shall
---------------------------------------
effect and record, upon receipt of a written request from the Company so to
do, a transfer not otherwise permitted by Section 312(e), such recording to
be done in accordance with the otherwise applicable provisions of Section
312(e), upon the furnishing by the proposed transferor or transferee of a
Non-Registration Opinion and Supporting Evidence.
(i) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and
in the Private Placement Legend and agrees that it will transfer such
Security only as provided in the Indenture. Neither the Registrar nor the
Co-Registrar shall register a transfer of any Security unless such transfer
complies with the restrictions with respect thereto set forth in this
Indenture. Neither the Registrar nor the Co-Registrar shall be required to
determine (but may rely upon a determination made by the Company) the
sufficiency of any such certifications, legal opinions or other
information.
Each Holder of a Security agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Security in violation of any provision of this
Indenture and/or applicable United States federal or state securities law.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Depositary
Participants or beneficial owners of interests in any Global Security) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by the terms of, this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
<PAGE>
54
SECTION 313. Form of Accredited Investor Certificate.
---------------------------------------
TRANSFEREE LETTER OF REPRESENTATION
ValuJet Airlines, Inc.
c/o The Bank of New York, Trustee
101 Barclay Street, 21st Floor West
New York, New York 10286
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the 10 1/2% Senior Secured Notes due 2001 (the "Securities")
of ValuJet Airlines, Inc. (the "Company"), we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless
so registered, may not be sold except as permitted in the following
sentence. We agree on our own behalf and on behalf of any investor account
for which we are purchasing Securities to offer, sell or otherwise transfer
such Securities prior to (x) the date which is two years (or such shorter
period of time as permitted by Rule 144(k) under the Securities Act) after
the later of the date of original issue of the Securities (or of any
predecessor of this security) or the last day on which the Company or any
affiliate of the Company was the owner of this security or any predecessor
of this security, and (y) such later date, if any, as may be required by
applicable laws (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) so long as the Securities are
eligible for resale pursuant to Rule 144A under the Securities Act, to a
person we reasonably believe is a "qualified institutional buyer" under
Rule 144A (a "QIB") that purchases for its own account or for the account
of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside
the United States to "foreign purchasers" (as defined below) in offshore
transactions meeting the requirements of Rule 904 of Regulation S under the
Securities Act, (e) to an institutional "accredited investor" within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act (an "Accredited Investor") that is purchasing for its own
account or for the account of such an institutional "accredited investor"
that furnishes a letter substantially in the form of this letter to the
Trustee, which shall provide, among other things, that the transferee is an
Accredited Investor within the meaning of subparagraph (a)(1), (2), (3) or
(7) of
<PAGE>
55
Rule 501 under the Securities Act and that it is acquiring such Securities
for investment purposes and not for distribution in violation of the
Securities Act, or (f) pursuant to an exemption from registration provided
by Rule 144 under the Securities Act (if available) or any other available
exemption. In connection with any transfer of any Security, we will check
the box provided on the reverse thereof relating to the manner of such
transfer and surrender such Security to the Trustee.
2. We are an Accredited Investor or a QIB purchasing Securities for
our own account or for the account of one or more Accredited Investors, and
we are acquiring Securities for investment purposes and not with a view to,
or for offer or sale in connection with, any distribution in violation of
the Securities Act or the securities law of any state of the United States,
and we have such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of our investment in
the Securities, and we and any accounts for which we are acting are each
able to bear the economic risk of our or their investment in the Securities
for an indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion and we and any such account are (a) a QIB, aware that
the sale is being made in reliance on Rule 144A under the Securities Act,
(b) an Accredited Investor, or (c) a person other than a U.S. person
("foreign purchasers"), which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust) in
offshore transactions meeting the requirements of Rule 903 of Regulation S
under the Securities Act.
4. We have received a copy of the Offering Memorandum and acknowledge
that we have had access to such financial and other information, and have
been afforded the opportunity to ask such questions of representatives of
the Company, and receive answers thereto, as we deem necessary in order to
verify the information contained in the Offering Memorandum.
We understand that the Trustee will not be required to accept for
registration of transfer any Securities acquired by us, except upon presentation
of evidence satisfactory to the Company and the Trustee that the foregoing
restrictions on transfer have been complied with. We further understand that
the Securities purchased by us will be in the form of definitive physical
certificates and that such certificates will bear a legend reflecting the
substance of this paragraph. We further agree to provide to any person
acquiring any of the Securities from us a notice advising such person that
transfers of such Securities are restricted as stated herein and that
certificates representing such Securities will bear a legend to that effect.
<PAGE>
56
We represent that you, the Company, the Trustee and others are
entitled to rely upon the truth and accuracy of our acknowledgments,
representations and agreements set forth herein, and we agree to notify you
promptly in writing if any of our acknowledgments, representations or agreements
herein cease to be accurate and complete. You are also irrevocably authorized
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
We represent to you that we have full power to make the foregoing
acknowledgments, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as fiduciary agent.
As used herein, the terms "offshore transaction", "United States" and
"U.S. person" have the respective meanings given to them in Regulation S under
the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(NAME OF PURCHASER)
By:___________________________
Date:_________________________
Upon transfer, the Securities would be registered in the name of the
new beneficial owner as follows:
Name:_________________________
Address:______________________
______________________
<PAGE>
57
314. Form of Regulation S Certificate.
--------------------------------
Regulation S Certificate
------------------------
To: THE BANK OF NEW YORK,
Trustee (the "Trustee")
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Administration
Re: Indenture (the "Indenture") dated as of August 13, 1997 among ValuJet
-------
Airlines, Inc. (the "Company"), ValuJet, Inc. and the Trustee
-------------------------------------------------------------
Ladies and Gentlemen:
This Certificate relates to our proposed transfer of $____ principal
amount of 10 1/2% Senior Secured Notes Due 2001 (the "Securities") issued under
the Indenture. Terms are used in this Certificate as defined in Regulation S
under the Securities Act of 1933, as amended (the "Securities Act"). We hereby
certify as follows:
1. The offer of the Securities was not made to a person in the United
States (unless such person or the account held by it for which it is acting
is excluded from the definition of "U.S. person" pursuant to Rule 902(o) of
Regulation S under the circumstances described in Rule 902(i)(3) of
Regulation S) or specifically targeted at an identifiable group of U.S.
citizens abroad.
2. Either (a) at the time the buy order was originated, the buyer was
outside the United States or we and any person acting on our behalf
reasonably believed that the buyer was outside the United States or (b) the
transaction was executed in, on or through the facilities of a designated
offshore securities market, and neither we nor any person acting on our
behalf knows that the transaction was pre-arranged with a buyer in the
United States.
3. Neither we, any of our affiliates, nor any person acting on our or
their behalf has made any directed selling efforts in the United States.
4. The proposed transfer of Securities is not part of a plan or
scheme to evade the registration requirements of the Securities Act.
<PAGE>
58
5. If we are a dealer or a person receiving a selling concession or
other fee or remuneration in respect of the Securities, and the proposed
transfer takes place before the Offshore Note Exchange Date referred to in
the Indenture, or we are an officer or director of the Company or a
distributor, we certify that the proposed transfer is being made in
accordance with the provisions of Rule 904(c) of Regulation S.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: _________ __, 199_
<PAGE>
59
SECTION 315. Form of Rule 144A Certificate.
-----------------------------
Rule 144A Certificate
---------------------
To: The Bank of New York,
Trustee (the "Trustee")
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Administration
Re: Indenture (the "Indenture") dated as of August 13, 1997 among ValuJet
---------------------------------------------------------------------
Airlines, Inc. (the "Company"), ValuJet, Inc. and certain other
---------------------------------------------------------------
Guarantors (as defined in the Indenture) and the Trustee
--------------------------------------------------------
Ladies and Gentlemen:
This Certificate relates to our proposed purchase of $____ principal
amount of 10 1/2% Senior Secured Notes Due 2001 (the "Securities") issued under
the Indenture. We and, if applicable, each account for which we are acting, are
"qualified institutional buyers" within the meaning of Rule 144A ("Rule 144A")
under the Securities Act of 1933, as amended (the "Securities Act"). We are
aware that the transfer of Securities to us is being made in reliance on the
exemption from the provisions of Section 5 of the Securities Act provided by
Rule 144A. Prior to the date of this Certificate we have been given the
opportunity to obtain from the Company the information referred to in Rule
144A(d)(4), and have either declined such opportunity or have received such
information.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________ __, 199_
<PAGE>
60
SECTION 316. CUSIP Numbers.
--------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities expressly provided for herein or pursuant hereto) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust with the Trustee or any Paying Agent or segregated and held
in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
<PAGE>
61
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
<PAGE>
62
ARTICLE FIVE
EVENTS OF DEFAULT AND REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
(3) default in the purchase of Securities required to be purchased
pursuant to an Offer to Purchase as described in Section 1019 and Section
1007 or pursuant to Section 1020; or
(4) failure to perform or comply with the provisions described in
Section 801; or
(5) default in the performance, or breach, of any covenant or
agreement of the Company or the Parent Company in this Indenture (other
than a default in the performance, or breach, of a covenant or agreement
which is specifically dealt with elsewhere in this Section 501), and
continuance of such default or breach for a period of 45 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(6) 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, the Parent Company or any Restricted
Subsidiary of the Guarantor having an outstanding principal amount of $10.0
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 Debt, (ii) constitute the failure to
pay all or any part of such Debt at the final Stated Maturity thereof
(after expiration of any applicable
<PAGE>
63
grace period) or (iii) constitute the failure to pay when due at any time
all or any part of such Debt 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 $16.0 million or more (after expiration
of any applicable grace period); or
(7) the rendering of final judgments or orders (not subject to
appeal) against the Parent Company or any of its Subsidiaries which require
the payment in money, either individually or in an aggregate amount, that
is more than $15.0 million, which remain unstayed, undischarged or unbonded
for a period of 60 days thereafter; or
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Guarantor, the Company or any Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Guarantor, the Company or any Subsidiary under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Guarantor, the Company or any Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 90 consecutive days; or
(9) the institution by the Guarantor, the Company or any Subsidiary
of proceedings to be adjudicated a bankrupt or insolvent, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Guarantor, the
Company or any Subsidiary or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due; or
(10) failure to procure and maintain property and liability insurance
in accordance with the provisions of Sections 1010 and 1102 continuing, in
the case of failure to maintain such insurance, until the earlier of (x) 30
days after notice to the Company or the Trustee of the lapse or
cancellation of such insurance, and (y) the date such lapse or cancellation
is effective as to the Trustee; or
(11) operation of any Aircraft after the insurance required by
Sections 1010 and 1102 has been cancelled; or
<PAGE>
64
(12) except as provided in this Indenture, the Trustee does not have
at all times a first priority perfected security interest in the Aircraft
or the Company or any Guarantor asserts in writing that the security
arrangements under the Indenture are not in full force and effect; or
(13) any Guarantee required to be in full force and effect by the
terms of this Indenture ceases to be in full force and effect or is
declared null and void, or any of the Guarantors denies that it has any
further liability under the Guarantee or gives notice to such effect (other
than by reason of the termination of this Indenture or the release of any
such Guarantee in accordance with this Indenture), and this condition shall
have continued for a period of 60 days after written notice of such failure
requiring the Guarantor and the Company to remedy the same shall have been
given (x) to the Company by the Trustee or (y) to the Company and the
Trustee by Holders of at least 25% in aggregate principal amount of the
Securities then Outstanding.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or 501(9)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and, if the Bank Credit Agreements are in
effect, to the Agent, and upon any such declaration such principal amount shall
become immediately due and payable. If an Event of Default specified in Section
501(8) or 501(9) occurs and is continuing, then the principal amount of all the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of
<PAGE>
65
acceleration and interest on such unpaid principal at
the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Securities because an Event of Default
specified in Section 501(6) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned by
the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of the
Securities, and no other Event of Default has occurred during such 30-day period
which has not been cured or waived during such period.
Upon a determination by the Company that the Bank Credit Agreements,
if any, are no longer in effect, the Company shall promptly give to the Trustee
written notice thereof, which notice shall be countersigned by the applicable
Agent. Unless and until the Trustee shall have received such written notice
with respect to such Bank Credit Agreement, the Trustee, subject to the TIA
Sections 315(a) through 315(d), shall be entitled in all respects to assume that
such Bank Credit Agreement is in effect (unless a Responsible Officer of the
Trustee shall have actual knowledge to the contrary).
SECTION 503. Collection of Indebtedness; Provisions Regarding Sale by
--------------------------------------------------------
Trustee.
- -------
(a) The Company covenants that if:
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66
(i) default is made in the payment of any installment of interest
on any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(ii) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Collateral Trustee may be directed by the Trustee to do one or more
of the following:
(i) cause the Company, upon the written demand of the Collateral
Trustee and at the Company's expense, to deliver promptly, and the Company
shall deliver promptly, possession of all or such part of any Airframe,
Engine or other Collateral as the Collateral Trustee may so demand to the
Collateral Trustee, or its order, at such location on the Company's route
system within the continental United States as the Collateral Trustee may
request, or the Collateral Trustee, at its option, may enter upon the
premises where all or any part of any Airframe, Engine or any other
Collateral is located and take immediate possession (to the exclusion of
the Company and all Persons claiming under or through the Company) of and
remove the same, together with any engine which is not an Engine but which
is installed on an Airframe, subject to all of the rights of the owner,
lessor or secured party of such engine; and in connection with any such
delivery or repossession, the Company will provide storage for the Aircraft
at such location to the extent facilities for such purpose are reasonably
available to the Company at such time; provided, however, that if an
Airframe is delivered with an engine (which is not an Engine) installed
thereon, such engine, if owned by the Company, may at the option of the
Collateral Trustee be exchanged with the Company for an Engine in
accordance with the provisions of subparagraph (v) of this Section by
summary proceedings or otherwise;
(ii) subject to paragraph (b) of this Section, sell all or any part
of an Airframe or any Engine at public or private sale, whether or not the
Collateral Trustee shall at the time have possession thereof, as the
Collateral Trustee may determine, or
<PAGE>
67
lease or otherwise dispose of all or any part of an Airframe or Engine as
the Collateral Trustee, in its sole discretion, may determine, all free and
clear of any rights or claims of whatsoever kind of the Company; provided,
however, that the Company shall be entitled at any time prior to any such
disposition to redeem the Collateral by paying in full all of the Secured
Obligations;
(iii) in connection with its exercise of remedies hereunder, the
Collateral Trustee may commence legal proceedings for and obtain the
appointment of a receiver or receivers (to the extent such appointment is
customary or otherwise advisable in such jurisdiction) to take possession
of an Airframe, any Engine or any other Collateral pending the sale thereof
pursuant either to the power of sale given in this Section 503, or to a
judgment, order or decree made in any judicial proceeding for the
foreclosure or involving the enforcement of this Indenture;
(iv) the Collateral Trustee may terminate and avoid any lease by the
Company of any Airframe or any Engine by notice to the Company and the
lessee under such lease; and
(v) exercise any or all of the rights and powers and pursue any and
all remedies of a secured party under the Uniform Commercial Code of the
State of New York or otherwise under Applicable Law.
Upon every taking of possession of Collateral under this Section 503,
the Collateral Trustee may, from time to time, at the expense of the Company,
make all such expenditures for maintenance, storage, insurance, leasing,
control, management, disposition, repairs, replacements, alterations, additions
and improvements to and of the Collateral, as it may deem proper. In each such
case, the Collateral Trustee shall have the right to maintain, store, insure,
lease, control, modify, alter, sell, transfer, convey or otherwise dispose of or
manage the Collateral and to exercise all rights and powers of the Company
relating to the Collateral in connection therewith, as the Collateral Trustee
shall deem appropriate, including the right to enter into any and all such
agreements with respect to the maintenance, insurance, storage, leasing,
control, management, disposition, modification or alteration of the Collateral
or any part thereof as the Collateral Trustee may determine; and the Collateral
Trustee shall be entitled to collect and receive directly all tolls, rents,
revenues, issues, income, products and profits of the Collateral and every part
thereof, without prejudice, however, to the right of the Collateral Trustee
under any provision of this Indenture to collect and receive all cash held by,
or required to be deposited with, the Collateral Trustee hereunder. Such tolls,
rents, revenues, issues, income, products and profits shall be applied to pay
the expenses of storage, leasing control, management or disposition of the
Collateral, and of all maintenance, repairs, replacements, alterations,
additions and improvements, and to make all payments which the Collateral
Trustee may be required or may elect to make, if any, for taxes, assessments,
<PAGE>
68
insurance or other proper charges upon the Collateral or any part thereof
(including the employment of engineers and accountants to examine, inspect and
make reports upon the properties and books and records of the Company), and all
other payments which the Collateral Trustee may be required or authorized to
make under any provision of this Indenture, as well as just and reasonable
compensation for the services of the Collateral Trustee, and of all persons
properly engaged and employed by the Collateral Trustee.
In addition, the Company shall be liable for all legal fees and other
costs and expenses incurred by the Collateral Trustee in connection with the
exercise of remedies under the Indenture, including all costs and expenses
incurred in connection with the retaking or return of an Airframe or any Engine
or any other Collateral in accordance with the terms hereof or under Applicable
Law, which amounts shall, until paid, be secured by the Lien of this Indenture.
In connection with the exercise of remedies under this Section 502, at
the request of the Collateral Trustee the Company shall promptly execute and
deliver to the Collateral Trustee such instruments of title and other documents
as the Collateral Trustee may deem necessary or advisable to enable the
Collateral Trustee or an agent or representative designated by the Collateral
Trustee, at such time or times and place or places as the Collateral Trustee may
specify, to obtain possession of all or any part of the Collateral to which the
Collateral Trustee shall at the time be entitled. If the Company shall for any
reason fail to execute and deliver such instruments and documents after such
request by the Collateral Trustee, the Collateral Trustee may obtain a judgment
conferring on the Collateral Trustee the right to immediate possession and
requiring the Company to execute and deliver such instruments and documents to
the Collateral Trustee, to the entry of which judgment the Company hereby
specifically consents to the fullest extent it may lawfully do so.
Nothing in the foregoing shall affect the right to each Holder to
receive all payments of principal of (and premium, if any) and interest on, the
Securities held by such Holders and all other amounts owing to such Holder as
and when the same may be due and are payable in accordance with Article Three.
Nothing in this Section shall diminish the rights of the Company under the
Granting Clauses.
(c) In connection with any sale of Collateral pursuant to Section 503,
the Collateral Trustee, shall give the Company at least 10 days' prior notice of
any public sale or of the date on or after which any private sale will be held,
which notice the Company hereby agrees is reasonable notice. The Holders,
whether acting directly or through the Collateral Trustee, shall be entitled at
any sale pursuant to Section 503, to credit against the purchase price bid at
such sale by such Holders all or any part of the unpaid Secured Obligations
owing to such Holders and secured by the Lien of this Indenture; provided,
however, that no Holder shall so credit such amounts, unless prior to or
contemporaneously with any such purchase by
<PAGE>
69
such Holder, any obligations owed to any Persons having a higher priority of
distribution pursuant to Section 1202 have been or are being paid in full.
In connection with any such sale:
(i) The Collateral Trustee may make and deliver to the purchaser or
purchasers a good and sufficient deed, bill of sale and instrument of
assignment and transfer of the property sold;
(ii) All right, title, interest, claim and demand whatsoever, either
at law or in equity or otherwise, of the Company of, in and to the property
so sold shall be divested. Such sale shall be a perpetual bar both at law
and in equity against the Company, its successors and assigns, and against
any and all Persons claiming or who may claim the property sold or any part
thereof from, through or under the Company, its successors or assigns;
(iii) The receipt of the Collateral Trustee or of the Person making
such sale shall be a sufficient discharge to the purchaser or purchasers at
such sale for its or their purchase money, and such purchaser or
purchasers, and its or their assigns or personal representatives, shall
not, after paying such purchase money and receiving such receipt of the
Collateral Trustee or of such Person, be obliged to see to the application
of such purchase money or be in any way answerable for any loss,
misapplication or nonapplication thereof; and
(iv) The Company shall not take any action to direct the order in
which the Collateral or any part thereof shall be sold, or to hinder, delay
or impede the exercise of any rights of the Collateral Trustee pursuant to
the terms hereof.
(d) If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and neither the Trustee nor the Collateral Trustee shall be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder.
SECTION 504. Trustee or Collateral Trustee May File Proofs of Claim.
------------------------------------------------------
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70
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee or Collateral Trustee (irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee or
Collateral Trustee shall have made any demand on the Company for the payment of
overdue principal of (premium, if any) or interest on the Securities) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee or Collateral Trustee (including
any claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee or Collateral Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
or Collateral Trustee shall consent to the making of such payments directly to
the Holders, to pay the Trustee or Collateral Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee or
Collateral Trustee, such Trustee's agents and counsel, and any other amounts due
the Trustee or Collateral Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee or
Collateral Trustee to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee or Collateral Trustee to vote in respect of the claim of any Holder
in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee or Collateral Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee or
Collateral Trustee shall be brought in its own name and
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71
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee or Collateral Trustee, such Trustee's
or Collateral Trustee's agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
(a) Any money collected by the Collateral Trustee pursuant to this
Article shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
first, such payment as shall be required to reimburse the Collateral
Trustee for any tax, expense, charge or other loss incurred by the
Collateral Trustee (to the extent not previously reimbursed) (including,
without limitation, the expenses of any sale, taking or other proceeding,
attorneys' fees and expenses, court costs, and any other expenditures
incurred or expenditures or advances made by the Collateral Trustee in the
protection, exercise or enforcement of any right, power or remedy or any
damages sustained by the Collateral Trustee, liquidated or otherwise, upon
the Event of Default giving rise to such acceleration) shall be applied by
the Collateral Trustee in reimbursement of such expenses;
second, such payment as shall be required to reimburse the Indenture
Trustee for any tax, expense, charge or other loss incurred (to the extent
not previously reimbursed and including, without limitation, the expenses
of any sale, taking or other proceeding, attorneys' fees and expenses,
court costs, and any other expenditures incurred or expenditures or
advances made by the Trustee in the protection, exercise or enforcement of
any right, power or remedy or any damages sustained by the Trustee
liquidated or otherwise, upon the Event of Default giving rise to such
acceleration under Section 502) shall be distributed to the Trustee for its
own account.
third, such payment remaining as shall be required to pay in full the
aggregate amount of fees and expenses payable to the Collateral Trustee and
the Indenture pursuant to the terms of this Indenture, as the case may be
(other than the amounts payable pursuant to clauses "first" and "second" of
this Section 506), shall be distributed to the Collateral Trustee or
Trustee, as the case may be;
fourth, such payment remaining as shall be required to pay in full the
aggregate amount of all accrued but unpaid interest to the date of
distribution on the Securities,
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72
and then to pay in full the aggregate outstanding amount of principal of
the Securities; and
fifth, the balance, if any, of any such payment remaining thereafter
-----
shall be distributed to the Company.
(b) Any payments received or held by the Collateral Trustee for which
no provision as to the application thereof is made in this Indenture shall be
distributed by the Collateral Trustee (i) to the extent received or realized at
any time prior to the payment in full of all Secured Obligations, in the order
of priority specified in Section 506 and (ii) to the extent received or realized
at any time after payment in full of all Secured Obligations, in the following
order of priority: first, in the manner provided in clause "first" of Section
506 and second, in the manner provided in clause "fifth" of Section 506.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority
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73
or preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Thirteen)
and in such Security of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of any redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee, the Collateral Trustee or any Holder has instituted
any proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee, the Collateral Trustee or to such Holder,
then and in every such case, subject to any determination in such proceeding,
the Company, the Trustee, the Collateral Trustee and the Holders shall be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee, the Collateral Trustee and
the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee, the Collateral Trustee or of any
Holder of any Security to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an
<PAGE>
74
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee, the Collateral Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee, the Collateral
Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities shall 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; provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may, on behalf of the Holders of all the Securities,
waive any past default hereunder and its consequences, except a default
(1) in respect of the payment of the principal of (or premium, if
any) or interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
<PAGE>
75
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee or Collateral Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 515. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee or Collateral Trustee for any
action taken or omitted by it as a Trustee or Collateral Trustee, as the case
may be, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any part litigant in the suit, having due regard to the merits
and good faith of the claims or defense made by the party litigant. This
Section 515 does not apply to a suit by the Trustee or the Collateral Trustee
hereof, as the case may be, or a suit by Holders of more than 10% in principal
amount of the then Outstanding Securities.
ARTICLE SIX
THE TRUSTEE AND COLLATERAL TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit, in the manner and to the extent provided in TIA Section
313(c), notice of any such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any) or
interest on any Security or in the payment of any sinking fund installment, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders; and provided
further that in the case of any Default of the character specified in Section
501(5) no such notice to Holders shall be given until at least 30 days after the
occurrence thereof.
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76
SECTION 602. Certain Rights of Trustee and the Collateral Trustee.
----------------------------------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d)
(determined as if the TIA were applicable to this Indenture at all times):
(1) each of the Trustee and the Collateral Trustee may rely and shall
be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee or
the Collateral Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Trustee or the Collateral Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely
upon an Officers' Certificate;
(4) the Trustee or the Collateral Trustee may consult with counsel of
its selection and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(5) the Trustee or the Collateral Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders pursuant to
this Indenture, unless such Holders shall have offered to the Trustee or
the Collateral Trustee, as the case may be, reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee or the Collateral Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee or the Collateral
Trustee, as the case may be, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee or the Collateral Trustee shall determine to make such
further inquiry or investigation, it shall
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77
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(7) the Trustee or the Collateral Trustee may execute any of the
rights or powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys and the Trustee or the Collateral
Trustee, as the case may be, shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) neither the Trustee nor the Collateral Trustee shall be liable
for any action taken, suffered or omitted by it in good faith and believed
by it to be authorized or within the discretion or rights or powers
conferred upon it by this Indenture; and
(9) the Trustee shall not be deemed to have notice of any Event of
Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture.
Neither the Trustee nor the Collateral Trustee shall be required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
SECTION 603. Neither Trustee nor the Collateral Trustee Responsible
------------------------------------------------------
for Recitals or Issuance of Securities.
- --------------------------------------
The recitals contained herein and in the Securities, except for the
Trustee's or the Collateral Trustee's certificates of authentication, shall be
taken as the statements of the Company, and the Trustee or the Collateral
Trustee, as the case may be, assumes no responsibility for their correctness.
Neither the Trustee nor the Collateral Trustee makes any representations as to
the validity or sufficiency of this Indenture or of the Securities, except that
each of the Trustee and the Collateral Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder. Neither the Trustee nor the Collateral
Trustee shall be accountable for the use or application by the Company of
Securities or the proceeds thereof.
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78
SECTION 604. May Hold Securities.
-------------------
The Trustee, the Collateral Trustee, any Authenticating Agent, any
Paying Agent, any Security Registrar or any other agent of the Company or of the
Trustee, or the Collateral Trustee, each in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, the Collateral Trustee,
Authentication Agent, Paying Agent, Security Registrar or such other agent.
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee or the Collateral Trustee, as the case may
be, in trust hereunder need not be segregated from other funds except to the
extent required by law. The Trustee or the Collateral Trustee, as the case may
be, shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Company.
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee or the Collateral Trustee from time to time
such compensation as from time to time shall be agreed to in writing by the
Trustee or the Collateral Trustee and the Company for all services rendered
by it hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee or the Collateral Trustee, as the case may be, upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee or the Collateral Trustee, as the case may be, in accordance with
any provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence
or bad faith; and
(3) to indemnify the Trustee or the Collateral Trustee and any
predecessor Trustee or Collateral Trustee for, and to hold it harmless
against, any loss, liability or expense, including taxes (other than taxes
based upon, measured by or determined by the income of the Trustee)
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust, including
the costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or
duties hereunder.
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79
The obligations of the Company under this Section to compensate the
Trustee or the Collateral Trustee, as the case may be, to pay or reimburse the
Trustee or the Collateral Trustee for expenses, disbursements and advances and
to indemnify and hold harmless the Trustee or the Collateral Trustee, as the
case may be, shall constitute additional indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture. As security for the
performance of such obligations of the Company, the Trustee or the Collateral
Trustee shall have a claim prior to the Securities upon all property and funds
held or collected by the Trustee or the Collateral Trustee, as the case may be,
as such, except funds held in trust for the payment of principal of (and
premium, if any) or interest on particular Securities.
When the Trustee or the Collateral Trustee incurs expenses or renders
services in connection with an Event of Default specified in Section 501(8) or
(9), the expenses (including the reasonable charges and expenses of its counsel)
of and the compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50.0 million. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee or the Collateral
Trustee and no appointment of a successor Trustee or the Collateral Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee or the Collateral Trustee, as the case may
be, in accordance with the applicable requirements of Section 609.
(b) The Trustee or the Collateral Trustee may resign at any time by
giving written notice thereof to the Company. If the instrument of acceptance
by a successor Trustee or the Collateral Trustee required by Section 609 shall
not have been delivered to the Trustee or the Collateral Trustee, as the case
may be, within 30 days after the giving of such notice of
<PAGE>
80
resignation, the resigning Trustee or the Collateral Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee or
the Collateral Trustee, as the case may be.
(c) The Trustee or the Collateral Trustee may be removed at any time
by Act of the Holders of not less than a majority in principal amount of the
Outstanding Securities, delivered to the Trustee or the Collateral Trustee, as
the case may be, and to the Company.
(d) If at any time:
(1) the Trustee or the Collateral Trustee shall fail to comply with
the provisions of TIA Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security for
at least six months; or
(2) the Trustee or the Collateral Trustee shall cease to be eligible
under Section 607(a) and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona fide Holder of
a Security for at least six months; or
(3) the Trustee or the Collateral Trustee shall become incapable of
acting or shall be adjudged a bankrupt or insolvent, or a receiver of the
Trustee or the Collateral Trustee or of such Trustee's or Collateral
Trustee's (as applicable) property shall be appointed or any public officer
shall take charge or control of the Trustee or the Collateral Trustee or of
such Trustee's property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee or the Collateral Trustee, as the case may be, or (ii) subject to TIA
Section 315(e), any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee or
the Collateral Trustee and the appointment of a successor Trustee or the
Collateral Trustee, as the case may be. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of removal, the Trustee being removed may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities.
(e) If the Trustee or the Collateral Trustee shall resign, be removed
or become incapable of acting, or if a vacancy shall occur in the office of
Trustee or Collateral Trustee, as the case may be, for any cause, the Company,
by a Board Resolution, shall
<PAGE>
81
promptly appoint a successor Trustee or Collateral Trustee, as the case may be.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee or Collateral Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee or
Collateral Trustee, as the case may be, the successor Trustee or Collateral
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee or Collateral Trustee, as the case may be, and
supersede the successor Trustee or Collateral Trustee appointed by the Company.
If no successor Trustee or Collateral Trustee shall have been so appointed by
the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
or Collateral Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee or Collateral Trustee and each appointment of a successor
Trustee or Collateral Trustee, as the case may be, to the Holders of Securities
in the manner provided for in Section 106. Each notice shall include the name of
the successor Trustee or Collateral Trustee, as the case may be, and the address
of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee or Collateral Trustee appointed hereunder
shall execute, acknowledge and deliver to the Company and to the retiring
Trustee or Collateral Trustee, as the case may be, an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee or
Collateral Trustee shall become effective and such successor Trustee or
Collateral Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee or
Collateral Trustee, as the case may be; but, on request of the Company or the
successor Trustee or Collateral Trustee, such retiring Trustee or Collateral
Trustee, as the case may be, shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee or Collateral
Trustee all the rights, powers and trusts of the retiring Trustee or Collateral
Trustee and shall duly assign, transfer and deliver to such successor Trustee or
Collateral Trustee all property and money held by such retiring Trustee or
Collateral Trustee hereunder. Upon request of any such successor Trustee or
Collateral Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee or
Collateral Trustee all such rights, powers and trusts.
Neither the successor Trustee nor the successor Collateral Trustee
shall accept its appointment unless at the time of such acceptance such
successor Trustee or Collateral Trustee shall be qualified and eligible under
this Article.
<PAGE>
82
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee or the Collateral Trustee may
be merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Trustee or
the Collateral Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee or the
Collateral Trustee, as the case may be, shall be the successor of the Trustee or
the Collateral Trustee hereunder without the execution or filing of any paper or
any further act on the part of any of the parties hereto; provided, however,
that such corporation shall be otherwise qualified and eligible under this
Article. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities. In case at that
time any of the Securities shall not have been authenticated, any successor
Trustee may authenticate such Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee; provided, however, that
the right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
SECTION 611. Appointment of Authenticating Agent.
-----------------------------------
At any time when any of the Securities remain Outstanding, the Trustee
may appoint an Authenticating Agent or Agents with respect to the Securities
which shall be authorized to act on behalf of the Trustee to authenticate
Securities, and the Trustee shall give written notice of such appointment to all
Holders of Securities with respect to which such Authenticating Agent will
serve, in the manner provided for in Section 106. Securities so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder. Any
such appointment shall be evidenced by an instrument in writing signed by a
Responsible Officer of the Trustee, and a copy of such instrument shall be
promptly furnished to the Company. Wherever reference is made in this Indenture
to the authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any state thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50.0 million and subject
to
<PAGE>
83
supervision or examination by federal or state authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then, for the purposes
of this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent; provided, however, such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give written notice of
such appointment to all Holders, in the manner provided for in Section 106. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time such compensation for its services under this Section as shall be agreed in
writing between the Company and such Authenticating Agent.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
<PAGE>
84
This is one of the Notes referred to in the within-mentioned
Indenture.
Dated: THE BANK OF NEW YORK,
Trustee
By ___________________________
as Authenticating Agent
By____________________________
Authorized Signatory
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Securities hereunder, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the
<PAGE>
85
Company may be required to file with the Commission pursuant to Section 13
or Section 15(d) of the Exchange Act; or, if the Company is not required to
file information, documents or reports pursuant to either of said Sections,
then it shall file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
of the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Parent Company or Company May Consolidate, Etc., Only on
--------------------------------------------------------
Certain Terms.
- -------------
Neither the Parent Company nor the Company may:
(i) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into the Parent Company or any
Restricted
<PAGE>
86
Subsidiary of the Parent Company (in a transaction in which such Subsidiary
remains a Restricted Subsidiary);
(ii) directly or indirectly, in one or a series of transactions,
transfer, convey, sell, lease or otherwise dispose of all or substantially
all of its properties and assets;
(iii) acquire, or permit any Restricted Subsidiary of the Parent
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) purchase, lease or otherwise acquire, or permit any Restricted
Subsidiary of the Parent 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 of transactions) and treating any Debt Incurred
by the Parent Company or a Subsidiary of the Parent Company as a
result of such transaction (or series of transactions) as having been
Incurred by the Parent Company or such Subsidiary at the time of the
transaction (or series of transactions), no Event of Default or
Default shall have occurred and be continuing;
(2) in a transaction (or series of transactions) in which the
Parent Company or the Company does not survive or in which the Parent
Company or 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 obligations under the Indenture of the Parent Company or the
Company, as the case may be;
(3) immediately after giving effect to such transaction (or
series of transactions), the Parent Company or 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 Parent Company
or the Company, as the case may be, immediately prior to such
transaction (or series of transactions);
<PAGE>
87
(4) immediately after giving effect to such transaction (or
series of transactions) the Consolidated Cash Flow Ratio of the Parent
Company or, if applicable, the successor entity for the four full
fiscal quarters immediately preceding consummation of such transaction
(or series of transactions), determined on a pro forma basis as if
such transaction (or series of transactions) 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 Parent Company or any Subsidiary of the Parent Company would
become subject to a Lien prohibited by Section 1011, the Parent
Company or the successor entity will have secured the Notes as
required by such covenant;
(6) the Parent Company or the Company, as the case may be, has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel as specified herein.
Notwithstanding the foregoing, the Airways Acquisition will be exempt
from the restrictions of this Section 801, and the Issuer and any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Parent Company or another Restricted Subsidiary.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company or the Parent Company with or
merger of the Company or the Parent Company with or into any other corporation
or any conveyance, transfer or lease of the properties and assets of the Company
or the Parent Company substantially as an entirety to any Person in accordance
with Section 801, the successor Person formed by such consolidation or into
which the Company or the Parent Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or the Parent Company under this
Indenture with the same effect as if such successor Person had been named as the
Company or the Parent Company herein and, in the event of any such conveyance
or transfer, the Company or the Parent Company (which term shall for this
purpose mean the Person named as the "Company" or the "Parent Company," as the
case may be, in the parent Company, as the case may be, which shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Securities and may be dissolved and liquidated.
<PAGE>
88
SECTION 803. Securities to Be Secured in Certain Events.
------------------------------------------
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any conveyance, lease or transfer of
the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company would thereupon become subject to any
Lien, then unless such Lien could be created pursuant to Section 1011 without
equally and ratably securing the Securities, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
will as to such property or assets, secure the Outstanding Securities (together
with, if the Company shall so determine any other Indebtedness of the Company
now existing or hereinafter created which is not subordinate in right of payment
to the Securities) equally and ratably with (or prior to) the Indebtedness which
upon such consolidation, merger, conveyance, lease or transfer is to become
secured as to such property or assets by such Lien, or will cause such
Securities to be so secured.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other
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89
provisions with respect to matters or questions arising under this
Indenture; provided that such action shall not adversely affect the
interests of the Holders in any material respect; or
(6) to secure the Securities pursuant to the requirements of Section
803 or Section 1011 or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of or any installment
of interest on any Security, or reduce the principal amount thereof (or
premium, if any) or the rate of interest thereon or change the coin or
currency in which any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(3) modify any of the provisions of this Section or Sections 513 and
1021, or, following the mailing of an Offer to Purchase, modify the terms
of this Indenture with respect to an Offer as described in Section 1019 and
Section 1007 in a manner adverse to the Holders, except to increase any
such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Security affected thereby, or
(4) create any lien on the property subject to this Indenture ranking
prior to, or on a parity with, the security interest created by this
Indenture, except such as are
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90
permitted by this Indenture or deprive any Holder of the benefit of the
lien of this Indenture.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
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SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
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SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (or premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
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Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall be paid to
the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, each of the Guarantors and the Company will
do or cause to be done all things necessary to preserve and keep in full force
and effect the corporate existence, rights (charter and statutory) and
franchises of each of the Guarantors and the Company and each Subsidiary;
provided, however, that none of the Guarantors nor the Company shall be required
to preserve any such right or franchise if the Board of Directors of any of the
Guarantors or the Company, as the case may be, shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
any of the Guarantor and the Subsidiaries as a whole and that the loss thereof
is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
Each of the Parent Company and the Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (a) all
taxes, assessments and governmental charges levied or imposed upon each of the
Parent Company and the Company or any Subsidiary of the Parent Company or upon
the income, profits or property of each of the Parent Company and the Company or
any Subsidiary of the Parent Company and (b) all lawful claims for labor,
materials and supplies, which, if unpaid, might by law become a lien upon the
property of any of the Parent Company or the Company, as the case may be, or any
Subsidiary of the Parent Company; provided, however, that none of the Parent
Company nor the Company shall be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
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94
SECTION 1006. Registration and Maintenance of Properties.
------------------------------------------
The Parent Company will cause all properties owned by the Parent
Company or any Subsidiary of the Parent Company or used or held for use in the
conduct of its business or the business of any Subsidiary of the Parent Company
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Parent Company may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section shall prevent the Parent
Company from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Parent Company, desirable in the
conduct of its business or the business of any Subsidiary of the Parent Company
and not disadvantageous in any material respect to the Holders.
SECTION 1007. Purchase of Securities upon Change in Control.
---------------------------------------------
(a) 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 Securities, at a purchase
price equal to 101% of their aggregate principal amount plus accrued interest,
if any, to the date of purchase in accordance with the procedures set forth in
paragraphs (b) and (c) of this Section. Such obligation will not continue after
a discharge of the Company and the Parent Company or defeasance from their
obligations with respect to the Securities.
(b) On or before the thirtieth day following any Change of Control,
an Offer to Purchase will be sent, by first class mail, to Holders, accompanied
by such information regarding the Parent Company and any 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
Section 1009 (which requirements may be satisfied by delivery of such documents
together with the Offer to Purchase), (b) a description of material developments
in the Parent Company's business subsequent to the date of the latest of such
financial statements referred to in Clause (a) of this subsection (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 to Purchase will contain all instructions and materials
necessary to enable Holders of the Securities to tender Securities pursuant to
the Offer to Purchase. The Offer to Purchase will
<PAGE>
95
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 Securities, (ii) the expiration date of the Offer to Purchase, 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 to Purchase (the
"Expiration Date"), (iii) the Purchase Date for the purchase of Securities which
will be within five Business Days after the Expiration Date, (iv) the aggregate
principal amount of Securities to be purchased (including, if less than 100%,
the manner by which such purchase has been determined pursuant to this
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 Securities.
(c) To tender any Security, a Holder must surrender such Security at
the place or places specified in the Offer to Purchase 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 Securities 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 Security the Holder
tendered, the certificate number of the Security the Holder tendered and a
statement that such Holder is withdrawing all or a portion of his tender. Any
portion of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount.
(d) 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 Securities resulting from a Change of Control (or any Asset
Disposition).
SECTION 1008. Statement by Officers as to Default.
-----------------------------------
(a) The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other
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96
than with respect to Debt in the principal amount of less than $1,000,000), the
Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission an Officer's Certificate specifying
such event, notice or other action within five Business Days of its occurrence.
SECTION 1009. Provision of Financial Statements.
---------------------------------
(a) Whether or not the Parent Company is required to be subject to
Section 13(a) or 15(d) of the Exchange Act or any successor provision thereto,
the Parent Company shall file with the Commission the annual reports, quarterly
reports and other documents which the Parent 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 Parent Company were so required, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Parent Company would have been
required so to file such documents if the Parent Company were so required.
(b) The Parent Company shall also (a) in any event 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 Parent 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 Parent Company were
required to be subject to such Sections and (b) if filing such documents by the
Parent Company with the Commission is not permitted under the Exchange Act,
promptly upon written request supply copies of such documents to any prospective
Holder.
SECTION 1010. Insurance.
---------
Each of the Guarantors and the Company will, and will cause each of
its Subsidiaries to, keep all of its and its Subsidiaries' properties which are
of an insurable nature insured with insurers, believed by each of the Guarantors
and the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
SECTION 1011. Limitation on Liens.
-------------------
The Parent Company may not, and may not permit any Restricted
Subsidiary of the Parent Company to, Incur any Lien on any property of the
Parent Company or any of its Restricted Subsidiaries, now owned or hereafter
acquired, to secure any Debt without making, or causing such Restricted
Subsidiary to make, effective provision for securing the Securities (and, if the
Parent Company may so determine, any other Debt of the Parent Company or of
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97
such Subsidiary that is not subordinate in right of payment to the Securities)
(x) equally and ratably with (or prior to) such Debt as to such property for as
long as such Debt shall be so secured or (y) in the event such Debt is
subordinate in right of payment to the Securities, prior to such Debt as to such
property for as long as such Debt shall be so secured.
The foregoing restrictions shall not apply to the following liens
(collectively, the "Permitted Liens"):
(i) Liens securing only the Securities;
(ii) Liens in favor of only the Parent Company and any of 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 Parent Company or
another Restricted Subsidiary of the Parent Company or (b) such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the provisions described
in this Clause (ii) shall no longer be applicable to such Lien and such
Lien shall 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 hereof 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 Section 1012 or Section 1013;
(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;
<PAGE>
98
(xiv) Liens (a) on an aggregate of four DC-9 aircraft to secure Debt
of up to $3.0 million per aircraft, which is permitted to be Incurred under
Section 1012 or Section 1013, Incurred to finance the acquisition and
installation after June 30, 1997 of Stage 3 hush kit units on other
aircraft and (b) on an aircraft to secure Debt, which is permitted to be
Incurred under Section 1012 or Section 1013, Incurred to finance the
acquisition and installation after June 30, 1997 of Stage 3 hush kit units
on such aircraft;
(xv) any Liens securing Debt Incurred to extend, renew, refinance or
refund secured Debt which is permitted to be Incurred under Clause (viii)
of the Section 1012 or Clause (x) of Section 1013; provided that such
Liens do not extend to any property other than the property securing the
Debt being so extended, renewed, refinanced or refunded;
(xvi) judgment Liens whose enforcement has been stayed; and
(xvii) salvage and similar rights of insurers of the Aircraft, and
other Liens with respect to which the Company shall have provided a bond or
other security in an amount and under terms reasonably satisfactory to the
Trustee.
SECTION 1012. Limitation on Parent Company Debt.
---------------------------------
The Parent Company may not Incur any Debt unless either (A) at the
time of the Incurrence of such Debt, the Securities 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
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.
Without regard to the foregoing limitation, the Parent 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 Securities;
(iii) Debt outstanding on the date of the Indenture;
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(xvii) salvage and similar rights of insurers of the Aircraft, and
other Liens with respect to which the Company shall have provided a bond
or other security in an amount and under terms reasonably satisfactory to
the Trustee
SECTION 1012. Limitation on Parant Company Debt
---------------------------------
The Parent Company may not Incur any Debt unless either (A) at the
time of the Incurrence of such Debt, the Securities 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
proceeds thereof had been received and so applied at the beginning of such
fiscal quarters, would be greater than 2.50 to 1.
Without regard to the foregoing limitation, the Parent 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 presented by the Securities;
(iii) Debt outstanding on the date of the Indenture;
(iv) Debt owed by the Parent Company to any Wholly Owned Restricted
Subsidiary of the Parent 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 Parent
Company or another Wholly Owned Restricted Subsidiary of the Parent Company
or (B) such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned
Restricted Subsidiary, the provisions described in this Clause (iv) shall
no longer be applicable to such Debt, and such Debt shall 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 Parent
Company or a Restricted Subsidiary of the Parent Company prior to such
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100
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) of Section 1013,
or all such Debt refinanced pursuant to Clause (viii) of this Section 1012
or Clause (x) of Section 1013, does not exceed $10.0 million at any one
time outstanding;
(vii) Debt (other than Securities) Incurred to finance the
acquisition and installation after June 30, 1997 of Stage 3 hush kits
units, which Debt is Incurred prior to, at the time of or within 180 days
after the acquisition of such hush kit units and which hush kit units were
not owned by the Parent Company or a Restricted Subsidiary of the Parent
Company prior to such acquisition; provided that the aggregate principal
amount of all Debt Incurred pursuant to the provisions described of this
Clause (vii) and Clause (viii) of Section 1013, or all such Debt refinanced
pursuant to Clause (viii) of this Section 1012 or Clause (x) of Section
1013, does not exceed $53.0 million at any one time outstanding;
(viii) Debt Incurred to renew, extend, refund or otherwise refinance
any Debt referred to in Clauses (ii) through (vii) of this Section 1012;
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 so refinanced or the amount of any premium reasonably
determined by the Parent Company as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the expenses of the Parent 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 Securities, the refinancing Debt is made
pari passu to the Securities or is subordinated in right of payment to the
Securities and, in the case of any refinancing of Debt which is
subordinated in right of payment to the Securities, the refinancing Debt is
subordinated in right of payment to the Securities 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 Parent Company or any Restricted
Subsidiary of the Parent Company, for as long as any of the Securities 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 Securities, whichever is earlier (unless the Debt
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101
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 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
Securities 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 Securities, 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;
(ix) Debt consisting of Permitted Interest Rate, Currency and Fuel
Protection Agreements; and
(x) Debt not otherwise permitted to be Incurred pursuant to Clauses
(i) through (ix) of this Section 1012 which, together with any other
outstanding Debt Incurred pursuant to this Clause (x), has an aggregate
principal amount not in excess of $45.0 million at any one time
outstanding.
SECTION 1013. Limitation on Subsidiary Debt and Preferred Stock.
-------------------------------------------------
The Parent Company may not permit any Restricted Subsidiary of the
Parent 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 Parent
Company or a Wholly Owned Restricted Subsidiary of the Parent Company;
provided, however, that upon either (x) the transfer or other disposition
by the Parent Company or such Wholly Owned Restricted Subsidiary of any
Debt or Preferred Stock so permitted to a Person other than the Parent
Company or another Wholly Owned Restricted Subsidiary of the Parent Company
or (y) such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned
Restricted Subsidiary, the provisions of this Clause (i) shall no longer be
applicable to such Debt or Preferred Stock and such Debt or Preferred Stock
shall 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 Parent Company
(including by way of a merger or consolidation with another Restricted
Subsidiary of the Parent
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102
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 Parent
Company or a Restricted Subsidiary of the Parent Company prior to such
purchase; provided, however, that 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 of Section 1012, or all such Debt refinanced pursuant to Clause
(x) of this Section 1013 or Clause (viii) of Section 1012, does not exceed
$10.0 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 Parent
Company under Bank Credit Agreements in an aggregate principal amount at
any one time outstanding not in excess of the Bank Debt Limit;
(viii) Debt (other than the Securities) Incurred to finance the
acquisition and installation after June 30, 1997 of Stage 3 hush kit units,
which Debt is Incurred prior to, at the time of or within 180 days after
the acquisition of such hush kit units and which hush kit units were not
owned by the Parent Company or a Restricted Subsidiary of the Parent
Company prior to such acquisition; provided that the aggregate principal
amount of all Debt Incurred pursuant to the provisions described under this
Clause (viii) and Clause (vii) of Section 1012, or all such Debt refinanced
pursuant to Clause (x) of this Section 1013 or Clause (viii) of Section
1012, does not exceed $53.0 million at any one time outstanding;
(ix) Debt consisting of Guarantees of the Securities Incurred by any
Restricted Subsidiary upon such Person becoming a Restricted Subsidiary;
and
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103
(x) 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 (ix)
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 Parent
Company as necessary to accomplish such exchange or refinancing by means of
a tender offer or privately negotiated repurchase, plus the expenses of the
Parent 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 Parent Company
or any Restricted Subsidiary of the Guarantor, for as long as any of the
Securities 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
Securities, 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 Securities 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 Securities,
whichever is earlier, other than a redemption or other retirement at the
option of the holder of such Debt or
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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.
SECTION 1014. Limitation on Restricted Payments.
---------------------------------
The Parent 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 the Capital
Stock of any Restricted Subsidiary) or to the holders thereof (excluding any
dividends or distributions payable solely in shares of its Capital Stock (or the
Capital Stock of any Restricted Subsidiary) 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 Parent Company to, purchase, redeem or otherwise acquire or retire for
value (a) any Capital Stock of the Parent Company or any Related Person of the
Parent Company or (b) any options, warrants or other rights to acquire, or any
securities convertible or exchangeable into, shares of Capital Stock of the
Parent Company or any Related Person of the Parent Company; (iii) may not make,
or permit any Restricted Subsidiary of the Parent Company to make, any
Investment that is not a Permitted Investment; and (iv) may not, and may not
permit any Restricted Subsidiary of the Parent Company to, redeem, defease
(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, 10 1/4% Notes or any Debt of the Company or the Parent
Company that is subordinate in right of payment to the Securities or the
Guarantee (each of the transactions described in Clauses (i) through (iv) of
this paragraph being a "Restricted Payment"), if:
(1) an Event of Default or a Default shall have occurred and be
continuing,
(2) the Parent Company would not, 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, 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 of
Section 1012, 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 hereof (the amount, 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
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105
one accounting period) from the beginning of the first fiscal quarter
commencing prior to the date hereof through the end of the Parent 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 shall be taken into account for this purpose); and
(b) 100% of the aggregate net cash proceeds from the issuance or sale
(other than to a Restricted Subsidiary of the Parent Company) of Capital
Stock (or the Capital Stock of any Restricted Subsidiary) other than
Disqualified Stock of the Parent Company and options, warrants or other
rights to acquire Capital Stock (or the Capital Stock of any Restricted
Subsidiary) other than Disqualified Stock of the Parent Company and the
principal amount of Debt of the Parent Company that has been converted into
or exchanged for Capital Stock (other than Disqualified Stock) of the
Parent Company after the date hereof.
The foregoing covenant shall 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;
(ii) any refinancing of Debt permitted pursuant to Clause (viii) of the second
paragraph of Section 1012 or any refinancing or exchange of Debt or Preferred
Stock permitted pursuant to Clause (x) of Section 1013; (iii) any purchase,
redemption or other acquisition or retirement for value of Capital Stock of the
Parent Company or Debt with the proceeds of, or in exchange for, shares of
Capital Stock (other than Disqualified Stock) of the Parent Company; (iv) the
repurchase of 10 1/4% Notes or any Debt of the Company or the Parent Company
that is subordinate in right of payment to the Securities or the Guarantees of
the Guarantors hereunder in connection with an Asset Disposition or Change of
Control; provided that the Company shall have made an Offer to Purchase the
Securities, and shall have accepted and paid for any Securities properly
tendered in connection therewith, in each case in accordance with the terms of
this Indenture; (v) Investments acquired as a capital contribution to the Parent
Company or in exchange for Capital Stock (other than Disqualified Stock) of the
Parent Company; provided, however, that the amount of any such capital
contribution or Investment acquired in exchange of Capital Stock shall not be
added to the aggregate amount available to the Parent Company to make Restricted
Payments as calculated under Clause (3)(b) of the preceding paragraph; and (vi)
the repurchase of 10 1/4% Notes in an aggregate principal amount not to exceed
$35.0 million.
SECTION 1015. Unrestricted Subsidiaries.
-------------------------
(a) The Parent 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 shall be deemed to be an
Unrestricted Subsidiary. In addition, the Parent Company may at any time
terminate the status of any Subsidiary as an Unrestricted
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106
Subsidiary, whereupon such Subsidiary and each other Subsidiary of the Parent
Company (if any) of which such Subsidiary is a Subsidiary shall cease to be an
Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, no change in the status of a
Subsidiary of the Parent Company from a Restricted Subsidiary to an Unrestricted
Subsidiary or vice versa shall 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 Parent 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 2.50 to 1, (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 hereof (excluding
Restricted Payments referred to in Clause (ii) of the last paragraph of Section
1014 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
of Section 1014, (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 Section 1013, all Debt and Preferred
Stock as to which it is then obligated or the issuer of 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.
(c) In addition and notwithstanding the foregoing, no Subsidiary of
the Parent Company may become an Unrestricted Subsidiary, and the status of any
Subsidiary as an Unrestricted Subsidiary shall be deemed to have been
immediately terminated (with the effect described in paragraph (a) of this
Section 1015) 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 Parent Company or any
Subsidiary that is not an Unrestricted Subsidiary or (ii) the Parent Company or
any Subsidiary of the Parent Company that is not an Unrestricted Subsidiary (A)
provides credit support for, or a Guarantee 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 paragraph (b) of this Section 1015 shall be deemed to result in a
default under the Indenture. "Unpermitted Debt" means any Debt of a Subsidiary
of the Parent 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 Parent
Company or a Subsidiary of the Parent 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 Parent Company or
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any such other Subsidiary or (y) such Debt is secured by a Lien on any property
of the Parent Company or any of its Subsidiaries that is not an Unrestricted
Subsidiary.
(d) 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 shall be deemed to be a Restricted Payment for purposes of calculating
the aggregate amount for Restricted Payments under Section 1014.
(e) Each Person that is or becomes a Subsidiary of the Parent Company
shall be deemed to be a Restricted Subsidiary at all times when it is a
Subsidiary of the Parent Company that is not an Unrestricted Subsidiary. Each
Person that is or becomes a Wholly Owned Subsidiary of the Parent Company shall
be deemed to be a Wholly Owned Restricted Subsidiary at all times when it is a
Wholly Owned Subsidiary of the Parent Company that is not an Unrestricted
Subsidiary.
SECTION 1016. Limitations Concerning Distributions by Subsidiaries,
-----------------------------------------------------
Etc.
- ---
The Parent Company may not, and may not permit any of its Restricted
Subsidiaries to, suffer to exist any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Parent Company (i) to 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 Parent Company
or any other Restricted Subsidiary of the Parent Company; (ii) to make loans or
advances to the Parent Company or any Restricted Subsidiary of the Parent
Company; or (iii) to transfer any of its property to the Parent Company or any
Restricted Subsidiary of the Parent Company, except, in any such case, any
encumbrance or restriction:
(a) pursuant to any agreement in effect on the date hereof,
(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 Parent Company (including by reason of a merger
or consolidation with another Subsidiary of the Parent 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,
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(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) of this Section 1016; 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 1017. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Parent Company shall not, and shall not permit any of its
Restricted Subsidiaries 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 Parent 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 Section 1019.
SECTION 1018. Limitation on Transactions with Affiliates and Related
------------------------------------------------------
Persons.
- -------
The Parent Company may not, and may not permit any of its Restricted
Subsidiaries 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
Parent Company; or (ii) the terms of the transaction are no less favorable to
the Parent 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 Parent 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
Parent 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 $5.0 million, a majority of the members of the Board of
Directors of the Parent Company who are disinterested with respect to such
transaction (or series) shall
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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 1019. Limitation on Certain Asset Dispositions.
----------------------------------------
(a) The Parent Company may not make, and may not permit any of its
Restricted Subsidiaries to make, any Asset Disposition in one or more related
transactions unless: (i) the Parent 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 Parent 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 Parent Company (or such Subsidiary) consists of
cash or readily marketable cash equivalents or the assumption of Debt or other
obligations of the Parent Company or any of its Restricted Subsidiaries (other
than Debt or any other obligation subordinate in right of payment to the
Securities) relating to such assets and release of the Parent 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 Parent 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 unsubordinated 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) ("Excess
Proceeds"), to purchases of outstanding Securities 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; 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 Guarantors which is not otherwise
prohibited by this Indenture.
(b) Notwithstanding the foregoing, the Company shall not be required
to purchase Securities 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 Securities, 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 $10.0 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 shall 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 shall be applied pursuant to
Clause (iii) above (subject to this paragraph).
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(c) Any Offer to Purchase required by the provisions described above
shall be effected by the sending of the written terms and conditions thereof
(the "Offer Document"), by first class mail, to Holders of the Securities within
90 Business Days after the aggregate amount of Excess Proceeds exceeds $10.0
million. 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 in Section 801.
(d) The provisions described in this subsection shall not apply to any
Asset Disposition that constitutes a transfer, conveyance, sale, lease or other
disposition of (x) all or substantially all the properties and assets of the
Company or the Parent Company subject to the provisions described under Section
801 or (y) Collateral subject to the provisions of Section 1020.
SECTION 1020. Limitation on Collateral Sales; Event of Loss.
---------------------------------------------
(a) The Company shall not transfer, convey, sell, lease (other than
leases and transfers of possession permitted under Article XI) or otherwise
dispose of (a "Sale") any Aircraft or Engine unless the Company receives (i)
consideration, consisting solely of cash, at the time of such Sale at least
equal to the fair market value of the Aircraft or Engine disposed of (determined
by the chief financial officer of the Company in good faith) or (ii) a Stage 3
Aircraft or Engine or, in the case of a Sale of any Stage 2 Aircraft or Engine
only, a Stage 2 Aircraft or Engine, as the case may be, of the same or a more
advanced model and having a value (determined by the Chief Financial Officer of
the Company in good faith) and utility at least equal to, and in as good
operating condition and repair and as airworthy as, the Aircraft or Engine
subject to the Sale, assuming such Aircraft or Engine, as the case may be, was
in the condition and repair required by this Indenture immediately prior to such
Sale.
(b) If the Company consummates a Sale for cash, or if an Event of Loss
occurs, with respect to any Aircraft or Engine, the Trustee shall receive and
hold, and if received by the Company, the Company shall pay over to the Trustee,
the proceeds of such Sale or Event of Loss; provided that if the amount of such
proceeds is less than the Initial Appraised Value of such Aircraft or Engine,
the Company shall pay to the Trustee an additional amount equal to the
difference between such proceeds and the Initial Appraised Value. The Company
may, within 365 days after such Sale or Event of Loss, subject to the Lien of
the Indenture, substitute a Stage 3 aircraft or engine or, in the case of a Sale
of a Stage 2 Aircraft or Engine only, a Stage 2 aircraft or engine, of the same
or a more advanced model and having a value (determined by the Chief Financial
Officer of the Company in good faith) and utility at least equal to, and in as
good operating condition and repair and as airworthy as, the Aircraft or Engine
subject to the Sale or Event of Loss, assuming such Aircraft or Engine was in
the condition and repair required by this Indenture immediately prior to the
occurrence of such Sale or Event of Loss, and the Trustee shall, upon receipt of
evidence of such
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substitution, pay to the Company the proceeds of such Sale or Event of Loss and
any related additional amounts held by it. In the event the Company elects not
to replace such Aircraft (or in the event such Aircraft or Engine is not
replaced within 365 days after such Sale or Event of Loss), the Trustee shall
refund to the Company, and the Company shall be required to apply, an amount
equal to the proceeds received from such Sale or Event of Loss, together with
any additional amounts paid to the Trustee by the Company with respect to the
difference between the amount of such proceeds and the Initial Appraised Value
of such Aircraft, to purchase Securities in the open market; provided that with
respect to the proceeds of any Sale of or Event of Loss to an Aircraft, in no
event shall the Company be required to so apply, and the Company shall be
permitted to retain, amounts, if any, in excess of the Initial Appraised Value
of such Aircraft unless such Aircraft was a Stage 2 Aircraft at the date such
Initial Appraised Value was determined (or an Aircraft substituted for such
Aircraft under the Indenture) and such Aircraft (or such substituted Aircraft)
subsequently became a Stage 3 Aircraft, in which case the maximum amount the
Company would be required to so apply shall be the Initial Appraised Value of
such Aircraft plus $2.3 million.
(c) Notwithstanding the foregoing, if the Company consummates a Sale,
or an Event of Loss occurs, with respect to an Engine alone, the Company shall
replace such Engine with another engine of the same or an improved model of the
same or another manufacturer and suitable for installation and use on the
Aircraft, and having a value and utility at least equal to and in as good
operating condition as, the Engine subject to the Sale or Event of Loss,
assuming such Engine was of the value and utility and in the condition and
repair required by this Indenture immediately prior to the occurrence of such
Sale or Event of Loss. Any cash received in connection with a Sale or an Event
of Loss shall be held by the Trustee and invested in Permitted Collateral
Investments until applied in accordance with this covenant. Upon payment to the
Trustee of the proceeds from the Sale or an Event of Loss with respect to an
Aircraft, together with any additional amounts paid to the Trustee by the
Company in respect of the difference between the amount of such proceeds and the
Initial Appraised Value of such Aircraft, as required by this Section 1020, the
lien of the Indenture with respect to such Aircraft (but not the proceeds with
respect thereto) shall terminate.
(d) In the event of the occurrence of a cash Sale of an Aircraft or
Engine, upon receipt by the Collateral Trustee of: (i) an Officer's Certificate
wherein there is certification of the Company's compliance with Section 1020(a)
and with the TIA, and (ii) proceeds of such Sale (plus any amount payable by the
Company, if any, in accordance with Section 1020(b) above), the Collateral
Trustee shall execute and deliver such instruments and documents of release of
such Aircraft or Engine as may be reasonably necessary and as may be requested
by the Company in order to effectuate the Sale of such Aircraft or Engine, free
and clear of the Lien of this Indenture, including, without limitation, UCC
termination statements, and release(s) for filing with the FAA.
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112
In the event of any substitution or replacement of an Aircraft or
Engine in accordance with the foregoing Section 1020 (a) through (c), the
Collateral Trustee and the Company shall execute and deliver an indenture
supplement in the form of Annex B hereto (amended to comply with FAA filing
requirements), wherein the Aircraft or Engine being replaced or substituted
shall be released from the Lien of the Indenture and the replacement or
substitute aircraft or engine shall be subjected to the terms of the Indenture
and shall become an Aircraft or Engine pursuant hereto, all of which shall be
duly and promptly filed with the FAA.
The Collateral Trustee and the Company shall execute and deliver such
additional documents and instruments as may be reasonably necessary to
effectuate the terms of this Section 1020.
SECTION 1021. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1020, inclusive, if before or after the time for such compliance, the Holders of
at least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, waive such compliance in such instance with such term, provision
or condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.
ARTICLE ELEVEN
COVENANTS RELATING TO THE AIRCRAFT
SECTION 1101. Registration and Maintenance of Aircraft.
----------------------------------------
Notwithstanding the requirements of Section 1006, the Company, at its
expense, shall cause each Aircraft to be duly registered, shall pay all costs of
operating each Aircraft and shall maintain, service and repair each Aircraft so
as to keep each Aircraft in as good operating condition as on the Closing Date,
ordinary wear and tear excepted, and in such condition as may be necessary to
enable the airworthiness certification thereof to be maintained in good standing
at all times (other than during temporary periods of repair, maintenance,
modification, storage or grounding) under the Aviation Act; provided that in the
event the Company leases the Aircraft in accordance with the terms of this
Indenture to a Permitted Air Carrier organized and operating under the laws of a
Permitted Country, such lease shall provide that the lessee shall (i) throughout
the term of such lease, inspect, service, repair,
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113
overhaul and test the Aircraft in compliance with such lessee's maintenance
program as approved by the applicable governmental authority and maintain the
airworthiness certification of such Aircraft in such Permitted Country in good
standing throughout the term of the lease; and (ii) return the Aircraft at the
end of the term of the lease in an operating condition the same or better than
the operating condition of the Aircraft when delivered to the lessee (ordinary
wear and tear excepted), and in such condition as to qualify for a U.S. standard
FAA certificate of airworthiness.
SECTION 1102. Insurance.
---------
Notwithstanding the requirements of Section 1010:
(a) The Company will maintain, at its expense, all-risk aircraft hull
insurance covering the Aircraft and all-risk property damage insurance
covering Engines and Parts, including while temporarily removed from an
Aircraft pending replacement, at all times in an amount not less than the
aggregate Initial Appraised Value of all of the Aircraft (as such aggregate
appraised value may be reduced from time to time in connection with an
Asset Disposition permitted under the terms of this Indenture); provided
that in no event will a Stage 3 Aircraft be insured for less than $5.5
million or a Stage 2 Aircraft be insured for less than $3.0 million. All
policies covering loss or damage to such Aircraft shall be made payable to
the Trustee for any Event of Loss to an Aircraft and for that portion, if
any, of damage not constituting an Event of Loss to an Aircraft in excess
of $900,000, which amount will be applied to repair of such Aircraft in
accordance with this Indenture. The Company may self-insure a portion of
these risks by means of a deductible or premium adjustment provision in
insurance policies in such reasonable amount as is then applicable to
other similar owned aircraft in the Company's fleet, but in no case will
the self-insurance (including the self-insurance for public liability and
property damage referred to below) with respect to all of the aircraft in
the Company's fleet (including the Aircraft) exceed, for any policy period,
7.5% of the Consolidated Net Worth of the Company (during the preceding
calendar year). The Company is also permitted a deductible per occurrence
not in excess of the prevailing standard market deductible for similar
aircraft in the case of damage to such Aircraft not constituting an Event
of Loss to such Aircraft.
(b) The Company will, at its expense, maintain public liability and
property damage insurance (exclusive of manufacturer's product liability
insurance) with respect to each Aircraft in amounts that are not less than
the public liability and property damage insurance applicable to similar
aircraft in the Company's or permitted lessee's fleet. The Company may
self-insure a portion of these risks by means of deductible or premium
adjustment provisions in insurance policies which are subject to the same
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114
limitation with respect to the aggregate amount of self-insurance as that
set forth in the third sentence of subsection (a) of this Section 1102 for
insurance for risks of loss or damage to such Aircraft. The Company is
also permitted a deductible per occurrence not in excess of the prevailing
standard market deductible for similar aircraft.
(c) To the extent that a lessee of an Aircraft maintains insurance
policies which name the Trustee as loss payee and which comply with the
terms of the Indenture, the Company will not be required to maintain such
insurance coverage. The Trustee and the Company will be named as insured
parties under all insurance policies required with respect to such
Aircraft. If and to the extent that the Company or a lessee operates the
Aircraft (A) on routes where it maintains war risk insurance in effect with
respect to other similar equipment or (B) on routes where the custom in the
industry is to carry such insurance, the Company or such lessee shall
maintain such insurance with respect to the Aircraft in an amount not less
than the Initial Appraised Value of the Aircraft; provided that in no event
will a Stage 3 Aircraft be insured for less than $5.5 million or a Stage 2
Aircraft be insured for less than $3.0 million. Unless the Aircraft is
operated or used under a contract with the U.S. Government pursuant to
which the U.S. Government assumes liability for damage or loss to such
Aircraft and to other property or persons, the Company may not operate or
locate any such Aircraft outside the United States and Canada (i) in any
war zone or recognized or, in the Company's reasonable judgment, threatened
area of hostilities, unless such Aircraft is covered by war risk insurance,
or (ii) in any area excluded from the insurance coverage required by this
Indenture.
(d) All insurance proceeds received by the Collateral Trustee as a
result of an occurrence of an event not constituting an Event of Loss to
either an Engine or the Aircraft shall be paid over to the Company upon
certification by the Company that repair of such Aircraft or Engine has
been accomplished in accordance with Section 1101 of this Indenture. In
addition, with respect to an occurrence of an event not constituting an
Event of Loss to either an Engine or the Aircraft, the Collateral Trustee
shall pay over to the Company all insurance proceeds it receives which are
at or below the threshold set forth in Section 1102(a), retaining only the
excess above such amount, to be helf and applied in accordance with this
Section 1102(d).
(e) The Company shall deliver to the Trustee a certificate executed by
an officer entitled to execute an Officer's Certificate, which certificate
shall be delivered annually at or prior to the time that the Company is
required to file such reports as it is required to file pursuant to Section
703 herein, stating that all insurance policies required to be maintained
by the Company pursuant to this Section continue in full force and effect.
<PAGE>
115
SECTION 1103. Possession, Lease and Transfer.
------------------------------
(a) The Company may lease any Aircraft or Engine to a Permitted Air
Carrier pursuant to a Permitted Aircraft Lease if such Permitted Aircraft Lease
meets the following conditions:
(i) the Trustee shall have received an Opinion of Counsel to the
effect that, among other things, the lien of the Indenture continues to be
perfected, the Indenture continues to be enforceable against the parties
thereto and the Trustee maintains its right to repossession thereunder, in
each case pursuant to applicable law;
(ii) at the time that the Company enters into such Permitted
Aircraft Lease, the Company shall not be subject to any bankruptcy,
insolvency, liquidation, reorganization, dissolution or similar proceeding,
shall not be seeking any reorganization or any readjustment of its debts
and shall not be, and shall not have substantially all of its property, in
the possession of any liquidator, trustee, receiver or similar person; and
(iii) any such Permitted Aircraft Lease (i) shall include provisions
for the maintenance, operation, possession, inspection and insurance of the
Aircraft that are the same in all material respects as the applicable
provisions of the Indenture, (ii) shall not extend beyond the end of the
final maturity date of the Securities and (iii) shall be expressly subject
and subordinate to all the terms of this Indenture and to the rights,
powers and remedies of the Trustee hereunder.
(b) The Company (and any permitted lessee) may (i) transfer
possession of any Aircraft pursuant to "wet lease" or similar arrangements, in
each case whereby the Company (or such permitted lessee) maintains operational
control of the Aircraft; (ii) transfer possession of any Aircraft or the
Engines, other than by lease, through transfers to the U.S. Government and
transfers in connection with maintenance or modifications; (iii) transfer
possession of the Engines and any Parts from time to time installed on any
Aircraft or Engine other than by lease through transfers in connection with
interchange and pooling arrangements with certificated "air carriers" within the
meaning of the Aviation Act or FAA licensed repair stations; or (iv) install one
or more of the Engines on airframes owned, mortgaged, leased or subject to
conditional purchase by the Company (or such permitted lessee); provided that
the rights of the parties to agreements related thereto effectively provide that
such Engines shall not become subject to the lien of such agreement
notwithstanding the installation thereof on such airframe, in each case subject
to the following paragraph.
The Collateral Trustee hereby agrees, for the benefit of the Company
(any any lessee) and for the benefit of any other mortgagee or other holder of a
security interest in any
<PAGE>
116
engine owned by the Company (or any lessee), any lessor of any engine leased to
the Company or any lessee) any any conditional vendor of any engine purchased by
the Company (or any lessee) subject to a conditional sale agreement or any other
security agreement, which engine is not an Engine, that no interest shall be
created under this Indenture in any engine so owned, leased or purchased and
that neither the Collateral Trustee nor its successors in trust or assigns will
acquire or claim, as against the Company (or any lessee) or any such mortgagee,
lessor or conditional vendor or other holder of a security interest or any
successor or assignee of any thereof, any right, title or interest in such
engine as the result of such engine being installed on an Airframe; provided,
however, that such agreement of the Collateral Trustee shall not be for the
benefit of any lessor or secured party of any airframe leased to the Company (or
any lessee) or purchased by the Company (or any lessee) subject to a conditional
sale or other security agreement or for the benefit of any mortgageee of or any
other holder of a security itnerest in an airframe owned by the Company (or any
lessee), unless such lessor, conditional vendor, other secured party or
mortgageee has agreed (which agreement may be contained in such lease,
conditional sale or other security agreement or mortgage and may consist of a
paragraph similar to this paragraph) that neither it nor its successor or
assigns will acquire, as against the Collateral Trustee, any right, title or
interest in an Engine as a result of such Engine being installed on such
airframe.
(c) If any Aircraft is leased or the possession is otherwise
transferred, such Aircraft shall remain subject to the lien of the Indenture.
No lease of any Aircraft shall be for a term in excess of five years beyond the
maturity of the Securities and the Company shall grant to the Trustee for the
equal and ratable benefit of the Holders of the Securities a security interest
in such lease; provided that, at all times prior to an Event of Default (and
for so long thereafter as any such Event of Default has not been cured or
waived), the Company (x) shall be entitled to receive and retain all payments
made pursuant to the lease; and (y) shall be entitled to exercise (to the
exclusion of the Trustee) all rights and remedies of the "lessor" under the
lease and grant such consents, waivers and enter into such amendments to the
lease as are consistent with the provisions of this Indenture and as the Company
may determine appropriate in the reasonable exercise of its discretion.
SECTION 1104. Liens.
-----
The Aircraft shall be maintained by the Company free of any Liens,
other than the rights of the Trustee under this Indenture and Permitted Liens.
<PAGE>
117
SECTION 1105. Certain Further Limitations on Leasing or Other
-----------------------------------------------
Relinquishment of Possession.
- ----------------------------
Notwithstanding anything to the contrary in Section 1103:
(a) The rights of any person that receives possession of the Aircraft
in accordance with Section 1103 shall be subject and subordinate to all the
terms of this Indenture, and to the Trustee's rights, powers and remedies
hereunder, including, without limitation (i) Trustee's right to repossess
the Aircraft pursuant to Section 503, (ii) the Trustee's right to terminate
and avoid such lease, delivery, transfer or relinquishment of possession
upon the occurrence of an Event of Default and (iii) the right to require
such person to forthwith deliver the Aircraft, the Airframe and Engines
subject to such transfer upon the occurrence of an Event of Default; and
(b) The Company shall ensure that no sublease, delivery, transfer or
relinquishment permitted under Section 1103 shall affect the United States
registration of the Aircraft, unless made in accordance with the provisions
of Section 1106.
SECTION 1106. Trustee's Acknowledgement of Company's Right to
-----------------------------------------------
Foreign Registration.
--------------------
The Trustee hereby agrees:
(a) that the Company shall be entitled to register the Aircraft or
cause the Aircraft to be registered in a country other than the United
States subject to compliance with the following:
(i) no Event of Default shall have occurred and be continuing
at the time of such registration;
(ii) such proposed change of registration is made in connection
with a Permitted Aircraft Lease to a Permitted Air Carrier;
(iii) such country is a Permitted Country with which the United
States maintains normal diplomatic relations at the time of such
registration; and
(iv) the Trustee shall have received an Opinion of Counsel
(subject to customary exceptions) reasonably satisfactory to the
Trustee addressed to each such party to the effect that:
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118
(A) such Permitted Country would recognize the Trustee's
security interest in, and right to possession of the
Aircraft;
(B) the obligations of the Company, and the rights and remedies
of the Trustee, under this Indenture in connection with such
change in registration are valid, binding and enforceable
under the laws of such Permitted Country (or the laws of the
country to which the laws of such Permitted Country would
refer as the applicable governing law);
(C) after giving effect to such change in registration, the Lien
of the Indenture on the Trustee's right, title and interest
in and to the Aircraft shall be a valid and duly perfected
first priority security interest and all filing, recording
or other action necessary to protect the same shall have
been accomplished or, if such opinion cannot be given at the
time of such proposed change in registration because such
change in registration is not yet effective, (1) the opinion
shall detail what filing, recording or other action is
necessary and (2) the Trustee shall have received a
certificate from the Company that all possible preparations
to accomplish such filing, recording and other action shall
have been done, and such filing, recording and other action
shall be accomplished and a supplemental opinion to that
effect shall be delivered to the Trustee on or prior to the
effective date of such change in registration;
(D) it is not necessary, solely as a consequence of such change
in registration and without giving effect to any other
activity of the Trustee, as the case may be, for the Trustee
to qualify to do business in such Permitted Country as a
result of such reregistration in order to exercise any
rights or remedies with respect to the Aircraft pursuant to
the lease; and
(E) unless the Company or the lessee shall have agreed to
provide insurance covering the risk of requisition of use of
the Aircraft by the government of such Permitted Country (so
long as the Aircraft is registered under the laws of such
Permitted Country), the laws of such Permitted Country
require fair compensation by the government of such
Permitted Country payable in currency freely convertible
into United States dollars and freely removable from such
Permitted Country (without license or permit, unless
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119
the Company, prior to such proposed reregistration, has
obtained such license or permit) for the taking or
requisition by such government of such use.
(b) In addition, as a condition precedent to any change in
registration, the Company shall have given to the Trustee assurances
reasonably satisfactory to it:
(i) to the effect that the provisions of Section 1101 shall be
complied with after giving effect to such change of registration; and
(ii) of the payment by the Company of all reasonable out-of-
pocket expenses of the Trustee in connection with such change of
registry, including, without limitation (1) the reasonable fees and
disbursements of counsel to the Company and the Trustee, (2) any
filing or recording fees, taxes or similar payments incurred in
connection with the change of registration of the Aircraft and the
creation and perfection of the security interest therein in favor of
Trustee for the benefit of Holders, and (3) all costs and expenses
incurred in connection with any filings necessary to continue in the
United States the perfection of the security interest in the Aircraft
in favor of the Trustee for the benefit of Holders.
(c) The Trustee shall cooperate in, and shall execute and deliver
such documents as may be reasonably required to effectuate a lease of an
Aircraft or Engine in accordance with the foregoing.
ARTICLE TWELVE
SECURITY
SECTION 1201. Registration; Replacement and Pooling of Parts;
-----------------------------------------------
Alterations, Modifications and Additions.
- ----------------------------------------
(a) The Company will be required, except under certain circumstances,
to record, or maintain the recordation of, this Indenture, among other
documents, with respect to the Collateral under the Aviation Act or the Uniform
Commercial Code, as applicable. Such recordation of this Indenture with respect
to such Collateral will give the Collateral Trustee a first priority perfected
security interest in the related Collateral, no matter where located.
(b) Except as otherwise provided in Section 1020 and the proviso to
the third sentence of paragraph (e) of this Section 1201, the Company (and its
permitted lessee), at
<PAGE>
120
its own cost and expense, will, so long as such Airframe or Engine is subject to
the Lien of this Indenture promptly replace (or cause to be replaced) all Parts
that may from time to time become worn out, obsolete, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for use
for any reason whatsoever. In addition, in the ordinary course of maintenance,
service, repair, overhaul or testing, the Company (or its permitted lessee), at
its own cost and expense, may remove any Parts, whether or not worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use; provided, however, that the Company, at its own cost and
expense, shall, except as otherwise provided in Section 1020 or the proviso to
the third sentence of paragraph (e) of this Section 1201, replace such Parts as
promptly as practicable with replacement Parts or temporary replacement parts as
provided in paragraph (d) of this Section 1201. All replacement Parts shall be
free and clear of all Liens except for Permitted Liens and shall be in as good
operating condition as, and shall have a value and utility at least equal to,
the Parts replaced assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof.
(c) Except as otherwise provided in the proviso to the third sentence
of paragraph (e) of this Section 1201, any Part at any time removed from an
Airframe or Engine shall remain subject to the Lien of this Indenture, no matter
where located, until such time as such Part shall be replaced by a Part that has
been incorporated or installed in or attached to such Airframe or Engine and
that meets the requirements for replacement Parts specified in paragraph (b) of
this Section. Immediately upon any replacement Part becoming incorporated or
installed in or attached to such Airframe or Engine as provided in paragraph (b)
of this Section, without further act, (i) the replaced Part shall thereupon be
free and clear of all rights of the Collateral Trustee and shall no longer be
deemed a Part hereunder, and (ii) such replacement Part shall become subject to
this Indenture and be deemed part of such Airframe or Engine, as the case may
be, for all purposes hereof to the same extent as the Parts originally
incorporated or installed in or attached to such Airframe or Engine.
(d) Any Part removed from an Airframe or Engine as provided in
paragraph (b) of this Section may be subjected by the Company (or any permitted
lessee) to a pooling or parts leasing agreement or arrangement of a type
customary in the airline industry entered into in the ordinary course of the
Company's (or any permitted lessee's) business with any air carrier; provided
that the part replacing such removed Part shall be incorporated or installed in
or attached to such Airframe or Engine in accordance with paragraphs (b) and (c)
of this Section as promptly as practicable after the removal of such removed
Part. In addition, any temporary replacement part when incorporated or
installed in or attached to an Airframe or any Engine in accordance with
paragraph (b) of this Section may be owned by another airline or vendor as
customary in the U.S. airline industry, subject to a pooling or parts leasing
arrangement; provided, however, that the Company (or any permitted lessee), at
its expense within a commercially reasonable time, either (i) causes such
temporary replacement part to
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become subject to the Lien of this Indenture, free and clear of all Liens except
Permitted Liens, at which time such temporary replacement part shall become a
Part or (ii) replaces such temporary replacement part by incorporating or
installing in or attaching to such Airframe or Engine a further replacement Part
owned by the Company (or any permitted lessee) free and clear of all Liens
except Permitted Liens and which shall become subject to the Lien of this
Indenture in accordance with paragraph (c) of this Section.
(e) The Company (and any permitted lessee), at its own expense, shall
make alterations and modifications in and additions to each Airframe and Engine
as may be required to be made from time to time by applicable law regardless of
upon whom such requirements are, by their terms, nominally imposed; provided,
however, that the Company (and any permitted lessee) may, in good faith, contest
the validity or application of any such standard in any reasonable manner which
does not materially adversely affect the Lien of this Indenture. In addition,
the Company, at its own expense, may from time to time make or cause to be made
such alterations and modifications in and additions to any Airframe or Engine as
the Company (or any permitted lessee) may deem desirable in the proper conduct
of its business (including, without limitation, removal of Parts); provided,
however, that no such alteration, modification or addition diminishes, in the
Company's reasonable judgment, the value, utility, condition, airworthiness or
remaining useful life of such Airframe or Engine below the value, utility,
condition, airworthiness or remaining useful life thereof immediately prior to
such alteration, modification or addition, assuming such Airframe or Engine was
then in the condition required to be maintained by the terms of this Indenture,
except that the value (but not the utility, condition, airworthiness or
remaining useful life) of any Aircraft may be reduced by the value of Parts
which the Company (or any permitted lessee) deems obsolete or no longer suitable
or appropriate for use in such Aircraft which shall have been removed and not
replaced, if the aggregate value of all such obsolete or unsuitable Parts
removed from such Aircraft and not replaced shall not exceed $500,000.
All Parts incorporated or installed in or attached or added to any Airframe or
Engine as the result of any alteration, modification or addition effected by the
Company (or any permitted lessee) shall be free and clear of any Liens except
Permitted Liens and become subject to the Lien of this Indenture; provided,
however, that the Company (or any permitted lessee) may, at any time so long as
an Airframe or Engine is subject to the Lien of this Indenture, remove any such
Part from such Airframe or Engine if (i) such Part is in addition to, and not in
replacement of or in substitution for, any Part originally incorporated or
installed in or attached to such Airframe or Engine at the time of delivery
thereof hereunder or any Part in replacement of, or in substitution for, any
such original Part, (ii) such Part is not required to be incorporated or
installed in or attached or added to such Airframe or Engine pursuant to the
terms of Section 1101 or the first sentence of this paragraph (e) and (iii) such
Part can be removed from such Airframe or Engine without diminishing or
impairing the value, condition, utility, airworthiness or remaining useful life
which such Airframe or Engine would have had at the time of removal had such
alteration, modification or addition not been effected by the Company (or any
permitted lessee), assuming
<PAGE>
122
the Aircraft was otherwise maintained in the condition required by this
Indenture. Upon the removal by the Company (or any permitted lessee) of any such
Part as above provided, title thereto shall, without further act, be free and
clear of all rights of the Collateral Trustee and such Part shall no longer be
deemed a Part hereunder.
SECTION 1202. Insignia.
--------
The Company shall maintain or cause to be maintained in the cockpit of
each Airframe in a location reasonably adjacent to the airworthiness certificate
and on each Engine, a metal nameplate identifying the security interest of the
Collateral Trustee in the Aircraft, as follows:
"Subject to a security interest in favor
of Bank of New York,
as Collateral Trustee"
The Company will not allow the name of any Person other than the Collateral
Trustee, or its respective successors or assigns, to be placed on any Airframe
or Engine as a designation that might be interpreted as a claim of ownership or
of any security interest therein, except that the Company or any permitted
lessee may operate the Airframes and Engines in its livery, including its name
and logo.
SECTION 1203. Inspection.
----------
At all reasonable times so long as an Aircraft is subject to the Lien
of this Indenture, upon at least 15 days' prior notice to the Company and at a
time and place reasonably acceptable to the Company, the Collateral Trustee or
its authorized representative may at its own expense and risk conduct a visual
walk-around inspection of such Aircraft and any Engine and may inspect the
books, logs and records of the Company relating to the operation and maintenance
thereof; provided, however, that (a) any such inspection shall be subject to the
safety, security and workplace rules applicable at the location where such
inspection is conducted and any applicable governmental rules or regulations,
(b) in the case of an inspection during a maintenance visit, such inspection
shall not in any respect interfere with the normal conduct of such maintenance
visit or extend the time required for such maintenance visit or, in any event,
at any time interfere with the use or operation of any Airframe or Engine or
with the normal conduct of the Company's or a permitted lessee's business, and
(c) the Company shall not be required to undertake or incur any additional
liabilities in connection with any such inspection. All information obtained in
connection with any such inspection shall be held confidential by the Collateral
Trustee and shall not be furnished or disclosed by it to anyone other than its
bank examiners, regulators, auditors, accountants, agents and legal counsel, and
except as may be required by an order of any court or administrative agency or
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123
by any statute, rule, regulation or order of any governmental authority or as
may be necessary to enforce the terms of this Indenture. The Collateral Trustee
shall have no duty to make any such inspection and shall not incur any liability
or obligation by reason of not making any such inspection. No inspection under
this Section shall relieve the Company of any of its obligations under this
Indenture.
SECTION 1204. Requisition for Use.
-------------------
In the event of a requisition for use by any government of any
Airframe and the Engines, if any, or engines installed on such Airframe while
such Airframe is subject to the Lien of this Indenture, the Company shall
promptly notify the Collateral Trustee of such requisition and all of the
Company obligations under this Indenture shall continue to the same extent as if
such requisition had not occurred except to the extent that the performance or
observance of any obligation by the Company shall have been prevented or delayed
by such requisition; provided, however, that the Company's obligations under
this Section 1204 with respect to the occurrence of an Event of Loss, for the
payment of money and under Sections 1010 and 1102 shall not be reduced or
delayed by such requisition. Any payments received by the Collateral Trustee or
the Company from such government with respect to such requisition of use shall
be paid over to, or retained by, the Company. In the event of an Event of Loss
of an Aircraft or Engine resulting from the requisition for use by a government
of such Aircraft or Engine, the Company will replace such Aircraft or Engine
hereunder by complying with the terms of Section 1020 and any payments received
by the Collateral Trustee or the Company from such government with respect to
such requisition shall be paid over to, or retained by, the Company.
SECTION 1205. Discontinuance of Proceedings.
-----------------------------
In case the Collateral Trustee shall have instituted any proceeding to
enforce any right, power or remedy under this Indenture by foreclosure, entry or
otherwise, and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined adversely to the Person instituting
such proceeding, then and in every such case the Company, the Collateral Trustee
and the Trustee shall, subject to any determination in such proceedings, be
restored to their former positions and rights hereunder with respect to the
Collateral, and all rights, remedies and powers of the Collateral Trustee shall
continue as if no such proceedings had been instituted.
SECTION 1206. Termination of Interest in Collateral.
-------------------------------------
A Holder shall not, as such, have any further interest in, or other
right with respect to, the Collateral when and if the principal amount of, and
interest on, and other
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124
amounts due under all Securities held by such Holder and all other sums due to
such Holder under this Indenture shall have been paid in full.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
------------------------
Upon the Company's exercise of the above option, the Company shall be
deemed to have been discharged from its obligations with respect to all
Outstanding Securities on the date the conditions set forth in Section 1304 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Securities, which shall thereafter
be deemed to be "Outstanding" only for the purposes of Section 1305 and the
other Sections of this Indenture referred to in (A) and (B) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 1304 and as more fully set forth
in such Section, payments in respect of the principal of (and premium, if any,
on) and interest on such Securities when such payments are due; (B) the
Company's obligations with respect to such Securities under Sections 304, 305,
306, 1002 and 1003; (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 1303 with respect
to the Securities.
<PAGE>
125
with their terms will provide, not later than one day before the due date
of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of (and premium, if any) and interest on the Outstanding
Securities on the Stated Maturity (or Redemption Date, if applicable) of
such principal (and premium, if any) or installment of interest and (ii)
any mandatory sinking fund payments or analogous payments applicable to the
Outstanding Securities on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such
Securities; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities. Before such a
deposit, the Company may give to the Trustee, in accordance with Section
1103 hereof, a notice of its election to redeem all of the Outstanding
Securities at a future date in accordance with Article Eleven hereof, which
notice shall be irrevocable. Such irrevocable redemption notice, if given,
shall be given effect in applying the foregoing.
(2) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (7) and (8) of Section 501 hereof are concerned, at
any time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(4) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the Closing Date, there has been a
change in the applicable federal income tax law, in either case to the
effect, and based thereon such opinion shall confirm that, the Holders of
the Outstanding Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(5) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax
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126
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred.
(6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's
<PAGE>
127
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
<PAGE>
128
ARTICLE FOURTEEN
GUARANTEES
SECTION 1401. Guarantee of Payment.
--------------------
Each of the Guarantors hereby irrevocably and unconditionally
guarantees (and each Person who becomes a Guarantor shall irrevocably and
unconditionally guarantee, pursuant to the provisions hereof) to each Holder of
a Security, the due and punctual payment of principal of (and premium, if any)
and interest on such Security payable by the Company under (i) each such
Security or (ii) this Indenture, when and as the Company's obligations hereunder
or thereunder shall become due and payable in accordance with the terms of such
Security or of this Indenture, respectively. In case of a failure of the
Company to pay or provide for punctually any such amounts, each of the
Guarantors hereby agrees (and each Person who becomes a Guarantor shall agree)
upon written demand by the Trustee, to pay or cause to be paid any such amounts
punctually when and as the same shall become due and payable. Each of the
Guarantors hereby agrees (and each Person who becomes a Guarantor shall agree)
that its obligations under this Section are joint and several and constitute a
guarantee of payment when due and not of collection.
SECTION 1402. Unconditional Nature of Guarantee.
---------------------------------
Each of the Guarantors hereby agrees (and each Person who becomes a
Guarantor shall agree) that its obligations under the guarantee set forth in
Section 1401 shall be irrevocable and unconditional, irrespective of the
validity, regularity or enforceability of the Securities against the Company,
the absence of any action to enforce the Company's obligations under the
Securities, any waiver or consent by a Holder with respect to any provisions
thereof, any amendment to the terms under which the Securities are issued, any
release of collateral related to the Securities, the bankruptcy of the Company
or any circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor; provided, however, that each of the
Guarantors (and each Person who becomes a Guarantor) shall be entitled to
exercise any right that the Company could have exercised under the Indenture to
cure any default in respect of its obligations under the Indenture or the
Securities, if any, but only to the extent such right, if any, is provided to
the Company under this Indenture or the Securities.
SECTION 1403. Release of Guarantee.
--------------------
The ValuJet Guarantee shall be automatically and unconditionally
released and discharged upon any sale, exchange or transfer to any person not an
Affiliate of the Company of all of the Company's stock, or all or substantially
all of the assets of the Company,
<PAGE>
129
provided, however, that such sale, exchange or transfer is made in accordance
with the terms of this Indenture.
SECTION 1404. Subrogation.
-----------
The Guarantors shall be subrogated to all rights of Holders against
the Company in respect of any amounts paid by the Guarantors pursuant to the
provisions of Section 1401; provided, however, that, if an Event of Default, or
any event which with the giving of notice or passage of time or both would
constitute an Event of Default, has occurred and is continuing, the Guarantors
shall not be entitled to enforce or receive any payments arising out of, or
based upon, such right of subrogation until all amounts then due and payable by
the Company under this Indenture or the Securities shall have been paid in full.
SECTION 1405. Reinstatement.
-------------
Each of the Guarantors hereby agrees (and each Person who becomes a
Guarantor shall agree) that the guarantee provided for in Section 1401 shall
continue to be effective or be reinstated, as the case may be, if at any time,
payment, or any part thereof, of any obligations or interest thereon is
rescinded or must otherwise be restored by a Holder to the Company upon the
bankruptcy or insolvency of the Company or any of the Guarantors.
SECTION 1406. Waiver.
------
Each of the Guarantors hereby waives (and each Person who becomes a
Guarantor shall waive) (i) promptness, diligence, presentment, demand of
payment, protest, order and, except as set forth in Section 1401, notice of any
kind in connection with the Indenture or the Securities and the guarantee
provided for in Section 1401, or (ii) any requirement that a Holder exhaust any
right to take any action against the Company or any other person prior to or
contemporaneously with proceeding to exercise any right against any of the
Guarantors pursuant to the guarantee set forth in Section 1401.
<PAGE>
130
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
VALUJET AIRLINES, INC.
By__________________________________
Name:
Title:
VALUJET, INC., as Guarantor
By__________________________________
Name:
Title:
VALUJET MANAGEMENT CORP.,
as Guarantor
By__________________________________
Name:
Title:
VALUJET CORPORATE
PARTNERS, L.P., as Guarantor
By__________________________________
Name:
Title:
<PAGE>
131
VALUJET RESERVATION
PARTNERS, L.P., as Guarantor
By__________________________________
Name:
Title:
VALUJET INVESTMENT CORP.,
as Guarantor
By__________________________________
Name:
Title:
VALUJET CAPITAL CORP.,
as Guarantor
By__________________________________
Name:
Title:
VALUJET I, LTD., as Guarantor
By__________________________________
Name:
Title:
<PAGE>
132
VALUJET II, LTD., as Guarantor
By__________________________________
Name:
Title:
THE BANK OF NEW YORK, Trustee
By__________________________________
Name:
Title:
THE BANK OF NEW YORK,
Collateral Trustee
By__________________________________
Name:
Title:
<PAGE>
EXHIBIT A
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. [FORM OF PRIVATE PLACEMENT LEGEND] THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO
RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF
THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE
LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL, OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A "QUALIFIED INSTITUTIONAL
BUYER" TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S, (E) TO AN ACCREDITED
INVESTOR THAT IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION
<PAGE>
A-2
REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE. IF ANY PROPOSED TRANSFER IS BEING MADE
IN ACCORDANCE WITH (2)(D), (E) OR (F) ABOVE, THE HOLDER ACKNOWLEDGES THAT THE
COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION SATISFACTORY TO THE COMPANY TO CONFIRM THAT THE
PROPOSED TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S.
PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S.
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 311 AND 312 OF THE INDENTURE.]/*/
____________________________________
/*/ To be inserted in the case of a Global Note.
<PAGE>
A-3
VALUJET AIRLINES, INC.
10 1/2% Senior Secured Note due 2001
U.S. $______________
No. _______ CUSIP No.______
VALUJET AIRLINES, INC., a Nevada corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
______________, or registered assigns, the principal sum of ____________________
Dollars on April 15, 2001, at the office or agency of the Company referred to
below, and to pay interest thereon on October 15, 1997 and semi-annually
thereafter, on April 15 and October 15 in each year, from August 13, 1997, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, at the rate of 10 1/2% per annum, until the principal hereof
is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate borne by the Notes from the date on
which such overdue interest becomes payable to the date payment of such interest
has been made or duly provided for. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
said Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the April 1 or October 1 (whether or not
a Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes, may be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
The due and punctual payment of (and premium, if any) and interest on
this Note payable by the Company is irrevocably and unconditionally guaranteed,
to the extent set forth in the Indenture, by each of the Guarantors.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of August 13, 1997 (the "Registration
Rights Agreement"), among the Company and the Initial Purchasers named therein.
In the event that either (a) an Exchange Offer Registration Statement or a Shelf
Registration Statement with respect to the Notes (as such terms are defined in
the Registration Rights Agreement) is not filed with the Commission
<PAGE>
A-4
on or prior to the 60th day following the date of the original issuance of the
Notes, (b) such Exchange Offer Registration Statement has not been declared
effective on or prior to the 150th day following the date of the original
issuance of the Notes, (c) the Exchange Offer (as such term is defined in the
Registration Rights Agreement) is not consummated or, if required, such Shelf
Registration Statement is not declared effective on or prior to the 180th day
following the date of the original issuance of the Notes or (d) the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable (subject to certain exceptions) (each such event referred to
in clauses (a) through (d) above, a "Registration Default") then the per annum
interest rate borne by this Note shall be increased by one-half of one percent
per annum for the first 90-day period following the Registration Default. The
per annum interest rate borne by this Note will increase by an additional one-
half of one percent per annum for each subsequent 90-day period following such
Registration Default to a maximum of one and one-half percent per annum until
such Registration Default has been cured. Upon (w) the filing of the Exchange
Offer Registration Statement after the 60-day period described in clause (a)
above, (x) the effectiveness of the Exchange Offer Registration Statement after
the 150-day period described in clause (b) above or (y) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (c) above, or (z) the
cure of any Registration Default described in clause (d) above, the interest
rate borne by the Note from the date of such filing, effectiveness or
consummation, as the case may be, will be reduced to the original interest rate
set forth above if the Company is otherwise in compliance with this paragraph;
provided, however, that, if after such reduction in interest rate, a different
event specified in clause (a), (b), (c) or (d) above occurs, the interest rate
may again be increased and thereafter reduced pursuant to the foregoing
provisions.
Payment of the principal of (and premium, if any, on) and interest on
this Note will be made at the office or agency of the Company maintained for
that purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company (i) by check mailed to the address of the
Person entitled thereto as such address shall appear on the Note Register or
(ii) by wire transfer to an account maintained by the payee located in the
United States, provided that appropriate written wire instructions have been
provided prior to the relevant record date.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee or the Authenticating Agent referred to on the reverse hereof by
manual signature, this Note shall not be entitled to any benefit under the
Indenture, or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
VALUJET AIRLINES, INC.
By___________________________________
Name:
Title:
VALUJET, INC., as Guarantor
By___________________________________
Name:
Title:
VALUJET MANAGEMENT CORP.,
as Guarantor
By___________________________________
Name:
Title:
<PAGE>
A-6
VALUJET CORPORATE
PARTNERS, L.P., as Guarantor
By___________________________________
Name:
Title:
VALUJET RESERVATION
PARTNERS, L.P., as Guarantor
By___________________________________
Name:
Title:
VALUJET INVESTMENT CORP.,
as Guarantor
By___________________________________
Name:
Title:
VALUJET CAPITAL CORP.,
as Guarantor
By___________________________________
Name:
Title:
<PAGE>
A-7
VALUJET I, LTD., as Guarantor
By___________________________________
Name:
Title:
VALUJET II, LTD., as Guarantor
By___________________________________
Name:
Title:
Attest:
_______________________
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
Trustee
By:__________________________________
Authorized Signatory
_______________________
Dated:
<PAGE>
[Reverse of Note]
This Note is one of a duly authorized issue of securities of the
Company designated as its 10 1/2% Senior Secured Notes due 2001 (the "Notes"),
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $80,000,000, which may be issued under an
indenture (the "Indenture") dated as of August 13, 1997, among the Company, each
of the Guarantors party thereto and The Bank of New York, as trustee and
collateral trustee (the "Trustee" and the "Collateral Trustee," respectively,
which terms include any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered.
On or before each payment date, the Company shall deliver or cause to
be delivered to the Trustee or the Paying Agent an amount in dollars sufficient
to pay the amount due on such payment date.
Upon the occurrence of a Change of Control, the Company will be
required to make an offer to purchase on the Purchase Date all outstanding Notes
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase, in accordance with the Indenture. Holders of Notes that are subject
to an offer to purchase will receive an offer from the Company pursuant to the
Indenture prior to any related Purchase Date.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Notes at any
time by the Company and the Trustee with the consent of the Holders of a
specified percentage in aggregate principal amount of the Notes at the time
Outstanding. Additionally, the Indenture permits, without notice to or consent
of any Holder, the amendment thereof (a) to evidence the succession of another
person to the Company as obligor under the Indenture and the Notes, (b) to add
to the covenants of the Company for the benefit of the Holders of Notes or to
surrender any right or power conferred upon the Company by the Indenture, (c) to
add Events of Default for the
<PAGE>
A-9
benefit of the Holders of Notes, (d) to secure the Notes pursuant to the
provisions described in Section 1012 or 801 of the Indenture or otherwise, (e)
to provide for the acceptance of appointment by a successor Trustee, (f) to cure
any ambiguity, defect or inconsistency in the Indenture; provided such action
does not adversely affect the interests of Holders of Notes in any material
respect, or (g) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of the Notes;
provided that such action shall not adversely affect the interests of the
Holders of Notes in any material respect.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed, subject to the subordination provisions of the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same. No
service charge shall be made for any registration of transfer or exchange or
redemption of Notes, but the Company may require payment of a sum sufficient to
pay all documentary, stamp or similar issue or transfer taxes or other
governmental charges payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any agent shall be affected by notice to the contrary.
THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
<PAGE>
A-10
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
A-11
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
_______________________________________________________________________________
_______________________________________________________________________________
please print or typewrite name and address including zip code of assignee
_______________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
_______________________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
In connection with any transfer of this Note occurring prior to the
Resale Restriction Termination Date, the undersigned confirms, without utilizing
any general solicitation or general advertising, that:
Check One
---------
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
--
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished that comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 312 of the Indenture shall have
been satisfied.
<PAGE>
A-12
Date: ____________________NOTICE: ____________________________________________
The signature must correspond with the name
as written upon the face of the within-
mentioned instrument in every particular,
without alteration or any change whatsoever.
Signature Guarantee:______________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:_____________ NOTICE:___________________________________________
To be executed by an executive officer.
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1007 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1007 of the Indenture, state the amount (in original
principal amount) below:
$_____________________.
Date:______________________________________
Your Signature:____________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:/*//*/_________________
______________________
/*//*/ Guarantor must be a member of the Securities Transfer Agents Medallion
Program ("STAMP"), the New York Stock Exchange Medallion Signature
Program ("MSP") or the Stock Exchange Medallion Program ("SEMP").
<PAGE>
SCHEDULE I
PERMITTED COUNTRIES
-------------------
Argentina Mauritius
Aruba Mexico
Australia Morocco
Austria Netherlands
Bahamas New Zealand
Bangladesh Norway
Belgium Oman
Bermuda Pakistan
Brazil Paraguay
Canada Philippines
Chile Portugal
C.I.S. Saudia Arabia
Croatia Seychelles
Denmark South Africa
Dutch Antilles Spain
Ecuador Sweden
Egypt Switzerland
El Salvador Taiwan
Estonia Thailand
Finland Trinidad & Tobago
France Tunisia
Germany Turkey
Greece United Kingdom
Grenada United States
Guatemala Uraguay
Hungary Venezuela
Iceland Yugoslavia
Indonesia Zimbabwe
Israel
Italy
Jamaica
Japan
Jordan
Kenya
Kuwait
Luxembourg
Malaysia
Mauritania
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into on August 13, 1997 between VALUJET AIRLINES, INC., a Nevada corporation
(the "Issuer"), ValuJet, Inc., a Nevada corporation (the "Company"), and UBS
SECURITIES LLC ("UBS" or the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement dated August
7, 1997, among the Issuer, the Company, and the Initial Purchaser (the
"Purchase Agreement"), which provides for the sale by the Issuer to the Initial
Purchaser of an aggregate of $80,000,000 principal amount of the Issuer's 10
1/2% Senior Secured Notes Due 2001 (the "Initial Notes"). In order to induce
the Initial Purchaser to enter into the Purchase Agreement, the Company has
agreed to provide to the Initial Purchaser and its direct and indirect
transferees the registration rights set forth in this Agreement. The execution
of this Agreement is a condition to the closing of the sale and purchase of the
Initial Notes under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized
-----------
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
--------
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
--------
from time to time.
"Collateral" shall have the meaning as set forth in the Indenture.
----------
"Collateral Trustee" shall have the meaning as set forth in the
------------------
Indenture.
"Company" shall have the meaning set forth in the preamble of this
-------
Agreement and also includes the Company's successors.
"Delivery Date" shall have the meaning set forth in the Purchase
-------------
Agreement.
"Depositary" shall mean The Depository Trust Company, a New York
----------
corporation, or any other depositary appointed by the Company; provided,
however,
<PAGE>
2
that any such depositary must have an address in the Borough of Manhattan,
in The City of New York.
"Exchange Notes" shall mean 10 1/2% Senior Secured Notes Due 2001
--------------
issued by the Issuer under the Indenture containing terms identical to the
Initial Notes (except that (i) interest thereon shall accrue from the last
interest payment date on which interest was paid on the Initial Notes or,
if no such interest has been paid, from the Original Issue Date, (ii) the
transfer restrictions thereon shall be eliminated and (iii) certain
provisions relating to an increase in the stated rate of interest thereon
shall be eliminated), to be offered to Holders of Initial Notes in exchange
for Initial Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
--------------
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the 1933
---------------------------
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"GAAP" shall mean generally accepted accounting principles as in
----
effect from time to time.
"Holders" shall mean the Initial Purchaser, for so long as it owns any
-------
Registrable Notes, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Notes
under the Indenture.
"Indenture" shall mean the Indenture relating to the Initial Notes and
---------
Exchange Notes dated as of the date hereof, among the Issuer, the Company
and each of Company's other subsidiaries, as guarantors (the "Subsidiary
Guarantors"), and The Bank of New York, trustee and collateral trustee, as
the same may be amended from time to time in accordance with the terms
thereof.
"Initial Notes" shall have the meaning set forth in the preamble of
-------------
this Agreement.
<PAGE>
3
"Initial Purchaser" shall have the meaning set forth in the preamble
-----------------
of this Agreement.
"Issuer" shall have the meaning set forth in the preamble of this
------
Agreement and also includes the Issuer's successors.
"Majority Holders" shall mean the Holders of a majority of the
----------------
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"Original Issue Date" shall mean the date on which the Initial Notes
-------------------
are issued under the Indenture.
"Outstanding" shall have the meaning set forth in the Indenture.
-----------
"Person" shall mean an individual, partnership, corporation, trust or
------
unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration Statement,
and by all other amendments and supplements to a prospectus, including
post-effective amendments, and in each case including all material
incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
------------------
of this Agreement.
"Registrable Notes" shall mean the Initial Notes; provided, however,
-----------------
that the Initial Notes shall cease to be Registrable Notes when (i) a
Registration Statement with respect to such Initial Notes shall have been
declared effective under the 1933 Act and such Initial Notes shall have
been disposed of pursuant to such Registration Statement, (ii) such Initial
Notes shall have been sold to the public pursuant to Rule 144(k) (or any
similar provision then in force, but not Rule 144A) under the 1933 Act,
(iii) such Initial Notes shall have ceased to be outstanding or (iv) such
Initial Notes have been exchanged for Exchange Notes upon consummation of
the Exchange Offer.
<PAGE>
4
"Registration Default" shall have the meaning set forth in Section
--------------------
2(b) of this Agreement.
"Registration Expenses" shall have the meaning set forth in Section
---------------------
2(c).
"Registration Statement" shall mean any registration statement of the
----------------------
Company which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Restricted Holders" shall mean (i) a Holder that is an affiliate of
------------------
the Company within the meaning of Rule 405 under the Securities Act (or any
successor provision), (ii) a Holder who acquires Exchange Notes outside the
ordinary course of such holder's business or (iii) a Holder who has
arrangements or understandings with any person to participate in the
Exchange Offer for the purpose of distributing Exchange Notes.
"SEC" shall mean the Securities and Exchange Commission.
---
"Shelf Registration" shall mean a registration effected pursuant to
------------------
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
----------------------------
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Initial Notes and
-------
Exchange Notes under the Indenture.
"UBS" shall have the meaning set forth in the preamble of this
---
Agreement.
2. Registration Under the 1933 Act. (a) Exchange Offer
------------------------------- --------------
Registration. To the extent not prohibited by any applicable law or applicable
- ------------
interpretation of the Staff of the SEC, the Company at its cost, shall (A) file
within 60 days after the Original Issue Date with the SEC an Exchange Offer
Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Notes for Exchange Notes, (B) use its best
efforts to
<PAGE>
5
cause such Exchange Offer Registration Statement to be declared effective by the
SEC within 150 days after the Original Issue Date, (C) use its best efforts to
cause such Exchange Offer Registration Statement to remain effective until the
closing of the Exchange Offer and (D) to consummate the Exchange Offer within
180 days after the Original Issue Date. The Exchange Notes will be issued under
the Indenture. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder (other than Participating
Broker-Dealers (as defined in Section 3(f)) eligible and electing to exchange
Registrable Notes for Exchange Notes (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act,
acquires the Exchange Notes in the ordinary course of such Holder's business and
has no arrangements or understandings with any Person to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes) to trade such
Exchange Notes from and after their receipt without any limitations or
restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 30 days after the
date notice thereof is mailed to the Holders (or longer if required by
applicable law);
(iii) use the services of the Depositary for the Exchange Offer with
respect to Initial Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by sending to
the institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Notes delivered for exchange, and a statement that
such Holder is withdrawing his election to have such Registrable Notes
exchanged; and
(v) otherwise comply in all material respects with all applicable
laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
<PAGE>
6
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the Company;
and
(iii) cause the Trustee promptly to authenticate and deliver Exchange
Notes to each Holder of Registrable Notes equal in amount to the
Registrable Notes of such Holder so accepted for exchange.
Interest on each Exchange Note will accrue from the last date on which
interest was paid on the Registrable Notes surrendered in exchange therefor or,
if no interest has been paid on the Registrable Notes, from the Original Issue
Date. The Exchange Offer shall not be subject to any conditions, other than
that the Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the Staff of the SEC.
Each Holder of Registrable Notes (other than Participating Broker-Dealers) who
wishes to exchange such Registrable Notes for Exchange Notes in the Exchange
Offer will be required to represent that (i) it is not an affiliate of the
Company, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of business and (iii) 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 1933 Act) of the Exchange Notes. The
Company shall inform the Initial Purchaser of the names and addresses of the
Holders to whom the Exchange Offer is made, and the Initial Purchaser shall have
the right to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Exchange Offer.
(b) Shelf Registration. If, prior to the consummation of the Exchange
------------------
Offer, existing law or applicable SEC interpretations are changed such that the
Exchange Notes and any related guarantees received by Holders (other than
Restricted Holders) in the Exchange Offer for Registrable Notes are not or would
not be, upon receipt, transferable by each such holder without restriction under
the 1933 Act, in lieu of conducting the Exchange Offer contemplated by Section
2(a), the Company shall, at its cost,
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the Registrable
Notes by the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders of such Registrable Notes and
set forth in such Shelf Registration Statement, and use its best efforts to
cause such Shelf Registration Statement to be declared effective by the SEC
within 180 days after the Original Issue Date;
<PAGE>
7
(B) use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years from the date the
Shelf Registration Statement is declared effective by the SEC or such
shorter period which will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement; and
(C) notwithstanding any other provisions hereof, use its best efforts
to ensure that (1) any Shelf Registration Statement and any amendment
thereto and any Prospectus forming part thereof and any supplement thereto
complies in all material respects with the 1933 Act and the rules and
regulations thereunder, (2) any Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (3) any Prospectus forming part of any Shelf Registration
Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements, in light of the circumstances under which they were made,
not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
thereafter practicable and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company agrees to bear and to pay or cause to be
--------
paid promptly upon request being made therefor all expenses incident to the
Issuer's and the Company's performance of or compliance with this Agreement,
including (a) all SEC and any National Association of Securities Dealers, Inc.
registration and filing fees and expenses, (b) all fees and expenses in
connection with the qualification of the Notes for offering and sale under state
securities and blue sky laws, including reasonable fees and disbursements of
counsel for the placement or sales agent or underwriters in connection with such
qualifications, (c) all expenses relating to the preparation, printing,
distribution and reproduction of each registration statement required to be
filed hereunder, each prospectus included therein or prepared for distribution
pursuant hereto, each amendment or supplement to the foregoing, the certificates
representing the Notes and all other documents relating hereto, (d) messenger
and delivery expenses, (e) fees and expenses of the Trustee under the Indenture
and of any escrow agent or custodian, (f) internal expenses (including all
salaries and expenses of the Company's
<PAGE>
8
officers and employees performing legal or accounting duties), (g) fees,
disbursements and expenses of counsel and independent certified public
accountants of the Company (including the expenses of any opinions or "cold
comfort" letters required by or incident to such performance and compliance),
(h) fees, disbursements and expenses of any "qualified independent underwriter"
engaged pursuant hereto, (i) reasonable fees, disbursements and expenses of one
counsel for the holders of Registrable Notes retained in connection with a Shelf
Registration, as selected by the Majority Holders, and fees, expenses and
disbursements of any other persons, including special experts, retained by the
Company in connection with such registration (collectively, the "Registration
Expenses"). To the extent that any Registration Expenses are incurred, assumed
or paid by any holder of Registrable Notes or any placement or sales agent
therefor or underwriter thereof, the Company shall reimburse such person for the
full amount of the Registration Expenses so incurred, assumed or paid promptly
after receipt of a request therefor. Notwithstanding the foregoing, the holders
of the Registrable Notes being registered shall pay all agency fees and
commissions and underwriting discounts and commissions attributable to the sale
of such Registrable Notes and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly), other than
the counsel and experts specifically referred to above.
(d) Effective Registration Statement. (i) The Company will be deemed
--------------------------------
not to have used its best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if it voluntarily takes any
action that would result in any such Registration Statement not being declared
effective or in the Holders of Registrable Notes covered thereby not being able
to exchange or offer and sell such Registrable Notes during that period unless
(A) such action is required by applicable law or (B) such action is taken by the
Company in good faith and for valid business reasons (not including avoidance of
the Company's obligations hereunder), including the acquisition or divestiture
of assets, so long as the Company promptly comply with the requirements of
Section 3(k) hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Registration Statement will be
deemed not to have been effective during the period of such interference, until
the offering of Registrable Notes pursuant to such Registration Statement may
legally resume.
(e) Increase in Interest Rate. In the event that (i) the Exchange
-------------------------
Offer Registration Statement is not filed with the SEC on or prior to the 60th
calendar day following
<PAGE>
9
the Original Issue Date, (ii) the Exchange Offer Registration Statement is not
declared effective on or prior to the 150th calendar day following the Original
Issue Date, (iii) the Exchange Offer is not consummated or a Shelf Registration
Statement with respect to the Registrable Notes is not declared effective on or
prior to the 180th calendar day following the Original Issue Date, or (iv) the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable (each such event referred to in clauses (i)-
(iv) above, a "Registration Default"), the per annum interest rate borne by the
Initial Notes shall be increased by one-half of one percent (0.50%) with respect
to the first 90-day period following such Registration Default, payable in cash
on each interest payment date, such interest rate to increase by an additional
one-half of one percent (0.50%) for each subsequent 90-day period until such
Registration Default has been cured, up to a maximum increase of one and one-
half percent (1.50%) per annum. Upon (w) the filing of the Exchange Offer
Registration Statement after the 60-day period described in clause (i) above,
(x) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (ii) above, (y) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (iii) above or (z) the
cure of any Registration Default described in clause (iv) above, the interest
rate borne by the Initial Notes from the date of such filing, effectiveness or
consummation, as the case may be, shall be reduced to the original interest
rate; provided, however, that if, after any such reduction in interest rate, a
different event specified in clause (i), (ii), (iii) or (iv) above occurs, the
interest rate shall again be increased pursuant to the foregoing provisions.
(f) Specific Enforcement. The parties hereto acknowledge that there
--------------------
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this
Registration Rights Agreement in accordance with the terms and conditions of
this Registration Rights Agreement, in any court of the United States or any
State thereof having jurisdiction.
(g) The Company shall cause each Guarantor to take all action
necessary or advisable to be taken by it to ensure that the transactions
contemplated herein are effected as so contemplated, including all action
necessary or desirable to register the Guarantees under the registration
statement contemplated in Section 2(a) or 2(b) hereof, as applicable.
3. Registration Procedures. In connection with the obligations of
-----------------------
the Issuer and the Company with respect to the Registration Statements pursuant
to Sections 2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the
1933 Act, which form
<PAGE>
10
(i) shall be selected by the Company, (ii) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Notes by the
selling Holders thereof and (iii) shall comply as to form in all material
respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the SEC to be
filed therewith, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
applicable period; cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the 1933 Act; and comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by each Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least five days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being filed
and advising such Holders that the distribution of Registrable Notes will
be made in accordance with the method elected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Notes, to counsel for the
Initial Purchaser, and/or the Holders and to each underwriter of an
underwritten offering of Registrable Notes, if any, without charge, as many
copies of each Prospectus, including each preliminary Prospectus, and any
amendment or supplement thereto and such other documents as such Holder or
underwriter may reasonably request, including financial statements and
schedules and, if the Holder so requests, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Notes; and (iii) subject to the last
paragraph of this Section 3, hereby consent to the use of the Prospectus or
any amendment or supplement thereto by each of the selling Holders of
Registrable Notes in connection with the offering and sale of the
Registrable Notes covered by the Prospectus or any amendment or supplement
thereto;
(d) use its best efforts to register or qualify the Registrable Notes
under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Notes, if any, shall reasonably request by the time the applicable
Registration Statement is declared effective by the SEC, to cooperate with
the Holders in connection with any filings required to be made with the
NASD, keep each such registration or qualification effective during the
period such Registration Statement is required to be effective and do any
and all other acts and
<PAGE>
11
things which may be reasonably necessary or advisable to enable such Holder
to consummate the disposition in each such jurisdiction of such Registrable
Notes owned by such Holder; provided, however, that neither the Issuer nor
the Company shall be required to (i) qualify as a foreign corporation or as
a dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d) or (ii) take any action which
would subject it to general service of process or taxation in any such
jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for the Initial Purchaser promptly and, if
requested by such Holder or counsel, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for post-
effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Notes covered thereby, the
representations and warranties of the Issuer or the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct
in all material respects, (v) of the receipt by the Issuer or the Company
of any notification with respect to the suspension of the qualification of
the Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of
any event or the discovery of any facts during the period a Shelf
Registration Statement is effective which makes any statement made in such
Registration Statement or the related Prospectus untrue in any material
respect or which requires the making of any changes in such Registration
Statement or Prospectus in order to make the statements therein not
misleading and (vii) of any determination by the Company that a post-
effective amendment to a Registration Statement would be appropriate;
(f) (A) in the case of an Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution"
section covering the use of the Prospectus included in the
Exchange Offer Registration Statement by broker-dealers who have
exchanged their Registrable Notes for Exchange Notes for the
resale of such Exchange Notes, (ii) furnish to each broker-dealer
who desires to participate in the Exchange Offer, without charge,
as many copies of each Prospectus included in the Exchange Offer
Registration Statement, including any preliminary prospectus, and
any amendment or supplement thereto, as such broker-
<PAGE>
12
dealer may reasonably request, (iii) include in the Exchange
Offer Registration Statement a statement that any broker-dealer
who holds Registrable Notes acquired for its own account as a
result of market-making activities or other trading activities (a
"Participating Broker-Dealer"), and who receives Exchange Notes
for Registrable Notes pursuant to the Exchange Offer, may be a
statutory underwriter and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of
such Exchange Notes, (iv) subject to the last paragraph of this
Section 3, consent to the use of the Prospectus forming part of
the Exchange Offer Registration Statement or any amendment or
supplement thereto, by any broker-dealer in connection with the
sale or transfer of the Exchange Notes covered by the Prospectus
or any amendment or supplement thereto, and (v) include in the
transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer
(x) the following provision:
"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, the undersigned represents that it will
receive Exchange Notes for its own account in exchange for
Registrable Notes and that the Registrable Notes to be exchanged
for Exchange Notes were acquired by it as a result of market-
making activities or other trading activities and acknowledges
that it will deliver a prospectus meeting the requirements of the
1933 Act in connection with any resale of such Exchange Notes
pursuant to the Exchange Offer; 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 1933
Act";
and (y) a statement to the effect that by making the acknowledgment
described in subclause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Notes, the broker-dealer
will not be deemed to admit that it is an underwriter within the
meaning of the 1933 Act;
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a
period ending upon the earlier of the expiration of the 90th day
after the closing of the Exchange Offer or such time as such
Participating Broker-Dealers no longer own any Registrable Notes;
and
<PAGE>
13
(C) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement
as would otherwise be contemplated by Section 3(b), or take any
other action as a result of this Section 3(f), for a period
exceeding 180 days after the last date for which exchanges are
accepted pursuant to the Exchange Offer (as such period may be
extended by the Company) and Participating Broker-Dealers shall
not be authorized by the Company to, and shall not, deliver such
Prospectus after such period in connection with resales
contemplated by this Section 3;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchaser and, (ii) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes with copies of any request by
the SEC or any state securities authority for amendments or supplements to
a Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal
of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and cause such Registrable Notes to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if
any, may reasonably request on or prior to the closing of any sale of such
Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use its best efforts to prepare a supplement or post-
effective amendment to a Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Notes, such Prospectus will not contain at the time of such
delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not
<PAGE>
14
misleading. The Company agrees to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an
event, and each Holder hereby agrees to suspend use of the Prospectus until
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission. At such time as such public disclosure is
otherwise made or the Company determines that such disclosure is not
necessary, in each case to correct any misstatement of a material fact or
to include any omitted material fact, the Company agrees promptly to notify
each Holder of such determination and to furnish each Holder such numbers
of copies of the Prospectus, as amended or supplemented, as such Holder may
reasonably request;
(l) obtain a CUSIP number for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes or the Registrable Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
the Exchange Notes, or Registrable Notes, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of such
Registrable Notes and in such connection whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any,
and the holders of a majority in principal amount of the Registrable
Notes being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily
<PAGE>
15
covered in opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested by
such Holders and underwriters;
(iii) obtain comfort letters and updates thereof from the
Company's independent certified public accountants addressed to the
underwriters, if any, and use reasonable best efforts to have such
letter addressed to the selling Holders of Registrable Notes, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be in
form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the
same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and
procedures set forth in Section 5 hereof with respect to the
underwriters and all other parties to be indemnified pursuant to said
Section; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to the
extent required thereunder. In the case of any underwritten offering, the
Company shall provide written notice to the Holders of all Registrable
Notes of such underwritten offering at least 30 days prior to the filing of
a prospectus supplement for such underwritten offering. Such notice shall
(x) offer each such Holder the right to participate in such underwritten
offering, (y) specify a date, which shall be no earlier than 10 days
following the date of such notice, by which such Holder must inform the
Company of its intent to participate in such underwritten offering and (z)
include the instructions such Holder must follow in order to participate in
such underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any
<PAGE>
16
counsel or accountant retained by such Holders or underwriters, all
financial and other records, pertinent corporate documents and properties
of the Company reasonably requested by any such persons, and cause the
respective officers, directors, employees, and any other agents of the
Company to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection
with a Registration Statement;
(p) (i) in the case of an Exchange Offer, a reasonable time prior to
the filing of any Exchange Offer Registration Statement, any Prospectus
forming a part thereof, any amendment to an Exchange Offer Registration
Statement or amendment or supplement to a Prospectus, provide copies of
such document to the Initial Purchaser, and make such changes in any such
document prior to the filing thereof as any of the Initial Purchaser or its
counsel may reasonably request unless the Company or its counsel reasonably
objects to such changes; (ii) in the case of a Shelf Registration, a
reasonable time prior to filing any Shelf Registration Statement, any
Prospectus forming a part thereof, any amendment to such Shelf Registration
Statement or amendment or supplement to such Prospectus, provide copies of
such document to the Holders of Registrable Notes, to the Initial
Purchaser, to counsel on behalf of the Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Notes, if any, and
make such changes in any such document prior to the filing thereof as the
Holders of Registrable Notes, the Initial Purchaser, its counsel and any
underwriter may reasonably request unless the Company or its counsel
reasonably objects to such changes; and (iii) cause the representatives of
the Company to be available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Notes, the Initial
Purchaser or any underwriter and shall not at any time make any filing of
any such document of which such Holders, the Initial Purchaser, its counsel
or any underwriter shall not have previously been advised and furnished a
copy or to which such Holders, the Initial Purchaser, its counsel or any
underwriter shall reasonably object;
(q) in the case of a Shelf Registration, use their best efforts to
cause all Registrable Notes to be listed on any securities exchange on
which similar debt securities issued by the Company or the Issuer are then
listed if requested by the Majority Holders or by the underwriter or
underwriters of an underwritten offering of Registrable Notes, if any;
(r) in the case of a Shelf Registration, use their best efforts to
cause the Registrable Notes to be rated with the appropriate rating
agencies if other similar debt securities issued by the Company or the
Issuer are then so rated, if so requested by the Majority Holders or by the
underwriter or underwriters of an underwritten offering of Registrable
Notes, if any, unless the Registrable Notes are already so rated;
<PAGE>
17
(s) otherwise use their best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the 1933 Act and Rule 158 thereunder; and
(t) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes as the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in clauses (ii)
through (vi) of Section 3(e) hereof, such Holder will forthwith discontinue
disposition of Registrable Notes pursuant to a Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Notes current at the time of receipt
of such notice. If the Company shall give any such notice to suspend the
disposition of Registrable Notes pursuant to a Shelf Registration Statement as a
result of the happening of any event or the discovery of any facts, each of the
kind described in Section 3(e)(vi) hereof, the Company shall be deemed to have
used its best efforts to keep the Shelf Registration Statement effective during
such period of suspension; provided that the Company shall use its best efforts
to file and have declared effective (if an amendment) as soon as practicable an
amendment or supplement to the Shelf Registration Statement and shall extend the
period during which the Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended Prospectus
necessary to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
--------------------------
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
<PAGE>
18
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. Indemnification and Contribution. (a) The Company shall
--------------------------------
indemnify and hold harmless the Initial Purchaser, each Holder, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and the respective directors,
officers, employees and agents of any Holder and each Person, if any, who
controls any of such parties within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Notes or
Registrable Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
5(c) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred (including
reasonable fees and disbursements of securities and local counsel selected
in accordance with Section 5(c)), reasonably incurred in investigating,
preparing or defending against any litigation, or investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under subparagraph (i) or (ii) of this
Section 5(a);
<PAGE>
19
provided, however, that this indemnity shall not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the Initial
Purchaser, any Holder, including Participating Broker-Dealers, or any
underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Issuer, the
Company, the Initial Purchaser, each underwriter who participates in an offering
of Registrable Notes and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Registration Statement) and each Person, if any, who controls the Company, each
Initial Purchaser, any underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all losses, liabilities, claims, damages and expenses described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Holder, as the case may be,
expressly for use in the Registration Statement (or any amendment thereto), or
the Prospectus (or any amendment or supplement thereto); provided, however, that
no such Holder shall be liable for any claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Registrable Notes
pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Paragraph 5 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Paragraph 5, notify the indemnifying party in
writing of the claim or the commencement of the action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Paragraph 5 except to the extent it has
been materially prejudiced by such failure; and provided, further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Paragraph 5.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Paragraph 5 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other
<PAGE>
20
than reasonable costs of investigation; provided, however, that any indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the employment
thereof has been specifically authorized by the indemnifying party in writing,
(ii) such indemnified party shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party which cannot, in the
reasonable judgment of the Indemnified Party, be adequately pursued by the
Indemnifying Party without a conflict of interest, or (iii) the indemnifying
party has failed to assume the defense of such action and employ counsel
reasonably satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (plus
separate local counsel, if retained by the indemnified party) at any time for
all such indemnified parties, which firm shall be designated in writing by the
Initial Purchaser, if the indemnified parties under this Paragraph 5 are Initial
Purchaser Indemnified Parties, or by the Issuer, if the indemnified parties
under this Paragraph are Issuer Indemnified Parties. No indemnifying party
shall, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 (whether or
not the indemnified parties are actual or potential parties thereof), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Initial Purchaser and the Holders, from
the offering of the Exchange Notes or Registrable Notes included in such
offering or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Issuer, the Company, the Initial
<PAGE>
21
Purchaser, and the Holders, in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations. The relative fault of the Issuer,
the Company, the Initial Purchaser, and the Holders shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Issuer, the Company, the Initial
Purchaser or the Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Issuer, the Company, the Initial Purchaser and the Holders of the
Registrable Notes agree that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation (even if the
Initial Purchaser were treated as one entity, and the Holders were treated as
one entity, for such purpose) or by another method of allocation which does not
take account of the equitable considerations referred to above in this Section
5. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 5 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by an governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each person, if any, who controls the Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Initial Purchaser or Holder, and each
director of the Company and each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The parties hereto agree
that any underwriting discount or commission or reimbursement of fees paid to
the Initial Purchaser pursuant to the Purchase Agreement shall not be deemed to
be a benefit received by the Initial Purchaser in connection with the offering
of the Exchange Notes or Registrable Notes in such offering.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
------------- ----------------------
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules
and regulations adopted by the SEC thereunder, that if it ceases to be so
required to file such reports, it will upon the request of any Holder of
Registrable Notes (i) make publicly available such information as is necessary
to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such
information to a prospective purchaser as is necessary to permit sales pursuant
to Rule 144A under the 1933 Act and it will take such further action as any
Holder of Registrable Notes may reasonably request and (iii) take such further
action that is reasonable in the circumstances, in each case,
<PAGE>
22
to the extent required from time to time to enable such Holder to sell its
Registrable Notes without registration under the 1933 Act within the limitation
of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may
be amended from time to time, (y) Rule 144A under the 1993 Act, as such Rule may
be amended from time to time, or (z) any similar rules or regulations hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Notes, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into nor
--------------------------
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Notes in this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telecopier, or any courier guaranteeing overnight delivery (i) if to
a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 6(d),
which address initially is, with respect to the Initial Purchaser, the address
set forth in the Purchase Agreement; and (ii) if to the Company, initially at
the Company's address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier guaranteeing overnight delivery.
<PAGE>
23
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Notes in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Registrable Notes, in any manner,
whether by operation of law or otherwise, such Registrable Notes shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Registrable Notes, such Person shall be conclusively deemed to have agreed to be
bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(f) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchaser, on the other hand, and the Initial Purchaser
shall have the right to enforce such agreements directly to the extent they deem
such enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE>
EXHIBIT 12
Statement Re: Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Period from
Inception
(July 10, Year Ended Six Months Ended
1992) to December 31 June 30
December 31, ------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
--------------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except ratios)
Pretax income (loss) from
continuing operations $ (23) $(894) $33,581 $107,826 $(65,932) $ 1,845 $(44,172)
Interest _ 112 2,388 6,579 22,186 8,624 12,723
Interest portion of rental expense - 45 1,575 4,172 5,275 2,736 2,058
--------------------------------------------------- ------------------
Earnings $ (23) $(737) $37,544 $118,577 $(38,471) $13,205 $(29,391)
=================================================== ==================
Interest $ - $ 112 $ 2,388 $ 6,579 $ 22,186 $ 8,624 $ 12,723
Interest portion of rental expense - 45 1,575 4,172 5,275 2,736 2,058
--------------------------------------------------- ------------------
Fixed Charges $ - $ 157 $ 3,963 $ 10,751 $ 27,461 $11,360 $ 14,781
=================================================== ==================
Ratio of Earnings to Fixed
Charges -/(1)/ -/(1)/ 9.5x 11.0x -/(1)/ 1.2x -/(1)/
=================================================== ==================
</TABLE>
(1) For the periods ended December 31, 1992, 1993, and 1996 and for the six
months ended June 30, 1997 the Company's earnings were insufficient to cover
fixed charges by $23,000, $894,000, $65,932,000 and $44,172,000
respectively.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 10, 1997, except for Note 4 as to which the
date is March 27, 1997, included in the Registration Statement (Form S-4) and
related Prospectus of ValuJet, Inc. for the registration of $80,000,000 of its
10 1/2 % Senior Secured Notes due 2001.
We also consent to the incorporation by reference therein of our report dated
February 10, 1997, except for Note 4 as to which the date is March 27, 1997,
with respect to the financial statement schedule of ValuJet, Inc. for the years
ended December 31, 1996, 1995 and 1994 included in the Annual Report (Form 10-K)
for 1996 filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
October 3, 1997
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T
===============================================================================
Exhibit 25.1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
VALUJET AIRLINES, INC.
VALUJET, INC.
VALUJET MANAGEMENT CORP.
VALUJET CAPITAL CORP.
VALUJET CORPORATE PARTNERS, L.P.
VALUJET I, LTD.
VALUJET RESERVATION PARTNERS, L.P.
VALUJET II, LTD.
VALUJET INVESTMENT CORP.
(Exact name of obligor as specified in its charter)
Nevada 88-0290707
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ValuJet Airlines, Inc.
1800 Phoenix Boulevard, Suite 126
Atlanta, Georgia 30349
(Address of principal executive offices) (Zip code)
<PAGE>
Nevada 58-2189551
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ValuJet, Inc.
1800 Phoenix Boulevard, Suite 12
Atlanta, Georgia 30349
(Address of principal executive offices) (Zip code)
Nevada 88-0339721
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ValuJet Investment Corp.
6900 Westcliff Drive, Suite 505
Las Vegas, Nevada 89128
(Address of principal executive offices) (Zip code)
Nevada 88-0339719
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ValuJet Capital Corp.
6900 Westcliff Drive, Suite 505
Las Vegas, Nevada 89128
(Address of principal executive offices) (Zip code)
Georgia 58-2179372
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ValuJet Corporate Partners, L.P.
1800 Phoenix Boulevard, Suite 126
Atlanta, Georgia 30349
(Address of principal executive offices) (Zip code)
Georgia 58-2179373
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no
ValuJet Reservation Partners, L.P.
1800 Phoenix Boulevard, Suite 126
Atlanta, Georgia 30349
(Address of principal executive offices) (Zip code)
Nevada 58-2179370
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ValuJet Management Corp.
-2-
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T
1800 Phoenix Boulevard, Suite 126
Atlanta, Georgia 30349
(Address of principal executive offices) (Zip code)
Nevada 88-0339723
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.
ValuJet I, Ltd.
6900 Westcliff Drive, Suite 505
Las Vegas, Nevada 89128
(Address of principal executive offices) (Zip code)
Nevada 88-0339725
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no
ValuJet II, Ltd.
6900 Westcliff Drive, Suite 505
Las Vegas, Nevada 89128
(Address of principal executive offices) (Zip code)
______________________
10 1/2% Senior Secured Notes due 2001
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Name Address
- ---------------------------------------------------------------------------------
<S> <C> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29
under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration
Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with
Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a
corporation organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 2nd day of October, 1997.
THE BANK OF NEW YORK
By: /s/ THOMAS E. TABOR
----------------------------
Name: THOMAS E. TABOR
Title: ASSISTANT TREASURER
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin..................... $ 7,769,502
Interest-bearing balances............. 1,472,524
Securities:
Held-to-maturity securities........... 1,080,234
Available-for-sale securities......... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell....... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,352,045
LESS: Allowance for loan and
lease losses ..............625,042
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 34,726,574
Assets held in trading accounts......... 1,611,096
Premises and fixed assets (including
capitalized leases)................... 676,729
Other real estate owned................. 22,460
Investments in unconsolidated
subsidiaries and associated
companies............................. 209,959
Customers' liability to this bank on
acceptances outstanding............... 1,357,731
Intangible assets....................... 720,883
Other assets............................ 1,627,267
-----------
Total assets............................ $57,514,958
===========
</TABLE>
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices................... $26,875,596
Noninterest-bearing ......11,213,657
Interest-bearing .........15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 16,334,270
Noninterest-bearing .........596,369
Interest-bearing .........15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury.............................. 303,000
Trading liabilities..................... 1,308,173
Other borrowed money:
With remaining maturity of one year
or less............................. 2,383,570
With remaining maturity of more than
one year through three years............ 0
With remaining maturity of more than
three years......................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding................. 1,377,244
Subordinated notes and debentures....... 1,018,940
Other liabilities....................... 1,732,792
-----------
Total liabilities....................... 52,937,421
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 1,948
Cumulative foreign currency transla-
tion adjustments...................... ( 12,272)
-----------
Total equity capital.................... 4,577,537
-----------
Total liabilities and equity
capital .............................. $57,514,958
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
<PAGE>
Report of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true and correct.
Alan R. Griffith |
J. Carter Bacot |
Thomas A. Renyi | Directors
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF 10 1/2% SENIOR SECURED NOTES DUE 2001
IN EXCHANGE FOR
10 1/2% REGISTERED SERIES B SENIOR SECURED NOTES DUE 2001
AIRTRAN AIRLINES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON ,
---------------
1997, 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: The Bank of New York
<TABLE>
<CAPTION>
By Hand/Overnight Courier: By Mail: By Facsimile:
- -------------------------- -------- -------------
<S> <C> <C>
101 Barclay Street, 21W 101 Barclay Street, 21W (212)_______________
New York, NY 10286 New York, NY 10286 Confirm by Telephone:_____________
Attention Corporate Trust Attention Corporate Trust Operations (For Eligible Institutions Only)
Operations
</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 __________________________________, 1997 (the "Prospectus") of AirTran
Airlines, 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 1/2% Senior Secured 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 1/2% Series B Senior Secured 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 ___________________ , 1998. 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.
<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.
<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.
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.
<PAGE>
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.
<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
- --------------------------------------------------------------------------------
<PAGE>
SPECIAL INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Box A: SPECIAL ISSUANCE Box B: SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
To be completed ONLY (i) if Outstanding Notes in To be completed ONLY if Outstanding
a principal amount not tendered, or Exchange Notes Notes in a principal amount not tendered, or
issued in exchange for Outstanding Notes accepted for Exchange Notes issued in exchange for
exchange, are to be issued in the name of someone other Outstanding Notes accepted for exchange, are to be
than the undersigned, or (ii) if Outstanding Notes mailed or delivered to someone other than the
tendered by book-entry transfer which are not undersigned, or to the undersigned at an address
exchanged are to be returned by credit to an account other than that shown below the undersigned's
maintained by at the Book-Entry Transfer Facility. signature
Issue Exchange Notes and/or Outstanding Notes to: Mail to:
Name:
Name:.................................................. (Print Name)
(Print Name) Address:..........................................
Address:............................................... ..................................................
....................................................... (Print Address, Including Zip Code)
(Print Address, Including Zip Code)
[ ] Check ONLY if the address above is a new
permanent address.
.......................................................
(Tax Identification or Social Security Number) (Attach Separate Signed Schedule if Necessary)
(Complete Substitute Form W-9)
(Attach Separate Signed Schedule if Necessary)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] 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. Instead 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 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
<PAGE>
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 12:00
midnight, 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.
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.
<PAGE>
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 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.
<PAGE>
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."
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.
<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 THE BOX AT RIGHT AND Social security number
CERTIFY BY SIGNING AND DATING BELOW.
OR _______________________________
Employer Identification Number
-------------------------------------------------------------------------------------------------
Part 2 - Check the box if you are NOT subject to backup withholding under the provisions of Section
SUBSTITUTE 3406(a)(i)(C) of the Internal Revenue Code because (1) you have not been notified that you are
Form W-9 subject to backup withholding as a 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 to backup withholding.[ ]
Internal revenue Service
----------------------------------------------------------------------------------------------------
Payer's Request for Taxpayer CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I Part 3-
Identification Number CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS
("TIN") 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....................
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF 10 1/2% SENIOR SECURED NOTES DUE 2001
IN EXCHANGE FOR
10 1/2% REGISTERED SERIES B SENIOR SECURED NOTES DUE 2001
AIRTRAN AIRLINES, INC.
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of AirTran Airlines, Inc., a Nevada corporation
(the "Company"), who wishes to tender 10 1/2% Senior Secured 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 __________________________, 1997
(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 5:00 P.M., NEW YORK TIME, ON
__________________________, 1997, 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: The Bank of New York
<TABLE>
<CAPTION>
By Hand/Overnight Courier: By Mail: By Facsimile:
- -------------------------- -------- -------------
<S> <C> <C>
101 Barclay Street, 21W 101 Barclay Street, 21W (212)
New York, NY 10286 New York, NY 10286 Confirm by Telephone:
Attention Corporate Trust Attention Corporate Trust Operations (For Eligible Institutions Only)
Operations
</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
- --------------------------------------------------------------------------------
<S> <C> <C>
Aggregate Certificate
Name(s) and Address(es) of Registered Holder(s) Principal Amount Numbers
- --------------------------------------------------------------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
- --------------------------------------------------------------------------------
Attach separate schedule if necessary
- --------------------------------------------------------------------------------
</TABLE>
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Date:___________
Signature(s) of Registered Holder(s) or Authorized Signatory: Name(s) of Registered Holder(s):
______________________________________________________ ___________________________________
______________________________________________________ ___________________________________
______________________________________________________ ___________________________________
Address:
______________________________________________________
______________________________________________________ Area Code and Telephone No:
______________________________________________________ ___________________________________
(Include Zip Code)
</TABLE>
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-
